If the BBC leaders’ debate tonight devotes more time to bigotgate than to housing, I am going to dedicate the rest of my days to working for the Corporation’s demise.
Britain’s unsustainable housing market is at the root of many of the country’s problems and could wreak appalling damage on voters during the next parliament. It must feature in the debate.
Someone should start by reminding Gordon Brown of a promise he made in his first budget speech in 1997:
Stability will be central to our policy to help homeowners. And we must be prepared to take the action necessary to secure it. I will not allow house prices to get out of control and put at risk the sustainability of the recovery.
As I argued recently:
When Brown spoke, the average house cost £75k – about £10k above the early 1990s nadir. A long long boom was just beginning. Prices would peak in February 2008 at an average of… £232k!!!
In other words, Brown promised not to let house prices spiral out of control and then allowed them to treble, during a period when household disposable income increased by only 30% or so.
2007 saw what is often called a housing price crash, but as this graph shows, it was really only a blip.
As the government pumped money into the economy and pushed interest rates to unprecedented low levels, the bubble started to inflate again. House prices are now back to the levels of June 2007.
Second guessing the housing market is a mug’s game, surely this is unsustainable. British houses are overvalued by nearly a third, according to one measure. Worse is the amount of mortgage debt outstanding – $1.238 trillion. By comparison, government debt is ‘only’ £950 billion.
Low interest rates and buoyant employment (relative to the economy’s woeful performance) have kept householder’s head above water – but the highly-indebted remain highly vulnerable to any increase in interest rates or to further job losses.
My best case for the housing market is a long period of stagnation (we desperately need lower prices). Worst case would be a sudden, vicious and self-fulfilling collapse. I believe this is currently the most serious economic risk facing the British people (one which is, of course, interrelated to Europe’s sovereign debt problems).
So what do the major parties have to say about this in their manifestos?
- Labour wants to expand home ownership and exempt all houses under £250k from stamp duty (likely to push house prices up). It says it will build 110k houses over two years (likely to push prices down).
- The Conservatives promise to exempt first time buyers from stamp duty if their house costs less than £250k. It wants to put communities in charge of planning, which is highly likely to reduce the number of houses built.
- The Lib Dems plan to use loans and grants to bring 250k empty houses back into use.
Pretty weak beer, all told. No party questions the shibboleth that Britain needs more homeowners. None is prepared to explain how they will manage risks that have been increased by the response to the financial crisis.
Far less do they have policies to fulfil Brown’s promise from 1997 – to end boom and bust in the housing market radical proposals (see my Long Finance paper) to prevent the mortgage market from screwing borrowers every twenty years or so.
So here’s my question for tonight’s debate:
In 1997, Gordon Brown promised he’d never let house prices get out of control again, but then presided over a housing bubble that has left British householders owing £1.2 trillion on their mortgages. In government, what will you do to stop the housing dream from becoming a housing nightmare?
Stewart Jackson, Conservative shadow communities and local government minister and the party’s regeneration spokesman, was reported by audience members and rival parliamentary candidates to have told a public meeting organised by Peterborough Senior Citizens Forum last month that, in Afghanistan, “fifteen year old Muslim boys’ initiation rites are to rape a woman and shoot a foreigner”.
Jackson, who is the sitting MP in Peterborough, confirmed to this magazine that he had made the comments. But he said that the comments were made in reference to the situation on the ground in Afghanistan. He said they were “100 per cent” not his personal opinion but rather a view expressed in a briefing he had received on Afghanistan from the Ministry of Defence (MoD).
He said: “During a public discussion I referred to claims made at an MoD briefing on the situation in Afghanistan, this was part of a serious debate about complex issues and I hope no one is using it to try and score political points.”
But a MoD spokeswoman said that such a description of the situation in Afghanistan would be a complete departure from normal MoD practice. She said: “I can’t say that nobody from the MoD has ever said that but that is not the sort of thing we would ever say in an average MoD briefing”.
Update: This plays into an obsession on the fringes of the right with Muslim ‘rape gangs’. Our old friend, Mark Steyn, is a key promoter of this idea…
Update II: Stewart Jackson appears to have related concerns about the UK’s ‘broken society’:
The heart of Middle England is destined for asylum meltdown… News that the results of New Labour’s failed immigration policy are rising levels of violence and lawlessness on the streets of Peterborough come as no surprise to me – or anyone else who lives in the city…
Anyone walking through the city centre can see increasing numbers of young unemployed Kurdish men hanging around and residents are increasingly fearful as their area is used as a dumping ground for such ethnically mismatched groups like Afghans, Kurds and Pakistanis who riot and fight…
Tensions are growing not just between different ethnic minority groups – but also across the whole city – Pensioners, young families, professionals, Pakistanis. People are angry and feel impotent. When I knock on doors, people tell me that they’re fed up with seeing young men on street corners – mainly asylum seekers – intimidating old people and young women.
