Last Chance Saloon

Not to brag, but I’ve just solved the housing crisis. But I’ll get back to that: firstly, I just want to look at where we are. Here’s the problem: about two million people who would’ve bought in the past few years, in normal historical conditions, haven’t been able to, and are now renting. This is a problem on several fronts, but mainly as our economy is essentially built around owner occupation: it is the main way in which most people are able to save and build capital, and plan for retirement, and has been incentivised as such for decades through our taxation system.

As millions of people are now excluded from buying, and home ownership for the under 40s has fallen off a cliff, this means they are not only excluded from security of tenure – renters only ever being two months away from eviction at the whim of a landlord, and the ensuing psychological impact that has over many years, even if the dreaded Section 21 notice is never actually issued – but they are also excluded from any form of capital accumulation, and thus have no stake in the system.

A few other countries have majority rental sectors – such as Germany – but people are encouraged to save in other ways, through the local Landesbanken system etc, and thus can accumulate a stake in the status quo without owning a home, and their home is in any case an actual home as they have decent tenure for rental properties. There is nothing wrong with the owner-occupier model of saving and investing per se, but clearly if most people under the age of forty are excluded from it and there is no route in, then it is not sustainable.

So we now have the rise of Corbyn, and the Tories scrabbling around for ideas to counter his rise to power. And for them, it's now or never. I cannot have been the only person to have watched Mrs May’s recent speech open mouthed: having briefed before the speech that she was going to unleash a new generation of council house building, she announced that she was in fact going to build 5,000 new council houses a year. There are 1.2 million people on council house waiting lists, and this was her answer. I was absolutely, completely flabbergasted. We’ve had the worst decade for real wages since the 1860s, home ownership is plummeting, and the Tory answer is, erm….well, just, well. Utterly bizarre. And Help to Buy is just…..I mean, how will this help affordability for First Time Buyers in any way, at all? AT ALL? I mean, crumbs.

If this is going to be as good as it gets, then Corbyn will win power, without any shadow of a doubt. Now, Corbyn has already talked about confiscation of private property in response to the simply awful Grenfell disaster: I don’t want to go into that because it is too horrible for words and a side issue in terms of solving the housing crisis: but Our Future Glorious Leader’s words were instructive, in that he saw no problem in simply confiscating empty flats nearby as a solution.

Once you start on this road, and are happy with the first ideological leap, then it’s very easy to make the next logical step: there are millions of renters, and not so many landlords, landlords have had it good in the last few years, so why don’t we just…….well, take their stuff, and, well, just give the flats to the renters? I don’t think we’re far from this stage. Fewer than 1 in 5 renters are saving for a deposit, and essentially, now, if you don’t own or have parents who own, you will never own – so taking stuff is going to be the next logical step, as there is no other step that they can see. If I was a BTL landlord, I would spend every waking minute haranguing my local Tory MP to ensure better rights for renters, and to solve this crisis asap, as if not my pension is going to go up in smoke. And the consequences of this sort of confiscation will be: well, total bankruptcy for everyone, to keep the story short. That’s just what happens.

So what do we do? Firstly, build a hundred thousand social houses a year, by letting Councils borrow money. Not difficult. A third of what we built after the Second World War when we were completely bankrupt.

And secondly: there are 11 million renters, and 2 million private landlords: transfer ownership of a chunk of these to the current renters, and the problem is a long way to being solved. If nothing is done, this will happen in time anyway: but through confiscation, and we’ll end up boiling stones for soup. So simply incentivise BTL landlords, right now, to sell to their tenants, at decent market values.

This is actually easy to do. There isn’t really a shortage of properties on a gross level: the ratio of bedrooms to people is roughly static, it’s just that the financial system around home ownership is completely screwed, people are stuck in properties they don’t want to sell as it will financially penalize them if they do, and others are renting houses they would normally have bought.

In fact, most BTL landlords can’t sell, as they have a large (normally 28%) CGT liability if they do, and no other decent investment options: so selling will mean they lose money, for a worse return. The solution is obvious –  say to landlords, if you sell to your tenant, then you will not have to pay any CGT. Suddenly, they save 28% on tax on the increase in value, which will be a big chunk of the gross value, in most cases. And if you are a BTL landlord and put money into the stock market from your property sale, we will exempt you from future stock growth CGT and stamp duty (this bit needs refining, but something along those lines).

