Showing posts with label housing. Show all posts
Showing posts with label housing. Show all posts
Thursday 16 June 2022
Saturday 25 September 2021
Monday 20 September 2021
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.
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 GuardianIn 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.
Sunday 24 May 2020
Most ingredients are in place for a property crash later this year
Rising unemployment is toxic for the property market and low interest rates may not be enough writes Larry Elliott in The Guardian
Spring is usually the time when the property market comes out of hibernation. Photograph: lucemac/GuardianWitness
This weekend marks the start of a truncated summer house buying season, the moment the residential property market comes out of hibernation.
Normally this happens at Easter but, for obvious reasons, that has not been possible in 2020. Estate agents have been shuttered along with almost every other business, waiting impatiently for the lifting of the lockdown. This bank holiday weekend, with fine weather forecast, provides a chance to make up for lost time.
Well, perhaps. Britain’s love affair with rising house prices borders on the pathological so a mini boom can’t entirely be ruled out. The government did its best last week to give the market a boost by extending its mortgage holiday for the financially distressed for a further three months. That means those having trouble keeping up with their home loans won’t have to make a repayment until at least September.
That said, the notion that this is going to be a year of high turnover and rising house prices is wide of the mark. All the ingredients, bar one, is in place for a crash later in the year.
Let’s start with the obvious: the economy has been poleaxed by the Covid-19 pandemic. The official jobless figures – showing a rise to 2.1 million in claimant count unemployment – provide only a hint of the damage that has been caused to the labour market by the lockdown. A truer picture comes from the number of jobs furloughed under the Treasury’s wage subsidy scheme, which stands at 8m and counting.
Not every one of those furloughed workers is going to end up jobless, but some of them will. The number will depend, crucially, on how long it takes for the economy to return to something like normal. The slower the process the more businesses will close permanently.
Rishi Sunak announced earlier this month that the furloughing scheme will be kept going until the end of October, but from the start of August employers will be asked to foot part of the wage bill themselves. At present, the government is paying 80% of wages up to a monthly maximum of £2,500, an expensive commitment that helps explain why the state borrowed almost as much in April (£62bn) as in the whole of the last financial year.
The chancellor will announce in the next few days how big a contribution employers will need to make, but at a minimum they can expect to pay 20% of an employee’s wages. This will be the moment of truth for many businesses.
Rising unemployment is toxic for the property market. If people struggle to find another job quickly after losing their job they fall into mortgage arrears and eventually have their homes repossessed. That happened in the early 1990s and is one reason why a mortgage holiday has been introduced this time.
Hansen Lu, property economist at Capital Economics, has shown how a moratorium on home loan payments saves someone paying 2.5% on a £200,000 mortgage £5,400 over a six-month period. That’s quite a financial cushion because although the lender eventually has to be paid back, it means subsequent mortgage payments go up by about £30 a month.
Again, everything depends on the state of the labour market this autumn. The mortgage holiday will end at the same time as the furlough scheme, and already there will be many households who will be wondering how they will manage at that point.
Buying a house is the single biggest financial commitment most of us ever make. When people are deciding whether to buy or not, they think hard about whether they are going to be able to keep up the monthly payments. It is not just being unemployed that matters; it is the threat of unemployment. Surveys suggest, hardly surprisingly, that consumers are extremely wary of committing to big-ticket items.
Only one thing is missing from a perfect storm: sharply rising interest rates. A doubling of official interest rates was the trigger for recession and record home repossessions in the early 1990s, but there is not the slightest prospect of that happening this time. The Bank of England has cut interest rates to 0.1% and is debating whether to take them negative.
There are economists – the monetarist Tim Congdon, for example – who believe that the vast quantities of money the Bank is chucking at the economy will eventually lead to much higher inflation. In those circumstances Threadneedle Street would have a choice: raise interest rates aggressively to hit the government’s 2% inflation target and guarantee deep recession in the process; or go easy. If it chooses the first option the housing market will collapse because many owner occupiers can only service the debts they have had to to incur to afford expensive real estate if interest rates remain at historically low levels.
So here’s how things stack up. On the one hand, the economy has collapsed and is recovering only falteringly; unemployment, whether real or hidden by the furlough, is rocketing; incomes are being squeezed; consumer confidence is at a low ebb; and the ratio of house prices to earnings is high. On the other hand, interest rates are low and will stay low for some time. In the jargon of the economics profession, there are more downside than upside risks.
But let me personalise things a bit. A relative for whom I hold power of attorney is about to have his house put on the market to fund his care home fees. My intention is to take the first halfway decent offer that’s received, because my sense is that prices are heading lower. In the past I haven’t heeded my own advice and lived to regret it. Not this time, though.
This weekend marks the start of a truncated summer house buying season, the moment the residential property market comes out of hibernation.
Normally this happens at Easter but, for obvious reasons, that has not been possible in 2020. Estate agents have been shuttered along with almost every other business, waiting impatiently for the lifting of the lockdown. This bank holiday weekend, with fine weather forecast, provides a chance to make up for lost time.
Well, perhaps. Britain’s love affair with rising house prices borders on the pathological so a mini boom can’t entirely be ruled out. The government did its best last week to give the market a boost by extending its mortgage holiday for the financially distressed for a further three months. That means those having trouble keeping up with their home loans won’t have to make a repayment until at least September.
That said, the notion that this is going to be a year of high turnover and rising house prices is wide of the mark. All the ingredients, bar one, is in place for a crash later in the year.
Let’s start with the obvious: the economy has been poleaxed by the Covid-19 pandemic. The official jobless figures – showing a rise to 2.1 million in claimant count unemployment – provide only a hint of the damage that has been caused to the labour market by the lockdown. A truer picture comes from the number of jobs furloughed under the Treasury’s wage subsidy scheme, which stands at 8m and counting.
Not every one of those furloughed workers is going to end up jobless, but some of them will. The number will depend, crucially, on how long it takes for the economy to return to something like normal. The slower the process the more businesses will close permanently.
