Why Britain cannot build enough of anything

 The problem is bad rules, not bad people opines The Economist

Sep 1st 2022

Duncan sandys, a Conservative minister in the 1950s and 1960s, has two reasons to be remembered. The first is that he was the “headless man” being fellated by the Duchess of Argyll in a Polaroid photo, which emerged in divorce proceedings so vicious that they were turned into a bbc One drama earlier this year.

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The second reason is less salacious. In 1955 Sandys issued a circular that fundamentally changed Britain. It implored local councils to forbid building on the edge of cities in order “a) to check the further growth of a large built-up area; b) to prevent neighbouring towns from merging into one another; or c) to preserve the special character of a town”. The authorities had tried to restrict urban growth since the reign of Elizabeth I. Now they could.

Today all four nations of the United Kingdom have green belts. About 13% of England is so designated, including the surroundings of every major city. The girdle that encloses London is three times the size of the capital. A stroll through it takes in scrubland, pony paddocks and petrol stations. In “The Blunders of our Governments”, a book by Anthony King and Ivor Crewe, the policy is held up as a rare example of legislation achieving exactly what was intended.

The green belts do their jobs well, pushing development into the rural areas between them (see maps). Indeed, most parts of the planning system work as intended. Councillors retain democratic control over the planning system. Environmental watchdogs enforce their mandates fiercely. Stringent rules protect bats, squirrels and rare fungi. Courts ensure that procedures are followed to the letter. But the system as a whole is a failure. Britain cannot build.

In total, about 10% of gdp is spent on building, compared with a g7 average of 12%. England has 434 dwellings per 1,000 people, whereas France has 590, according to the oecd, a club of mostly rich countries. There is little slack in the market. In France, about 8% of dwellings are vacant at any one time. In England, the rate is barely 1%. Britain also struggles to build reservoirs and (despite boasts from successive prime ministers) nuclear power stations. With almost 500,000 people, Leeds is the largest city in Europe without a mass transit system. What has gone wrong?

The problem starts with the Town and Country Planning Act, which nationalised the right to build on land. Where once owners could do almost as they pleased, after its passage in 1947, local councils controlled what was built where. They have never relinquished that power. The planning system has more in common with an old eastern European command economy than a functioning market, argues Anthony Breach of Centre for Cities, a think-tank. “We do not have a planning system, we have a rationing system,” he says.

Even when councils approve development, other outfits can stop it. Natural England was created in 2006 with the aim of protecting flora and fauna. After a European Court of Justice ruling in 2018, it was tasked with ensuring “nutrient neutrality”, meaning any development could not increase phosphate or nitrate pollution in rivers. Natural England came up with a blunt solution: building could not go ahead unless developers could prove it would not lead to an increase in nutrient levels, a stipulation that few could provide.

The result was a near total freeze on house-building. Local politicians and developers, who had spent years in painful negotiations, were caught out. In total, about 14% of England’s land faced extra restrictions. One industry group argues that 120,000 houses were affected, or 40% of Britain’s annual housing target. Liz Truss, the likely next prime minister, has promised to scrap the requirement, but details are scant.

Newts present as many problems as nutrients. Anyone who harms a great crested newt while building can be jailed for up to six months. Bats are a nightmare for anyone renovating or developing (enterprising nimbys sometimes install bat boxes in order to attract them to a potential site). Protected under law, it is a crime to harm a bat or destroy its roost. A full report, which involves ecologists scouring a property with bat-hunting microphones plugged into iPhones, can cost £5,000 ($5,800).

If a roost must be destroyed, a like-for-like replacement must be installed. hs2, a railway line, was forced to build a £40m bat tunnel to stop the creatures being squished; its route is lined with bat-houses, which are large enough for humans. For developers, the rules are an expensive annoyance. For bats, however, the legislation has been a success. Numbers of the common pipistrelle have almost doubled since records began in 1999.

