The Housing Bubble 10k MEW per year "free money"
Commentator "Blissex"
Main quote:
http://www.bbc.co.uk/news/business-19288208
"In 2001, the average price of a house was £121,769 and the average salary was £16,557, according to the National Housing Federation. A decade on, the typical price of a property is 94% higher at £236,518, while average wages are up 29% to £21,330"
www.opendemocracy.net/ourkingdom/oliver-huitson/thatcher-black-gold-or-red-bricks
«Another of Thatcher’s magic potions was 'home equity withdrawal' or remortgaging - drawing down the equity in the borrowers home for (mainly) consumption purposes – new cars, holidays, and so forth. Under the two Prime Ministers that preceded her, James Callaghan and Ted Heath, home equity withdrawal as a percentage of GDP growth was around 36% for both. Under Thatcher, this exploded to over £250bn across her premiership – a staggering 104% of GDP growth. ... Under Major, such withdrawals amounted to only 8% of GDP growth, perhaps reflecting the wider economic climate. But Blair did his homework and let loose – as did Thatcher – a wave of cheap credit, financial deregulation, house price inflation and an equity withdrawal-led consumption boom. Withdrawals under Blair’s leadership totalled around £365bn, that’s a full 103% of GDP growth over the same period,»
That's one of my favourite quotes, because it explains most of the politics and economics of the past 35 years.
And what has been going on is the debt-collateral spiral and conservative parties becoming the parties of the interests that make profits from ever greater leverage.
«Labour were in government from 1997. Plenty of opportunity to reform financial services. [ ... ] Labour continue to sign up to misguided Tory policies such as allowing access to private pension pots,»
Because swing voters in South East marginal regard themselves as financial speculators first, and workers second (and many of them are pure rentiers, being often middle aged or older divorced or widowed property owning women, or having otherwise jobs they regard as safe). As I mentioned in another comment financial speculation on property has generated 150% per *year* gross returns for 20-30 years for those rentiers, and they absolutely love it. Do you realize how big it is? I don't think that even the heroin trade has produced 150% annual returns for decades, never mind for the millions of people (mostly middle aged and older women) who own a property (or several) in London or the South East that was bought in the 1990s or 1980s or earlier when property prices were more like 2.5 times single earner incomes, instead of 10 times or more two earner incomes...
Both Labour and the Conservatives think that those rentier swing voters in South East marginal seats are the only voters that decide elections, so they will promise anything to get their vote. Just about every policy that George Osborne has come up with is strictly targeted at buying their votes with more, bigger tax-free capital gains.
It is a long standing debate about "Southern discomfort" and people like Cruddas have argued in the Labour party against basing their electoral strategy on the same voters that the Tory fight over, and indeed while New Labour pursued them hard with all that talk of "aspiration", at least this current Labour leadership is simply leaving them alone.
«the state's cost of capital and ability to spread financial risk dwarfs any insurance company as we found out in the crash»
Actually what "we found out in the crash" is that the *Bank of England* has those advantages, as long as the inflationary implications are countered by ferocious fiscal austerity that pushes down median wages by 20-25% in real terms and the pound also goes down by the same amount. As George Osborne said: «A credible fiscal plan allows you to have a looser monetary policy than would otherwise be the case. My approach is to be fiscally conservative but monetarily active.»
He is just a pusher of "housing market heroin" as someone wrote:
http://www.theguardian.com/commentisfree/2013/mar/25/george-osborne-britons-economic-cannon-fodder
«This is what the political economist Colin Crouch has dubbed "privatised Keynesianism": debt is used to reflate the economy, but it is taken on not by the public sector but by individuals, couples, families. Privatised Keynesianism sounds a bit joyless, but the political classes found something to give it extra zap. Call it housing-market heroin: the special high the Brits get when property prices are really taking off and Sarah Beeny is on the telly explaining how we can all cash in. Thatcher was the first PM to really push housing-market heroin with her right-to-buy programme and her Lawson boom but, with their love of aspiration and Home Ownership Task Force, Blair and Brown knew its potency, too.»
