What is driving the housing affordability crisis and how to solve it
is an important new report (31Mar2022) from Positive Money, a research and campaigning group, which advocates a form of MMT — Modern Monetary Theory.
[disclosure: I have been involved from its founding in , and also made large (for me) contributions to them in the early days]
You can read the Report in full here:
‘Banking on Property’ is the punning, obscure title of the report. Even the subtitle doesn’t explain much! Still, PM are keen to be seen as respectable and credible in any academic forum, hence the obscurity!
A better title?
‘Incontinent Mortgage Lending by Banks Driving Up House Prices’
How financial liberalisation lets banks create unlimited money for house purchasing. The result? Houses far too expensive for many of the rising generation to afford.’
It’s all explained in our book
To return to Positive Money’s Report:
—Banks (financial institutions) provide the ‘purchasing power’ for home-buyers.
After a brief history of banking liberalisation in the UK, starting in 1971 (bingo! They’ve spotted it, as I tried to explain), that
“The [virtually unlimited] power of credit creation [by the banks] means that households are able to purchase property even as house prices increase significantly faster than their incomes.” (p25), and
“A major driving force in the increase of UK house prices over the last thirty [shouldn’t that be fifty?] years has therefore been a relatively elastic supply of credit meeting a relatively fixed supply of housing, combined with increased speculative demand for homeownership and BTL landlordism. Such a rapid growth in house prices would not have been possible without a credit-creating banking system, given the much slower growth of household incomes.” (p27)
So, yes, full agreement and support for my explanation: The proximate cause for house prices rising so fast is freely available credit-mortgage lending.
(Although PM ignores what happened before 1970, when house prices were NOT a problem. IMHO what they did then gives us pointers for what we might do today.)
So far, so impressive. Sadly the Positive Money Report then becomes very dull, heavy going overloaded with analysis of what is frankly peripheral to the main argument. I suppose the felt they had to protect themselves from the conventional thinking of the majority of self-styled ‘experts’!
The Report wanders off into more irrelevance by discussing social themes in the housing of Londoners (OK need to satisfy the sponsor)
Additionally, and these are very expensive, they commissioned a large public opinion survey. I’ve dealt with this in my previous blog. Tricking people to accept the unacceptable (welcome a house-price freeze) will soon fall apart on first encounter with reality! Casual answers to loaded questions prove nothing.
BUT WHAT ABOUT THE CONCLUSIONS? DO THEY RESCUE THIS REPORT?
“Stabilise house prices” they say, but hedged in by lots of waffle:
“The primary recommendation of this report is that the UK Government launches a new longterm housing affordability strategy focused on tackling the root causes of the affordability crisis. The overarching goal of the strategy should be to embark on a long-term transition to stabilise house prices and allow wages and inflation to catch up, bringing real house prices and the house-price-toincome ratio down to more affordable levels over time.”
Hear! Hear! That’s exactly what we advocate in Stop House Prices Rising!
But can I hear Dr Deming’s oft repeated mantra “By What Means?” ringing in my ears.
What ‘means’ does this Positive Money Report suggest to stabilise prices?
1. Update the Bank of England’s Mandate to include stabilising house prices.
And that’s more or less, it. This it seems, is the best that this fine organisation (Positive Money) that I supported to the hilt at inception can come up. Tell the BoE to do it! Waffle about ‘credit guidance’ and ‘improved frameworks’ won’t cut it. Do they think the BoE can re-impose The Corset of the 1960s? No chance!
This really is a case of ‘kicking the ball into the long grass’
Instead the Report should have specific targets for taxing the banks, like Osborne’s Permanent Bank Levy. Make the banks pay more when house prices start climbing.
2. Reform property taxes (yawn, yawn)
This is just filler, and beyond the remit of this Report, which is about the Banks contribution to house price rises. So, out come the usual suspects:
Make Council Tax fairer, PM says. Have they any clue what political turmoil lies around Rates/Poll Tax/Council Tax? Dammit the system can’t even organise an updating of property values. All the commentators go for this, little realising how toxic (politically) it is. Changing tax regimes requires much more subtlety than this!
There are a few other suggestions on CGT and IHR, but no explanation of how they would work to stop house prices rising, why politicians would want to implement them, or how soon they would work.
3. Rent controls and security of tenure like they have in Germany
Good point, would have all sorts of knock-on effects, but really has little to do with stabilising house prices.
This Report had a very high profile launch with at least two MPs in attendance on Zoom. It generated zero press coverage, apart from a puff piece in the New Statesman about their survey. “Oh look! Homeowners have changed, the really don’t care about building unearned wealth from their home. Fairness and equity is now their thing” [My Ar*e, says I]
by Conall Boyle & Steve McCabe Bitesized Books Feb 2022