Rishi Sunak announced earlier this month that the furloughing scheme will be kept going until the end of October, but from the start of August employers will be asked to foot part of the wage bill themselves. At present, the government is paying 80% of wages up to a monthly maximum of £2,500, an expensive commitment that helps explain why the state borrowed almost as much in April (£62bn) as in the whole of the last financial year.
The chancellor will announce in the next few days how big a contribution employers will need to make, but at a minimum they can expect to pay 20% of an employee’s wages. This will be the moment of truth for many businesses.
Rising unemployment is toxic for the property market. If people struggle to find another job quickly after losing their job they fall into mortgage arrears and eventually have their homes repossessed. That happened in the early 1990s and is one reason why a mortgage holiday has been introduced this time.
Hansen Lu, property economist at Capital Economics, has shown how a moratorium on home loan payments saves someone paying 2.5% on a £200,000 mortgage £5,400 over a six-month period. That’s quite a financial cushion because although the lender eventually has to be paid back, it means subsequent mortgage payments go up by about £30 a month.
Again, everything depends on the state of the labour market this autumn. The mortgage holiday will end at the same time as the furlough scheme, and already there will be many households who will be wondering how they will manage at that point.
Buying a house is the single biggest financial commitment most of us ever make. When people are deciding whether to buy or not, they think hard about whether they are going to be able to keep up the monthly payments. It is not just being unemployed that matters; it is the threat of unemployment. Surveys suggest, hardly surprisingly, that consumers are extremely wary of committing to big-ticket items.
Only one thing is missing from a perfect storm: sharply rising interest rates. A doubling of official interest rates was the trigger for recession and record home repossessions in the early 1990s, but there is not the slightest prospect of that happening this time. The Bank of England has cut interest rates to 0.1% and is debating whether to take them negative.
There are economists – the monetarist Tim Congdon, for example – who believe that the vast quantities of money the Bank is chucking at the economy will eventually lead to much higher inflation. In those circumstances Threadneedle Street would have a choice: raise interest rates aggressively to hit the government’s 2% inflation target and guarantee deep recession in the process; or go easy. If it chooses the first option the housing market will collapse because many owner occupiers can only service the debts they have had to to incur to afford expensive real estate if interest rates remain at historically low levels.
So here’s how things stack up. On the one hand, the economy has collapsed and is recovering only falteringly; unemployment, whether real or hidden by the furlough, is rocketing; incomes are being squeezed; consumer confidence is at a low ebb; and the ratio of house prices to earnings is high. On the other hand, interest rates are low and will stay low for some time. In the jargon of the economics profession, there are more downside than upside risks.
But let me personalise things a bit. A relative for whom I hold power of attorney is about to have his house put on the market to fund his care home fees. My intention is to take the first halfway decent offer that’s received, because my sense is that prices are heading lower. In the past I haven’t heeded my own advice and lived to regret it. Not this time, though.
Friday 7 June 2019
Friday 25 May 2018
The trouble with charitable billionaires
More and more wealthy CEOs are pledging to give away parts of their fortunes – often to help fix problems their companies caused. Some call this ‘philanthrocapitalism’, but is it just corporate hypocrisy? By Carl Rhodes and Peter Bloom in The Guardian
In February 2017, Facebook’s founder and CEO Mark Zuckerberg was in the headlines for his charitable activities. The Chan Zuckerberg Initiative, founded by the tech billionaire and his wife, Priscilla Chan, handed out over $3m in grants to aid the housing crisis in the Silicon Valley area. David Plouffe, the Initiative’s president of policy and advocacy, stated that the grants were intended to “support those working to help families in immediate crisis while supporting research into new ideas to find a long-term solution – a two-step strategy that will guide much of our policy and advocacy work moving forward”.
This is but one small part of Zuckerberg’s charity empire. The Initiative has committed billions of dollars to philanthropic projects designed to address social problems, with a special focus on solutions driven by science, medical research and education. This all took off in December 2015, when Zuckerberg and Chan wrote and published a letter to their new baby Max. The letter made a commitment that over the course of their lives they would donate 99% of their shares in Facebook (at the time valued at $45bn) to the “mission” of “advancing human potential and promoting equality”.
The housing intervention is of course much closer to home, dealing with issues literally at the door of Facebook’s Menlo Park head office. This is an area where median house prices almost doubled to around $2m in the five years between 2012 and 2017.
More generally, San Francisco is a city with massive income inequality, and the reputation of having the most expensive housing in the US. Chan Zuckerberg’s intervention was clearly designed to offset social and economic problems caused by rents and house prices having skyrocketed to such a level that even tech workers on six-figure salaries find it hard to get by. For those on more modest incomes, supporting themselves, let alone a family, is nigh-on impossible.
Ironically, the boom in the tech industry in this region – a boom Facebook has been at the forefront of – has been a major contributor to the crisis. As Peter Cohen from the Council of Community Housing Organizations explained it: “When you’re dealing with this total concentration of wealth and this absurd slosh of real-estate money, you’re not dealing with housing that’s serving a growing population. You’re dealing with housing as a real-estate commodity for speculation.”
Zuckerberg’s apparent generosity, it would seem, is a small contribution to a large problem that was created by the success of the industry he is involved in. In one sense, the housing grants (equivalent to the price of just one-and-a-half average Menlo Park homes) are trying to put a sticking plaster on a problem that Facebook and other Bay Area corporations aided and abetted. It would appear that Zuckerberg was redirecting a fraction of the spoils of neoliberal tech capitalism, in the name of generosity, to try to address the problems of wealth inequality created by a social and economic system that allowed those spoils to accrue in the first place.
It is easy to think of Zuckerberg as some kind of CEO hero – a once regular kid whose genius made him one of the richest men in the world, and who decided to use that wealth for the benefit of others. The image he projects is of altruism untainted by self-interest. A quick scratch of the surface reveals that the structure of Zuckerberg’s charity enterprise is informed by much more than good-hearted altruism. Even while many have applauded Zuckerberg for his generosity, the nature of this apparent charity was openly questioned from the outset.