At least Milliband and Balls are no longer pushing "housing market heroin" but they are not against it, to avoid antagonizing those swing voters in South East marginal seats.
deliver *too little* self regulation, they were not stupid, it was part of their strategy to win elections.
There are two stories here that have running in the UK (and other anglo-american culture countries) for decades in the circles of power (just read The Economist for the conventional wisdom):
* The less important story is that as the UK agriculture and manufacturing employment and profitability were falling the hope for prosperity for the future was *financial services* and in particular the success of ever-bigger "national champions" in financial services. Therefore the governments tried to subsidize massively their national champions in financial services via extremely low cost of funding (implicit state guarantees, explicit low cost loans) and regulatory relaxation and to make them merge to create ever bigger financial conglomerates, again with regulatory relaxation. The name of the game became for decades that the country whose finance national champions were allowed or even encouraged to have the biggest leverage ratios wrt capital would win, and that meant ever looser monetary policy and accounting and financial regulations. The financial sector got from the Tories and New Labour what they wanted, trading with leverage up to 50-100 times capital, and even infinite times capital as many huge financial companies speculated (and continue to speculate today) while having zero or negative net capital. Employment in financial services boomed spectacularly in the UK, with 30-50% of new jobs being in the financial sector (in particular estate agents, but also saving and pension salespeople) for many years.
* "Aspirational" swing voters decide elections in marginal seats, and they "aspire" to just one thing: bigger house valuations with cheaper remortgages. Bigger house prices are created by debt booms, as more debt pushes up houses prices, and higher house prices allow for more debt as they are collateral for the bigger debts. Debt booms are created also by tight fiscal policy and loose monetary policy, but most importantly by loose accounting and financial regulations. Affluent "aspirational" voters got from the Tories and New Labour what they wanted: 100-200% gross returns on highly leveraged property speculation, as a small house bought with a £5-10k deposit and a £100k mortgage in 2001 ballooned in valuation to £220k in 2011, for a gross annual tax-free or low tax profit (entirely at the expense of poorer people) of over 10k per year, plus (taxable) rent or rent-equivalent benefits. People who bought property before 2000 on 5% (20 times leverage) down mortgages made immense profits, and effectively got the property for free, as the valuation more than doubled.
New Labour was really into that, both ways (like the governments of Ireland, Australia, USA, Iceland, Spain, Latvia, ...) as SimonWL hints partially when he says «the Labour government, like their Conservative predecessors, brought about or tolerated a regulation regime and a financial sector that allowed the global financial crisis to have a particularly damaging effect on the UK economy». I am sure that the Tories would probably have done much worse, but that's a counterfactual to prove.
Main quote:
http://www.bbc.co.uk/news/business-19288208
"In 2001, the average price of a house was £121,769 and the average salary was £16,557, according to the National Housing Federation. A decade on, the typical price of a property is 94% higher at £236,518, while average wages are up 29% to £21,330"
There was a paper by one of the conservative think thanks published in the late 70s that showed that even given the same level of income and education and classvoters were far more likely to vote to the right if:
- They owned and used a car rather than using public transport.
- They owned shares rather than having a pension.
- They owned a house instead of renting.
That is even middle-upper class voters were more likely to vote left instead of right if they used public transport, had a pension, and rented, and most importantly even working class voters would vote for the right if they owned a car, some shares, and a house, no matter how thin such ownership was.
Just fancying themselves landlords with a sliver of equity in a modest 2-up-2-down made working class voters think that their interests were aligned with those of bosses and peers of the realm rather than the interests of other workers.
I think that the original push to therefore undermine public transport, pensions, rented housing came from Keith Joseph, but it could have been Nigel Lawson who clinched the deal, or Norman Tebbit, or Malcolm Rifkind.
Whoever was, that voting attitude study has become the right-wing bible in many countries, and in the UK Thatcher determinedly targeted enormous subsidies at car, share, and house ownership, while sabotaging public transport, the pensions system and the rented sector.
