Boom & crisis

London’s 21st century housing crisis for the many is the by-product of London’s housing boom for a few.

Many working Londoners on stagnant average incomes – and the vast majority on lower incomes – cannot afford to buy a house in London, writes Paul Coleman. This galls working Londoners, especially those born or raised in a city where their families have lived for generations. This also includes Londoners whose grandparents or parents arrived in London as migrants in the 1950s from Britain’s former colonies in Africa, India, and the Caribbean.

Meanwhile, London’s indigenous wealthier class and a vast wave of new foreign investors benefit enormously from perpetuating this boom and crisis.

Housing in London – hyper-commodified as real estate – is now seen as a magnetic safe haven for global capital fleeing from economic and political turmoil, and war.

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Pundits

Yet politicians and media commentators routinely ignore these ideological and globalised origins of London’s housing crisis. They also consistently underplay or ignore the many thousands of homes offered for sale on London’s real estate market that remain way beyond the means of Londoners on average and lower incomes.

They also ignore the loss of thousands of council homes to London’s overheating real estate markets. These homes, orginally built for people in housing need and funded by taxpayers, are sold through ‘right to buy’ via heavy discounts. Again, the discounts are publicly funded. These homes are often quickly re-sold as private homes in areas of London branded by real estate agents as ‘prime central’ locations. These homes represent a heavy public subisdy to the private real estate market. The public cover the costs so that real estate players and agents can privately profit.

Politicians and media also ignore the thousands of underused and empty homes in London. And, where new homes are being built – albeit not enough – the global real estate market of which London is a part does not automatically adjust these properties to a price that is genuinely affordable for Londoners who need a home.

Instead, politicians and media try to keep the focus of their target audiences within narrow market parameters. They bicker over minor ameliorative measures that only tinker with the market’s untrammelled excesses. They try to get their supporters, readers and viewers to believe that somehow toying with limited and technical aspects of the market’s irreparable failure will somehow rectify London’s deeper housing inequalities.

For instance, they focus narrowly on the negative impacts of additional stamp duty imposed on second homes in 2016. Most Londoners struggle to afford to buy and secure one home let alone buy a second house. Politicians say the move to raise £3.8 billion in tax will curtail demand from people who buy a second property simply to become landlords. Politicians say this will leave more homes available for first-time buyers who need a home for themselves.

But housing market tinkering of this kind often worsens the crisis. Critics say the stamp duty rise could lead to increased rents and stop investors from funding new housing developments.

Housing market pundits also harp about the negative impact on ‘consumer sentiment’ of the ‘Leave’ vote in the European Union Referendum of June 2016. ‘Leave’, or ‘Brexit’, may compound London’s housing crisis but the crisis began many years before the referendum was even considered.

Another part of the common London housing narrative is to simplistically understate that housing demand remains solid thanks to a ‘robust labour market’, ‘strong employment growth’, a rise in real wages and record low borrowing costs.

In reality, low interest rates prevent people accumalating enough savings that they can use for a deposit to buy a London house.

Real wages have not risen through increased salaries but by low inflation and deflated spending and demand. Actual wages and salaries have remained stagnant since the economic meltdown of 2008-09. Due to the meltdown, banks are reluctant to lend at pre-crisis levels, despite being bailed out by politicians using public money. In turn, the banks’ reluctance to lend the peoples’ money to the very people who bailed them out in the first place, dampens construction and suppresses new housing supply.

Employment growth, in reality, means many Londoners now work in temporary, ad hoc, short-term part-time jobs, often on zero-hours conditions that do not guarantee work and offer little or no career prospects. Many Londoners are simply too financially insecure to take on a mortgage or even a higher rent.

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‘Bucking’ the market

Yet latent demand for decent and genuinely affordable housing is higher than ever – especially as London’s population rises. A certain level of this rising demand would be more easily satisfied if actual wages improved. Equally, younger working people would absorb some newly supplied homes if they could get secure jobs with proper wages, regular increments and better career prospects. Yet the common narrative rarely, if ever, reflects these realities.

A systematic programme of government investment in housing would increase the supply of newly built homes – as well as boosting employment in the construction industry. Yet such solutions would involve ‘bucking’ the market with public subsidy and would also lead to lower house prices.

Political opposition to an increased subsidy for new public housing often resorts to saying this would take London’s housing back to the ‘bad old days’ of poorly designed and eventually rundown council estates that characterised the 1970s and 80s. But there is no reason why such subsidy and supply could not buy the best architectural design, modern building materials and construction methods for a new wave of modern public housing. In fact, a small number of more enlightened local politicians and housing planners have embarked on innovative ways to deliver state-of-the-art and more genuinely affordable homes to meet local needs.

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Real estate industry

The barely concealed truth is that widespread investment in public housing would damage the interests of London’s wealthy property owners, overseas property investors and London’s real estate industry. These interest groups depend on their prevailing ability to parasitically draw wealth from the hyper-commodification of London’s housing and their need for market forces to dominate housing supply and distribution.

Yet, again, commentators and their common narrative rarely analyse London’s housing boom and crisis in such terms. Yet even they cannot escape from reporting certain bald truths about London’s housing market. Low interest rates continue to underpin demand. People basically want to buy new homes and some might be able to stretch their budgets if they can take advantage of ongoing low interest rates.

But the lack of supply of new homes means the market offers only rising house prices, even if prices are rising at a marginally slower rate than before the financial meltdown of 2007-09. All of these factors mean the number of new homebuyers remains subdued and the amount of new and older homes for sale is close to all-time lows.

Construction is stagnant too. True, the number of newly built homes in London and across England picked up in 2016, but this is not enough to keep pace with anticipated rises in population.

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Boom and crisis

Some 225,000 new households are expected to form each year throughout England during the period 2016-2030. Yet in 2015-16, only 142,000 new homes were completed, albeit 33% higher than the post-meltdown point of 2010, but still some 12% below the average rate of house building between 2004-09.

And, it seems private sector developers and housebuilders cannot guarantee delivery of homes needed to meet the demand created by these 225,000 new households expected to be forming every year – even though they seem to have the capacity to expand their housebuilding.

These large global companies appear to be unnerved in 2017 by an economic outlook that remains shrouded with more uncertainty than usual. Even those forecasters sympathetic to the ever-optimistic political establishment believe that, at best, the economy will slow modestly.

Worse still, other commentators admit right-wing populism seems to be gaining ground across the world, tilting an already precarious global political economy towards an even more hazardous period.

Hence, Londoners can expect even more global capital fleeing to London, raising house prices and perpetuating the housing boom for the few and the housing crisis for the many.

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© London Intelligence.