The wording of Zuckerberg’s 2015 letter could easily have been interpreted as meaning that he was intending to donate $45bn to charity. As investigative reporter Jesse Eisinger reported at the time, the Chan Zuckerberg Initiative through which this giving was to be funnelled is not a not-for-profit charitable foundation, but a limited liability company. This legal status has significant practical implications, especially when it comes to tax. As a company, the Initiative can do much more than charitable activity: its legal status gives it rights to invest in other companies, and to make political donations. Effectively the company does not restrict Zuckerberg’s decision-making as to what he wants to do with his money; he is very much the boss. Moreover, as Eisinger described it, Zuckerberg’s bold move yielded a huge return on investment in terms of public relations for Facebook, even though it appeared that he simply “moved money from one pocket to the other” while being “likely never to pay any taxes on it”.
The creation of the Chan Zuckerberg Initiative – decidedly not a charity organisation – means that Zuckerberg can control the company’s investments as he sees fit, while accruing significant commercial, tax and political benefits. All of this is not to say that Zuckerberg’s motives do not include some expression of his own generosity or some genuine desire for humanity’s wellbeing and equality.
What it does suggest, however, is that when it comes to giving, the CEO approach is one in which there is no apparent incompatibility between being generous, seeking to retain control over what is given, and the expectation of reaping benefits in return. This reformulation of generosity – in which it is no longer considered incompatible with control and self-interest – is a hallmark of the “CEO society”: a society where the values associated with corporate leadership are applied to all dimensions of human endeavour.
Mark Zuckerberg was by no means the first contemporary CEO to promise and initiate large-scale donations of wealth to self-nominated good causes. In the CEO society it is positively a badge of honour for the world’s most wealthy businesspeople to create vehicles to give away their wealth. This has been institutionalised in what is known as The Giving Pledge, a philanthropy campaign initiated by Warren Buffett and Bill Gates in 2010. The campaign targets billionaires around the world, encouraging them to give away the majority of their wealth. There is nothing in the pledge that specifies what exactly the donations will be used for, or even whether they are to be made now or willed after death; it is just a general commitment to using private wealth for ostensibly public good. It is not legally binding either, but a moral commitment.
There is a long list of people and families who have made the pledge. Mark Zuckerberg and Priscilla Chan are there, and so are some 174 others, including household names such as Richard and Joan Branson, Michael Bloomberg, Barron Hilton and David Rockefeller. It would seem that many of the world’s richest people simply want to give their money away to good causes. This all amounts to what human geographers Iain Hay and Samantha Muller sceptically refer to as a “golden age of philanthropy”, in which, since the late 1990s, bequests to charity from the super-rich have escalated to the hundreds of billions of dollars. These new philanthropists bring to charity an “entrepreneurial disposition”, Hay and Muller wrote in a 2014 paper, yet one that they suggest has been “diverting attention and resources away from the failings of contemporary manifestations of capitalism”, and may also be serving as a substitute for public spending withdrawn by the state.
A protester outside the Nasdaq headquarters in New York marks Facebook’s IPO, 2012. Photograph: Alamy Stock Photo
The recent development of philanthrocapitalism also marks the increasing encroachment of business into the provision of public goods and services. This encroachment is not limited to the activities of individual billionaires; it is also becoming a part of the activities of large corporations under the rubric of CSR. This is especially the case for large multinational corporations whose global reach, wealth and power give them significant political clout. This relationship has been referred to as “political CSR”. Business ethics professors Andreas Scherer and Guido Palazzo note that, for large corporations, “CSR is increasingly displayed in corporate involvement in the political process of solving societal problems, often on a global scale”. Such political CSR initiatives see organisations cooperating and collaborating with governments, civic bodies and international institutions, so that historical separations between the purposes of the state and the corporations are increasingly eroded.
Global corporations have long been involved in quasi-governmental activities such as the setting of standards and codes, and today are increasingly engaging in other activities that have traditionally been the domain of government, such as public health provision, education, the protection of human rights, addressing social problems such as Aids and malnutrition, protection of the natural environment and the promotion of peace and social stability.
Today, large organisations can amass significant economic and political power, on a global scale. This means that their actions – and the way those actions are regulated – have far-reaching social consequences. The balanced tipped in 2000, when the Institute for Policy Studies in the US reported, after comparing corporate revenues with gross domestic product (GDP), that 51 of the largest economies in the world were corporations, and 49 were national economies. The biggest corporations were General Motors, Walmart and Ford, each of which was larger economically than Poland, Norway and South Africa. As the heads of these corporations, CEOs are now quasi-politicians. One only has to think of the increasing power of the World Economic Forum, whose annual meeting in Davos in Switzerland sees corporate CEOs and senior politicians getting together with the ostensible goal of “improving the world”, a now time-honoured ritual that symbolises the global power and agency of CEOs.
The development of CSR is not the result of self-directed corporate initiatives for doing good deeds, but a response to widespread CSR activism from NGOs, pressure groups and trade unions. Often this has been in response to the failure of governments to regulate large corporations. High-profile industrial accidents and scandals have also put pressure on organisations for heightened self-regulation.
An explosion at a Union Carbide chemical plant in Bhopal, India in 1984 led to the deaths of an estimated 25,000 people. James Post, a professor of management at Boston University, explains that, after the disaster, “the global chemical industry recognised that it was nearly impossible to secure a licence to operate without public confidence in industry safety standards. The Chemical Manufacturers Association (CMA) adopted a code of conduct, including new standards of product stewardship, disclosure and community engagement.”
The impetus for this was corporate self-interest, rather than generosity, as industries and corporations globally “began to recognise the increasing importance of reputation and image”. Similar moves were enacted after other major industrial accidents, such as the Exxon Valdez oil tanker spilling hundreds of thousands of barrels of oil in Alaska in 1989, and BP’s Deepwater Horizon oil rig exploding in the Gulf of Mexico in 2010.
