December 30, 2012
When work does not pay and savings are threatened by low interest rates, it seems logical to see property as the prime asset
by Phillip Inman, economics correspondent
Watching two of the better-known rightwing thinktanks prime their intellectual cannons and bombard the same target is an impressive, if stomach-churning, sight. In the past week the Institute of Economic Affairs (IEA) and Policy Exchange, both of which have the ear of No 10 and No 11 Downing Street, have taken aim at the UK’s planning laws.
The IEA opted for a straightforward bombardment of the green belt. It argued that property developers should be allowed to give incentives to local communities to free up otherwise sacred ground. In other words, if developers see a profit in building on certain land, most likely in the London commuter belt, and the local parishioners can be successfully bought off, then what right does anyone have to intervene?
It is the latest salvo in a sustained campaign that has won over the housing minister, Nick Boles, though not yet MPs representing home counties constituencies and electorates, who appreciate the status quo.
Policy Exchange adopted a more politically sophisticated approach in its policy paper Planning for Less, the Impact of Abolishing Regional Planning. It did the job of demolishing the government’s attempt at laissez faire, which was to strip local authorities of meeting targets for building homes. The targets were established by the previous government. The communities minister, Eric Pickles, said in opposition the targets were routinely missed, so what better than to get rid of them and let free-market forces take over?
The thinktank, which has just seen its director, Neil O’Brien join George Osborne’s team as a special adviser, commissioned a report that found abolishing targets, rather than unleashing a previously shackled industry, meant local authorities in England simply cut by 270,000 the number of new homes planned.
When Britain is supposed to be enjoying a house-building renaissance akin to the 1930s, when much of today’s suburbia was constructed, research that finds planners taking the opposite path should be deeply wounding.
Like the IEA, Policy Exchange rejects re-establishing targets in favour of incentives for home building. However, it says the incentives should be focused on bringing back brownfield land which has already been used, often for industrial or commercial purposes.
It is easy to see a political conspiracy in all this. The Tory party remains deeply in hock to the industry for donations. But it does not explain why there is a growing agreement that the only way to resolve the housing crisis is to buy off neighbourhoods in the green belt or inner city. After all, Gordon Brown was the first chancellor to commission a report, from the former Bank of England policymaker Kate Barker, which argued for extensive building on the green belts around major cities, especially London. Admittedly, he preferred a top-down approach, one that gave birth to the original targets, but there were plenty of incentives in the policy too.
So a political deal is only part of the picture. A much more fundamental issue is the increasing reliance on property wealth for the UK’s short-term sense of financial wellbeing, and the major part it plays in its medium-term financial destruction. When work does not pay, except for the lucky few, and savings are constantly in danger of being undermined by low interest rates or, worse, destroyed by the stock market, it seems logical to focus on property as the prime asset. It is the best pension around, isn’t it?
The latest Halifax survey of homeowners shows they remain optimistic about the value of their assets, with a majority expecting prices to rise in 2013.
Why, when the UK economy is in a dreadful state, with its core lending banks strapped for cash, would anyone in their right mind think property prices could rise? But as Fred Harrison, research director of the London-based Land Research Trust, points out in his new book, The Traumatised Society, rent-seeking by a wealthy class of people hooked on accumulating even greater wealth is the cancer that has brought down many more civilisations than the present one.
Free-market thinkers understand that the accumulation of property wealth by a wealthy middle class and corporate sector and placing a sky-high charge on it – either to rent or buy – will undermine the capitalism they seek to promote. It undermines the incentive for work and, more importantly, the incentive to innovate, both for themselves and the people who must commit a large part of their meagre income to paying the rent (or mortgage).
The IEA reckons prices could fall 40% if millions of homes are built on green belt land. In this way, the landlord’s power is undermined, workers have bigger disposable incomes, and innovation can begin again. But the price fall only happens at the expense of the countryside.
Policy Exchange confronts this issue, but refuses to take away the incentive to gamble on property, something decried by one of its heroes, Adam Smith, and many contemporary pro-capitalist bodies that have thought more broadly about the subject.
The Organisation for Economic Co-operation and Development, the International Monetary Fund and the Institute for Fiscal Studies have in the past couple of years concluded that only an annual tax on land can end the obsession with property. Once landowners face a tax, they will free up land they are sitting on, rather than wait for a rising market to make a killing.
In London, that is what we are seeing now. It is the crazy, financially engineered boom of 2007 beginning all over again.
Source: The Guardian
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