Some schemes do not survive contact with environmental objections. A planned nuclear power station in north Wales was rejected by the planning inspectorate in 2019 partly on the ground that it might affect a local population of terns. Inspectors ruled that “it cannot be demonstrated beyond reasonable scientific doubt that the tern colony would not abandon Cemlyn Bay”. That the terns had existed next to a previous nuclear power station was little defence. Inspectors also worried about the effect construction would have on the dominance of the Welsh language.

Even small housing estates now require reams of impact assessments and consultations. A planning application used to involve a single thick folder, says Paul Smith, the managing director of Strategic Land Group, which helps customers win planning permission. Now it is a thicket of pdfs, often running to thousands of pages.

For a development of 350 houses in Staffordshire, a developer had to provide a statement of community involvement, a topographical survey, an archaeological report, an ecology appraisal, a newt survey, a bat survey, a barn owl survey, a geotechnical investigation to determine if the ground was contaminated, a landscape and visual impact assessment, a tree survey, a development framework plan, a transport statement, a design and access statement, a noise assessment, an air quality assessment, a flood risk assessment, a health impact assessment and an education impacts report. These are individually justifiable, yet collectively intolerable.

See you in court

Make an error, however, and a legal challenge will follow. Anyone affected by a decision and able to afford a judicial review can challenge a planning decision. For a group of motivated, well-off nimbys, whipping together £20,000 for a review is easy enough. In Bethnal Green, in east London, a mulberry tree blocked the conversion of a Victorian hospital into 291 flats. Dame Judi Dench, an actor, was roped in to support the tree, which was so frail it required support from a post haphazardly nailed onto one of its branches.

After a campaign, the mulberry was in 2018 designated a veteran tree, which gives it special legal rights. (The number of signatories to save the tree matched the then population of Bethnal Green.) Although the developer had proposed moving the plant, a judge ruled that the council had not properly considered the danger that it might not survive: “A policy was misinterpreted; a material consideration was ignored.” The site sits derelict today.

Councils behave rationally when it comes to development. They levy no income tax or sales tax, and cannot even fund all their operations from property taxes, known as council tax. In all, local government imposes taxes worth less than 2% of gdp, according to the oecd. So more development does not equal much more money for better services. But it does equal more complaints. Councillors often enjoy majorities of just a few dozen votes. A well-organised campaign can replace an entire council, as happened in Uttlesford, in Essex. The result is that local councils are “a bottleneck on national economic growth”, argues a joint paper by the Centre for Cities and the Resolution Foundation.

The government in Westminster can usually override local objections. “When the state decides to act, it has unlimited power,” says Andrew Adonis, a Labour peer, who oversaw the introduction of hs2. Projects such as hybrid bills allow the government to bypass the planning system, turning Parliament into a kind of planning committee. The process is so arduous that sitting on the committee is often a form of punishment from the whips who enforce party discipline. But the benefit is that courts do not challenge primary legislation. Judicial review claims bounced off hs2 like stones off a tank.

Even when the government acts, it is often cautious. A plan to turn a quarry in Kent into a settlement of 15,000 homes was one of the most ambitious schemes, when announced by George Osborne, the then-chancellor, in 2014. Yet it is around a seventh of the size of Milton Keynes, a maligned but highly successful new town begun in the 1960s.

Larger schemes, such as a push for a million homes stretching between Oxford and Cambridge, with a new railway and motorway linking them, have been ditched due to local opposition. “We were a bit out of puff,” admits a cabinet minister. Greg Smith, a Tory mp, had already put up with hs2 slicing through his constituency, and it seemed unfair to subject him to more building. In Britain, pork barrel politics works in reverse, with mps keen to keep things out of their constituencies.

As a result, Britain’s most productive region is shackled. Burgeoning life-sciences firms fight for scarce lab and office space while world-class researchers live in cramped, expensive homes. The average house price in Oxford, £474,000, is about 12 times average incomes. Given the opposition of local councils and local mps to housebuilding, though, it can hardly be said to be against voters’ will.

Britain is rare in that the Treasury functions as both a finance ministry, keeping a close eye on spending, and an economic ministry, investing for the future. Thriftiness tends to trump investment. “[The Treasury] can add up but they can’t multiply” as Diane Coyle, an economist, puts it. It shackles big infrastructure projects, balking at upfront costs even if there are large returns later on.