In the CEO society, corporate logic such as this rules supreme, and ensures that any activities thought of as generous and socially responsible ultimately have a payoff in terms of self-interest. If there was ever a debate between the ethics of genuine hospitality, reciprocity and self-interest, it is not to be found here. It is in accordance with this CEO logic that the mechanisms for redressing the inequality created through wealth generation are placed in the hands of the wealthy, and in a way that ultimately benefits them. The worst excesses of neoliberal capitalism are morally justified by the actions of the very people who benefit from those excesses. Wealth redistribution is placed in the hands of the wealthy, and social responsibility in the hands of those who have exploited society for personal gain.
Meanwhile, inequality is growing, and both corporations and the wealthy find ways to avoid the taxes that the rest of us pay. In the name of generosity, we find a new form of corporate rule, refashioning another dimension of human endeavour in its own interests. Such is a society where CEOs are no longer content to do business; they must control public goods as well. In the end, while the Giving Pledge’s website may feature more and more smiling faces of smug-looking CEOs, the real story is of a world characterised by gross inequality that is getting worse year by year.
In February 2017, Facebook’s founder and CEO Mark Zuckerberg was in the headlines for his charitable activities. The Chan Zuckerberg Initiative, founded by the tech billionaire and his wife, Priscilla Chan, handed out over $3m in grants to aid the housing crisis in the Silicon Valley area. David Plouffe, the Initiative’s president of policy and advocacy, stated that the grants were intended to “support those working to help families in immediate crisis while supporting research into new ideas to find a long-term solution – a two-step strategy that will guide much of our policy and advocacy work moving forward”.
This is but one small part of Zuckerberg’s charity empire. The Initiative has committed billions of dollars to philanthropic projects designed to address social problems, with a special focus on solutions driven by science, medical research and education. This all took off in December 2015, when Zuckerberg and Chan wrote and published a letter to their new baby Max. The letter made a commitment that over the course of their lives they would donate 99% of their shares in Facebook (at the time valued at $45bn) to the “mission” of “advancing human potential and promoting equality”.
The housing intervention is of course much closer to home, dealing with issues literally at the door of Facebook’s Menlo Park head office. This is an area where median house prices almost doubled to around $2m in the five years between 2012 and 2017.
More generally, San Francisco is a city with massive income inequality, and the reputation of having the most expensive housing in the US. Chan Zuckerberg’s intervention was clearly designed to offset social and economic problems caused by rents and house prices having skyrocketed to such a level that even tech workers on six-figure salaries find it hard to get by. For those on more modest incomes, supporting themselves, let alone a family, is nigh-on impossible.
Ironically, the boom in the tech industry in this region – a boom Facebook has been at the forefront of – has been a major contributor to the crisis. As Peter Cohen from the Council of Community Housing Organizations explained it: “When you’re dealing with this total concentration of wealth and this absurd slosh of real-estate money, you’re not dealing with housing that’s serving a growing population. You’re dealing with housing as a real-estate commodity for speculation.”
Zuckerberg’s apparent generosity, it would seem, is a small contribution to a large problem that was created by the success of the industry he is involved in. In one sense, the housing grants (equivalent to the price of just one-and-a-half average Menlo Park homes) are trying to put a sticking plaster on a problem that Facebook and other Bay Area corporations aided and abetted. It would appear that Zuckerberg was redirecting a fraction of the spoils of neoliberal tech capitalism, in the name of generosity, to try to address the problems of wealth inequality created by a social and economic system that allowed those spoils to accrue in the first place.
It is easy to think of Zuckerberg as some kind of CEO hero – a once regular kid whose genius made him one of the richest men in the world, and who decided to use that wealth for the benefit of others. The image he projects is of altruism untainted by self-interest. A quick scratch of the surface reveals that the structure of Zuckerberg’s charity enterprise is informed by much more than good-hearted altruism. Even while many have applauded Zuckerberg for his generosity, the nature of this apparent charity was openly questioned from the outset.
The wording of Zuckerberg’s 2015 letter could easily have been interpreted as meaning that he was intending to donate $45bn to charity. As investigative reporter Jesse Eisinger reported at the time, the Chan Zuckerberg Initiative through which this giving was to be funnelled is not a not-for-profit charitable foundation, but a limited liability company. This legal status has significant practical implications, especially when it comes to tax. As a company, the Initiative can do much more than charitable activity: its legal status gives it rights to invest in other companies, and to make political donations. Effectively the company does not restrict Zuckerberg’s decision-making as to what he wants to do with his money; he is very much the boss. Moreover, as Eisinger described it, Zuckerberg’s bold move yielded a huge return on investment in terms of public relations for Facebook, even though it appeared that he simply “moved money from one pocket to the other” while being “likely never to pay any taxes on it”.
The creation of the Chan Zuckerberg Initiative – decidedly not a charity organisation – means that Zuckerberg can control the company’s investments as he sees fit, while accruing significant commercial, tax and political benefits. All of this is not to say that Zuckerberg’s motives do not include some expression of his own generosity or some genuine desire for humanity’s wellbeing and equality.
What it does suggest, however, is that when it comes to giving, the CEO approach is one in which there is no apparent incompatibility between being generous, seeking to retain control over what is given, and the expectation of reaping benefits in return. This reformulation of generosity – in which it is no longer considered incompatible with control and self-interest – is a hallmark of the “CEO society”: a society where the values associated with corporate leadership are applied to all dimensions of human endeavour.
Mark Zuckerberg was by no means the first contemporary CEO to promise and initiate large-scale donations of wealth to self-nominated good causes. In the CEO society it is positively a badge of honour for the world’s most wealthy businesspeople to create vehicles to give away their wealth. This has been institutionalised in what is known as The Giving Pledge, a philanthropy campaign initiated by Warren Buffett and Bill Gates in 2010. The campaign targets billionaires around the world, encouraging them to give away the majority of their wealth. There is nothing in the pledge that specifies what exactly the donations will be used for, or even whether they are to be made now or willed after death; it is just a general commitment to using private wealth for ostensibly public good. It is not legally binding either, but a moral commitment.