The stroke of genius was of course Right-to-Buy and the legal prohibition to use for house building the meager proceeds from selling rented council housing at well below market prices to future gratefully Tory voters.
Because of course pushing up house prices and pushing down wages may be break even for a voter - but what it does is mean they have a far greater % of income coming from property. People notice when being landlords nearly doubles their income.
This was the goal of the social engineering policy, because it was a socialengineering policy, not a political engineering one.
The goal was not to make working class people change their vote to that for the party of another class, it was to make them change their class identification to that of the other class.
This arguably has succeeded materially. A pithy summary by the BBC on one important detail:
"In 2001, the average price of a house was £121,769 and the average salary was £16,557, according to the National Housing Federation. A decade on, the typical price of a property is 94% higher at £236,518, while average wages are up 29% to £21,330"
Now, currently in the South-East a 230K house is a working class two-up/two-down terraces house, and 20K is a working class income, let's say in marketing categories C1-C2.
The figures above basically say that the average "working class" person in the South East got tax-free capital gains for £12,000 per year for 10 years, that is an extra 70% on top of their after-tax job income.
That’s an average between the North and the South, and it does not really apply to the North.
But even it taking it as it is, that means £12,000 a year for a decade of tax-free effort-free income for a working class family in the South earning around £16,000 after tax.
And £12,000 (likely more) a year of tax-free effort-free windfall is GIGANTIC, especially if it recurs every year for 10 years as per the above numbers; and actually it has been going on for 20-30 years. And for the millions of people with a house in London it has been even bigger than in the rest of the South. Do people here really realize what an extra £12,000 a year of (purely redistributive rentier) windfall going on for decades can mean on top of an earned after tax income of £16,000? For millions if not a dozen million families? Do readers here realize what that means to “aspirational” Southern voters and what they are prepared to vote for to keep it coming? Also that these people are “right-wing” is not quite right, those voters are rather socialist and left-wing when it comes to their own civil rights and their own incomes, just like the traders and executives in the City and in business. They want a big-state for me, but a small-state for thee. These assholes are ferociously right-wing when it comes to the civil rights and incomes of “scroungers” and “nasties”, Northerners and men. Also because a large chunk of South East property owning middle aged and older landladies are baby boomers who grew very "liberated" during the 60-70s and a lot of them got rid of their husbands one or more times. They are both Thatcherite and “socially/sexually liberal”, so not a mixed situation. Relevantly Cameron owes a large part of his being leader of the Conservatives to his targeting that constituency.
So if they look at their income, they are getting nearly 40% of their income from their property, for no effort whatsoever other than voting for politicians who use the word "aspiration" and dog-whistle that they will push for higher house prices and lower employment and wages.
The conclusion is that the prized swing voters in marginal seats in the South East tend to be middle aged and retired women with property and remortgages (“old aunts”) and what they want is: *
*higher property prices,
*lower taxes on property,
*lower remortgage interest rates,
*lower wages for workers, especially young men,
*lower benefits for men, especially from the North.
*higher benefits and protections for women, especially older ones, especially in the South East.
Oh please enough with pious imbecility of euphemisms for "aspiration". It is not at all about businesses or even higher wages.
As several policitians have let slip "aspiration" in the UK means "bigger better house prices for those who have bought properties in the South East in the 1980s to the 1990s", and lower wages and welfare, and higher rents and less security for everybody poorer than them.
It is just craven hypochrisy to argue as if it meant anything less baser and more meaningful than that.
«productivity and hence real incomes for most of us have stagnated for years.»
But for many, usually people who vote more often or more opportunistically, they have been years of booming living standards.
The core of the electoral appeal of thatcherism is that thatcherites whether Conservative or New Labour have worked hard to ensure that upper-middle (and many middle) class voters collectively cornered the southern property market, creating a massive short squeeze on people short housing.