The result is false economies. hs2, a £100bn project to connect London to Birmingham and then Manchester, Sheffield and Leeds, was intended mostly to add capacity to Britain’s crowded railways, not (despite the name) to speed journeys up. The government recently cut the eastern leg of the scheme to save money. That it was the most beneficial part of the scheme—the eastern leg to Leeds and Sheffield had a benefit-to-cost ratio of nearly 5.6:1, compared with 2.6:1 on the western leg between London, Birmingham and Manchester—was overlooked. Joseph Bazalgette, the Victorian responsible for London’s sewer system, is said to have argued that: “We’re only going to do this once and there’s always the unforeseen”. Now, the opposite principle applies.

Political capital is less fungible than the financial kind. When it comes to building things in Britain, there is usually no alternative scheme ready to go. If a big project is scrapped, the political capital spent on forcing through its approval cannot be instantly reallocated. The slow process of winning support at a local and national level must start anew. In the meantime, nothing is built.

And Westminster can be capricious. In 2022, after years of argument, Transport for London won permission to build 351 flats on land it owned at Cockfosters Underground station. Grant Shapps, the transport secretary, blocked the development because it removed too many car parking spaces. The Leeds Supertram Act was passed in 1993. Three decades later, Leeds possesses no tram, super or not, as a series of governments refused to fund the project. In 2016 the government rejected a proposal for a trolleybus, in part because it did not think the route would reduce inequality within the city.

Scepticism among nimbys is often justified. Post-war town planners botched city centres, bulldozing through objections. Birmingham’s Victorian centre was carved up to make way for ring roads that still throttle the city. London narrowly avoided a similar fate. New developments, such as Nine Elms, manage to be expensive while looking cheap. Outside big cities, development is often limited to boxy housing estates, which are notorious for poor building quality. A Welsh property surveyor has amassed 560,000 followers on TikTok by angrily taking viewers through snags in newbuilds. (“Check out what this absolute melt has done with this hinge,” he almost screams in one video. “That is absolutely ridiculous.”)

In Oxfordshire a group of residents have spent almost a quarter of a century fighting attempts to build a reservoir. The Environment Agency and a public inquiry sided with the residents over Thames Water. The objectors are shrewd, motivated and well-versed in water regulation. The chairman of the Group Against Reservoir Development (gard) is a retired nuclear scientist; his predecessor was a brigadier. But after a summer of drought, in which Thames Water had to implement a hosepipe ban, the victory rings a little hollow.

Efforts are being made to convert the unbelievers. New planning legislation offers residents the chance to propose their own development and, in effect, approve it themselves via street votes. The government is trying to improve design standards, hoping that beautiful buildings will attract less opposition. Those who put up with infrastructure, whether wind turbines or a reservoir, may benefit from free energy or water bills under one scheme floated by ministers.

Officials are also toying with a net-zero trump card. Projects deemed crucial to making Britain emissions neutral by 2050 would be able to ride roughshod over many obstacles. At the moment policy aimed at protecting the environment hinders projects that should help the climate. The government protects flora and fauna because voters want it; circumventing such rules can only be done in the name of the environment, runs the logic.

Building is binary, however. If something is built, those who oppose it will be unhappy; if it is scrapped they will be delighted. There is little incentive to meet halfway, or to accept a payoff. “This is not some sort of poker game where we demand huge compensation,” said Derek Stork, who chairs the reservoir-killing gard. Britain cannot build. But that is just the way voters want it.

A global house-price slump is coming

 It won’t blow up the financial system, but it will be scary writes The Economist

Oct 20th 2022

Over the past decade owning a house has meant easy money. Prices rose reliably for years and then went bizarrely ballistic in the pandemic. Yet today if your wealth is tied up in bricks and mortar it is time to get nervous. House prices are now falling in nine rich economies. The drops in America are small so far, but in the wildest markets they are already dramatic. In condo-crazed Canada homes cost 9% less than they did in February. As inflation and recession stalk the world a deepening correction is likely—even estate agents are gloomy. Although this will not detonate global banks as in 2007-09, it will intensify the downturn, leave a cohort of people with wrecked finances and start a political storm.

