1. The Professor of Modern History, in Vladimir Nabokov, Bend Sinister, Harmondsworth, Penguin, 1986, p 46, first published in 1947
2. Ian Abley, We are witnessing a British built "housing crisis" that Government is powerless to resolve, 23 July 2008, posted on this website here
3. Ian Abley, Britain doesn't add up, 5 April 2009, posted on this website here
4. Prime Minister and Labour Leader, Gordon Brown's speech at the 2009 Labour Party Annual Conference, posted on www.labour.org.uk
5. Sarah O'Grady, House Prices Slump is Over, 31 October 2009, Daily Express, headline, p 1
6. Rebecca O'Connor, Unthinkable, but true, house prices rise yet again, 31 July 2009, The Times, Business Section, p 41
7. Anne Ashworth, Judith Heywood, and Ian King, House Prices back at pre-Lehman levels, but agents remain cautious, 3 October 2009, The Times, Business Section, p 52
8. Rebecca O'Connor, Off-plan buyers return with large deposits as the London property market perks up, 5 August 2009, The Times, Business Section, p 39
9. Robert J Shiller, The Subprime Solution, Princeton, Princeton University Press, 2008, p 6 to 7
10. Ibid, p 157 to 159
11. Gordon Brown, quoted in Harry Wallop and James Kirkup, Lenders to check on home buyers' spending, 19 October 2009, The Daily Telegraph, headline, p 1
12. Robert J Shiller, Irrational Exuberance, London, Currency Doubleday, 2005, p 1, Second Edition
13. Alan Greenspan, The Challenge of Central Banking in a Democratic Society - Remarks at the Annual Dinner and Francis Boyer Lecture of The American Enterprise Institute for Public Policy Research, Washington, D.C. 5 December 1996, posted here
14. Stephen Nickell, 'House Prices, Household Debt and Monetary Policy', speech given at a private dinner for Glasgow Agency contacts in Glasgow on the evening of Wednesday 11 December 2002, later reprinted in Bank of England Quarterly Bulletin, Issue 1, Volume 43, 2003, p 131 to 144, posted on www.nuffield.ox.ac.uk
15. Ben Bernanke and Mark Gertler, 'Monetary Policy Rules and Asset Price Volatility', Federal Reserve Bank of Kansas City, 1999, p 115, within p 77 to 128, republished as NBER Working Papers 7559, National Bureau of Economic Research, 2000, all posted on http://ideas.repec.org
16. Stephen Nickell, 'Monetary Policy Issues: Past, Present, Future', Bank of England Quarterly Bulletin, Issue 3, Volume 42, 2002, p 329 to 344, posted on www.nuffield.ox.ac.uk
17. Rob Pike, Catherine Marks, and Darren Morgan, Measuring UK Inflation, Economic & Labour Market Review, Office for National Statistics, Volume 2, Number 9, September 2008, p 18 to 25, posted on www.statistics.gov.uk
18. Jim ODonoghue, Interpreting the inflation figures: guidance on how to analyse the changes in annual inflation rates, Office for National Statistics, January 2007, posted on www.statistics.gov.uk
19. Stephen Nickell, 'Household Debt, House Prices and Consumption Growth', speech given at Bloomberg in London on Tuesday 14 September 2004, Bank of England Quarterly Bulletin, Issue 3, Volume 44, 2004, p 383 to 396, posted on www.nuffield.ox.ac.uk
20. Robert Bruegmann, Sprawl - A Compact History, Chicago, University of Chicago Press, 2005
21. John Kenneth Galbraith, A Short History of Financial Euphoria, London, Penguin, 1994, first published 1990
22. Ian Abley, We are witnessing a British built "housing crisis" that Government is powerless to resolve, 23 July 2008, posted on this website here
23. Martin Pawley, Home Ownership, London, The Architectural Press, 1978, p 138
24. Hugh Pearman, editorial, House and Home, November 2009, RIBA Journal, p 5
25. Ian Abley, The regression of Green Capitalism, 1 September 2009, posted on this website here
26. John A. S. Grenville, Europe Reshaped 1848 - 1878, Edinburgh, Wiley-Blackwell, 2000, fourth edition, first published in hardback 1966, republished as a Fontana paperback 1976
27. Karl Marx and Friedrich Engels, The Communist Manifesto, London, Phoenix Paperback, 1996, first published 1848, translated into English from the original German by Samuel Moore in 1888, p 8
28. Ibid, p 10
29. Ibid, p 22
31. The Callcutt Review of Housebuilding Delivery, London, Communities and Local Government, 2007, p 95
32. James Woudhuysen, This Land is Our Land, 8 August 2007, spiked-online
33. Robert J Shiller, quoted in Alexis Glick, Shiller on Housing: 'I am Terribly Conflicted', 5 November 2009, The Glick Report, Fox Business, posted here
34. James Heartfield, Green Capitalism - Manufacturing scarcity in an age of abundance, www.heartfield.org, 2008, p 91, with details of how to buy posted here
Predicting the future of British house building
'To try to map our tomorrows with the help of data supplied by our yesterdays means ignoring the basic element of the future which is its complete non-existence. The giddy rush of the present into this vacuum is mistaken by us for a rational movement.' (1)
Scroll to the Scenario at the bottom of this page
People are expecting British house building to pick up. Sadly they will be disappointed, even as the housing market inflates into another bubble.
