“Why younger people can’t afford a house”

Dominic Frisby tells Guardian readers why younger people can’t afford a house. Three reasons:

• money became too cheap
• planning rules became too numerous, and
• it’s in the interests of the political elite to keep them that way.

This is not just true for the UK, but every place following their flawed prescription of town planning plus fractional-reserve banking. Which is to say, every developed country on the planet.

House prices [in the UK] have risen by 10% in the last year …What that means is that the intergenerational wealth divide just rose by another 10% – and anyone born after 1985 is going to find it 10% harder to ever buy a home.
    There is perhaps no greater manifestation of the wealth gap in this country than who owns a house and who doesn’t, and yet it’s so unnecessary.

Measure so-called “inequality” by reference to home ownership, and you’ll blow away every other single measure.

Ignoring land prices for the moment, houses do not cost a lot of money to build – a quick search online shows you can buy the materials for a three-bed timber-framed house for less than £30,000; in China a 3D printer can build a basic home for less than £3,000 – and the building cost of the houses we already have has long since been paid.

The building cost of houses has already been paid, but in many places (NZ being one) building regulation has also pushed up home building costs at an even faster rate than house prices have accelerated. Still..

How can it be that, in the liberal, peaceful, educated society that is 21st-century Britain, a generation is priced out? These are not times of war, nor are they, for the most part, periods of national emergency, so why should one couple be able to settle down and start a family and another not, by virtue of the fact that one was born 15 years earlier than the other?
    There has been a failure in both the media and government to properly diagnose the cause of high house prices. Until the causes – our systems of money and planning – are properly understood, we cannot hope to fix the problem.

Understanding the effect of these two, and how their negative effects exacerbate each other, this is the key.

The standard solution is: “we need to build more”, but this is not a simple supply-and-demand issue. Between 1997 and 2007 the housing stock grew by 10%, but the population only grew by 5%. If house prices were a function of supply and demand, they should have fallen slightly over this period. They didn’t. They rose by more than 300%.

Once you realise however that demand is actually a function of desire coupled with the abillity to pay, then you understand it actually is a function of suppy and demand. Because the cause of house price rises is the unrestrained supply of new money. That is to say (in our modern fiat-money world) of debt.

[So while housing stock increased by 10% and house prices rose by more than 300%], mortgage lending over the same period went up by 370%, thinktank Positive Money’s research shows. It was newly created debt that pushed up prices in a decade of extraordinarily loose lending, which gave birth to a national obsession. Houses were no longer places to live, but financial assets. Property owners became immensely wealthy without actually doing anything. And this great, unearned wealth saw the rise of a new rentier class: the buy-to-let landlord.
    When you have runaway price inflation such as this, the Bank of England has a responsibility to quash it, usually by putting up interest rates. But – and here is the great sleight of hand – the Bank has seen fit not to include house prices in its measures of price inflation. So, throughout the 90s and 00s, they could then “prove” price inflation was low or moderate and interest rates meandered lower. Meanwhile, more and more mortgages were issued, and so more and more money was created, and it pushed up prices. The government didn’t mind.
    Homeowners vote and homeowners were happy – they were getting rich.

Just one reason the political elites of every party offer no serious solution to the problem. And still the fraud continues…

The Bank of England says inflation is 0.3%. Really?
   With house prices up by 10% last year?
    When you make money this cheap, you create bubbles. Combining a money system that requires ever-expanding debt to function with a national policy of ignoring where that money goes is asking for trouble. And trouble is what we have.
    2008 gave us the crisis we needed to address the problems inherent in our money system – how is money created? Who gains and who suffers by this system? – but our leaders chose not to. Instead interest rates were slashed, so mortgages and other debts became incredibly cheap to service (great if you already had a mortgage). We got the great obfuscation that is quantitative easing; £375bn of newly printed money flowed into the financial sector and on into the London property in which it mostly lives. Asset-owners were bailed out and the next generation was made to pay the price.
    Then we got help-to-buy, which is just another way to get new money into the market. And where lending has tightened in the UK, it hasn’t abroad, and so we have vast sums of money created overseas now entering our housing market and further driving up prices. Today in London everywhere you look there is a crane. There is no shortage of newbuild, yet we still have a crisis, because prices are so high.
    People associate debt with the poor. But large, cheap debt is, in fact, a luxury of large corporations, of the rich and of governments. It has created this unholy alliance between the three and with it an international culture of keeping debt costs low and asset prices high, whatever the consequences.

