The champagne corks in Downing Street must keep popping lately: unemployment is falling faster than anyone could have dreamed of a couple of years ago, economic growth is the fastest in the G7, the long awaited rise in living standards over and above inflation happened last month... Almost every bit of economic news is good at the moment and about time too, says Peter Burgess of Retail Human Resources.
We have suffered the worst economic disaster since the 1930s and government debt is now at a level not seen in peacetime. Indeed, it compares with the debt after the Second World War. Some of the blame does belong to Gordon Brown for spending too much when times were good.
However, it would be unfair to blame this crisis on any single political party or, for once, on politicians at all. This was a crisis made in Wall Street, The City and other leading financial centres and whilst perpetual bank bashing won’t get us anywhere, we must never forget who it was that got us into this mess and we must make sure they don’t do it again. Which brings me nicely to the theme of this article.
The real danger
The economy is doing extremely well and there is the prospect of an almost golden decade ahead of us, save for one thing; house prices! In particular, house prices in London.
Prices are rocketing in the capital and this is now rippling outwards to the rest of the country. Great if you’ve just bought your house but a disaster if you’re trying to get on the property ladder. Worse still, as house prices rise, so do rentals and we no longer have the cushion of social housing that meant a significant part of the economy was immune to these shocks.
We have seen this happen before and the last recession in the UK in 1990 was largely caused by house prices ballooning in the ‘80s and then crashing in ‘89 leaving millions with negative equity (where your house is worth less than your mortgage). All the signs are that this is happening again and we are running like lemmings towards the next recession before we have barely got out of the last one. Worse still, the government itself is fuelling this boom with its Help to Buy scheme, which in London is ludicrous.
The solutions
There are three solutions to this problem and only three. They are as follows:
Ratchet up interests rates sharply so that people cannot afford mortgages and therefore stay out of the market; which stops price rising. Hardly satisfactory for those wanting to buy their first home and disastrous for industry which is still recovering from the crisis. This won’t happen, for if we were the only country to do it then GBP would rise sharply, making our exports far too expensive for other countries to buy.
A mortgage famine. This is on the way. Basically, the Bank of England is making it increasingly difficult for banks to lend money to house buyers, so if you haven’t got your mortgage, start looking now. In six months’ time it is going to be very difficult indeed unless you have a large deposit and earn shed loads of cash. This appears to be the government’s preferred option and, in my view, is totally unsatisfactory.
The final answer is quite simple. Build more homes. Every 16-year-old that did a GCSE in economics knows that price is a function of supply and demand. Too much demand, not enough supply, the price goes up.
The 16-year-olds may have the answer but George Osborn and Ed Balls haven’t. London is probably the most expensive, and therefore the most valuable, city in the world. Building more homes and selling them will not only slow the house price spike, but will also provide desperately needed homes and make the government lots of desperately needed money.
So what's the problem?
Why don’t they do it? It’s because of the NIMBYs (not in my back yard). Every time someone wants to build anything in this country, everyone objects. I live in Highgate, North London where there is a full scale local industry in stopping things being built, whether it’s new houses, basements or even a garden shed.
The absurd argument is that there is not the land to build on. Nonsense! Less than 13% of the UK is urbanised and only around 1% is actually concreted over. London is the greenest large city in the world and it is not densely populated compared to other large cities such as Paris or New York.
Out with the old...
No one is suggesting that we build tower blocks in the Cotswolds or concrete over the South Downs, but the next time you’re driving into or out of London, have a look at the houses along the main roads — the A40, A10, A3 and the North Circular. They are lined with 1930s cottage type houses that are now wholly unsuited to be at the side of a 6-lane trunk road. If you really want to be depressed turn off and have a look at the run down estates that sit behind them.
This land should be purchased by the government, which should then give itself planning permission and build decent apartment blocks thereby increasing the capacity 10-fold or more. Not all the green belt is beautiful rolling hills or prime farm land. Some of it is almost waste land which needs to be used and the NIMBYs need to be told to shut up and stop being so selfish. Young people need homes, the country’s economy needs to build more homes and the NIMBYs need to be silenced.
I fear it won’t happen and, in five years’ time when the economy crashes again because of the house price bubble bursting again as it has so often in the past, it will be the
same NIMBYs who are the most vocal in grumbling over how we got into this mess. It will have been their fault and that of the spineless politicians who failed to stand up to them.
Excellent article. We need to scrap the Council Tax and replace with a property tax on owners who have a property bigger than their basic needs. ie 2 Adults = 1 bedroom, 2 Adults + 2 Children = 3 bedrooms. PLUS a ban on ownership in Britain if you do not have a British Passport. These solutions operate in many continents already. Housing is for living.