There have been declines and recoveries in British house building before the 2007 collapse in construction activity. Data is in abundance. The total number of homes built has more than halved since the late 1960s, as successive governments withdrew from publicly funding the post-war welfare programme of council house building. There have been ups and downs in the volume of private housing built. After building 175,000 private homes in 2007 many expected that the market for new private housing would eventually recover from the financial crisis. The pent up demographic demand for new private housing would surely lead to a recovery of building if finance were made available. It seems irrational to suggest that the supply of housing will not recover to meet demand.
In July 2008 audacity argued that British house builders would be collectively reduced to building 100,000 homes in 2009. They would shift from aspiring to build in "volume" to making their money from planning approved "eco-homes" for a luxury market. (2) The halving in housing production from just over 200,000 has happened, but over two years to 2010. In April 2009 audacity argued that '... existing homes will inflate in price while new housing production will be around a fifth of the half million homes needed every year.' (3) Unfortunately that prediction seems accurate in November 2009, even though some house builders continue to promote the idea of building in volume. The idea of building 200,000 homes, let alone 500,000, seems a few years off to many.
We are further saying here, in November 2009, that there will be no necessary recovery of volume in a few years. Total housing production could easily remain at around 100,000 a year in England, Wales, and Scotland combined for a very long time. Production may even decline from that level of inactivity. The periodic recoveries of yesterday will not tell us what the future of British house building will be.
The British have not demanded that useful new housing is built. As a society we almost unanimously only ever demanded that housing continues to inflate in value as an asset. We get alarmed if the housing market shows signs of collapse. The majority are home owners, and a majority of the minority who are not want to be. Most see obvious advantages in housing asset inflation, while complaining of the unaffordability of better housing. That is contradictory, of course.
Gordon Brown knows that playing the housing market is a mainstream activity for the electoral majority. He really means it when he says he wants '... change that benefits the mainstream majority and not just a few'. He will not do anything to jeopardise housing asset inflation if he can help it. Brown insists '... I am determined to fight for change to benefit the mainstream majority.' He sees values he can support:
'Call them middle class values, call them traditional working class values, call them family values, call them all of these; these are the values of the mainstream majority; the anchor of Britains families, the best instincts of the British people, the soul of our party and the mission of our government.' (4)
Brown's New Labour has shown they will do much to revive housing asset inflation. The mainstream majority of Britain's home owning middle classes are relieved that the housing market is inflating again. (5) The financialisation of British housing became most evident in the early 1970s in the "Barber Boom", named after Anthony Barber as Chancellor of the Exchequer to Prime Minister Edward Heath. This British transformation of housing from a utility to a financial asset was extended in the 1980s with the "Thatcher Boom", which ended painfully in 1989. Since then house prices have been disconnected from household income in the "Brown Bubble" of 1997 to 2007. The bursting of the bubble was muted, and did not reconnect the housing market to household income. Bank of England Base Rates were slashed to 0.5% and mortgage interest rates were reduced to historic lows for those who could still access finance. Even if interest rates are raised house price inflation will continue. Investment in the insufficient stock of British housing is a safe bet, made safer by the building of an annual undersupply of new housing. The renewed inflation of 2009 will turn into the second "Brown Bubble", with New Labour hoping to be thanked by the electorate in the spring of 2010.
Some had hoped that the bursting of the bubble in 2007 would reconnect house prices with household income. Young people were understandably most hopeful of that prospect. It was commonly considered "unthinkable" that prices would remain unaffordable to the majority. (6) The housing market was expected to "correct" so that first time buyers in particular could afford a home. Many already in owner occupation may have been sympathetic to the unaffordability problem, but most would not want a "correction" to turn into a "crash". Most were then relieved by October 2009 when average British house prices had reached just over £160,000, and average London prices had recovered to nearly 270,000, which is where they were before the collapse of Lehman Brothers in September 2008. (7) The bottom of the burst bubble was an average of around £150,000, which would only be considered affordable to households earning over £50,000 a year. The top 20% of British households.