Politics has changed since J Cornyn:
Compared to previous elections, turnout by private renters increased (from 51% in 2010 to 65%) and favoured Labour to a greater degree, with the party achieving a 23-point lead over the Conservatives among private renters; the Conservatives maintained a 14-point lead among homeowners.[339] In terms of education, YouGov found that a one-point lead for the Conservatives among university graduates in 2015 had flipped to a 17-point lead for Labour in 2017.[339][340] For those with low educational qualifications, the Conservatives led by 22 points, up from 8 points in 2015.[339][340
«The promise of ever higher land prices seems detrimental to both. As it rewards passive investment in immovable goods and misallocates the nations economic assets»
Also the "beauty" of that is that it is purely redistributive and upwards redistributive too: all the gains to property owners from higher property prices necessarily are someone else's loss, someone who is poorer (at least in land).
At the same time as it rewards richer rentiers it punishes poorer workers (and businesses, but they are ambivalent about it).
The typical case that I have seen many times is people from the North moving to the South: yes, there are more jobs in the South, thanks to extraordinary government subsidies to London and other "core" tory areas, including colossal subsidies to house speculation that then boost incomes and jobs in the financial and building trades in the South.
People moving from the North to the South do get some of the government supported jobs in the South, but then promptly leave a large chunk of their new found wage in much higher rents or house prices to the tory voters of those areas.
«while inviting credit booms and periodic financial problems in the banking sector.»
Sometimes I wonder which came first: the desire of the financial sector to have an ever increasing market for debt and speculation, or the desire of the South East middle classes for much higher rents and tax-free capital gains.
From historical reports I reckon neither: it was the intense desire of the Thatcher government (not Thatcher herself apparently) to create a debt-based consumption boom (to counter the enduring depression of the industrial economy) which was embodied at first in the abolition of the "corset" and demutualisation of building societies (as David Boyle notes in "Broke") and later much more (e.g. PFI), in order to pursue "private Keynesianism" (as Colin Crouch has noted), which is just government-sponsored borrow-and-spend.
«Another of Thatcher’s magic potions was 'home equity withdrawal' or remortgaging - drawing down the equity in the borrowers home for (mainly) consumption purposes – new cars, holidays, and so forth. Under the two Prime Ministers that preceded her, James Callaghan and Ted Heath, home equity withdrawal as a percentage of GDP growth was around 36% for both. Under Thatcher, this exploded to over £250bn across her premiership – a staggering 104% of GDP growth. ... Under Major, such withdrawals amounted to only 8% of GDP growth, perhaps reflecting the wider economic climate. But Blair did his homework and let loose – as did Thatcher – a wave of cheap credit, financial deregulation, house price inflation and an equity withdrawal-led consumption boom. Withdrawals under Blair’s leadership totalled around £365bn, that’s a full 103% of GDP growth over the same period,»
That's one of my favourite quotes, because it explains most of the politics and economics of the past 35 years.
And what has been going on is the debt-collateral spiral and conservative parties becoming the parties of the interests that make profits from ever greater leverage.
«Labour were in government from 1997. Plenty of opportunity to reform financial services. [ ... ] Labour continue to sign up to misguided Tory policies such as allowing access to private pension pots,»
Because swing voters in South East marginal regard themselves as financial speculators first, and workers second (and many of them are pure rentiers, being often middle aged or older divorced or widowed property owning women, or having otherwise jobs they regard as safe). As I mentioned in another comment financial speculation on property has generated 150% per *year* gross returns for 20-30 years for those rentiers, and they absolutely love it. Do you realize how big it is? I don't think that even the heroin trade has produced 150% annual returns for decades, never mind for the millions of people (mostly middle aged and older women) who own a property (or several) in London or the South East that was bought in the 1990s or 1980s or earlier when property prices were more like 2.5 times single earner incomes, instead of 10 times or more two earner incomes...
Both Labour and the Conservatives think that those rentier swing voters in South East marginal seats are the only voters that decide elections, so they will promise anything to get their vote. Just about every policy that George Osborne has come up with is strictly targeted at buying their votes with more, bigger tax-free capital gains.