There is a long list of people and families who have made the pledge. Mark Zuckerberg and Priscilla Chan are there, and so are some 174 others, including household names such as Richard and Joan Branson, Michael Bloomberg, Barron Hilton and David Rockefeller. It would seem that many of the world’s richest people simply want to give their money away to good causes. This all amounts to what human geographers Iain Hay and Samantha Muller sceptically refer to as a “golden age of philanthropy”, in which, since the late 1990s, bequests to charity from the super-rich have escalated to the hundreds of billions of dollars. These new philanthropists bring to charity an “entrepreneurial disposition”, Hay and Muller wrote in a 2014 paper, yet one that they suggest has been “diverting attention and resources away from the failings of contemporary manifestations of capitalism”, and may also be serving as a substitute for public spending withdrawn by the state.
Warren Buffett announces a $30bn donation to the Bill and Melinda Gates Foundation, 2006. Photograph: Justin Lane/EPA
Essentially, what we are witnessing is the transfer of responsibility for public goods and services from democratic institutions to the wealthy, to be administered by an executive class. In the CEO society, the exercise of social responsibilities is no longer debated in terms of whether corporations should or shouldn’t be responsible for more than their own business interests. Instead, it is about how philanthropy can be used to reinforce a politico-economic system that enables such a small number of people to accumulate obscene amounts of wealth. Zuckerberg’s investment in solutions to the Bay Area housing crisis is an example of this broader trend.
The reliance on billionaire businesspeople’s charity to support public projects is a part of what has been called “philanthrocapitalism”. This resolves the apparent antinomy between charity (traditionally focused on giving) and capitalism (based on the pursuit of economic self-interest). As historian Mikkel Thorup explains, philanthrocapitalism rests on the claim that “capitalist mechanisms are superior to all others (especially the state) when it comes to not only creating economic but also human progress, and that the market and market actors are or should be made the prime creators of the good society”.
The golden age of philanthropy is not just about benefits that accrue to individual givers. More broadly, philanthropy serves to legitimise capitalism, as well as to extend it further and further into all domains of social, cultural and political activity.
Philanthrocapitalism is about much more than the simple act of generosity it pretends to be, instead involving the inculcation of neoliberal values personified by the billionaire CEOs who have led its charge. Philanthropy is recast in the same terms in which a CEO would consider a business venture. Charitable giving is translated into a business model that employs market-based solutions characterised by efficiency and quantified costs and benefits.
Philanthrocapitalism takes the application of management discourses and practices from business corporations and adapts them to charitable work. The focus is on entrepreneurship, market-based approaches and performance metrics. The process is funded by super-rich businesspeople and managed by those experienced in business. The result, at a practical level, is that philanthropy is undertaken by CEOs in a manner similar to how they would run businesses.
As part of this, charitable foundations have changed in recent years. As explained in a paper by Garry Jenkins, a professor of law at the University of Minnesota, this involves becoming “increasingly directive, controlling, metric-focused and business-oriented with respect to their interactions with grantee public charities, in an attempt to demonstrate that the work of the foundation is ‘strategic’ and ‘accountable’”.
This is far from the benign shift to a different and better way of doing things that it claims to be – a CEO style to “save the world through business thinking and market methods”, as Jenkins puts it. Instead, the risk of philanthrocapitalism is a takeover of charity by business interests, such that generosity to others is appropriated into the overarching dominance of the CEO model of society and its corporate institutions.
The modern CEO is very much at the forefront of the political and media stage. While this often leads to CEOs becoming vaunted celebrities, it also leaves them open to being identified as scapegoats for economic injustice. The increasingly public role taken by CEOs is related to a renewed corporate focus on their wider social responsibility. Firms must now balance, at least rhetorically, a dual commitment to profit and social outcomes. This has been reflected in the promotion of the “triple bottom line”, which combines social, financial and environmental priorities in corporate reporting.
This turn toward social responsibility represents a distinct problem for CEOs. While firms may be willing to sacrifice some short-term profit for the sake of preserving their public reputation, this same bargain is rarely on offer to CEOs themselves, who are judged on their quarterly reports and how well they are serving the fiscal interests of their shareholders. Thus, whereas social responsibility strategies may win public kudos, in the confines of the boardroom it is often a different story, especially when the budget is being scrutinised.
There is a further economic incentive for CEOs to avoid making fundamental changes to their operations in the name of social justice, in that a large portion of CEO remuneration often consists of company stock and options. Accepting fair trade policies and closing sweatshops may be good for the world, but is potentially disastrous for a firm’s immediate financial success. What is ethically valuable to the voting and buying public is not necessarily of concrete value to corporations, nor personally beneficial to their top executives.
Many firms have sought to resolve this contradiction through high-profile philanthropy. Exploitative labour practices or corporate malpractice are swept under the carpet as companies publicise tax-efficient contributions to good causes. Such contributions may be a relatively small price to pay compared with changing fundamental operational practices. Likewise, giving to charity is a prime opportunity for CEOs to be seen to be doing good without having to sacrifice their commitment to making profit at any social cost. Charitable activity permits CEOs to be philanthropic rather than economically progressive or politically democratic.
There is an even more straightforward financial consideration at play in some cases. Charity can be an absolute boon to capital accumulation: corporate philanthropy has been shown to have a positive effect on perceptions by stock market analysts. At the personal level, CEOs can take advantage of promoting their individual charity to distract from other, less savoury activities; as an executive, they can cash in on the capital gains that can be made from introducing high-profile charity strategies.
The very notion of corporate social responsibility, or CSR, has been criticised for providing companies with a moral cover to act in quite exploitative and socially damaging ways. But in the current era, social responsibility, when portrayed as an individual character trait of chief executives, has allowed corporations to be run as irresponsibly as ever. CEOs’ very public engagement in philanthrocapitalism can be understood as a key component of this reputation management. It is part of the marketing of the firm itself, as the good deeds of its leaders come to signify the overall goodness of the corporation.