It is likely in future that any government will want to increase the number of highly subsidised "affordable" eco-homes built, to over 30,000 a year from Registered Social Landlords. New Labour may even manage to fund up to 5,000 council homes, and may even chose to use main contractors to deliver them. It may be that the RSL/Public sector might manage 50,000 social homes some time in the 2013 - 2016 period. Not all of that subsidised housing will be for owner occupation, even through desperate and dubious "equity share" schemes. There is a mood to move social housing away from the aspiration of owner occupation. Housing provision is far more polarised with a growing dependency on subsidy at the bottom, and huge deposits for owner occupation at the top. (8)
For the rest of the market the disconnection from income will mean a lower turnover between buyers and sellers. RICS members may get some of their 2007 business back, but not all. There will be greater social immobility, expressed in more commuting, an extension of families, and several households living in the same home. Overcrowding will be more likely. Homelessness may slightly increase, but most housing difficulty will be accommodated within the existing stock. There will be some interest in rental housing, but most would-be private landlords will struggle to get capital through mortgage companies. It is possible that commercial rental companies might enter the market, particularly in areas like London where high-earning under-30s working in The City are not yet ready to buy. But institutional investment is unlikely when rental yields will be too low compared to capital and operating costs. The RSL/Public sector will tend to more conventionally take up some of the rental market if they can raise provision to 50,000 a year, but waiting lists will remain long.
The mainstream majority of the electorate is likely to be grateful that the burst bubble did not turn into a crash. New Labour will try to take the credit for averting any further financial disaster. There will be a lot of empty rhetoric about how to avoid a repeat of the 1997-2007 bubble when all effort has been devoted to re-establishing house price inflation. After all, there is £1.2 trillion of mortgage lending "secured" against the inflated value of British private housing. While the lenders have been berated in the last two years, there will be a political attempt to blame the mainstream majority for borrowing far too much. What will be ignored is that house price inflation suits Britain's politicians, and the lending institutions in The City. The British economy is too weak to pay higher wages, and the mainstream majority are too politically weak to challenge that predicament. What other future is there for Britain except another asset inflation bubble? All Brown wants is the electoral thanks.
Robert J Shiller
Brown will try to avoid blaming either the lenders or the mainstream majority of borrowers, if he can. Many have taken another view. Robert J Shiller is the Arthur M. Okun Professor of Economics at Yale University. If he is to be believed the housing bubble inflated and burst in 2007 because of the "irrational exuberance" of the home buying electorate, supported by the giddy rush of bankers to lend mortgages many times larger than the buyer's annual household income. It has long been politically popular to attempt to extend home ownership to a larger percentage of American and British society, and Shiller has no problem with that. He objects to home ownership not being extended rationally:
'Sometimes these lenders enticed the naive, with poor credit histories, to borrow in the ballooning subprime mortgage market. These mortgages were packaged, sold, and resold in sophisticated but arcane ways to investors around the world, setting the stage for a crisis of truly global proportions. The housing bubble, combined with the incentive system implicit in the securitization process, amplified moral hazard, further emboldening some of the worst actors among mortgage lenders.' (9)
Shiller is not stupid. He knows that if home ownership is to be extended to lower income households in future then a simplistic limit on mortgage lending at a low multiple of household income is not possible. In 2008 as a "subprime solution" he proposed a government regulated but privately lent Continuous Workout Mortgage, which would be adjusted monthly according fluctuating income. This recognised that many households face periods of low paid employment or unemployment, and that regular mortgage payments could not be maintained. This financial innovation would be over an unfixed term, and would allow for lending at larger income multiples when the mortgage was taken out, provided the low income household agreed to monthly supervision by lenders, and took out a package of insurances to minimise the risks to lenders. (10)
Shiller's "rational" solution to the political and economic problem of extending home ownership to low income home buyers in a housing market which had generally inflated, deflated, and would inflate again, is to lend many times annual household income on the "never never". Similarly Gordon Brown has sought ways to make the trillion pound British mortgage market more secure for lenders, whilst wanting to reassure "prime" borrowers that home ownership will not be extended if it threatens the stability of the financial system:
'We need much tougher rules to make sure that high loan-to-value or high loan-to-income mortgages are offered only when the lender has done rigorous checks to ensure people can keep up repayments.' (11)
The state will "lightly" regulate lenders who will intrude constantly into the financial affairs of those considered "subprime". Like Brown, Shiller says the mass of low income would be home buyers represent the greatest risk to the big business of mortgage lending. The greater concern is with what is seen as the risk of "irrational exuberance" among the poorer sections of society wanting even a small share of the financial benefits of home ownership in a fluctuating housing market. In the American market all data points to a long run trend of asset inflation exceeding general inflation. Housing asset inflation is more established in Britain. The British economy now depends on financial bubbles, and poorer households are not going to be allowed to benefit in this mainstream speculation. Home ownership is only to be extended to those middle class households who pose no risk to lenders. Unsurprisingly.