They’re fed up with homes being bought up in their neighbourhood by unscrupulous landlords milking the Housing Benefits system to let out to illegal immigrants used as cheap labour. And they’re angry that police resources are being diverted to keep warring factions in the city centre apart, whilst their streets suffer increased burglaries, robbery and car crime.
Update III: The UN has called rape a ‘profound’ crisis in Afghanistan.
Our field research also found that rape is under-reported and concealed and is a huge problem in Afghanistan. It affects all parts of the country, all communities, and all social groups. It is a human rights problem of profound proportion.
Women and girls are at risk of rape in their homes, in their villages, and in detention facilities. Rape is not unique to Afghanistan, but the socio-political context does have particular characteristics that exacerbate the problem. Shame is attached to rape victims rather than to the perpetrator. Victims often find themselves being prosecuted for the offence of zina, otherwise known as adultery.
For the vast majority of victims, there is very little possibility of finding justice. There is no explicit provision in the 1976 Afghan Penal Code that criminalizes rape. Thus, the UN recommended that the legislation on the Elimination of Violence Against Women make explicit reference to rape, contain a clear definition of rape in line with international law, and hold the government responsible for tackling this ugly crime.
The question remains, though, whether there is any evidence of it being used as an ‘initiation rite’. I think Stewart Jackson is going to have to give more details about who from the MOD briefed him and exactly what they said.
It’s no wonder the markets are raising questions about UK public finances – neither of the main parties has anything approaching a clear message on fiscal tightening.
From Labour, you get blithe assurances on taxes. Liam Byrne didn’t quite ask us to read his lips yesterday when promising no new tax increases, but he might as well have done. Carl Emmerson from the Institute for Fiscal Studies was unimpressed:
I cannot see how the Government can promise to not affect front line services when you look at the scale of the cuts they have got to plan for.
Liam Byrne is talking just about the first four years and after that there will undoubtedly have to be more pain and that is likely to be tax rises or even greater public sector cuts.
But the Tories are not in the clear either. I was baffled by William Hague’s recent speech at the Conservative Party Spring Forum. Half way through his speech, he lays out the Tory pitch to the undecided voter:
And to those who say they do not know what the Conservatives will do, let us tell them. We will cut the spending that cannot go on and the borrowing that leads to ruin.
So what follows? Here are all the commitments Hague makes that will cost money:
(i) Cutting taxes on business to give the UK the ‘most competitive’ tax environment in the G20
(ii) reversal of Labour’s planned national insurance increase
(iii) abolition or reduction of inheritance tax
(iv) two year freeze on Council tax (despite promises of the ‘biggest ever’ transfer of power to Councils)
(v) stamp duty abolished for first time buyers (despite unsustainable prices in the housing market)
(vi) more university places and apprenticeships
(vii) nursing care in their homes for the elderly.
And here are all the commitments is the only commitment that will clearly save money (though not much):
(i) Scrap ‘a large slice’ of expensive quangos.
And voters are supposed to be convinced this adds up to “vision of a Britain restored.”
Both parties need to convince the electorate they can get Britain back on its feet (the slogan I’d advise either to run their campaign under). But as Martin Wolf argues in today’s FT, at the moment it’s shaping up to be an election that both sides deserve to lose.
The top headline on Ft.com this morning was: “City tells Osborne to ‘wise up’ on bonuses – backlash after call for emergency controls on pay-outs.”
Wise up? Or what? Do they think they can simply slap the Chancellor-elect around and he’ll obediently come to heel? Unfortunately, they probably do. After all, it worked with Boris Johnson. He commissioned a report (read it here – it’s thin) from management consultants, Booz and Co, on how to insulate London’s financial sector from “UK national government and EU policy.”
Key conclusion: the Mayor should set up a lobbying team, funded by the taxpayer, to “understand the needs of business, develop a prioritised lobbying agenda to address these needs and leverage existing work and resources on these issues to act on this.” In other words – ensure the Mayor doesn’t make a move without getting permission from the City first.
The Conservative Party is, I think , approaching a defining moment. Is it going to govern as a pro-market or a pro-business party? Obviously, incumbent economic interests would prefer the former latter. Voters, I suspect, will take a different view…