Thursday 23 May 2013

Why aren't homes being built? Because we can't afford them

Well, isn’t it extraordinary. The IMF just went ahead with their advice to the UK government without even reading my blog about house prices. Can you believe it?

There they were advising George Osborne to kickstart the economy (I might have told him that), with an early start to infrastructure projects, schools building and similar.

But then they fell into the usual mistake about house prices. Barriers to construction must be removed or the Help to Buy scheme will simply boost prices. As I explained earlier, it isn’t barriers to construction that are boosting house prices – or even the housing shortage (though it doesn’t help) – it is too much money in property.

As much as 70 per cent of UK bank lending goes on property projects, and every pound stokes up the next bubble and unbalances the economy even more disastrously.

The real reason why there are 400,000 outstanding planning permissions for housing units is not because there are barriers to planning or to building homes – it is that people can’t afford them.

And here is the problem. When speculation and bonuses push up the price of homes beyond the ordinary middle classes, then prices will rise, but homes will remain unbuilt outside London and the south east.

If society becomes so unequal that the majority can’t take part in normal life, even normal middle class life (as I said in my new book Broke) then the economy begins to seize up.

What happens is that the economy adapts, and this is the scary part.  It changes so that the opportunities only require rich people to take them up.  It isn't just the socially excluded who get excluded them, it is the previously affluent middle classes too.

As yourself why so many of the great British brands are luxury brands which most people can't afford - from Aga and Aston Martin to Burbery, Barbour and Bentley (why are they just As and Bs too?).  Because the UK economy isn't for the likes of us any more.  It's for the mega-rich.  We exist on the crumbs that fall from their table.

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