Land ownership is one of the most corrosive elements of contemporary capitalism.
Until the 20th century, land in the UK was owned exclusively by just under 5% of the population. Now, around 70% of people own land. That sounds like a great news, but this figure masks deep structural problems within the economy.
The problem is that almost all of these new landowners are crammed into the 5% of UK land which is urbanised. Homes in these areas are eyewateringly expensive.
In fact, they are worth on average nearly nine times median income, and in some areas of London, that crazy figure can be over twice as high.
This is only possible because of extremely high household debt, because otherwise how could anybody afford a house? The average earner would have to literally spend nothing for ten or twenty years to save enough money.
Why are house prices so high?
Because around two-thirds of the UK is agricultural land. It’s really cheap, but because of planning restrictions and green belt regulations, houses just don’t get built there.
Around 70% of this land is owned by just 0.6% of the population, most of whom are the descendants of the Victorian aristocracy.
Furthermore, the small number of landowners who are sitting on most of our land are not taxed on this wealth, instead they are subsidised to keep it as agricultural land.
That’s right, incredibly wealthy landowners such as the Duke of Westminster are actually paid by the government to prevent their land being made into affordable housing!
The artificial shortage of land on which to build houses has enabled the financial system to inflate massive bubbles in housing prices. House prices soar because banks are creating money when they issue mortgages.
Banks only lend this money out because they believe that prices will continue to rise, and that is only true so long as the speculative lending continues. It’s like a perverse mixture of bidding war and trust fall, and it can only end badly.
If you don’t believe me, take a look at the figures. According to the ONS, house prices grew 8.7% in the year to June 2016. What can account for such a huge price hike?
People aren’t earning 9% more than they were last year. The price increase is driven by speculative money creation by banks, and now by the government.
Help to Buy
Knowing that housing market speculation was a major cause of the financial crisis of 2007/8, the government’s “Help to Buy” scheme seems reckless and dangerous.
George Osborne introduced the policy in order to stimulate economic growth by way of debt-driven house purchases.
The justification is to make housing more affordable for first time buyers, but it works by simply handing out money for mortgage deposits.
There is a crisis of affordable housing, but it stems from inelastic supply and definitely won’t be solved by consumer subsidies!
The Chancellor was clearly more interested in making growth figures look good than in actually addressing the problem.
Perhaps the worst part is that as a result of all this, massive amounts of savings and credit are being dedicated to speculative investment in real estate, when it could be much better used for productive capital investment.
With house prices now exceeding their pre-crisis levels, it can only be so long until the economy runs into trouble again.
(Image: Mark Moz)