The other crazy thing is the mortgage process: we were turned down for a mortgage 18 months ago (luckily not on the second mortgage application or I would be writing this having emigrated) on the grounds that we couldn’t afford the repayments, despite them being lower than the rent we had paid on time, every month, for FIVE YEARS. So say to all private sector tenants: if you can pay your rent on time for 3 years, every month, and can prove that you are funding it through your own endeavours: then a bank -  perhaps RBS, say, which we taxpayers frigging own – will guarantee you a mortgage based on those repayments. Certainty returns, tenants have something concrete to aim at, even if it's a few years away. And hey, why not take some of the 28% CGT saving from the landlord, and loan the tenant a 5% deposit from that saving?

Result: millions of private renters enter homeownership in the next year or two, millions more have a stake in the country again, the rest know if they work hard they'll get there eventually, and if they can't, the state will build them a council house: and the stock market is stock full of private investors and capitalism is saved.

You’re welcome Britain.

Bell Ends

So, it’s ten years on from the financial crash, and Big Ben is about to stop ringing. I can’t be the only one who feels this is bad omen. The bongs are a re-assuring, constant presence on our kitchen radio, or at least they have been until midday today. An authoritive, rich, historic sound signalling continuity, letting us know that everything is ok, everyone will solider on, and that somewhere, an adult is in charge. Especially when they ring at 6pm, and it’s wine time.

Ten years on, and it’s easy to forget what happened 10 years ago, and decide it is all ancient history, and that it won’t happen again. It is easy to forget how close we came to complete, total meltdown. It’s easy to forget that money market funds came within a few hours of drying up completely – and without any liquidity in the global financial system, there’d have been no credit, and with no credit no trade, and then…well, before long, no food in the supermarkets. Don’t MI5 say that we are four meals from chaos? After Hurricane Katrina, it took five days before doctors stopped attending hospitals to protect their own families. The traders I worked next to in the City at the time were buying shotguns.

So, why did it happen, again?

The crash happened because Goldman Squids et al conned the ratings agencies into believing that the crap they were selling (complex derivatives such as CDOs, synthetic CDOs etc) were AAA rated, and by the time the markets realized they were worthless, there were billions of the buggers hidden in bank's balance sheets. No banks trusted any other banks, as no one knew who was solvent, Libor rates went up and eventually no one would lend. Banks that had no actual money of their own for their day to day activities (Ponzi schemes, basically), but instead relied on wholesale money markets etc for day to day funding, like Northern Crock, went out of business sharpish and the whole thing snowballed.

The government stepped in, and stopped the world from ending, but putting in a temporary fix: ZIRP. Zero interest rates, and masses of printed money to inflate asset prices. This temporary fix is, of course, still in place.

What's changed since then, exactly? What's that...nothing?

The cycle goes on. Real wages are flat: most people without assets are poorer. Nothing has been done to try and make capitalism more inclusive, or spread wealth more fairly, or re-capitalize the poor. House prices in London have pretty much tripled (by contrast, during the last comparable financial crisis of 1929-1933, property prices in most western economies dropped 80%).

The amount of outstanding complex (ie no one really understands them, certainly not senior bank management) derivatives globally has quadrupled since the financial crisis. Consumer debt has doubled, asset prices have sky-rocketed and banks have, accordingly, since lent billions to the property market. The leverage ratios imposed by regulators are still pathetic, although they've been tripled, they have basically tripled 'nothing'. If residential property prices drop by even 30%, what would happen to the balance sheets of almost all of our high street banks? By their own models, they'd be bankrupted.

Inequality, the fundamental cause of the last crisis, is still rising. We seem to not be willing to do anything to stop it, before it’s too late, because the cause of the inequality is hard-wired into the system – partly via fractional reserve banking.

One possible answer would be to forget ring fencing currently pushed by the regulators - but actually spin off investment and retail banks, and make retail banks actually capitalize themselves properly, ie primarily through deposits. Of course this would never happen, as our fiat-currency and fractional reserve financial system would collapse and have to be re-built to accommodate it.

