David Madden in The Guardian
In a city where super-prime properties and tenant evictions are both on the rise, the housing system is broken and many residents are looking for someone to blame. For Londoners, rent consumes nearly two-thirds of the typical tenant’s income, and it will take 46 years for the average single person to save for a deposit on their first home. With overseas buyers acquiring as much as three-quarters of all new-build housing in London in recent years, it is understandable that foreigners would be cast as the villains behind the housing crisis. As a result, the London mayor Sadiq Khan last week launched an inquiry into foreign investment in the city’s housing market.
Londoners are not alone in questioning the impact of global investors in local housing markets. The issue is being politicised in cities throughout the world. In Vancouver, Canada, where single-family homes cost around 21 times the region’s median income, the city introduced a 15% tax on non-resident foreign property owners this August. Australian states that encompass Sydney, Melbourne, and other cities have also introduced or raised taxes on house purchases by foreigners.
It’s important to understand how overseas investment shapes residential opportunities and neighbourhood life. Khan is right to draw attention to the ways that housing in London is intertwined with global financial flows.
But foreign ownership is only part of a complex story – one that involves many actors and institutions located much closer to home. Searching for meddling non-natives to blame is ultimately a distraction. The idea that the housing crisis can be pinned on foreigners is a politically convenient simplification that risks letting other culprits off the hook, while doing little to change the status quo.
Focusing on overseas investors allows British policymakers to obscure their own role in producing the housing crisis. Over the decades, politicians at all levels of government have played an active part in creating this situation. Ministers promoted market-centric reforms such as the right to buy and more flexible tenancies, welcomed institutional investors into the housing market, and pushed through budget cuts in the name of austerity. These changes undermined council housing and weakened tenants’ security while making housing a more liquid commodity. Councillors across greater London have given the green light to estate demolition and gentrification, and allowed developers to build expensive new projects without significant numbers of affordable housing units.
Without these actions, we wouldn’t even be talking about Russian or Chinese investors. National and local political elites in Canada, Australia, the US, and elsewhere likewise bear responsibility for promoting the financialisation of housing.
Pointing at foreigners is a way to pretend to address the housing problem while ignoring the demands of activists
Blaming overseas investors similarly ignores domestic ones. Foreign owners may be particularly disconnected from local knowledge and conditions, but if they were simply replaced by their native counterparts who pursue the same strategies, the housing crisis would remain.
Pointing the finger at foreigners is also a way to pretend to address the housing problem while ignoring the demands of activists. The movements that have been mobilising in opposition to developers, councils and national government are fighting against displacement and in favour of establishing housing as a universal right. Whether exploitative landlords and serial collectors of luxury flats are British or foreign is beside the point. No housing activist has ever carried a sign demanding “British mansions for British oligarchs.”
None of this is to say that foreign ownership doesn’t matter. But the real issue is the political-economic condition that makes it possible: the commodification of housing. This term describes the process by which housing comes increasingly to function as a financial instrument rather than as shelter. Foreign ownership only matters because it is fuelling this broader process.
Rather than lashing out at foreigners, who are an easy target, city-dwellers and politicians such as Sadiq Khan need to ask tougher questions. Whose interests are served by urban regeneration in its current form? Why are collective resources such as public housing being dismantled and sold off? What alternatives to deepening housing inequalities are possible?
Showing posts with label house. Show all posts
Showing posts with label house. Show all posts
Tuesday 4 October 2016
Tuesday 16 August 2016
Moaning about bad returns on your savings? Stop complaining – it's your fault that interest rates are so low
Ben Chu in The Independent
“Neither a borrower nor a lender be”, warned Polonius. But should he have added “saver” to that list?
The Bank of England’s latest cut in its base rate has piled even more downward pressure on returns offered by banks on cash balances. Santander this week halved the interest rate on its “123” account, one of the few remaining products on the market that had offered a decent return on savings. And there is talk of another Bank rate cut later this year, perhaps down to just 0.1 per cent. Will it be long before furious savers march on the Bank’s Threadneedle Street headquarters with pitchforks and burning torches in their hands?
They should put the pitchforks down.
------Also read
Ever-lower interest rates have failed. It’s time to raise them
-----
There are a number of serious misconceptions regarding the plight of savers that have gone uncorrected for too long. The first is that “saving” only takes the form of cash held on deposit in current accounts (or slightly longer-term savings accounts) at the bank or building society. The truth is that far more of the nation’s wealth is held in company shares, bonds, pensions and property, than on cash deposit.