Risk-free profits, that’s what this culture has come to expect, backed up with bailouts should the shit hit the fan yet again.

Planning laws are the second part of the problem. All this money is pouring into a market that is restricted in how it can expand.
    Just 1.1% of rural and urban land in England and Wales has domestic property on it, according to the 2011 National Ecosystem Assessment. 1.1%! Another 1% has commercial property and 2% is roads. The rest is not built on. You could almost double the housing stock of England and Wales, using little more than 1% of available land. But planning laws prevent that.

The same sort of figures apply here in New Zealand, except even less so. According to the Landcover Database of Terralink, urban areas and urban open space in New Zealand account for less than 1 percent of total area, one quarter of that in the Auckland region. If all of NZ's 1,471,476 existing households were to be rebuilt on an acre of land (which was the sort of thing proposed by Frank Lloyd Wright in his Broadacre project), we'd all fit in an area less than one-quarter the size of the Waikato -- and think how easy it'd be to thumb a lift out to Raglan!

The sad fact is this makes housing unaffordable for everyone not already owning a house; it means they suck capital from those who don’t. The even sadder part, for small builders, is that it tends to make house building the preserve of a few large companies; and for those seeking housing that’s in any way attractive, it leads (partly because of this near-monopoly) to the bland and characterless buildings that so blight every new suburb and every coastal development.

Our most beautiful domestic architecture was predominantly built in the 18th and 19th century, before planning laws [just as NZ’s most desired suburbs are those ‘planned’ before planning laws were themselves invented]. The more planning there is, the uglier our buildings [and suburbs] seem to get. [Have you ever visited Albany? Or Manuka City?]
   It’s inevitable when the final say on creative decisions is in the hands of regulators. Imagine Van Gogh needing regulatory approval on a painting. Let us simplify planning, let self-build flourish and let the creative – not the corporations – do the building. I’ve always dreamed of building my own home. I’m sure you have too. It needn’t cost a lot of money – except that it does. An acre of rural land worth £10,000 becomes an acre of land worth as much as £1m once it has planning permission. [Just as an acre of land just outside Auckland’s Metropolitian Urban Limit is priced at around ten times more than a similar acre just inside.]  That is an expensive and needless cost of government.
    [Britain’s] 1947 planning act was founded on the … aim “that all the land of the country is used in the best interests of the whole people”. The opposite has happened. [Which is generally the case with all such aims.] The act reinforced the monopoly of the landowner and we now have a situation where more than 70% of UK land is owned by just 6,000 or so landowners (the Crown, large institutions and a few rich families). The act has led to huge concentrations of capital and people in areas that are already built up – especially London – bringing vast unearned wealth to those who own at the expense of those who don’t. It has actually caused the wealth gap to grow.

This is the most important, perhaps the only important wealth gap about which to worry: the gap propped up by governments making savers and those who don’t own homes prop up the wealth of those who do. However …

    The solution to the housing crisis is lower prices. What politician will stand for that? They daren’t let this market fail because too many people’s wealth is dependent on the value of their home – and homeowners vote more than renters. It’s not just the vested interest issue, with so many MPs being buy-to-let landlords (including 39% of Conservatives) [and almost every MP in the NZ parliament].
    The collapse of property prices between 1989 and 1994 made the Tories unelectable for half a generation. No party wants such a fate. Indeed if interest rates reflected 10% house price inflation, homes would become affordable pretty quickly, but then the whole financial house of cards would come crashing down too. Those responsible for that would become even more unelectable than the Tories were.
    However this ends – falling house prices or a generation even more excluded – it is going to be painful. But the sooner we recognise the causes of high house prices – our systems of money and planning – the sooner the problem can be properly dealt with.

Hear, hear.

[Hat tip Ziv Du]