So there is nothing we can actually do, just sit and wait for everything to go up in flames again, which it will, but much worse this time. The GFC caused so much anger because the people at the top lost their jobs, but still walked away with millions. This anger is what will end the cycle eventually, and probably not in a good way. Housing is at the route of it, but there's nothing we can do now, it's too late. Even building 400,000 houses a year will make no difference to affordability, until house prices crash, and then no one will be able to afford a house, no matter what the market value is, because no one will be lending.

You may be a baby-boomer sitting comfortably in your big, equity rich house with your final salary pension, BTL portfolio and be thinking: I’m ok. But if I were you, I’d be sh****g myself and getting as much money into a bank account in Antigua as I could.

Now, I am not on the same page as Corbyn – I’m not even reading the same book. But I am perhaps in the same library. And what will happen when he gets in? And he will get in.

I’ll tell you: property confiscation and land taxes. Most people under 35 support this sort of thing, because they are locked out of the market anyway and have nothing to lose, in their own minds: if BTL properties are confiscated from their owners, what do they care? They won’t lose anything. In the same way that the average Zimbabwean didn’t lose anything when Mugabe took away land from the “evil white colonialist” farmers. Until, of course, millions started dying in the subsequent famine.

Corybn is talking about property confiscation already, when superficially things are going well (a thin, empty veneer of false, empty credit growth) and the thirst for schadenfreude is on the back-burner for a while.  But as soon as things take a dip for the worse again and the fact that the system is rigged will once more go to the forefront of people’s minds, the temptation to take people’s stuff will re-surface, because they’ll realise that in a rigged game, that’s their only option. Corbyn will be all over it.

And property prices will tank. Banks will go bust. Traders will start buying shotguns again.

And there’ll be no Big Ben to re-assure us that Britain will soldier on.

The Redfern Review

A blog-lette...

...slightly late on this, as it is too depressing for words – but the report commission by the Labour party into housing – the Redfern Review – has recently said that the causes of high house prices have nothing to do with a lack of house building, but everything to do with an explosion in credit, and the private sector building more houses will do nothing in the short term to solve the affordability crisis. It extensively looked at the evidence, thoroughly and methodically crunched the numbers and pretty much proved that this was the case, beyond reasonable doubt.

I have said this until I have become blue in the face, like an ignored smurf.

For what it's worth, here it is one more time, for posterity: building more houses in the short term will do nothing to solve the affordability crisis.

This conclusion has been completed ignored by everyone, including the Labour party, who almost immediately after the review was published authorized a spokesman to say “this report shows it is clear we need to build more houses to make houses affordable again” – which is exactly the opposite of what the report they commissioned says.

I give up.

A Complete Economic History of the Entire World

Even a stopped clock tells the right time twice a day – so I won’t gloat too much about the fact that everything completely bat shit crazy I have written over the past few years now appears to be accepted as fact by the wider media, politicians and academics. Even Mark Carney, who built his career at Goldman Sachs advising client firms on outsourcing jobs and financing the process of globalisation, and thus hastening inequality, has now given a speech saying that globalization and outsourcing jobs is bad, inequality makes our economy unsustainable and leads to the rise of demagogues (and, incidentally, also that none of this has anything to do with him). I note my last blog post, written quite a few months ago, was entitled ‘the pitchforks are coming’ and it even seemed a bit mad to me then, and I wrote it – except now they are now getting pretty close…

But anyway, everyone now appears to share my diagnostic of the world’s economic ills, and entirely the wrong consensus has been reached – namely, that global trade is bad. This is, of course, nonsense.

I want to take you back in time, to a table in Athens in Ancient Greece, at which sat Euripides. He’s munching on a bit of bread, perhaps some crumbs get in his wise beard. He’s wearing a robe made with silk - he didn’t want to buy the robe, incidentally, but he accidentally tore it in the shop and –hey, Euripides, you buyya dese…

But I digress: what he knew, and what we know, is that the bread he is eating is made from wheat grown in the Ukraine, a thousand miles away. The silk is from China. The original farmer in Ukraine got richer, the Chinese silk producer got richer, the merchants who shipped them to Greece got richer, and Euripides got…better bread and a slightly ripped robe (and wise crumbs in his wise beard. So wise).