Shares and pension pots have been greatly boosted by the Bank’s low interest rates and monetary stimulus since 2009. House prices have also done well, also helped by low rates. Savers complain about low returns on cash, yet fail to appreciate the benefit to the rest of their savings portfolios from monetary stimulus.
There’s no denying that annuity rates (products offered by insurance companies that turn your pension pot into an annual cash flow) are at historic low thanks to rock bottom interest rates. Yet, since last year, savers also have the freedom not to buy an annuity upon retirement thanks to former Chancellor George Osborne’s regulatory liberalisation. People can now keep their savings invested in the stock market, liquidating shares when necessary to fund their outgoings.
There has been talk of the latest cut in Bank base rate pushing up accounting deficits in defined benefit retirement schemes to record levels, clobbering pensioners. But this is another misunderstanding.
Yes, some of these schemes, run by weak employers, could fail and need to be bailed out by the Pension Protection Fund. And this could entail reductions in pension pay outs. Yet the larger negative impact of rising pension deficits is likely to be felt by young people in work, rather than pensioners or imminent retirees.
Firms facing spiralling scheme deficits and regulatory calls to inject in more spare cash to reduce them, might well respond by keeping downward pressure on wages or by reducing hiring. In other words, the bill is likely to be picked up by those workers who are not benefiting, and were never going to benefit, from these (now closed) generous retirement schemes.
Perhaps the biggest misconception about savings is that low returns on cash deposits are somehow all the fault of the Bank of England. This shows a glaring ignorance of the bigger economic picture.
Excess savings in the global economy – in particular from China, Japan, Germany and the Gulf states – have been exerting massive downward on long-term interest rates in western countries for almost two decades. To put it simply, the world has more savings than it is able to digest. It is this global 'savings glut’ that has driven down long-term interest rates, making baseline returns so low everywhere.
It’s legitimate to wonder whether further cuts in short-term rates by the Bank of England will have much positive affect on the UK economy. But the savings lobby seems to believe that it’s the duty of the Bank to raise short-term rates, regardless of the bigger picture, in order to give people a better return on their cash savings today. This would be madness.
Yes, the Bank of England could jack up short-term rates – but the most likely outcome of this would be to deepen the downturn. And for what? It would mean a higher income for cash savers, but survey research suggests most would simply bank the cash gain rather than spending it, delivering no aggregate stimulus to growth.
Share and other asset prices would also most likely take a beating, undermining the rest of savers’ wealth portfolios. Do savers really believe a 10 per cent fall in the value of their house is a price worth paying for a couple of extra percentage points of interest on their current accounts?
Moreover, the Bank of England’s responsibility is to set interest rates for the good of the whole economy, not for one interest group within it. As Andy Haldane, the Bank’s chief economist pointed out at the weekend, keeping rates on hold (never mind increasing them) would considerably increase unemployment. And the people who would suffer in those circumstances would probably be those who have not even had a chance to build up any savings.
No sensible policymaker or economist wants low interest rates for their own sake. They are a means to an end: to help the economy return to its potential growth rate. When growth has hit that target it will, in time, necessitate higher short-term rates to keep inflation in check.
So for short-term rates to rise, the economy needs to pick up speed. That’s what the Bank of England has been trying to achieve since 2009. Yes, the process has been frustratingly protracted, like jumpstarting an old banger with a flat battery, but the situation would have been worse without Threadneedle Street’s efforts.
If savers are frustrated with low deposit returns they should focus their anger on the global savings glut and the failure (and refusal) of governments in Asia and Europe to rebalance their domestic economies. Other legitimate targets are excessive domestic austerity here in Britain, from the coalition and current governments since 2010, which have delivered a feeble recovery since the Great Recession, and also the Brexit vote which has forced the Bank of England into hosing the economy down with yet more emergency monetary support this month.
And if they voted for the latter two – austerity and Brexit – then savers might care to look in the mirror if they want to see one of the true causes of their frustration.
“Neither a borrower nor a lender be”, warned Polonius. But should he have added “saver” to that list?