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The cause of the crunch is soaring interest rates: in America prospective buyers have been watching, horrified, as the 30-year mortgage rate has hit 6.92%, over twice the level of a year ago and the highest since April 2002. The pandemic mini-bubble was fuelled by rate cuts, stimulus cash and a hunt for more suburban space. Now most of that is going into reverse. Take, for example, someone who a year ago could afford to put $1,800 a month towards a 30-year mortgage. Back then they could have borrowed $420,000. Today the payment is enough for a loan of $280,000: 33% less. From Stockholm to Sydney the buying power of borrowers is collapsing. That makes it harder for new buyers to afford homes, depressing demand, and can squeeze the finances of existing owners who, if they are unlucky, may be forced to sell.

The good news is that falling house prices will not cause an epic financial bust in America as they did 15 years ago. The country has fewer risky loans and better-capitalised banks which have not binged on dodgy subprime securities. Uncle Sam now underwrites or securitises two-thirds of new mortgages. The big losers will be taxpayers. Through state insurance schemes they bear the risk of defaults. As rates rise they are exposed to losses via the Federal Reserve, which owns one-quarter of mortgage-backed securities.

Some other places, such as South Korea and the Nordic countries, have seen scarier accelerations in borrowing, with household debt of around 100% of gdp. They could face destabilising losses at their banks or shadow financial firms: Sweden’s central-bank boss has likened this to “sitting on top of a volcano”. But the world’s worst housing-related financial crisis will still be confined to China, whose problems—vast speculative excess, mortgage strikes, people who have pre-paid for flats which have not been built—are, mercifully, contained within its borders.

Even without a synchronised global banking crash, though, the housing downturn will be grim. First, because gummed-up property markets are a drag on the jobs market. As rates rise and prices gradually adjust, the uncertainty makes people hesitant about moving. Sales of existing homes in America dropped by 20% in August year on year, and Zillow, a housing firm, reports 13% fewer new listings than the seasonal norm. In Canada sales volumes could drop by 40% this year. When people cannot move, it saps labour markets of dynamism, a big worry when companies are trying to adapt to worker shortages and the energy crisis. And when prices do plunge, homeowners can find their homes are worth less than their mortgages, making it even harder to up sticks—a problem that afflicted many economies after the global financial crisis.

Lower house prices also hurt growth in a second way: they make already-gloomy consumers even more miserable. Worldwide, homes are worth about $250trn (for comparison, stockmarkets are worth only $90trn), and account for half of all wealth. As that edifice of capital crumbles, consumers are likely to cut back on spending. Though a cooler economy is what central banks intend to bring about by raising interest rates, collapsing confidence can take on a momentum of its own.

A further problem is concentrated pain borne by a minority of homeowners. By far the most exposed are those who have not locked in interest rates and face soaring mortgage bills. Relatively few are in America, where subsidised 30-year fixed-rate mortgages are the norm. But four in five Swedish loans have a fixed period of two years or less, and half of all New Zealand’s fixed-rate mortgages have been or are due for refinancing this year.

When combined with a cost-of-living squeeze, that points to a growing number of households in financial distress. In Australia perhaps a fifth of all mortgage debt is owed by households who will see their spare cashflow fall by 20% or more if interest rates rise as expected. In Britain 2m households could see their mortgage absorb another 10% of their income, according to one estimate. Those who cannot afford the payments may have to dump their houses on the market instead.

That is where the political dimension comes in. Housing markets are already a battleground. Thickets of red tape make it too hard to build new homes in big cities, leading to shortages. A generation of young people in the rich world feel they have been unfairly excluded from home ownership. Although lower house prices will reduce the deposit needed to obtain a mortgage, it is first-time buyers who depend most on debt financing, which is now expensive. And a whole new class of financially vulnerable homeowners are about to join the ranks of the discontented.