Move forward a few hundred years – to, say, 600AD – to a Celtic merchant sitting in his hovel in Sussex (we Celts hadn’t been thrown out yet and pushed into soggy western bits) and eating his meal – off a plate made in China, flavoured using spices grown in northern India, and washed down with wine grown in southern Europe. All parties to this global trade benefitted.

My point is that trade has been global for centuries – the global north traded with the global south, global south traded with global north, and both north and south benefited.

There were a few hiccups – there was a global financial crisis in the sixteenth century, as too many goods were flowing East from China and were being consumed by Europeans, and too much gold from Europe flowed East in return, which caused an imbalance and a global monetary crisis – surely something that would NEVER happen these days. But then the Spanish found enough gold to ruin the world forever in South America, and global economic balance was restored – at the cost of millions of lives, of course, and set the pattern for western exploitation for a few centuries, which hasn’t really stopped.

Then the world trundled on, man exploiting man, until after the 1970s, with global trade ensuring, at least, general economic progress and a sense of hope. The Soviet alternative meant at least western governments had to pretend to offer a better world, otherwise we would join the Bear and spend our time playing chess whilst drinking vodka. Nazdarovya!     

Then, around the 1980s, accountants, after staring at their balance sheets for some time, worked out something – and they took this to their CEOs in the US, and together they and US executives worked out that they could do something new – outsource actual labour. This made their shareholders richer, and themselves richer, and their workers poorer, and started a process of growing inequality which has accelerated ever since.

Now, this isn’t global trade – labour is a liability on a balance sheet, not an asset – and outsourcing this cost is a zero sum game ultimately benefiting no one, not the global south, not the global north – no one that is, apart from the executives (and possibly the accountants). We Britaineers were a bit late to the party, but after 1997 our executives worked out something similar – we could outsource jobs, but without moving the jobs themselves – by moving in cheap labour here from abroad. This would also destroy collective bargaining, further making their lives easier, and also - WINNING! - lower wages, which were a liability on their balance sheets. Hurrah!

Inequality mushroomed – but was covered up initially by an explosion in credit, which masked this inequality as the slowly destroyed middle class could pretend they were getting richer by borrowing more – from bankers such as Mark Carney. Except for every pound they borrowed, because of our fractional reserve banking system, everybody got fractionally poorer – except the bankers (such as Mark Carney – sorry Mark, I’ll stop in a second) – and inequality continued to increase. This inequality caused massive piles of cash to swash around financial markets, which ultimately created instability in the global financial system and the inefficient allocation of resources – and, eventually, the global financial crisis. To which central bankers responded by lowering rates, printing money (sort of) and exacerbated inequality even more, which is what caused the problem in the first place.

And now, predictably, we have the rise of demagogues like Trump – who want to stamp down on global trade, which is exactly the one thing that isn’t causing the US problems. And he is, sadly, just the start.

Now this theme has been picked up by politicians, the media and think tanks, what should be done about it?

Easy – strengthen labour laws and give workers better rights, clamp down on executive pay and then with regards to housing – and this is the easiest and most important bit – give people security of tenure so at least the majority of the population have secure homes to come home to, think innovative thoughts about how globalization benefits everyone and sit around eating artisan bread from…Kent, and sparkling wine from…Sussex…okay, we’ve gone backwards on that a bit. Silly hipsters.

And, what will in fact be done?

Well, nothing, obviously.

Those in charge think they don’t have to – there is nowhere else for us to go, at least until the pitchforks come out in full. They think they can do what they like now, they have us trapped – the best thing we non-pitchfork types can do now is put on a Santa hat, down the third free glass of warm, cheap white wine at the office Christmas party and try and seduce that chap or chapess from accounts. At least then we can get hold of their balance sheet…

The Pitchforks Are Coming

I love being a Chartered Surveyor. It’s so enjoyable in fact, that it’s easy to forget that for many young chaps growing up on the Brighton and Hove border, it’s often the only route out of the ghetto.

But being a Chartered Surveyor, I think, sometimes gives you a perspective on society that other professions perhaps don’t always see. Obviously this is not exclusively true: but most people spend their time mixing with people of more or less their own socio-economic grouping, at home and work.

Lots of jobs come into contact with people across the spectrum, but within specific spheres, and within their own field, and perhaps only one or two groupings: lawyers might deal with criminals, police with drunken Chartered Surveyors etc, but what I mean is this: I see where everyone actually lives, from the poorest in our country, to the very richest. I sometimes survey a slum in London in the morning filled with a dozen migrant workers with no hot water, and in the afternoon survey a £10 million penthouse.