Ironically, philanthrocapitalism also grants corporations the moral right, at least within the public consciousness, to be socially irresponsible. The trumpeting of the CEOs’ personal generosity can grant an implicit right for their corporations to act ruthlessly and with little consideration for the broader social effects of their activities. This reflects a productive tension at the heart of modern CSR: the more moral a CEO, the more immoral their company can in theory seek to be.
The hypocrisy revealed by CEOs claiming to be dedicated to social responsibility and charity also exposes a deeper authoritarian morality that prevails in the CEO society. Philanthrocapitalism is commonly presented as the social justice component of an otherwise amoral global free market. At best, corporate charity is a type of voluntary tax paid by the 1% for their role in creating such an economically deprived and unequal world. Yet this “giving” culture also helps support and spread a distinctly authoritarian form of economic development that mirrors the autocratic leadership style of the executives who predominantly fund it.
The marketisation of global charity and empowerment has dangerous implications that transcend economics. It also has a troubling emerging political legacy, one in which democracy is sacrificed on that altar of executive-style empowerment. Politically, the free market is posited as a fundamental requirement for liberal democracy. However, recent analysis reveals the deeper connection between processes of marketisation and authoritarianism. In particular, a strong government is required to implement these often unpopular market changes. The image of the powerful autocrat is, to this effect, transformed into a potentially positive figure, a forward-thinking political leader who can guide their country on the correct market path in the face of “irrational” opposition. Charity becomes a conduit for CEOs to fund these “good” authoritarians.
Essentially, what we are witnessing is the transfer of responsibility for public goods and services from democratic institutions to the wealthy, to be administered by an executive class. In the CEO society, the exercise of social responsibilities is no longer debated in terms of whether corporations should or shouldn’t be responsible for more than their own business interests. Instead, it is about how philanthropy can be used to reinforce a politico-economic system that enables such a small number of people to accumulate obscene amounts of wealth. Zuckerberg’s investment in solutions to the Bay Area housing crisis is an example of this broader trend.
The reliance on billionaire businesspeople’s charity to support public projects is a part of what has been called “philanthrocapitalism”. This resolves the apparent antinomy between charity (traditionally focused on giving) and capitalism (based on the pursuit of economic self-interest). As historian Mikkel Thorup explains, philanthrocapitalism rests on the claim that “capitalist mechanisms are superior to all others (especially the state) when it comes to not only creating economic but also human progress, and that the market and market actors are or should be made the prime creators of the good society”.
The golden age of philanthropy is not just about benefits that accrue to individual givers. More broadly, philanthropy serves to legitimise capitalism, as well as to extend it further and further into all domains of social, cultural and political activity.
Philanthrocapitalism is about much more than the simple act of generosity it pretends to be, instead involving the inculcation of neoliberal values personified by the billionaire CEOs who have led its charge. Philanthropy is recast in the same terms in which a CEO would consider a business venture. Charitable giving is translated into a business model that employs market-based solutions characterised by efficiency and quantified costs and benefits.
Philanthrocapitalism takes the application of management discourses and practices from business corporations and adapts them to charitable work. The focus is on entrepreneurship, market-based approaches and performance metrics. The process is funded by super-rich businesspeople and managed by those experienced in business. The result, at a practical level, is that philanthropy is undertaken by CEOs in a manner similar to how they would run businesses.
As part of this, charitable foundations have changed in recent years. As explained in a paper by Garry Jenkins, a professor of law at the University of Minnesota, this involves becoming “increasingly directive, controlling, metric-focused and business-oriented with respect to their interactions with grantee public charities, in an attempt to demonstrate that the work of the foundation is ‘strategic’ and ‘accountable’”.
This is far from the benign shift to a different and better way of doing things that it claims to be – a CEO style to “save the world through business thinking and market methods”, as Jenkins puts it. Instead, the risk of philanthrocapitalism is a takeover of charity by business interests, such that generosity to others is appropriated into the overarching dominance of the CEO model of society and its corporate institutions.
The modern CEO is very much at the forefront of the political and media stage. While this often leads to CEOs becoming vaunted celebrities, it also leaves them open to being identified as scapegoats for economic injustice. The increasingly public role taken by CEOs is related to a renewed corporate focus on their wider social responsibility. Firms must now balance, at least rhetorically, a dual commitment to profit and social outcomes. This has been reflected in the promotion of the “triple bottom line”, which combines social, financial and environmental priorities in corporate reporting.
This turn toward social responsibility represents a distinct problem for CEOs. While firms may be willing to sacrifice some short-term profit for the sake of preserving their public reputation, this same bargain is rarely on offer to CEOs themselves, who are judged on their quarterly reports and how well they are serving the fiscal interests of their shareholders. Thus, whereas social responsibility strategies may win public kudos, in the confines of the boardroom it is often a different story, especially when the budget is being scrutinised.
There is a further economic incentive for CEOs to avoid making fundamental changes to their operations in the name of social justice, in that a large portion of CEO remuneration often consists of company stock and options. Accepting fair trade policies and closing sweatshops may be good for the world, but is potentially disastrous for a firm’s immediate financial success. What is ethically valuable to the voting and buying public is not necessarily of concrete value to corporations, nor personally beneficial to their top executives.
Many firms have sought to resolve this contradiction through high-profile philanthropy. Exploitative labour practices or corporate malpractice are swept under the carpet as companies publicise tax-efficient contributions to good causes. Such contributions may be a relatively small price to pay compared with changing fundamental operational practices. Likewise, giving to charity is a prime opportunity for CEOs to be seen to be doing good without having to sacrifice their commitment to making profit at any social cost. Charitable activity permits CEOs to be philanthropic rather than economically progressive or politically democratic.
There is an even more straightforward financial consideration at play in some cases. Charity can be an absolute boon to capital accumulation: corporate philanthropy has been shown to have a positive effect on perceptions by stock market analysts. At the personal level, CEOs can take advantage of promoting their individual charity to distract from other, less savoury activities; as an executive, they can cash in on the capital gains that can be made from introducing high-profile charity strategies.