Dangerous properties

Having bailed out the economy repeatedly in the past 15 years, most Western governments will be tempted to come to the rescue yet again. In America fears of a housing calamity have led some to urge the Fed to slow its vital rate rises. Spain is reported to be considering limiting rising mortgage payments, and Hungary has already done so. Expect more countries to follow.

That could see governments’ debts rise still further and encourage the idea that home ownership is a one-way bet backed by the state. And it would also do little to solve the underlying problems that bedevil the rich world’s housing markets, many of which are due to ill-guided and excessive government intervention, from mortgage subsidies and distortive taxes to excessively onerous planning rules. As an era of low interest rates comes to an end, a home-price crunch is coming—and there is no guarantee of a better housing market at the end of it all. ■

Eat the rich! Why millennials and generation Z have turned their backs on capitalism

Owen Jones in The Guardian

The young are hungry and the rich are on the menu. This delicacy first appeared in the 18th century, when the philosopher Jean-Jacques Rousseau supposedly declared: “When the people shall have no more to eat, they will eat the rich!” But today this phrase is all over Twitter and other social media. On TikTok, viral videos feature fresh-faced youngsters menacingly raising their forks at anyone with cars that have start buttons or fridges that have water and ice dispensers.

So should the world’s billionaires – and fridge-owners – start sleeping with one eye open? Hardly. It’s clear that millennials (those born between the early 80s and the mid-90s) and zoomers (the following generation) are not really advocating violence. But it is also clear that this is more than just another viral meme.

The world’s most famous leftwing millennial, New York’s rebellious Democrat Alexandria Ocasio-Cortez, neatly sums up the generation’s zeitgeist. If leftism often seems to be the preserve of socially awkward nerds – hi! – and shouty older white men, she is the totem of the cool kids who like their redistribution of wealth and power with a hefty side order of mainstream popular culture.

It doesn’t sit easily with some: when the congresswoman accepted a free invitation to the uber-exclusive Met Ball in a dress emblazoned with “Tax the rich”, even some leftists joined the right in puffed-up outrage. Whether you thought it was an audacious demand for the sickeningly rich to cough up at their own exclusive party – or a stunt compromised by taking place in a real-life version of The Hunger Games’s Capitol – it showed that elites can’t escape the young flexing their political muscles.

According to a report published in July by the rightwing thinktank the Institute for Economic Affairs (IEA), younger Britons have taken a decidedly leftwing turn. Nearly 80% blame capitalism for the housing crisis, while 75% believe the climate emergency is “specifically a capitalist problem” and 72% back sweeping nationalisation. All in all, 67% want to live under a socialist economic system.

With a seemingly hegemonic Tory party on a high after routing Corbynism, the IEA warned that the polling is a “wake-up call” for supporters of market capitalism. “The rejection of capitalism may be an abstract aspiration,” it says. “But so too was Brexit.” It’s a striking phenomenon on the other side of the Atlantic, too: a Harvard University study in 2016 found that more than 50% of young people in the heartland of laissez-faire economics reject capitalism, while a 2018 Gallup poll found that 45% of young Americans saw capitalism favourably, down from 68% in 2010.

Jack Foster, a 33-year-old bank worker from Salford, shows how lived experience has fed this disillusionment with capitalism. After he dropped out of university and worked in a call centre – a “horrible job” – the financial crash shaped his political attitudes, as they did for much of his generation. But housing loomed particularly large. “I was renting, thinking: ‘How will I ever be able to afford a house?’” he says. “My mum was a cleaner, my dad was disabled, and the people I knew who could afford a house got help off their parents. It wasn’t a case of having a job and saving up; you had to inherit money.”

Dating apps are another, less formal way of seeing where the wind blows. The apps have increasingly become no-go zones for Tory supporters. Given Labour had a 43-point lead among the under-25s in the last election – unlike in 1983, when the Tories had a nine-point lead among our youngest voters – the dating pools of the youthful true blue have shrunk. “No Tories – it’s a deal breaker”, “Absolutely no Tories (the left are sexier anyway, facts)”, “Swipe right if you vote left” and “Just looking for someone to hold hands with at the revolution” adorn profiles on Tinder, Hinge and Bumble.