Shiller's description of "irrational exuberance" is taken explicitly from Alan Greenspan, Chairman of the Federal Reserve Board in 1996, considering The Challenge of Central Banking in a Democratic Society. (12) Greenspan asked '... how do we know when irrational exuberance has unduly escalated asset values?' Thinking of the experience of a prolonged recession in Japan he had a worry:
'We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability... But we should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy.' (13)
So as the first "Brown Bubble" became manifest asset inflation was good if it didn't affect the "real economy". As if the financial exuberance was not real. After the bursting of the bubble in 2007 it is imagined that exuberance can be managed. The lenders will better exclude anyone who is not mainstream in future. Then a second "Brown Bubble" can be looked forward to, and British mortgage lending extended beyond £1.2 trillion. The electoral benefits accruing to those politicians who can credibly claim responsibility for saving the housing market.
There were worries during the first "Brown Bubble", it is true. By 2002 Stephen Nickell had recognised that '... a key issue in the present conduct of UK monetary policy is the high and unsustainable rate of house price inflation and the build up of household debt.' (14) He was then serving on the Bank of England's Monetary Policy Committee. Yet Nickell declared he agreed with what he claimed as the consensual view among economists at that time. A view which concluded that '... it is neither necessary nor desirable for monetary policy to respond to changes in asset prices, except to the extent that they help to forecast inflationary or deflationary pressures.' (15) Nickell said:
'Raising interest rates simply to restrain asset price booms may reduce one of the shocks hitting the economy. But this will be at the probable expense of systematically moving inflation further from target which will add extra instability of its own.' (14)
The MPC was not attempting to control asset prices. It was only interested in a target for a general inflation rate that explicitly excluded house price inflation. (16) RPIX was up to the end of 2003 the measure used as the government's inflation target for the Bank of England. It is the same as the Retail Price Index which dates back to 1947, (17) except that it excludes mortgage interest payments. New Labour has innovated different inflation measures since being elected in 1997. RPIX was generally considered a better tool for monetary policy purposes because by excluding mortgage interest payments it did not reflect the direct impact of interest rate changes made to control inflation. While it made sense to economists to decouple inflation measures from mortgage interest rates, it also meant that house price inflation, and the resultant need for larger mortgages, never showed up in the figures that concern policymakers. RPIX made political sense for New Labour, since it ignored people paying more from their income for larger mortgages on more expensive housing. The MPC could adjust interest rates without affecting RPIX, and government could claim that inflation targets were being met.
RPIX was replaced with the Consumer Prices Index in December 2003 as the inflation measure the Bank of England must target, allowing for some latitude above and below an annualised figure set by the Treasury. The CPI covers the full range of consumer purchases made by households in Britain, but excluding most owner-occupier housing costs, like mortgage interest payments. (18) The CPI had, and still has, the same effect as RPIX, in separating interest rates from inflation measurement.
As a consequence, as Nickell noted in 2004, '... the scale of household debt accumulation is unlikely to have much of a direct impact on monetary policy'. However, he also warned that '... the current and future expected level of house price inflation will have a direct impact on monetary policy because of the effect on general inflation via household consumption growth.' (19) In other words, while the Bank of England would not attempt to deflate a housing bubble, if that bubble burst for some set of reasons, there would be an impact on the "real" economy.
The Bank of England MPC was effectively instructed by New Labour to welcome the positive effects of a housing bubble on the economy, based on mounting household debt. The MPC members like Nickell accepted that limitation. At best Nickell was publicly ambivalent about the "Brown Bubble", saying in 2004 that '... it is obvious that there is a significant probability that house prices will fall at some stage. Despite this, it is quite possible that house prices will not fall at all.' (19) Exactly the mixed message that New Labour wanted from a tame economist.