The very notion of corporate social responsibility, or CSR, has been criticised for providing companies with a moral cover to act in quite exploitative and socially damaging ways. But in the current era, social responsibility, when portrayed as an individual character trait of chief executives, has allowed corporations to be run as irresponsibly as ever. CEOs’ very public engagement in philanthrocapitalism can be understood as a key component of this reputation management. It is part of the marketing of the firm itself, as the good deeds of its leaders come to signify the overall goodness of the corporation.
Ironically, philanthrocapitalism also grants corporations the moral right, at least within the public consciousness, to be socially irresponsible. The trumpeting of the CEOs’ personal generosity can grant an implicit right for their corporations to act ruthlessly and with little consideration for the broader social effects of their activities. This reflects a productive tension at the heart of modern CSR: the more moral a CEO, the more immoral their company can in theory seek to be.
The hypocrisy revealed by CEOs claiming to be dedicated to social responsibility and charity also exposes a deeper authoritarian morality that prevails in the CEO society. Philanthrocapitalism is commonly presented as the social justice component of an otherwise amoral global free market. At best, corporate charity is a type of voluntary tax paid by the 1% for their role in creating such an economically deprived and unequal world. Yet this “giving” culture also helps support and spread a distinctly authoritarian form of economic development that mirrors the autocratic leadership style of the executives who predominantly fund it.
The marketisation of global charity and empowerment has dangerous implications that transcend economics. It also has a troubling emerging political legacy, one in which democracy is sacrificed on that altar of executive-style empowerment. Politically, the free market is posited as a fundamental requirement for liberal democracy. However, recent analysis reveals the deeper connection between processes of marketisation and authoritarianism. In particular, a strong government is required to implement these often unpopular market changes. The image of the powerful autocrat is, to this effect, transformed into a potentially positive figure, a forward-thinking political leader who can guide their country on the correct market path in the face of “irrational” opposition. Charity becomes a conduit for CEOs to fund these “good” authoritarians.
A protester outside the Nasdaq headquarters in New York marks Facebook’s IPO, 2012. Photograph: Alamy Stock Photo
The recent development of philanthrocapitalism also marks the increasing encroachment of business into the provision of public goods and services. This encroachment is not limited to the activities of individual billionaires; it is also becoming a part of the activities of large corporations under the rubric of CSR. This is especially the case for large multinational corporations whose global reach, wealth and power give them significant political clout. This relationship has been referred to as “political CSR”. Business ethics professors Andreas Scherer and Guido Palazzo note that, for large corporations, “CSR is increasingly displayed in corporate involvement in the political process of solving societal problems, often on a global scale”. Such political CSR initiatives see organisations cooperating and collaborating with governments, civic bodies and international institutions, so that historical separations between the purposes of the state and the corporations are increasingly eroded.
Global corporations have long been involved in quasi-governmental activities such as the setting of standards and codes, and today are increasingly engaging in other activities that have traditionally been the domain of government, such as public health provision, education, the protection of human rights, addressing social problems such as Aids and malnutrition, protection of the natural environment and the promotion of peace and social stability.
Today, large organisations can amass significant economic and political power, on a global scale. This means that their actions – and the way those actions are regulated – have far-reaching social consequences. The balanced tipped in 2000, when the Institute for Policy Studies in the US reported, after comparing corporate revenues with gross domestic product (GDP), that 51 of the largest economies in the world were corporations, and 49 were national economies. The biggest corporations were General Motors, Walmart and Ford, each of which was larger economically than Poland, Norway and South Africa. As the heads of these corporations, CEOs are now quasi-politicians. One only has to think of the increasing power of the World Economic Forum, whose annual meeting in Davos in Switzerland sees corporate CEOs and senior politicians getting together with the ostensible goal of “improving the world”, a now time-honoured ritual that symbolises the global power and agency of CEOs.
The development of CSR is not the result of self-directed corporate initiatives for doing good deeds, but a response to widespread CSR activism from NGOs, pressure groups and trade unions. Often this has been in response to the failure of governments to regulate large corporations. High-profile industrial accidents and scandals have also put pressure on organisations for heightened self-regulation.
An explosion at a Union Carbide chemical plant in Bhopal, India in 1984 led to the deaths of an estimated 25,000 people. James Post, a professor of management at Boston University, explains that, after the disaster, “the global chemical industry recognised that it was nearly impossible to secure a licence to operate without public confidence in industry safety standards. The Chemical Manufacturers Association (CMA) adopted a code of conduct, including new standards of product stewardship, disclosure and community engagement.”
The impetus for this was corporate self-interest, rather than generosity, as industries and corporations globally “began to recognise the increasing importance of reputation and image”. Similar moves were enacted after other major industrial accidents, such as the Exxon Valdez oil tanker spilling hundreds of thousands of barrels of oil in Alaska in 1989, and BP’s Deepwater Horizon oil rig exploding in the Gulf of Mexico in 2010.
The Deepwater Horizon oil rig ablaze in the Gulf of Mexico, April 2010.
Photograph: Handout/Getty Images
Another important case was the involvement of the clothing companies Gap and Nike in a child labour scandal after the broadcast of a BBC Panorama documentary in October 2000. Factories in Cambodia making Gap and Nike clothing were shown to operate with terrible working conditions, involving children as young as 12 working seven days a week, being forced to do overtime, and enduring physical and emotional abuse from management. The public outcry that ensued demanded that Gap and Nike, and other organisations like them, take more responsibility for the negative human social impacts of their business practices.
CSR was introduced in order to reduce the ill effects of corporate self-interest. But over time it has turned into a means for further enhancing that self-interest while ostensibly claiming to be addressing the interests of others. When facing the threat of corporate scandal, CSR is seen as the vehicle through which corporate reputation can be boosted, and the threat of government regulation can be mitigated. Again, here we see how corporations engage in seemingly responsible practices in order to increase their own political power, and to diminish the power of nation states over their own operations.