Anyway, what I’ve learnt so far is this: the pitchforks are coming.

From my daily meandering around London’s residential areas, it is clear that the city as a whole is transforming into roughly two parts: vast swathes of dormitory housing for migrant workers (which has replaced the former middle-class suburbs surrounding the core, pushing the former middle class inhabitants outside the M25) and these migrant workers daily service the second part: archipelagos of increasingly elite housing areas.

This process is not yet complete, but the transformation has been extraordinarily swift.

Our society is as unequal as it has been in modern history, and grows more so by the day. There are a higher proportion of people in London in servile jobs (domestic cooks, cleaning the houses of the rich etc) than there were 150 years ago, and the inequality I see every day is just…extraordinary.

Downtown Abbey portrays a socialist utopia that Londoners can now only dream of. An individual’s wealth – and whether or not they have a chance of buying a home – is now pretty much entirely down to their parent’s economic status, as it was a century ago. Some areas of housing in London now would not be unrecognisable to Dickens, and these areas are spreading rapidly. And in contrast, the wealth I see in some areas is mind boggling: pricing-Croesus-out-of-Mayfair type-wealth.

And, speaking as a former Archaeology undergraduate (I applied as it was near the front of the UCAS book) there has never been this level of regressive inequality in history before that hasn’t led to the masses taking up pitchforks, literal or metaphorical – the only alternative paths have been where authoritarian regimes have emerged, and managed to postpone the inevitable (by buying all the pitchforks first. Can you buy a metaphorical pitchfork? I think I’m getting lost in my metaphor’s metaphors).

Why else are the government proposing to collect all of our emails and internet browsing history, if not to pre-empt this dystopia?

At some point people will realise: our economy isn’t a game that is rigged, it isn’t even a game: it’s an activity, where wealth is transferred from the many to the few. And when they realise this, they’ll appreciate that the only option they have left is to go to the few that have the wealth, carrying pointy-objects, and…take all their stuff.

London now is a random group of people, who share nothing non-geographical in common and often don’t even speak the same language, and who live in a society with income and asset inequality not seen for over a century. The rest of the country will be the same soon.

How do you govern that?

As I Was Going To St Ives, I Met A Man With Seven Houses

St Ives have voted for…well, it was a while ago now, but something to do with banning new builds being sold to people not from St Ives. So no more new builds for St Ives, which will make their local housing crisis worse.

But this is about the least insane thing that has happened recently, in housing terms. I mean, really, where do you start now on deciding what to write about with regards to the housing market?

There’s nothing about it that isn’t completely f***ing batsh*t crazy.

Following the government’s proposal to build a million new houses, new house building has completely collapsed. Like, totally (dude).

Social housing is slowly being completely eliminated by the recent Housing Act and replaced with Starter Homes, which are themselves, as a policy, Alice in Wonderland-level insane.

Pick any bit of legislation regarding housing, at random, and it will be nuts: take, I dunno……..references to housing in the Immigration Act 2014 and the new Right to Rent madness.

Section 21(3) “P is to be treated as having a right to rent in relation to premises (in spite of subsection (2)) if the Secretary of State has granted P permission for the purposes of this Chapter to occupy premises under a residential tenancy agreement”

Now, there is no way in which someone can apply for permission to rent, but permission might be granted by the Secretary of State off their own bat, in certain enigmatic circumstances. So, some people who do not have the right to rent might be granted permission to rent. But they cannot apply for such permission.

Impressive.

Lucky everyone’s distracted by the EU referendum, hey?

I’m actually undecided as to whether we should leave: no one has convinced me that the democratic deficit in the EU can be overcome - or is even planned to be overcome. This trumps most things for me, but I like the idea of peace and love that the EU promises, and I have always wanted to one day claim benefits on the French taxpayer in Gaudeloupe in the Lesser Antillles, and leaving the EU would jeopardise this plan (it’s in the Caribbean, but technically part of the EU you know. I know! Right? Who’s with me on this one…).

