I grew up in Thatcherite Briton where property ownership was not just seen as something to aspire to but more of a birth rite. A 25/30 year mortgage was a badge of honour as you had provided security for your family and a perpetual hobby for yourself, heading down to the DIY store at the weekend for the next mini project that you would inevitably have to fix the following weekend.
The basic premise that we can generate wealth from investment is a cornerstone of our entire economy and is ingrained as such in our psyches. You purchase something, there’s added value whilst you own it and then it’s worth more when you sell. Seems simple enough right?
Well when it comes to ordinary goods this chain can be seen to be made up of tangible inputs. You buy raw materials. You add value to them by turning them into something new. You can now sell whatever you have made for more than the cost of the raw materials. The added value is coming from physical input and an actual change of state from the initial investment.
In the housing market however, unless you are constructing new houses or renovating old ones, what was first bought, is in essence what is sold. Perhaps however the hallway carpet has gone from blue to green and Uncle Jack has fitted a new lock to the back door but fundamentally it is the same building. Hardly a change in state is it? So this rise in value must come from somewhere else.
It of course does. It comes from our collective expectations that No. 73 Drinsdale Road must be worth more in the future than what we pay for it now. So let’s all buy houses and be rich beyond our wildest dream right?
Well that was the dream being sold to me back in the 80’s and it assumes that the main purpose of buying a house was to make money. It treats a house like any other investment vehicle and negates any social aspects. Let’s be honest however, most people wishing to buy a house are looking for that security of a place to live. A place that is their own space. A house that can become a home.
The housing market fails society when the ordinary person does not have access into this market because the supply of affordable houses for sale is eaten up by pure profiteering. People with a greater starting capital or access to cheaper interest rates will inevitably purchase houses and try to tap in to this price increase expectation. Alternatively they will remove the houses from the market completely by turning them into rentals properties. Both practises are self-fulfilling and constrict supply, further inflating prices beyond the reach of the ordinary person.
When we sit back and take a laissez faire attitude to parts of our economy that have such an impact on our social wellbeing we are doing ourselves a great disservice. The majority of the population become dependent on the few for their existence. Whilst this may work in a world of mass control, it is not part of a world of equality and should not be tolerated in a democracy.
As prices rise due to investment speculation, ordinary people are forced into two scenarios. The first sees them getting into greater debt and spending a higher portion of their income servicing that debt. The second sees them not able to participate in the market at all. The pure monetary on flow from each of these scenarios is a vast portion of the population having a reduced or no ability to access the wealth store that a house provides. The gap between the haves and have nots grows and does no one any favours.
Government has a duty to the population that they serve to ensure that everyone in the land has the same opportunities to prosper. The recent budget has seen an attempt to put the brakes on this 80’s style housing bubble by cracking down on the income tax payable at the point of sale. It’s a nod to the need to reduce speculation in the market but it is such a tentative nod it will probably have very little impact. We see it all the time when a right-wing government attempts to increase fiscal control. It’s so tentative that the outcome is tiny or non-existent and fuels the ability for people to claim that increased taxation does not work. Capital gains tax should be used to guide the market for the benefit of all and will work if it is targeted purely at speculators and is sizeable enough to have an impact on profit rather than just skim off a bit from the top.
There is always a need for rental properties and the idea that there is not enough supply again comes from the inability for people to purchase housing themselves. This swells the demand above and beyond the normal mainstay of the rental market i.e the transient populations made up of students and visitors etc. The shortage that is then seen, feeds back in to the investors mind set and the cycle continues. We hear it all the time that investors are needed to free-up properties to rent. Whilst this is not a false statement in itself, the reason why should always be heeded.
So should the Government try to stop people becoming landlords? Of course not. But a simple change in the law with respect to standards of living that a landlord must provide would have the double benefit of slowing this portion of demand in the market and at the same time raising the living standards of all those currently renting. I see this idea of social responsibility as a no brainer. We legislate to protect our citizens in all other markets, even the labour market with a minimum wage, why not in housing?
We fight to battle inflation everywhere else in the economy. Surely the time to act decisively in the housing market has come.a
lprent: I was waiting for a response from the author about the name they wanted attached to this post, but while rebooting my workstation, my finger slipped and published the post. 🙁