Deborah Orr: The slippery slope of home ownership

In matters of property, MPs were no less attuned to the times than the rest of us
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The Independent Online

Property was the key. The Members of Parliament most injured by the expenses scandal were those who played a system that invited state-subsidised property speculation. But property was a magic key. The door it opened shed light on the entire parliamentary system, and exposed it as needing radical reform, from its cellars to its rafters. Now, all the nation's dissatisfactions with our etiolated democracy – hidden for years under the dust-sheets that the political establishment draped themselves in and called our apathy – are on display.

Now, there are hopes for all kinds of changes – a written constitution, proportional representation, a strengthening of local democracy, the list goes on. The magic key has unlocked all this much-needed debate. But amid the tumult, it is important to understand that the catalyst for all this activity and discussion has been people and their homes, just as it was the catalyst for the collapse of the banking system and the recession.

There is every indication that in the latter case, the central lesson has not been learned. What rich loam is being fretfully monitored for the "green shoots of recovery"? The rich loam is the fact that everyone needs somewhere to live. The green shoots are the bottoming-out of house prices, the return of first-time buyers to the market, and an increase in mortgage lending by those propped-up banks. Inflation may be a dirty word in the rest of the economy. But it is devoutly hoped that property prices will start to inflate once more, and float Britain out of the doldrums.

House-price inflation. It brings the promise of an easy, unearned income that can be cashed in at some point, whether by sale or by asset conversion, or left as a nest egg for the family. How wealthy it makes homeowners feel. What a boost to the rest of the consumer economy it offers. What boundless opportunities for reckless lending it confers on financial providers. The long property boom began in the months before Blair came to power, and kept many people voting him in, even as he reneged on such promises as a written constitution, proportional representation, a return to local democracy, all those things that it turns out were so desperately wanted all along.

There are many suggestions as to how MPs can be relieved of the burden of needing two homes in order to do their two jobs. Even as Gordon Brown says goodbye to the gentlemen's club, people talk of MPs sleeping in dorms in London during the weeks of parliamentary session, like weekly boarders at an austere public school.

But that's a crude and punitive fantasy. Do we really wish to insist that junior ministers have to live apart from their families much of the time, seeing their children only at weekends, always leaving others to see them off to school, or read them a bedtime story, unable to live near their work? It's commonly said that MPs are too removed from normality. Would such arrangements really help them to be more "normal"?

Yes, it was awful that a number of MPs "flipped" their main residence as financial benefit suited them. Yet as Richard Reeves points out on the Demos blog, the Daily Telegraph, scourge of MPs expenses, offered this advice to readers of its personal finance section in 2007: "Become a butterfly and flit between homes. Or in the jargon, switch 'principal private residence' exemptions between properties. All gains on property are taxable with the exception of the home you live in which the taxman calls your principal private residence. However, if you own more than one home you can elect which you wish classed as your primary residence, provided there is some evidence that you have actually resided there, albeit shortly." Many MPs, sadly, were doing what was "normal" for people lucky enough to have two homes. Their position was unique, as one of their homes was taxpayer-funded. But there is no point in pretending that second homes, more generally, have not been causing problems for years.

Many communities, attractive to the wealthy people who have made their money from investing in ever-more-fiendish property derivatives, have been yelping in pain for a decade about how weekend places distort the ability of local people to make a life there. Buy-to-let speculators, long feted as the last word in dynamic entrepreneurship, are in reality a pure and unsullied illustration of how, in our society that is supposedly so worried about social mobility, the rich get richer and the poor get poorer.

Property inflation is a brilliant way of generating unearned income for those with capital, while excluding and exploiting those who cannot "get on the property ladder". And those who have made unearned income from their homes have been of late vociferous in their demands that they be allowed to keep this money in the family. Their demands were listened to.

Here is Richard Reeves again, this time writing with Philip Collins in a new Demos pamphlet, Liberal Republic: "A sharp distinction between 'earned' and 'unearned' financial resources ... underpins a liberal tax system, one based on promoting independence. There is a very much better case for taxing the inheritance of a millionaire or the capital gains of a Chelsea homeowner than the labour of a part-time cleaner. But there has recently been an unedifying contest between the two main parties to relax inheritance tax."

House-price inflation, and its lucrative profits, helped enormously in making renting a mug's game, something only a part-time cleaner would have to resort to. (And the poor availability of decent rented properties at rates commensurate with modest earnings was part of this.) MPs were no less attuned to the temper of the times than the rest of the culture. Rent had become money wasted on feathering someone else's asset. Mortgage had become money invested in the present and the future, in a bricks-and-mortar fruit machine that always paid out.

The Governor of the Bank of England, Mervyn King, said years ago that he wished that house prices were included in the Consumer Prices Index, the measure of inflation he was tasked with controlling. This anomaly distorted our economy, our "social inclusion", and even, on the not-so-narrow margins, our morality, as is so clear from the behaviour of some MPs. But what happened to Westminster happened to the whole nation, and one of the most important infrastructural tasks of a sustainable and stable recovery is to make houses back into homes, instead of fruit machines.

d.orr@independent.co.uk

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