The Bank of England’s latest cut in its base rate has piled even more downward pressure on returns offered by banks on cash balances. Santander this week halved the interest rate on its “123” account, one of the few remaining products on the market that had offered a decent return on savings. And there is talk of another Bank rate cut later this year, perhaps down to just 0.1 per cent. Will it be long before furious savers march on the Bank’s Threadneedle Street headquarters with pitchforks and burning torches in their hands?
They should put the pitchforks down.
------Also read
Ever-lower interest rates have failed. It’s time to raise them
-----
There are a number of serious misconceptions regarding the plight of savers that have gone uncorrected for too long. The first is that “saving” only takes the form of cash held on deposit in current accounts (or slightly longer-term savings accounts) at the bank or building society. The truth is that far more of the nation’s wealth is held in company shares, bonds, pensions and property, than on cash deposit.
Shares and pension pots have been greatly boosted by the Bank’s low interest rates and monetary stimulus since 2009. House prices have also done well, also helped by low rates. Savers complain about low returns on cash, yet fail to appreciate the benefit to the rest of their savings portfolios from monetary stimulus.
There’s no denying that annuity rates (products offered by insurance companies that turn your pension pot into an annual cash flow) are at historic low thanks to rock bottom interest rates. Yet, since last year, savers also have the freedom not to buy an annuity upon retirement thanks to former Chancellor George Osborne’s regulatory liberalisation. People can now keep their savings invested in the stock market, liquidating shares when necessary to fund their outgoings.
There has been talk of the latest cut in Bank base rate pushing up accounting deficits in defined benefit retirement schemes to record levels, clobbering pensioners. But this is another misunderstanding.
Yes, some of these schemes, run by weak employers, could fail and need to be bailed out by the Pension Protection Fund. And this could entail reductions in pension pay outs. Yet the larger negative impact of rising pension deficits is likely to be felt by young people in work, rather than pensioners or imminent retirees.
Firms facing spiralling scheme deficits and regulatory calls to inject in more spare cash to reduce them, might well respond by keeping downward pressure on wages or by reducing hiring. In other words, the bill is likely to be picked up by those workers who are not benefiting, and were never going to benefit, from these (now closed) generous retirement schemes.
Perhaps the biggest misconception about savings is that low returns on cash deposits are somehow all the fault of the Bank of England. This shows a glaring ignorance of the bigger economic picture.
Excess savings in the global economy – in particular from China, Japan, Germany and the Gulf states – have been exerting massive downward on long-term interest rates in western countries for almost two decades. To put it simply, the world has more savings than it is able to digest. It is this global 'savings glut’ that has driven down long-term interest rates, making baseline returns so low everywhere.
It’s legitimate to wonder whether further cuts in short-term rates by the Bank of England will have much positive affect on the UK economy. But the savings lobby seems to believe that it’s the duty of the Bank to raise short-term rates, regardless of the bigger picture, in order to give people a better return on their cash savings today. This would be madness.
Yes, the Bank of England could jack up short-term rates – but the most likely outcome of this would be to deepen the downturn. And for what? It would mean a higher income for cash savers, but survey research suggests most would simply bank the cash gain rather than spending it, delivering no aggregate stimulus to growth.
Share and other asset prices would also most likely take a beating, undermining the rest of savers’ wealth portfolios. Do savers really believe a 10 per cent fall in the value of their house is a price worth paying for a couple of extra percentage points of interest on their current accounts?
Moreover, the Bank of England’s responsibility is to set interest rates for the good of the whole economy, not for one interest group within it. As Andy Haldane, the Bank’s chief economist pointed out at the weekend, keeping rates on hold (never mind increasing them) would considerably increase unemployment. And the people who would suffer in those circumstances would probably be those who have not even had a chance to build up any savings.
No sensible policymaker or economist wants low interest rates for their own sake. They are a means to an end: to help the economy return to its potential growth rate. When growth has hit that target it will, in time, necessitate higher short-term rates to keep inflation in check.
So for short-term rates to rise, the economy needs to pick up speed. That’s what the Bank of England has been trying to achieve since 2009. Yes, the process has been frustratingly protracted, like jumpstarting an old banger with a flat battery, but the situation would have been worse without Threadneedle Street’s efforts.
