Why inequality makes house prices rise

I spoke on the same bill as the comedian and fridge-carrier Tony Hawks last night, at a Bristol rally called Make Billionaires History.  Hawks is very jovial about it all, but he has a plan: an agreed maximum wage, above which very high earners will be expected to give the rest away to charity.

It sounds unworldly, especially as the tax system is an increasingly voluntary business for the ultra-rich.  But it seems to me that our morality is turning against greed in a fascinating new way.  And, assuming the Hawks plan is enforced by moral sanction alone, I have a feeling that this - or something like it - is the direction we are actually going.

We don't say any more that, as Peter Mandelson famously said, we are relaxed about people getting filthy rich, because we sense that it damages us.  And exactly how it damages us provided me with the subject of my own contribution to the evening.

So this is what I said last night:

"I’ve got a confession to make. I am middle class. I admit it.  I’m not actually the little boy in the chair, but I might as well have been.

Not old fashioned middle class. I don’t have doilies or use laxatives. I’m not the one in the middle here. I’m new middle class.  I have obscure food allergies. I worry about school catchment areas. And you should see what I eat for breakfast.

So this isn’t your usual rant about inequality and poverty. I’m not saying I don’t care about that – just that my subject this evening is the middle classes.

Because there’s a peculiar paradox about the middle classes.  Every government in my adult life has claimed to represent them, to govern on their behalf. You know the kind of thing: hard-working families better off and so on – home ownership, school choice.

Yet look at the middle classes and you can see there’s a problem.

They don’t have any pensions – which used to be the definition of middle class life. They’re in a blind panic about schools, arguably because they’re never given the information they really want. The curriculum is dull and technocratic. And they can’t afford to live in the areas they were brought up, just as their children won’t be able to afford to live where they live now.

This is where I was born.  It was a slum in 1958.  It was only a recently retired red light district. Alf Garnett lived downstairs.

But I went to a dinner party recently and met the people who now live in the attic. The flat we lived in is now occupied by the head of Benetton Europe.  I can’t even afford to sleep rough there. There’s the problem.

Now before you dismiss this as a London phenomenon alone, have a look at this.

This is how much Bristol house prices rose in a quarter of a century (450%).  And Edinburgh (509%) and Truro (530%).

This is my house now.  It isn’t a mansion by any means. It was built in 1937 and cost £700. Mortgages in those days were usually paid off in 15 years.

If prices had increased at the compound inflation rates since then, guess how much it would cost now. £45,000.

This is what it actually is worth (£550,000) - not that I will see any of that.  It will go to cover my pension and social care.

If prices increase in the next 30 years like they have in the last 30 years, this is what it will be worth in 2045 (£2.7m).

Scary isn’t it. And I don’t believe for a second wages or salaries will increase like that.

So this is what awaits our children. Such narrowed choices about their career – if they are going to afford to rent or somewhere to live. This isn’t just about owning a home.  Indentured servitude to Big Landlord PLC.
And a new kind of economy where there are no middle classes. A miniscule elite who own everything and a vast sprawling proletariat, and no ladder between the two.

Timed when they go to the loo.

Here’s the Amazon warehouse where we’ll all work.  In Bentham’s panopticon. No old age pension except the state one, because it is – as the elite put it – uneconomic.

So let’s finish by looking at why and what this has to do with billionaires.

We are constantly told by Mark Carney and David Cameron, and practically everyone else, that the reasons house prices rise is that there aren’t enough homes.  This is, of course, true.  But it isn’t the whole truth. Because there are two reasons prices rise. Too few goods being chased by too much money.

There always was and always will be a scarcity of homes – though not as much as now, perhaps. Homes are scarce.

Here’s the graph of house prices rising since they abolished the corset, which regulated how much money went into the mortgage market.

Now, look at this. This is where the corset was abolished and the mortgage finance rushed in...

This is where Nigel Lawson reflated the economy after the 1987 crash...

This is when buy-to-let mortgages began to take off...

I’m not saying we shouldn’t build more homes. Of course we should. But there’s something else important here. When money pours in, the prices rise.

Do you remember the amazing television programme about Portland Road, and what the banker said: “Where do you think all that taxpayer’s money went from the bailout,” he said. “It went into banker’s housing”. So of course do the banker’s bonuses. £2.4 billion for Barclays alone this year. That’s £50 for each of their customers worldwide.

It’s actually very basic economics. When society is hugely unequal, the prices of the scarce things people need begin to rise. Billionaires create inflation for the rest of us. Not just in housing, though that’s bad enough, but in the price of holidays. Or education. Or leisure.

We should build more homes. We certainly should.   But it won’t solve the problem while billionaires funnel money into the UK housing market, and while 70 per cent of bank lending is on property.

It won’t solve the problem because the very rich cause inflation.  It isn’t their fault. I don’t blame them but, in the end, prices rise to suit their pockets and not ours.

That’s a problem for us. But it is an absolutely massive problem for our children.  We tell them they can do what they dream they can. We encourage them to change the world with their talents.

But the truth is, unless we act politically, and act politically, and building the new institutions we need, then they won’t.

Because they’ll have to go into financial services to pay the vast rent to Big Landlord plc.

Because there will be no retirement.

Because that’s the problem with an economy that produces billionaires. We just can’t afford them."

Find out more in my book Broke.