Many of the young have concluded that an economic strategy that penalises them, coupled with a “culture war” that denigrates many of their deeply held values, amounts to a Tory declaration of war on their generation. Anyone who buys into that is, therefore, deemed profoundly unsexy.

For the IEA’s Kristian Niemietz, this is partly down to a “reputational change” for socialism. Once associated with “fringe groups”, he thinks it is now more “a fashion statement, definitely on social media, where people construct a socialist persona which they use for image purposes”. Where he agrees with the left is that an epic housing crisis should receive much of the blame for its renewed attractiveness.

“Whether you ask free marketeers, conservatives, centrists, the centre-left or socialists, all believe the UK has a housing crisis, that it’s a massive problem, but all have different answers about where it comes from and what to do about it,” he says. “If people are getting ripped off and think the market is rigged against them, the one way people can react to that is to generalise: ‘This is what capitalism is like – what the market is like’, making them more sympathetic to socialist ideas.”
Rather than a ‘property-owning democracy’, Britain looks more like a landlord’s paradise. Illustration: Jacky Sheridan/The Guardian

In the 80s, Margaret Thatcher’s ideological mentor Keith Joseph described the push for homeownership as resuming “the forward march of embourgeoisement which went so far in Victorian times”. The great hope, for many Thatcherites, was that the “right to buy” would transform Labour-voting council tenants into Tory-supporting homeowners, a view later echoed by either David Cameron or George Osborne, one of whom Nick Clegg recalled objecting to building more social housing on the grounds that “it just creates Labour voters”.

But rather than the “property-owning democracy” promised by Thatcherism, Britain looks more like a landlords’ paradise. By 2017, 40% of the homes flogged off under right to buy were owned by private landlords charging twice the rent of council properties. Indeed, in the space of two decades, the odds of a young adult on a middle income owning a home more than halved. These young people have been called generation rent, with about half of the under-35s in England renting in a private sector often defined by extortionate rents and insecurity.

Rents in England take up approaching half of a tenants’ take-home pay, and an astonishing 74.8% in London, up one-third since the century began. And if millennials bet the house, so to speak, on a parental lifeboat, disappointment beckons: the typical inheritance age is between 55 and 64, and the median amount handed down is about £11,000, meaning half receive less.

There is no rational reason, of course, for the young to defend this economic system. According to a 2019 poll by the charity Barnardo’s, two-thirds of under-25s believe their generation will be worse off than their parents. Keir Milburn, an academic and the author of Generation Left – which argues widespread leftist sympathies among the young are a modern phenomenon bred by economic conditions – says this pessimism is new. “For someone born in the 60s who came into adulthood, there was a sense of optimism, that things will be better,” he says. “It’s the Enlightenment, modernist attitude that things will get better, society will always generally progress. Now it’s just [the author] Steven Pinker who thinks this.”

David Horner, 30, a charity worker in London, began feeling disenchanted with the prevailing system when he was at university. Now he has a child on the way, he worries about the world he’s bringing them into. From working with younger people from poorer communities to listening to the experiences of friends working in crisis-ridden health and education services, he’s in no doubt about the problem. “But we’re told this is the apex, the best we can get as a political economic system, and any alternative – even if it’s seemingly not that radical – just gets pushed away, that this is the way things have to be,” he says. “As I’ve got older, there’s that unfortunate feeling that you don’t want to accept the way things are, but there’s so much power, and corporations and people with vested interests in capitalism and the way the economy works at the moment.”

A generation was told that it was important to go to university to have a salary you could live on. But the earnings gap between graduates and non-graduates has fallen substantially and, despite England’s graduates accruing a student debt of £40,280 in 2020, more than one-third of employed Britons with a degree work in non-graduate jobs. In the years that followed the financial crash, and austerity in particular, it was the wages of young workers that fell the most in a protracted living-standards squeeze without precedent since the Victorian era.

Formal education plus economic insecurity is a heady mix, but it’s not the only phenomenon at play. Non-academic routes to a secure standard of living have been stripped away, such as the skilled apprenticeships available to so many 16-year-old school leavers in the past. Young working-class voters were considerably more likely to vote Labour in 2017 than their middle-class counterparts.