Nickell is tame. He was tame on the MPC, and is tame at the National Housing and Planning Advice Unit. He prefers to blame the population for opposing house building through the planning system. The easy accusation that people take a Not In My Back Yard attitude to new house building, while wanting to be part of the mainstream middle benefitting from house price inflation. The NHPAU no doubt believes that if it were not for the NIMBYs then Gordon Brown's New Labour government could better soften periodic asset inflation and general housing unaffordability by centrally encouraging more house building through the planning system. David Cameron's Conservative opposition clearly hopes to give greater influence over the planning system to locally elected councillors, in closer contact with their mainstream middle class of homeowners. New Labour sneers that this as an appeal to the NIMBY electorate who will oppose house building. Conservatives note that house building has long been in decline, and see their flawed idea of a "new localism" more accurately as a purification of the planning system. They want to get rid of tiers of planners and countless quangos, to return to the intention of the 1947 Town and Country Planning Act.
Most people know that if elected the Conservatives will fail to get rid of the constituency of middle class employees who comprise the planning process. Whichever government is elected there will be the confusion of more institutional reorganisation, and a strengthening of the hold of the peculiar British planning system over house building. NIMBYs have little control over the predicament we are in, since periodic housing asset inflation and an expansion of lending is more important than building new homes to meet demographic demand by any measure of affordability.
In his excellent Sprawl - A Compact History, Robert Bruegmann cut through the myth that the future of housing is a matter of being either for or against the evident NIMBY phenomenon. He more usefully described the mainstream middle of home owners as the "incumbents club". (20) Bruegmann appreciates that people are rationally wanting home ownership for all the advantages of not being dependent on any landlord, with the hope that rather than paying rent the mortgage can be paid off. The home is something of a utility and, perhaps, an asset. Home ownership is aspirational.
It does not follow, as John Kenneth Galbraith imagined, (21) that such rational residential aspirations tend to eventually lead to an "irrational exuberance" in which people forget their home is a necessary utility, not simply an asset. Bruegmann knows the ability of households to buy a home depends far more on the political and economic context beyond their individuated control, as regulated by systems of land use planning, or development control. People are stuck in planning systems that facilitate the lucrative expansion of mortgage finance and bubbles.
Bruegmann situates NIMBYism in the predicament of being an incumbent within the planning system. The home owning mainstream middle is not conspiring to project the financial system into an asset bubble.
Both New Labour and their Conservative opposition will go to the next election trying to strengthen rather than explain how the planning system sustains the inflated value of a hectare of developable land in Britain. We think the reason for this is clear, (22) thanks to our having spent the last 10 years testing the insights of the late Martin Pawley. Notably:
'The means by which home owners derive wealth from their dwellings developed over a number of years but were thrown into sharp relief by the events of the 1971-73 gazumping boom; at which time they became so universally obvious that the nature of demand for owner-occupied housing underwent a massive change as a result... the period began with a market in which new houses were worth more than existing houses and ended with existing houses worth more than new houses.' (23)
The British economy depends greatly on The City, which needs to expand the £1.2 trillion of mortgage lending in a secure way for lenders in the global financial system. This only happens when existing house prices are maintained well above the cost of constructing new ones, and best in a period of asset inflation. The trickle of new homes onto the market could reduce, and while any demographic demands of a growing population for the utility of housing would not be met, the political and economic demand for asset inflation and loan security will be satisfied.
The way in which existing homes are made more expensive than the cost of building new ones is to inflate the price of land and keep it inflated. That is done in Britain by the denial of development rights. Since 1947 the government requires all land owners to obtain planning approval before they can build anything. The value of land is replaced by the value of planning approval. Construction is affordable, as is farmland with no hope of being granted planning approval for development. It is the inflated value of a hectare of developable land in Britain that is unaffordable. That is why government and house builders recognise there is "planning gain" to be negotiated over, as the uplift in land value that follows an approval to develop. The nationalised planning system of 1947 has since the 1970s been a pre-requisite for the periods of housing asset inflation that any British government must accept and encourage.
Nickell at the NHPAU may object to the argument that the demand is for house price inflation. A demand that the planning system satisfies by sustaining the financial system with an interest in secured mortgage lending. He clearly wants increased housing production to meet demographic demand, and writes reports arguing for an increase on the standing government target of 240,000 new homes a year. He clearly wants housing to be affordable without subsidy. Nickell is at least rhetorically arguing for housing production to meet population growth, even if he can never argue for dramatic housing asset deflation by an abolition of the 1947 denial of development rights. He knows the British economy would suffer badly if there were any serious attempt to collapse the inflated value of land with planning approval, which is where most of us live, or the inflated value of land with a prospect of being granted planning approval in future.
