I’ve been looking for an excuse to link to a delightful commentary by the British novelist Will Self, carried by the Financial Times. But before I do, below is my chart appetiser, courtesy of the UK’s Office of National Statistics:
Obviously, the UK was a land of the renter and the rentier before WW2; few but the relatively wealthy could afford to own their own home. Also noteworthy is the rise and fall of social housing. In Self’s piece, titled “A rentier nation’s fading dream of home” (free access after registration with the FT), the author retells the failure of Thatcher’s grand sale of council housing stock, the ultimate aim of which was to make Tory voters of all of England by way of expanding the property-owing class. It didn’t quite work out that way:
The current housing crisis is not so much emblematic of a transmogrification from a social market economy to a neoliberal one. It is constitutive of that process: the asset transfer from the state to the rich; the pump-priming of the value of those assets; the forcing of the poor into more expensive private rental accommodation — all of which measures are underpinned by a financial system heavily dependent on mortgage lending. Of all British bank loans, 76 per cent are for property, and 64 per cent for residential property alone. Any radical reform of the system entailing a fall in land and house prices would, ipso facto, result in a fundamental destabilisation of the banking system.
I quibble at bit at criticising Will Self’s mixing of prose, polemic and the underlying problem–but I will. At heart, we are just not building enough houses. From a Civitas report out last week titled ‘The Future of Private Renting“:
On top of this, we face the growing problem of secular stagnation (more to come on that tomorrow), the only treatment for which is deemed by the policy-making classes to be huge dollops of easy money by way of a massive central bank-directed quantitative ease (QE). The economics 101 definition of inflation is too much money chasing too few goods. In the UK housing market, we have ever more amounts of money chasing ever fewer new-build houses. Which leads to this:
QE, as operated through buying up bonds and forcing down interest rates, rewards those who have assets at the expense those who don’t. So the rentiers property becomes worth more, allowing he or she to leverage up with ultra cheap money, and so buy even more. In this game, if you start with nothing, you never catch up.
But it doesn’t have to be this way. The government could choose to build houses itself, funded by bond issuance that the central bank buys; if you were a populist by persuasion, you could call this the people’s QE. But how can we afford to pay interest on all those new 30-year housing bonds I hear you ask. Bloomberg tells us that 30-year UK gilts are yielding 2.16%. Private sector low-end rental property is providing net yields after maintenance costs of double that or more.
Here’s a toast to aggressive and acquisitive rental landlords; that is, government-backed ones.