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]
[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
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