If savers are frustrated with low deposit returns they should focus their anger on the global savings glut and the failure (and refusal) of governments in Asia and Europe to rebalance their domestic economies. Other legitimate targets are excessive domestic austerity here in Britain, from the coalition and current governments since 2010, which have delivered a feeble recovery since the Great Recession, and also the Brexit vote which has forced the Bank of England into hosing the economy down with yet more emergency monetary support this month.
And if they voted for the latter two – austerity and Brexit – then savers might care to look in the mirror if they want to see one of the true causes of their frustration.
Wednesday 13 August 2014
Mark Simmonds’ story is not about him, but a broken housing market
We need to find a radical solution to this inflated market, in which even the top 1% can’t afford to house their children in the capital
All in it together? Mark Simmonds, conservative MP for Boston and Skegness, has resigned, citing the intolerable pressure of trying to live in London on an MP’s expenses. He wants his family to live in London, which is understandable. For this, a rental allowance of £20,600 plus £2,425 for each child (he has three) is insufficient. “Of course if MPs want to get into the business of travelling extensively from Westminster to the outer reaches of London to rent a flat then that’s up to them,” he told BBC Radio 4’s World at One programme on Monday. “But that’s not the lifestyle I want and it’s not the lifestyle I have chosen for myself or I want for my family.”
Here, he starts to become less sympathetic as a character. He earns almost £90,000, and pays his wife up to £25,000 from his parliamentary office. He is on record as the most expensive MP in Lincolnshire, having claimed £173,000 in expenses in 2013.
He is also a vocal proponent of the benefit cap, finding it disgusting that some families can claim more in benefits than the average person earns, even while he finds it intolerable that he can only claim in accommodation expenses £2,000 more than the cap. Every time some new detail emerges, his obnoxiousness swells like a mudbath, ready to break its banks. To wallow in it would be fun but sullying, and also obscures the fact that Simmonds has done us a favour.
To qualify to be a member of the top 1% in the UK, you need a total household income before tax of £160,000 a year. Simmonds, let’s not forget, fell foul of the transparency rules in 2012 when he failed to declare his £50,000 salary from Circle Healthcare before he weighed into health debates in favour of privatisation.
So without even venturing into the territory of whether or not he’s a disgrace to public life, we can assume that by a combination of “freelance” work and the benefits in kind that must surely accrue from his expenses, his household income probably puts him in the top 1%.
There is broad agreement now, whether you love equality or hate it, that the top 1% isn’t really the story; the story is the top 0.1%. Nevertheless, when a man in the top 1% who has his rent paid still can’t afford to house his children in the capital, it is no longer a story about what kind of a person he is: this is a story about a broken system.
In central London, the only viable markets are the ones that are subsidised by the government – either by housing benefit or MPs’ expenses – or the ones for the super-rich. In Westminster, where Simmonds wants to live, the average house price was £1.3m in June last year (prices have gone up by 6% since then). Two things are striking when you look for rental properties for a family with three children at Simmonds’ cap of around £2,300 per month – as newspapers everywhere will spend this week doing.
What hits you first is how few properties are available, only a handful on any website, even if two of his children would be prepared to share a room (as children are required to do, incidentally, by the government’s bedroom tax, which Simmonds voted for). This is commensurate with the fact that central London has been largely bought up by investors who, at the higher price points, are just looking for a currency haven and leave their properties empty, having little interest in rental income (75% of new developments in central London are not open to the UK market).
The second striking thing is the outlandishness of central London prices: penthouses available for £50,000 a week. Poor Simmonds doesn’t have a hope.
Two main trends dominate the housing debate (though not noticeably in the Conservative party – they still think the answer to this madly inflated market is to keep it buoyed up with government money, via the Help to Buy scheme). There is broad agreement that this is a London problem and only bleating metropolitan elites are troubled by it. In fact, the disparity between earnings and property prices spreads from Bristol in the west to Cambridge in the east; ultimately, the only places immune from a property boom will be those with no jobs, and that doesn’t help anybody.
There is also the sudden unison that all we need to do is build more houses. If this just means throwing more money at private developers, for private buyers, with the proviso of a few social units that can be accessed through a pauper’s entrance, that’s not going to help.
The country needs houses that are owned by the government, not just so that it can stop the frivolity of housing benefit, but because a contractor isn’t going to build the houses we need.