I prefer Nickell's rhetoric to Hugh Pearman's platitude that '... there is housing, and then there is your home.' The design quality champion and "green" editor of the RIBA Journal says:
'The problem with treating housing as a numbers game, as politicians do, is that the home aspect gets too easily neglected. Architects, of course, are adept at working from specific to general, from the room to the city district, yet - away from their natural territory of the one-off house - they haven't enormous influence over the kind of housing that gets built.' (24)
This, in an issue titled Home Truths - How to design good housing, which promotes Hugh's friend and architect Peter Barber as he attempts to reinvent the back-to-back terrace as an "affordable eco-home". The geometric cramming of more "passively ventilated" back-to-backs into land bought at inflated prices by RSL/Public landlords on a state subsidy is no solution to the periodic asset inflation that now depends on maintaining the planning system. This is housing as human storage. When the Victorians built back-to-backs there was no planning system, and certainly no denial of development rights. The insistence that planning legislation from 1947, updated into the environmentally minded present, is necessary to stop the building of back-to-backs is disproven by environmentalists like Pearman and Barber, among the many who live by negotiating planning.
If eco-back-to-backs are the best that architects can do to house the mainstream middle it is a good job that the architectural profession has little influence over the kind of housing that gets built. Smug architects will however get more business from the decline in numbers of homes built, and will no doubt flatter themselves that this is further proof of the commercial success of "good design".
Peter Barber and his staff designing back-to-backs again
In the Victorian age there was a political and economic contest amongst materialists over the way that more people could be provided for by higher productivity. Communists on one side of the materialist contest would point out that Capitalists had set about raising the productivity of a growing population, but conveniently ignored how they controlled that industrial effort to their private advantage. The British planning system of 1947 was created as part of the Welfare State, in the pathetic political compromise of Old Labour Socialist reformers with Winston Churchill's Conservatives. The attraction of planning then was to build housing. That post-war concensus was sustained through to the 1970s, when Britain could no longer afford a public housing programme, of any quality. Two decades of largely reformist argument, in which politics was insufficiently materialist, finally ended in 1989. Since then environmentalism has filled the political vacuum, and variously criticised the failed materialist positions of both Communists and Capitalists. Some greens aim to meet population growth without raising productivity, while others would rather increase the productivity of a smaller population. Britain's misanthropic environmentalists prefer lower productivity and fewer people. (25)
We have tried to make a materialist argument that housing needs to be produced in quality and quantity to satisfy a growing population. We have tried to develop a materialist explanation of why the existing housing stock has changed from being depreciated as a dilapidating utility worth replacing with new construction, and appreciated as an inflating asset.
We have tried to do that without making the reformist mistake of thinking that home ownership or social housing is anything more than a form of tenure. Owning a home is not a matter of becoming a Capitalist, any more than the renting of a council house made Communists. What matters is to make materialist sense of the future. Society can't live off asset inflation and debt. We must build new housing.
We face a serious predicament today. Small quantities of highly subsidised and high density "eco-homes" are to be built by socially motivated architects like Peter Barber. Also a few tens of thousands of luxury "eco-homes" are to be architecturally designed by other friends of Hugh Pearman, some working with the former "volume" house builders.
Advisors like Stephen Nickell will talk about "affordability" and, like Pearman and Barber, will promote the idea that the planning system is economically, socially, and environmentally necessary. That planning is the key to "sustainability". They will not see that planning is the means by which twentieth century British Capitalists further withdraw from building housing. They will not consider that the national denial of development rights ensures there is much more easy money to be made from financing asset inflation in the existing housing stock.
Today Capitalists look to finance a greener and endlessly refurbished housing stock, while producing too few "eco-homes" even to accommodate yearly household growth. At least the Capitalists of the past were materialists, even if they built back-to-backs for the masses, while living in luxury themselves. They believed in building more, and developing a construction industry based on materials manufacture and the skills of the workers they exploited. Workers, with a materialist understanding of their own, who often confronted that situation politically. The Capitalists of the past, most evident between the 1840s and the 1880s, were owners of the means of social production and employers of wage labour. This turbulent period was dynamic.
