BANKING ON PROPERTY -- A NEW REPORT FROM POSITIVE MONEY

 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:

https://positivemoney.org/publications/banking-on-property/

 ‘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[1]

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]

 

 

 

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[1] Stop House Prices Rising!: The Essential First Fix For the Broken Housing Market

by Conall Boyle & Steve McCabe Bitesized Books Feb 2022

https://www.amazon.co.uk/Stop-House-Prices-Rising-Essential/dp/1739726103/ref=sr_1_1?crid=AN9A6VAKQY6S&keywords=conall+boyle&qid=1646144465&s=books&sprefix=%2Cstripbooks%2C108&sr=1-1

 

“MOST HOMEOWNERS HAPPY FOR HOUSE PRICES NOT TO RISE" says a new survey

     So I’m right!? The majority of voters (two-thirds) who own their home will accept it if somebody (the government usually) does what it takes to

        STOP HOUSE PRICES RISING! (that’s the title of my new book)

Here’s how Positive Money, the organisation that commissioned the survey explains it:

-      - - -

 “London, 31 March 2022 – A majority (54%) of British homeowners would be happy if their own home did not rise in value in the next ten years if it meant houses were more affordable for those who don’t own property, according to YouGov polling commissioned by research and campaign group Positive Money.

Positive Money’s YouGov polling indicates that the majority of the British public – including a majority of homeowners — being happy for house prices not to increase:

• Nearly two-thirds (62%) of the public also believe that the “purpose of a house should be mainly a home,”as opposed to “mainly a financial investment” (1%)

There is popular support across all regions of Britain, and among voters of all the main political parties, indicating a strong appetite for a bold new approach to tackling the housing affordability crisis.

Notes

·        All figures, unless otherwise stated, are from YouGov Plc.  Total sample size was 1,751 adults. Fieldwork was undertaken between 9th – 10th March 2022.  The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+). “

·        Source https://positivemoney.org/2022/03/most-homeowners-happy-for-house-prices-not-to-rise/

-      - - - end of (edited) Positive Money Press Release. More about this in my next blog

My Comment: The devil, as always, is in the detail.

Threatening home-owners with a price-freeze, let alone a price-crash, has always looked like political suicide.

Any hint of that, and the Daily Mail will go nuts!

And here comes a survey which claims homeowners would be happy with a house-price freeze, but the question had a rider…

“Would you be happy or unhappy if your own home didn’t rise in value in the next 10 years, but it meant houses were more affordable for those who don’t own property? [Asked to those who own or part-own their home]”.

Only 54% agreed. The rest didn’t care or maybe thought ‘sod making houses affordable for the youngsters; I want to keep my capital appreciation’.

It is NOT going to be easy, politically, to get homeowners to sign up to a price-freeze (as I suggest in the title of my book). This will have to be approached gingerly, incrementally, and maybe even surreptitiously!

Nice try by Positive Money, though.

—-

My book (with co-author)

Stop House Prices Rising!: The Essential First Fix For the Broken Housing Market

by Conall Boyle & Steve McCabe Bitesized Books Feb 2022

https://www.amazon.co.uk/Stop-House-Prices-Rising-Essential/dp/1739726103/ref=sr_1_1?crid=AN9A6VAKQY6S&keywords=conall+boyle&qid=1646144465&s=books&sprefix=%2Cstripbooks%2C108&sr=1-1

---EXTRA: NEW STATESMAN PICKS UP ON THIS STORY -- but I think they're over-egging it!

Britain has fallen out of love with its housing market

Long-held assumptions about rising house prices are being shattered by the affordability crisis.

By Polly Bindman

 

When Nigel Lawson described the NHS as “the closest thing the English people have to a religion”, his party was in the process of substituting it with another: the housing market. Policy changes such as tax incentives, the right to buy and the deregulation of the private rental market had formed the basis of Thatcher’s goal for a “property-owning democracy”, and for decades the narrative has held that rising house prices translate into general wealth.

Polling released yesterday (31 March) indicates that the British public no longer believe this story. Confronted by low levels of home ownership and an affordability crisis, the British public would now prefer house price growth to remain low or to stop entirely, and homeowners are in favour of bold reforms to make housing more affordable at the expense of their own properties increasing in price.

The polling, carried out by YouGov on behalf of the research and campaign group Positive Money, found that more than half (54 per cent) of British homeowners would be happy if their own home did not rise in value in the next ten years, if that meant houses were more affordable for those who don’t own property. Since 2000, average wages have grown by 94 per cent while house prices have grown by 224 per cent.

“I think people realise that the system is broken when you can’t really own a home just from having a job,” said Danisha Kazi, senior economist at Positive Money. “Soaring house prices are locking the younger generation out of home ownership. Most people that own homes are older, they’ve got children or grandchildren and they recognise there isn’t an easy way to get them on the ladder other than for them to give them equity that they have in their own housing.

“At the same time, many homeowners are also banking on their own house paying for their retirement or care — the costs of which are also rising — and many are not wealthy enough to pass housing wealth on to their children.”

The realisation that rising house prices do not create prosperity even for wealthier homeowners means that support for reform comes from a broad range of demographics. A majority of Conservative voters would be happy if their home didn’t rise in value if it meant others could buy, and would support the Bank of England being given a target to keep house price inflation low and stable. Similarly, 44 per cent of Conservative voters (and 51 per cent overall) would support a rise in council tax for owners of homes above the national average house price, and a decrease for those with homes that are lower.

 

The poll found that older voters were actually more prepared than any other age group to sacrifice rising value on their homes in favour of affordability, perhaps because they are less exposed to the risk of falling prices, having built up more equity. The Conservatives had a 62 per cent share of the over-60 vote in the 2019 general election.

The report also counters the common assumption that the housing crisis is primarily the result of a shortage of homes. It reveals that new supply has in fact exceeded the formation of new households in recent decades. In 2020 there were 7.5 per cent more dwellings than households in London and 4.8 per cent more in the south-east.

Home ownership in England peaked at 71 per cent in 2003, and has since fallen to 65 per cent. For young adults it has fallen more sharply, to 47 per cent, while home ownership among ethnic minorities is lower still, at 35 per cent.

High rents and the change in working patterns caused by the pandemic have exacerbated the problem: 42 per cent of private renters say that the pandemic has made home ownership a more important aspiration for them, while 68 per cent of all renters don’t believe they will ever be able to afford a home of their own, according to Ipsos Mori polling. 

Years of policies such as help to buy, changes to stamp duty, the shared ownership scheme and extended mortgage terms have only served to financialise Britain's housing market, a problem most voters now apparently recognise: a large majority believes that the purpose of a house “should be mainly a home, not a financial asset”. 

While the UK's housing affordability crisis is particularly severe, rapidly changing attitudes on housing have already proved electorally significant in Sweden, where rent control policy led to a government crisis; in Ireland, where housing has been a key issue in the resurgence of Sinn Fein; and in Canada and New Zealand, where governments have taxed or restricted foreign buyers. British voters, too, seem hungry for new ideas.

Source https://www.newstatesman.com/business/2022/04/britain-has-fallen-out-of-love-with-its-housing-market