It was “Our house” that crowned the Queen’s Diamond Jubilee concert last year, with the projectionist’s artifice morphing the backdrop from forbidding tenement, via suburban semi, to the real Buckingham Palace. The audience joined in lustily. But it should not have escaped anyone that the group leading the sing-along was Madness.
The madness that surrounds everything to do with housing in Britain was on full display again in this week’s Budget, with the Chancellor pandering to every Briton’s basest instinct. Apparently despairing of other levers to galvanise the economy, George Osborne resorted to that oldest of standbys. Except that housing is rarely just housing to politicians. It has to be the seductively aspirational “housing ladder”.
In their detail, the Chancellor’s proposals have a Gordon-Brownesque complexity, which is a bad sign in itself. But the effects are likely to be worse. One is that individuals, starved of pay rises, oppressed by inflation on essentials and deprived of decent interest on their savings, will be tempted once again to overextend themselves in pursuit of a supposed “dream”.
Another is that the Government – which is offering to underwrite loans of up to 20 per cent of a property’s value – is getting into the mortgage market in a way that can only spur new house-price inflation. There is no need to draw comparisons with American-style sub-prime lending to recall that this is where it all went wrong a decade or so ago. Except that then it was the banks, rather than the government, supplying the funny money.
No one denies we have a housing problem in this country. But the only problem that is truly national is the preoccupation with buying at any cost, which has been fed and watered by banks, politicians, and television property programmes. In all other respects, it would be more accurate to talk about problems in the plural.
There is a specifically London problem, which is the extent to which prices have been buoyed over the years by bankers’ bonuses and foreign money. As prices rise in central London, so they also rise in adjacent boroughs, as the natives cash in or look for somewhere they can afford.
Beyond allowing London to boast of being a global metropolis and favourite haunt of the international super-rich, the benefit to the city has been limited. National and local authorities have found it hard to tax the itinerant elite who treat their acquisitions as an investment rather than a home – not that they seem to be trying particularly hard. There are ways this could be changed – from the introduction of more upper price bands for council tax to the requirement that absentees pay full, or even punitive, council tax, to enforcing transparency of ownership.
Councils could use the money to build new housing to address the other London problem: the shortage of housing. Not the shortage of affordable housing – because it is the shortage that makes housing unaffordable. The shortage also fosters profiteering, which is why an unknown, but substantial number, of council tenants sublet their flats for a profit and why owner-occupiers have illegally turned sheds into beds. What London needs is more housing, full stop, and a market, especially at the bottom end, which is not distorted by council rents that are too low. Yes, you read that right – not too high, but too low.
For obvious reasons, politicians tend to project London’s special problems on the country as a whole. In so doing, though, they augment the distortions. For the truth that they, and much of the media, find so hard to believe is that there is no appreciable housing shortage beyond the capital. There are desirable towns and villages where high prices reflect demand. But the national trend in property prices, as opposed to the London trend, is not up, but static or down.
Recent figures from the Financial Services Authority show that four out of 10 people who bought homes after 2006 and subsequently sold did so at a loss. Rather than being welcomed as a chance for more people to afford a roof over their heads, however, falling prices are more commonly seen as akin to a national disaster, proof of economic failure and nothing more. For those who bought at the top of the market, of course – encouraged by low mortgage rates and low- deposit or no-deposit deals – falling prices represent a betrayal of expectations. They were led to believe that houses only appreciated, as they had done – with a few glitches – for decades.
Don't bank on a home
Those who now find themselves in negative equity and unable to move can count themselves victims of bad luck or bad judgement. But their plight does not alter the salutary truth that today’s falling prices represent a return to reality after an extended overheating of the market. The 1990s and the early 2000s must be seen as the exception not the rule; they show the downside of easy credit, not the upside of a flourishing economy. What we are now seeing, outside London at least, is a healthy correction to a property market that had served to widen the divide between the haves and have-nots almost by the month.
Or we were, until the Chancellor decided to intervene on Wednesday. With the rate of home ownership declining, would-be buyers having to save more for a deposit, and house prices stabilising or falling, he had a chance to wean Britons off their idea of property as a limitless personal bank.
He could have used the same guarantee he has given to new mortgages to underwrite new house-building direct. He could have promoted high-standard, long-lease accommodation for rent, such as exists in almost every other developed country. He could have pared the incentives that favour buy-to-let speculators over first-time buyers and held out the prospect of more genuinely affordable housing – affordable, that is, in real market terms. Above all, he could have taken advantage of current static prices to denounce the whole pernicious concept of the housing ladder. This is a missed opportunity that perpetuates illusion and stands to cost the country dear.