But a profound existential question has led many young people to question the entire economic system. “I saw a post on Instagram the other day asking if you’d rather travel a hundred years backwards or forwards in time, and all the comments asked: ‘Are we even going to be around in a hundred years?’” says Haroon Faqir, a 22-year-old graduate. “Those comments sum up people my age and our attitudes towards the problems we face in a capitalist system.”

Emily Harris, 20, a student in London, says her biggest worry is that “there’s not even going to be a planet: we’ve got Jeff Bezos launching himself into space while Las Vegas runs out of water and half the world’s on fire. If these billionaires stopped making money they could solve all of these problems and still have billions in the bank.”

While much of the mainstream media offers little sympathy for the insecurities and aspirations of younger Britons, the internet has offered a political education. The journalist Chanté Joseph is 25, placing her in the borderlands between millennial and zoomer. “[The microblogging site] Tumblr radicalised me,” she says. “Reading about race, identity and class made me think: ‘This is all crazy,’ and opened my eyes.”

Many of her generation then migrated to Twitter and TikTok, she says, “where young people create a lot of political content that’s really personable and relatable. That’s why a lot of younger people feel more radical – it seems more normal when these ideas are explained in a way where you think: ‘How can you possibly disagree?’”

More than one-third of workers on zero-hours contracts – often not knowing how much they will be paid week to week – are under 25, while many others are in “bogus self-employment”, where they are registered as self-employed but are actually working on contract for one employer while deprived of rights such as a minimum wage or holiday pay. The free market would bring them freedom, they were told; instead it gifted them insecurity.

The sacrifices made by young people during the pandemic have further crystallised a sense of injustice. Hannah Baird, a 22-year-old student, grew up in Rotherham and has always felt dissatisfied by the status quo. Her fears about the climate emergency, and exposure to dissenting opinions on social media, strengthened her discontent. “During the pandemic it feels like a lot of blame has been put on young people for the cases,” she says. “I still have to pay the full tuition fees when exclusively doing online lessons for a year and a half, which feels like a slap in the face, and it always seems universities were the last to be mentioned in plans for unlocking. It just feels, in general, that the government don’t really care about our generation, like we’re left behind.”

That doesn’t mean the young have been transformed into committed revolutionary socialists, but of those millennials familiar with Karl Marx, half have a positive view of him, compared with 40% of generation X and just 20% of baby boomers.

In Beautiful World, Where Are You – the latest novel by the millennial author Sally Rooney – it’s not just the sex that is sexy. One of her characters mulls over how everyone is talking about communism. “When I first started talking about Marxism, people laughed at me,” they say. “Now it’s everyone’s thing.” While it’s probably not the backbone of the patter at newly bustling nightclubs in Newcastle or Cardiff, there’s no question that a post-cold war youth is far more open to this once roundly condemned 19th-century philosophy.

Many placed their faith in Jeremy Corbyn’s leadership to offer solutions to their economic grievances; recent polling suggests that younger Labour voters are nearly twice as likely to believe he would be a better leader than Keir Starmer.

Most young people are not immersed in radical literature, yet politicised zoomers and millennials leave an ideological footprint in their friendship groups. But this doesn’t mean the left should simply bank the two rising generations, waiting for demographics to eventually grant the political victory that has so far eluded them. As the economist James Meadway warned in a recent article, entitled Generation Left Might Not Be That Left After All, populist rightwing answers to their disenchantment might cut through. In France, many young people have swung to the far right; in the UK, few are members of trade unions, which historically help craft anti-capitalist attitudes; while some classically rightwing sentiments coexist with leftish attitudes among many young people.

The rich – whose wealth surged during the pandemic – remain uneaten. But it is clear that young people see no rational incentive to back a system that seems to offer little other than insecurity and crisis.