It is a long standing debate about "Southern discomfort" and people like Cruddas have argued in the Labour party against basing their electoral strategy on the same voters that the Tory fight over, and indeed while New Labour pursued them hard with all that talk of "aspiration", at least this current Labour leadership is simply leaving them alone.
«the state's cost of capital and ability to spread financial risk dwarfs any insurance company as we found out in the crash»
Actually what "we found out in the crash" is that the *Bank of England* has those advantages, as long as the inflationary implications are countered by ferocious fiscal austerity that pushes down median wages by 20-25% in real terms and the pound also goes down by the same amount. As George Osborne said: «A credible fiscal plan allows you to have a looser monetary policy than would otherwise be the case. My approach is to be fiscally conservative but monetarily active.»
He is just a pusher of "housing market heroin" as someone wrote:
http://www.theguardian.com/commentisfree/2013/mar/25/george-osborne-britons-economic-cannon-fodder
«This is what the political economist Colin Crouch has dubbed "privatised Keynesianism": debt is used to reflate the economy, but it is taken on not by the public sector but by individuals, couples, families. Privatised Keynesianism sounds a bit joyless, but the political classes found something to give it extra zap. Call it housing-market heroin: the special high the Brits get when property prices are really taking off and Sarah Beeny is on the telly explaining how we can all cash in. Thatcher was the first PM to really push housing-market heroin with her right-to-buy programme and her Lawson boom but, with their love of aspiration and Home Ownership Task Force, Blair and Brown knew its potency, too.»
At least Milliband and Balls are no longer pushing "housing market heroin" but they are not against it, to avoid antagonizing those swing voters in South East marginal seats.
deliver *too little* self regulation, they were not stupid, it was part of their strategy to win elections.
There are two stories here that have running in the UK (and other anglo-american culture countries) for decades in the circles of power (just read The Economist for the conventional wisdom):
* The less important story is that as the UK agriculture and manufacturing employment and profitability were falling the hope for prosperity for the future was *financial services* and in particular the success of ever-bigger "national champions" in financial services. Therefore the governments tried to subsidize massively their national champions in financial services via extremely low cost of funding (implicit state guarantees, explicit low cost loans) and regulatory relaxation and to make them merge to create ever bigger financial conglomerates, again with regulatory relaxation. The name of the game became for decades that the country whose finance national champions were allowed or even encouraged to have the biggest leverage ratios wrt capital would win, and that meant ever looser monetary policy and accounting and financial regulations. The financial sector got from the Tories and New Labour what they wanted, trading with leverage up to 50-100 times capital, and even infinite times capital as many huge financial companies speculated (and continue to speculate today) while having zero or negative net capital. Employment in financial services boomed spectacularly in the UK, with 30-50% of new jobs being in the financial sector (in particular estate agents, but also saving and pension salespeople) for many years.
* "Aspirational" swing voters decide elections in marginal seats, and they "aspire" to just one thing: bigger house valuations with cheaper remortgages. Bigger house prices are created by debt booms, as more debt pushes up houses prices, and higher house prices allow for more debt as they are collateral for the bigger debts. Debt booms are created also by tight fiscal policy and loose monetary policy, but most importantly by loose accounting and financial regulations. Affluent "aspirational" voters got from the Tories and New Labour what they wanted: 100-200% gross returns on highly leveraged property speculation, as a small house bought with a £5-10k deposit and a £100k mortgage in 2001 ballooned in valuation to £220k in 2011, for a gross annual tax-free or low tax profit (entirely at the expense of poorer people) of over 10k per year, plus (taxable) rent or rent-equivalent benefits. People who bought property before 2000 on 5% (20 times leverage) down mortgages made immense profits, and effectively got the property for free, as the valuation more than doubled.
New Labour was really into that, both ways (like the governments of Ireland, Australia, USA, Iceland, Spain, Latvia, ...) as SimonWL hints partially when he says «the Labour government, like their Conservative predecessors, brought about or tolerated a regulation regime and a financial sector that allowed the global financial crisis to have a particularly damaging effect on the UK economy». I am sure that the Tories would probably have done much worse, but that's a counterfactual to prove.