The Emeritus Professor at the University of Birmingham, John Grenville, www.professorjohngrenville.co.uk, has accounted for how that Capitalist bourgeoisie reshaped Europe in conflict with both the old aristocracies and the proletariat they created. (26) That bourgeoisie employed the proletariat, the class of wage-labourers who, having no means of production of their own, were reduced to selling their labour power in order to live. Karl Marx and Friedrich Engels also saw them as a transformative political force in their day:
'The bourgeoisie cannot exist without constantly revolutionizing the instruments of production, and thereby the relations of production, and with them the whole relations of society. Conservation of the old modes of production in unaltered form, was, on the contrary, the first condition of existence for all earlier industrial classes.' (27)
Those Capitalists were progressive materialists.
'The bourgeoisie, by the rapid improvement of all instruments of production, by the immensely facilitated means of communication, draws all, even the most barbarian, nations into civilization.' (28)
Marx and Engels knew that Capitalists of the nineteenth century had succeeded in subjecting Nature's forces to man, but on the backs of their employees. The workforce created the surplus that employers retain as theirs, to turn into more capital. That capital is either invested in more productive processes, where it is possible to risk making a profit, or is lent out as finance, and expanded by the charging of interest. Today Capitalists are abandoning industrial production in favour of finance, and nowhere more evidently so than in housing. Hiding behind the moral claims of environmentalism the Green Capitalists of twenty-first century Britain no longer tend to be materialists. They are not improving the production of housing as a utility so much as financing processes of housing asset inflation that work better the less new housing is built.
'The essential condition for the existence, and for the sway of the bourgeois class, is the formation of capital; the condition for capital is wage labour. Wage labour rests exclusively on competition between the labourers. The advance of industry, whose involuntary promoter is the bourgeoisie, replaces the isolation of the labourers, due to competition, by their revolutionary combination, due to association.' (29)
There is no association today to oppose Green Capitalists operating a nationalised planning system, only to realise asset inflation in the form of a housing market. Planning operates as a state operated means of preventing housing production. Capital is being made from employees in planning departments and the mortgage finance sector, not from workers on building sites or in materials manufacturing supply chains. If accumulating capital is the criteria, that hardly matters, until housing bubbles burst, and affect the finance system to the point where Quantative Easing is required. But for Brown that was billions of pounds well spent to secure the £1.2 trillion already lent, and to access more finance in future. From the point of view that all people need much better housing in a low wage economy, it is a political and economic disaster.
Gordon Brown has helped to change the British construction industry. He has reduced it by favouring The City, and will reduce it further. He says:
'That is the change we have chosen; change that benefits not just the few who can pay but the mainstream majority.' (4)
Wrong! We are not convinced that the mainstream majority wants a future in which their homes inflate in value even while they dilapidate, completely disconnected from household income. We are not convinced that the majority of home owning "incumbents" will accept that new housing is only built as a luxury or as a benefit. We are not convinced that the planet saving moral claims of "eco-home" designers and builders will be believed. Sustainability is a fraud on the depoliticised majority.
The greater cost of constructing "eco-homes" may erode house builder margins. However there will be fewer buyers for expensive housing, and house builders will not sell them under market value only to give away the development value obtained in winning planning approvals. House builders are Capitalists too, of course, and will accept that their business has shifted from "volume" to "eco". They will reduce their production aspirations from NHPAU rhetoric, government targets, and the 200,000 level achieved in 2007. Some experts are predicting that "eco-homes" will be produced in slightly reduced volume by the 2013 - 2016 period. A more likely scenario is that even while the existing housing market inflates new production will reduce to 50,000 luxury "eco-homes" for sale, with 50,000 subsidised "eco-homes" of some kind. A sizeable proportion of the "affordable" kind will probably still be subsidised by the private sector through planning gain agreements, made as a condition of the planning approvals for luxury "eco-homes". 100,000 in total.
If the present production flatlined there would be 68,000 "eco-homes" for sale, with 30,000 "affordable" from RSLs variously for sale or rent, and maybe 2,000 from Public schemes. That flatline scenario is also 100,000.
Assuming RSL/Public house building realises 50,000 a year, government targets expect at least 190,000 private homes to be built. That is not going to happen. In any case the target of 240,000 is far short of the 500,000 needed yearly as a minimum. (2) To get back to a 200,000 total by say 2014 the private house building effort would need to be at least 150,000 a year. That is not a credible scenario either. A third of that is the likely scenario, at 50,000 a year. Even so it is far from certain that RSL/Public house building will realise more than 30,000 a year. 100,000 seems most likely, and it will be less if 50,000 "affordable" homes are not delivered, mostly by RSLs with a few from the Public Sector. The RSLs have never achieved such production, and council house building is a long forgotten practice. The private sector will be devastated.
