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The house shortage conspiracy

The chancellor talks about helping people buy their own homes, but he knows which side his bread is buttered.

The chancellor talks about helping people get on the housing ladder, but other than helping them get into more debt he has done very little. He knows which side his bread is buttered.

Conspiracies abound and conspiracy theorists make a good living pandering to our natural suspicions. The vast majority, including those surrounding Marilyn’s and Diana’s deaths, are nonsense. They persist because we find it hard to accept that famous people are subject to the same chance, and often malign, forces as the rest of us.

But that there are out there a fair few I have no doubt. I believe them to be almost a part of the human condition – from the tiny trader, like myself, who might wish for a private arrangement with a fellow trader not to undercut each other to a mighty conglomerate who might wish to do the same. OPEC is a perfect example. It has also to be accepted that the great majority are successful and that, as a result, we never get to hear about them.

I am a natural born sceptic – which perhaps has something to do with being called Thomas – and while I try to maintain an open mind, I have to admit that some theories are outlandish to the point of being funny. A couple which immediately spring to mind are that the pyramids were built by aliens and that the photos of the moon landings were trick photography.

I do, however, believe that the universe is teeming with ETs. With 100,000 galaxies in this universe – and science is starting to believe that there may be many universes – it surely is down to numbers. However rare may be the incidence of all the important factors coming together to make life possible – the so-called Goldilocks Effect – I find it inconceivable, with such numbers, that it only happened once. Furthermore, I believe that when these factors do coalesce, sooner or later, life is the inevitable consequence.

But returning to Earth and our penchant for conspiracies, I believe I have cottoned on to one which may go a long way to explaining why, when there is a clear need for many more houses, it never seems to happen. It is because the politicos are terrified of bringing about a downward spiral in the value of houses. It is not a conspiracy in which a handful of people have got together, but rather an acknowledgement that one’s home is typically his only significant asset.

Meantime, millions languish in rented, overcrowded and often substandard accommodation, desperate to buy their own homes but unable to do so because house price inflation has advanced at three times the rate of general inflation and as a result the deposit required is beyond their reach.

No one can argue against our desperate need to build more houses. Unlike Japan with fewer divorces, a falling birth rate and zero immigration, we are high on all three; people splitting from their partners need separate homes, a rising birth rate requires more houses (down the line), and millions moving to your country will require places to live.

During the recession the construction industry was the hardest hit. Didn’t it strike you as odd that its legions of unemployed were not put to work building this extra accommodation? The 100k houses built last year was less than half of what was required. What would happen if supply at long last rose to meet demand? The iron law of economics says prices would fall. What pushed house prices up to their present level, racing ahead of general inflation at a crazy rate? Easy credit and too many would-be buyers chasing too few houses. The real question is: if all the political parties are agreed on the need for more houses, why doesn’t it happen? After all, builders would set-to with a gusto and buyers would have not just a house but one at a more affordable rate.

Cameron and Osborne promised a relaxation of planning laws in 2010 and pledged to free up more land for development, but this government has so far failed miserably to deliver. Why is this? The answer, I fear, is that present mortgage holders have an interest in not just maintaining prices but contriving to force them up still further. They love a situation in which they are getting richer by doing nothing. Many are making more on their house annually than they are getting paid, with the difference being that living eats into their salary while nothing eats into their unearned capital gains. So just let a politician come along who threatens this nice little arrangement. That greatest of all feel-good factors would disappear down the plughole. To prick that love affair with rising wealth would make them incandescent with rage.

But in many ways crazy house prices might be compared to fools’ gold. Unless you’re going to flee abroad to a cheaper domicile or downsize, which most don’t want to do, then there are no tangible benefits. So how do the politicos keep them happy in this delusional state and excuse themselves from doing their duty to the homeless? First they acquiesce in keeping planning laws fiendishly difficult and listening too much to the ‘not in my back yard’ arguments. Then they waffle on ad nauseam about converting brown field sites. Then they pedal the greatest fiction of all: that our island is in danger of being concreted over.

Next time you fly over our green and pleasant land, look down and see what proportion of our lovely acres remain green. The Office for National Statistics have produced some very interesting figures on this. I invite you to read a BBC News article titled ‘The great myth of urban Britain‘. You will be happily stunned by the stats provided.  It turns out only 2.27% of England’s landscape is built on. Just look out of your airplane window if you’re in any doubt.

It’s time to home in on a recovery

Are we seeing the first signs of confidence returning? We must earnestly hope so. Even that prophet of doom, Sir Mervyn King – the newly retired Governor of the Bank of England – is getting excited.

Our housing stock has greatly to be increased.

Our housing stock has greatly to be increased.

Houses prices, which never quite went into the tailspin of the US, are starting to rise again and mortgages are increasing. On balance, I think it was right to kick-start the badly hit building industry by government underwriting of mortgages. But this must be of limited duration. The last thing we need is for another bubble to start inflating. Hopefully the painful lessons of what happened before will act as a cautionary tale.