Why you’re wrong to think that your house will finance your retirement

Treating houses as a financial instrument leads to an undiversified investment portfolio, with a large proportion of wealth concentrated in a single asset

Satyajit Das in The Independent


According to English writer Virginia Woolf, a woman in Victorian England needed money and a room of her own in order to write. In the modern world, housing itself has become a work of fiction.
A house provides shelter and a dwelling place. But increasingly this simple consumption good has been converted into a financial asset or investment as well as instrument of policy.

Governments subsidise home ownership in different ways. They may provide tax benefits such as tax deductions for mortgage-interest payments or lower taxes on capital gains from the sale of a residence. Common concessions include lower property taxes or stamp duty of property transfers as well as direct assistance for the purchase of homes. It also includes housing finance on preferential terms.

The subsidies mean that where they can, people buy multiple homes. The affluent own holiday homes which stay empty for much of the year, while less well-off are made to make do with sub-standard accommodation or, in the case of the poor, no homes at all.

Houses become larger. Virginia Woolf would have recognised these MacMansions: “Those comfortably padded lunatic asylums which are known, euphemistically, as the stately homes of England.”
Over-investment in housing is economically inefficient. Unlike businesses, houses once constructed generate limited income, profits, employment or investment.

Excessive housing investment also creates an inflexible labour force, reducing the mobility of workers. The ability to follow employment opportunities is restricted by fluctuations in house prices, the lack of liquidity of the housing market and high transaction costs (buying and selling can cost 5-10 per cent of the value of the house). It also limits wage flexibility, as workers are constrained by their mortgage commitments.

The replacement of company or government-funded retirement with self-funded arrangements means that houses have become a means for wealth creation. As homeowners pay off their mortgages, their home becomes a major financial asset. But residential property produces no income even where they increase in value. Maintenance costs, utility bills and property taxes mean that houses require rather than provide cash.

Homeowners must generate income by borrowing against their home to finance consumption and eventually finance retirement. The strategy requires realising the home equity (the difference between the value of the house and the mortgage debt outstanding) by either borrowing or selling the property, moving into a smaller house or a rental.

Treating houses as a financial instrument leads to an undiversified investment portfolio, with a large proportion of wealth concentrated in a single asset – the home, which does not produce income.

Investors also buy houses and apartments with borrowed money to rent out. The income from property is rarely higher than that on other income-producing investments. Where borrowed money is used, the rent may not fully cover interest and other outgoings. There is speculative reliance on ever-increasing property prices to boost returns or repay the debt used to finance the property leaving a profit for the buyer.

Reliance on houses creates exposure to volatile house prices. As the global financial crisis illustrated, prices can be affected by a confluence of adverse events – economic cycles, the availability of credit and demographics where large cohorts may retire at the same time. Price fluctuations are exacerbated by the illiquidity of the asset.

Many economies now rely excessively on the housing market. Housing investment sustains economic growth. Unlike many industries, it is largely domestic, driving employment, income and economic activity. In The Age of Turbulence, Alan Greenspan approvingly quotes economics columnist Robert Samuelson’s assessment of his policies in the early 2000s: “The housing boom saved the economy… Americans went on a real estate orgy. [Americans] traded up, tore down and added on.”

Governments continue to promote housing and home ownership using rising wealth from home ownership to mask lack of growth or declines in real income levels and uncertain employment for the population. But the policy is paradoxical.

Current policy, lower interest rates and increased availability of housing finance, boosts the price of existing housing stock rather than increasing housing construction. If it succeeds, then higher house prices ironically make housing unaffordable for large portions of the population.

Where the policy fails, an unwinding housing bubble is difficult to manage, as evidenced by events in the US, Ireland and Spain.

Economic activity slows as individuals and investors suffer large falls in wealth. Governments suffer revenue losses from lower property taxes. At the same time, government expenditures may rise as savers are forced to turn to available social services due to falling income and wealth.

Banks can find their solvency affected quickly by a fall in houses prices because of their high exposure to mortgage loans or property as security, requiring government support.

A considered debate about housing is needed to improve the structure of economies. It may also have an unexpected collateral benefit, improving TV entertainment beyond shows about the property or housing ladders and lift the standard of dinner table conversation above the level of: “Do you know how much they got for the house down the street?”