The Capitalists in the construction materials sector will have lost half their business indefinitely, and the workforce will be much reduced. New house building will not be seen as a way to reduce unemployment. The new areas of employment will be in finance and refurbishment. The UK Green Building Council know that. (30) The weak ambition in 2007 to raise production volume, evident in The Callcutt Review of Housebuilding Delivery, is absent. Only the commitment in the Code for Sustainable Homes to build 100% of new housing as "zero-carbon eco-homes" by 2016 survives. As production keeps falling that target gets easier to achieve. (31) While more self-referential reports are written about greening the stock and meeting the 2010, 2013, and 2016 regulations.
British house builders are reduced to building around 100,000 homes for a very long time. Not seriously aspiring to build in "volume" they will make their money with more architectural assistance to the point that Hugh Pearman will be pleased to call their homes "sustainable". Existing homes will inflate in price, disconnected from household income, and social immobility will noticeably increase. That might be called a revival of "community", though Peter Barber might not go that far. Slightly embarrassed by the social consequences government will manage to fund or force the building of more "affordable housing", which Stephen Nickell will praise. There will be too few luxury new houses for the top 20% of society, and too few "affordable" homes for the rest, more or less all struggling on inadequate incomes.
The government will hope that the mainstream majority puts up with the situation because house price inflation is acute. It is not given that people will always accept that. However, at present, with no political sense that things can be allowed to be otherwise in Britain, it seems likely that government will be unchallenged. Come the 2010 election, a majority may thank Gordon Brown for putting inflation back into the housing market, while new homes are in very short supply.
Only a political challenge will improve the situation. Gordon Brown faces no political challenge from David Cameron. He never will. Under New Labour or the Conservatives the only future for house builders will be to offer highly differentiated luxury "eco-homes" for the equity rich, or the top quintile of earners, supported with high subsidies in some form to RSLs to provide "affordable" local homes for friends and family.
New Labour will build a few council homes more as a publicity stunt to keep their middle class Old Labour supporters amused. Conservatives will not bother about such nonsense. They will be too busy talking about new nonsense when promoting "localism" in a planning system based on the nationalisation of development rights.
Both New Labour and the Conservatives will more than happily subsidise RSLs through the Homes and Communities Agency. They will both also insist on "zero carbon" new housing by 2016. Both will focus on refurbishment of the existing stock, not replacement. Both will exclude more land from the planning system.
The priority for any government will be to reassert house price inflation to "secure" the £1.2 trillion of mortgage lending already extended, and which allows for Equity Withdrawal to make up for low household income among the middle classes. Debt will increase, and banks will be secured.
The only people who will challenge this predicament, this retreat of Capitalism from population growth and industrial productivity, will be the working mainstream middle. Brown thinks he has bought off the majority of home owners with asset inflation, and temporarily he might have relieved many. Cameron thinks he can mobilise enough NIMBYs to attempt to extract more for themselves from the planning system.
They might be proved wrong. The construction industry matters, and with argumentative organisation materialists might push for house building against the greens of Britain. Whether they be Reds or Blues.
The alternative to another period of government supported "irrational exuberance", which Gordon Brown hopes to make his second, is a rational movement for building at least 500,000 homes a year. That has never been done in Britain, and will require a challenge to the 1947 Town and Country Planning Act. It would be history in the making.
After all, there are the new generations of British people - those entering their 20s and 30s - who might demand something better than over-priced, undersized, over-crowded, and miserably maintained housing for themselves and their families. Waiting to inherit a home is not an attractive or universal option. People could demand new house building on Britain's ample and partially redundant farmland, building closer to the affordable cost of construction. Getting finance to build is always tricky, but not impossible without a planning system. As James Woudhuysen has eloquently put it:
'We are calling for the government to butt out of the land business and let the people decide where to build places to live.' (32)
Meanwhile, in America, Professor Robert J Shiller confessed to Alexis Glick that the historical data he looks at to predict the future is not working. He is in uncharted territory:
'This is the most uncertain time that I can remember. Things are violating the laws that I learned. The turn around in real estate is so dramatic. The whole country is experiencing an upsurge but I dont know what to make of it.' (33)
This is not as Shiller thinks a problem of psychology. Housing, as it has always been, is a problem of production. Environmentalism is the ideology of capitalism in retreat from production. (34) We know what to make of this historic moment in Britain. An association critical of the financialisation of housing, and in favour of actively breaking the 1947 Town and Country Planning Act.
Ian Abley 07.11.2009, updated on 10.11.2009
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