Both sides are bananas: some of the people in favour of Leave are starting to become a teensy weensy bit massively racist, but someone from Remain told me recently that parliament is sovereign because even though it’s not, it could be if it wanted to be as we could vote to leave the EU. Presumably, we’re also a republic because, even though we have a Queen, we could vote to get rid of her, ergo we are a Republic. And also, I’m thin! Even though I’m overweight, I could be thin if I lost weight. So I must be thin! Hurrah!

But then, I doubt we’ll leave the EU even if we vote to. I reckon Cameron won’t push the legislation through parliament immediately, he’ll wait two years – by which time he will have negotiated such a disastrous deal, the economy will collapse (it will anyway, it’s just a matter of timing – best to let it happen when you have an excuse) and the original referendum result will be declared null and void, and the EU super state will role on.

Still, Guadeloupe looks great.

The Death of Social Housing Is Not Greatly Exaggerated

Increasingly unlike his descendants, my Great Grandfather was a wealthy chap. Major Albert Owen was what you might call a classic, old-school patrician Tory: he bought a new Rolls Royce every year, spend much of his life executing wildlife and thought French people should be flogged on sight. But ask him whether he thought his valet should be housed in a proper, three bed semi with a garden and that the state should pay for it if necessary – and if the state didn’t pay, then he would: he would have thundered “GOOD GOD MAN OF COURSE, HE DESERVES A DECENT HOUSE… QUICK! THERE GOES A FRENCHIE”.

And in fact he built a row of houses in Hackney for just that purpose: social housing (although they weren’t all for his valets), whilst maintaining what would politely be called “massively right wing views”. And he was symptomatic of his time. After the Second World War there was a sense that everyone in this country deserved a home, and this view was held by – as far as we can tell – pretty much everyone in the land. This social environment led to the Beveridge Report in the 1940s – which essentially said just that: everyone in the country deserves a home, and this formed the basis of government policies for generations. Furthermore, if necessary the government would provide those houses, as otherwise it was agreed that we won’t get rid of the five great evils: squalor, ignorance, want, idleness, and the damned Frenchies (I think those were the five anyway, my great-grandfather first explained it to me).

If you are going to use government money to provide houses to people – whole, actual houses, with windows and everything – then that is what you need: complete, social solidarity. You need the whole country agreeing, or mostly, anyway. It’s no good me or your saying, correctly: “…but it’s a great idea! It’ll be so much better, and even cheaper, in the long run if we provide decent housing all round etc etc” if even a sizable minority are against it, it just doesn’t work, as it’s such a big thing for the state to do.

And flip to today: if you asked the question, “should a Romanian who has just arrived in Dover be provided with a decent, comfortable, free house when they set foot in this country?” After all, they are now as full a member of our country as anyone else. But how many people do you think would agree with that? I agree they should – if people are living in this country legally and want to be British, they should be housed properly as everyone in the country should be, otherwise we will end up with slums everywhere (we are there already, basically). But lots of people will say NO. And as a result Social Housing is dead, or at least the flights to Dignitas are booked – you can’t just house some Brits and deny any migrants the same rights, as otherwise….I mean the whole thing becomes nuts. You have some people with the right to live and work here and claim benefits (Brits), and some people with the right to live and work here and not even vote (damned Fren…sorry, I mean other EU citizens). How is that sustainable?

Quick non sequitur: as a side question, have we ever before had millions of people living in this country, contributing, working and not able to vote in a general election, the position EU citizens are in currently? Oh - YES CHR**T WOMEN UNTIL 1928 YOU IDIOT I hear you scream…anyway.

That’s partly why I’m thinking of voting to leave the EU, even if it does cause short term economic chaos: it has destroyed our sense of social solidarity, and killed social housing, by giving a lot of frankly nasty interests a convenient scapegoat, and allowing rich people to get poor Brits to blame poor foreigners for their problems, rather than the rich Brits that caused them. 

But I’m not decided – although, just wondering: but should we have anything to do with the way, say, Italy or Portugal govern themselves? I have lived in Italy, and Portugal, and I don’t think my Latin friends would mind me saying that it’s absolute f****ng chaos.

Anyway, if we are going to actually leave, we should do it properly: sever the landmass from the underlying continental shelf, muster a few thousand tug boats, attach the outlying islands using bungees and tow ourselves somewhere sunny. And away from those damned Fre…oh, nothing.