We have the technology to do something radical with housing. We could build flats that are not just carbon-neutral, but energy-neutral through solar power, and with their own food growing up the walls that everybody would bite your hand off to live in. The ghettoisation of social housing would be a thing of the past. These places may embody so much ambition and possibility that we could get over our obsession with whether or not we owned or part-owned or rented them (look at the vision of the Green Cities Foundation or the Future Cities Catapult).
We don’t have to be stuck in this broken system, battling a faceless and impossible market with pleas for one that is fractionally better and marginally more accessible. We could be on the brink of building something together and, ironically, it could be Simmonds, featherer of no nests but his own, who drove us to it.
Saturday 4 January 2014
Renting – Britain's social scandal that is being ignored
Private landlords threaten eviction as they pocket half of their tenants' wages, but politicians do nothing
More than four million people now rent privately and a million more will join them in the next few years. Photograph: Alamy
Will the rise in rents turn into one of the major issues of 2014? Young adults and families are being painfully stretched by private landlords, who are now often pocketing half or more of their tenants' wages with threats of eviction if they don't cough up another inflation-busting rent rise in the year ahead. A report we published in December headlined "Rents rise twice as much as earnings" was greeted with rage by tenants. "My landlady spends the money she gets from my rent on herself and not on the house I live in, it hasn't had any work done on it apart from a very badly fitting new front door in the last five years. But what does she care? She doesn't have to live in the cold, damp, draughty place, as long as her standard of living doesn't suffer," commented one.
"A lovely affordable two-bedroom house recently went up for sale in my area where affordable housing is very rare," said another. "It sold very quickly and I was hoping to see a nice young couple/person move in, but lo and behold it was snatched up by a landlord who already owns six properties in our street. Another affordable house now off the market and into the grubby hands of a rich landlord. I still hope a lovely young couple/person does move in, but unfortunately they'll have to pay more than what a mortgage costs and they won't own one brick. What a lovely country we live in. We are going back to Dickens's time."
Every time we publish a story on rents we see a similar response, and it's getting worse. Yet this rage is being met with almost total silence from the political and economic establishment. How many MPs have rented their family home all their lives from a private landlord? I'd wager almost none.
How many heads of our banks and building societies would prefer to live under a six-month assured shorthold tenancy rather than own (and control) their home? None. I've sat on panels at conferences examining the private rented sector. I ask how many people in the room rent their main residence. Rarely do I see a hand go up. There is now a vast gulf between the experience of policymakers, many of them baby boomers who have benefited from property price rises, and what is happening to the generation following behind.
Politicians have ignored the issue for so long because it isn't seen as national. Many still think of it as a London thing, with "entitled" young professionals carping on about the rent on a luxury two-bed pad in Clapham. That simply exposes their disconnect from reality. Over the past decade there has been a 127% increase in families with children in the private rented sector. There are now 4.3 million people renting privately, and a million more will join them in the next few years. The fastest-growing group of private tenants are not students leaving university, but people between 35 and 44, often with children.
Today's Money pages examine the experience of individuals across major world cities. New York and Sydney appear to match, or even outdo, London. Yet again, Germany offers a model that appears to work much better than the rapacious Anglo-Saxon approach. Rent control is not the dirty word in Munich or Berlin that it is in Whitehall.
Tories, who tend to receive rather than pay rent, go apoplectic at the merest suggestion of rent control, but should heed Ed Miliband's focus on the cost of living crisis. A cap on rent (let's call it "stabilisation") may be no less electorally successful than the proposed cap on energy bills, such is the level of despair so many young people and families are feeling.
A Labour Party policy review proposes a national register of private landlords (partly to at least make them pay tax), measures to improve the atrocious state of much of the privately-let stock, and tougher sanctions on rogue landlords.
They deserve wider attention, although more form-filling by the many decent landlords out there achieves little when councils cower from dealing with the true crooks. See David Lawrenson's blog on this at lettingfocus.com which, while pro-landlord, is more nuanced than most.
What isn't tackled is the underlying issue of supply and demand. We are living in a modern Speenhamland system where, as I've written before, employers pay below-subsistence wages, subsidised by tax credits, which mean workers can never afford to buy. Meanwhile high rents to landlords are subsidised by housing benefit.
The government promises £100bn for new infrastructure, but on housing it is only planning £3.5bn over the next four years. That's just a tenth of what will be spent on housing benefit over the same period. House building should be Britain's number one infrastructure priority – not just for buyers, but renters too.
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