The fact is that our housing stock has greatly to be increased. The reason why house prices grew to such levels was that a fundamentally sound economic model of price determination was broken: supply was hugely below demand. And when that is put into reverse, the opposite price movement will happen: prices will fall. Last year we built 100,000 new houses, when most experts said it should have been 250,000. And it should have been at this level for years.

Those millions of immigrants that Tony Blair ‘sent out his search parties’ for have to live somewhere, as do the increasing number of people needing to be separately housed due to divorce and other factors. The point to remember is that when you build a house, you not only put builders, plumbers and electricians back to work but you create orders for carpets, furnishings, double glazing, electrical goods, furniture and much else besides. The knock-on effect is tremendous. Big infrastructure projects are all very well, but they are few in number, take years to process and are localised anyway. Huge swathes of the country see no obvious activity and don’t much benefit – if at all. But houses popping up from Lands End to John O’Groats do get noticed.

People’s income has been squeezed these past five years almost like never before. They have been subject to pay freezes, cuts, short time working and even lay-offs. And throughout all this time, the relentless march of inflation has eroded their disposable income. Even their taxes were going up. And while all this was going on, people desperately sought to pay down their horrendous debt levels. No wonder confidence went out the window and they felt unable to spend. When they looked around the world, the picture was just as grim – and in some cases much worse. Fear begets retrenchment and that, until this moment, is where we have been.

But now, with the stock market reaching its highest level since the turn of the century, banks being brought under control and being required to rebuilt their balance sheets (albeit at the expense of lending), medium and large size companies sitting on £70 billion and ready to go, houses shifting, mortgages easier to get and hundreds of thousands of new jobs being created, things are changing. Those straining-at-the-bit companies will feel encouraged to invest. Now the final – and critical – part of the jigsaw to be put in place is for people to get out there and start spending. And if they start to feel that the worst is over, they will. The rest will take care of itself. People, after all, do like to spend.

We have learned one hell of a lesson these past five years, and hopefully both government and people will act more responsibly next time round. But some real good will have come out of it all – as it always does: we are emerging leaner and meaner. The recession has forced us to address issues which we all knew had to be addressed, but which, while the good times rolled, we found excuses for putting off. We, individually, have been forced to examine every item of our domestic expenditure – but so too has the public sector. Now, at last, we are cutting away the fat which we allowed to accumulate in the public sector and, boy, was there a lot of it. Everything has to be justified. Any firm will tell you that, if it had to, in order to survive it could effect colossal savings. I, myself, have seen my shop takings drop by 25%, but I am still here. I cannot take much more, but my customers have not suffered. If anything, they are getting a better deal than ever and I am doing my level best to be even sweeter to them. But when central and local government were asked to do the same thing – very belatedly I might add – they squealed like stuffed pigs.  And they had vastly more fat on them in the first place.

But, as they say, it’s an ill wind that blows no good. Soon, hopefully, we will have schoolchildren entering the job market with an education which can compare favourably with those hungry tigers in the East which are seeking to steal our thunder. Also we will have a workforce that knows and appreciates the necessity of becoming more competitive. Exports have already shown strong signs of picking up – although this has been mostly due to a weakened pound rather than anything else. Maybe, too, we will have put an effective break on those vast numbers of unskilled workers flooding into our little country who have put, unwittingly, such a strain on all our services. Even the NHS reforms may start to deliver, for as much as we love it, it cannot stay forever a holy cow which cannot be touched. We spend, now, as much as the European average, but we have nowhere like their standard of care. Where did all those scores of billions disappear? We doubled its budget in real terms in a decade. Perhaps it will improve now that it is to be under new management and not under the baleful control of that unrepentant apparatchik who presided over those scandalous deaths in North Staffordshire and who knows where else. And, finally, there is that lumbering giant, the Welfare State, who so many took for a ride. That, too, is being brought under control. Perhaps now we can get back to helping the genuinely needy, even alleviating their suffering more than we have previously been able. That would be good. So we do, very much, have positive things on the horizon. We must hope now that the Germans will continue to hold the eurozone together and stop the continent from imploding. That will give us even greater reasons to be hopeful.

We are busily re-orientating our services and export drive toward the still booming East – something which we should have done years ago. Even formerly-basket-case Africa is on a powerful upward trajectory. Uncle Sam, too, is showing distinct promise and is growing again at a healthy 2% with rising employment. He does, however, have some big problems which he has not addressed and only gets away with it, for the moment, because he stewards the world’s reserve currency – as we once did for so very, very long.

But, for our part, we must continue to hold our nerve with our own reforms. Only the police, it seems to me, remain a loose cannon among the great institutions of state. Though they have had cuts forced upon them, like almost everybody else, they still behave as though they a law unto themselves. More about that later.

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