The idea that organisations adopt CSR for the purposes of developing or defending a corporate reputation has put the ethics of CSR under scrutiny. The contention has arisen that, rather than using CSR as a means of “being good”, corporations adopt it merely as a means of “looking good”, while not in any way questioning their basic ethical or political stance. Even Enron, before its legendary fraud scandal and eventual demise in 2001, was well known for its advocacy of social responsibility.
CEO generosity is epic in proportions – or at least that is how it is portrayed. Indeed, on an individual level it is hard to find fault with those rich people who have given away vast swaths of their wealth to charitable causes, or those corporations that champion socially responsible programmes. But what CSR and philanthrocapitalism achieve more broadly is the social justification of extreme wealth inequality, rather than any kind of antidote to it. We need to note here that, despite the apparent proliferation of giving promised by philanthrocapitalism, the so-called golden age of philanthropy is also an age of expanding inequality.
This is clearly spelled out a 2017 report by Oxfam called An Economy for the 99%. It highlights the injustice and unsustainability of a world suffering from widening levels of inequality: since the early 1990s, the top 1% of the world’s wealthy people have gained more income than the entire bottom 50%. Why so? Oxfam’s report places the blame firmly with corporations and the global market economies in which they operate. The statistics are alarming, with the world’s 10 biggest corporations having revenues that exceed the total combined revenues of the 180 least wealthy nations. Corporate social responsibility is not making any real difference. The report states: “When corporations increasingly work for the rich, the benefits of economic growth are denied to those who need them most. In pursuit of delivering high returns to those at the top, corporations are driven to squeeze their workers and producers ever harder – and to avoid paying taxes which would benefit everyone, and the poorest people in particular.”
Neither the philanthropy of the super-rich nor socially directed corporate programmes have any real effect on combating this trend, in the same way that Zuckerberg’s handout of $3m will have a negligible effect on the San Francisco housing crisis. Instead, vast fortunes in the hands of the few, whether earned through inheritance, commerce or crime, continue to grow at the expense of the poor.
In the end, it is capitalism that is at the heart of philanthrocapitalism, and the corporation that is at the heart of corporate social responsibility, with even well-meaning endeavours serving to justify a system that is rigged in favour of the rich.
What is particular about this new approach is not that rich people are supporting charitable endeavours, but that it involves, as sociologist Linsey McGoey explains, “an openness that deliberately collapses the distinction between public and private interests, in order to justify increasingly concentrated levels of private gain”.
Photograph: Handout/Getty Images
Another important case was the involvement of the clothing companies Gap and Nike in a child labour scandal after the broadcast of a BBC Panorama documentary in October 2000. Factories in Cambodia making Gap and Nike clothing were shown to operate with terrible working conditions, involving children as young as 12 working seven days a week, being forced to do overtime, and enduring physical and emotional abuse from management. The public outcry that ensued demanded that Gap and Nike, and other organisations like them, take more responsibility for the negative human social impacts of their business practices.
CSR was introduced in order to reduce the ill effects of corporate self-interest. But over time it has turned into a means for further enhancing that self-interest while ostensibly claiming to be addressing the interests of others. When facing the threat of corporate scandal, CSR is seen as the vehicle through which corporate reputation can be boosted, and the threat of government regulation can be mitigated. Again, here we see how corporations engage in seemingly responsible practices in order to increase their own political power, and to diminish the power of nation states over their own operations.
The idea that organisations adopt CSR for the purposes of developing or defending a corporate reputation has put the ethics of CSR under scrutiny. The contention has arisen that, rather than using CSR as a means of “being good”, corporations adopt it merely as a means of “looking good”, while not in any way questioning their basic ethical or political stance. Even Enron, before its legendary fraud scandal and eventual demise in 2001, was well known for its advocacy of social responsibility.
CEO generosity is epic in proportions – or at least that is how it is portrayed. Indeed, on an individual level it is hard to find fault with those rich people who have given away vast swaths of their wealth to charitable causes, or those corporations that champion socially responsible programmes. But what CSR and philanthrocapitalism achieve more broadly is the social justification of extreme wealth inequality, rather than any kind of antidote to it. We need to note here that, despite the apparent proliferation of giving promised by philanthrocapitalism, the so-called golden age of philanthropy is also an age of expanding inequality.
This is clearly spelled out a 2017 report by Oxfam called An Economy for the 99%. It highlights the injustice and unsustainability of a world suffering from widening levels of inequality: since the early 1990s, the top 1% of the world’s wealthy people have gained more income than the entire bottom 50%. Why so? Oxfam’s report places the blame firmly with corporations and the global market economies in which they operate. The statistics are alarming, with the world’s 10 biggest corporations having revenues that exceed the total combined revenues of the 180 least wealthy nations. Corporate social responsibility is not making any real difference. The report states: “When corporations increasingly work for the rich, the benefits of economic growth are denied to those who need them most. In pursuit of delivering high returns to those at the top, corporations are driven to squeeze their workers and producers ever harder – and to avoid paying taxes which would benefit everyone, and the poorest people in particular.”
Neither the philanthropy of the super-rich nor socially directed corporate programmes have any real effect on combating this trend, in the same way that Zuckerberg’s handout of $3m will have a negligible effect on the San Francisco housing crisis. Instead, vast fortunes in the hands of the few, whether earned through inheritance, commerce or crime, continue to grow at the expense of the poor.
In the end, it is capitalism that is at the heart of philanthrocapitalism, and the corporation that is at the heart of corporate social responsibility, with even well-meaning endeavours serving to justify a system that is rigged in favour of the rich.
What is particular about this new approach is not that rich people are supporting charitable endeavours, but that it involves, as sociologist Linsey McGoey explains, “an openness that deliberately collapses the distinction between public and private interests, in order to justify increasingly concentrated levels of private gain”.
In the CEO society, corporate logic such as this rules supreme, and ensures that any activities thought of as generous and socially responsible ultimately have a payoff in terms of self-interest. If there was ever a debate between the ethics of genuine hospitality, reciprocity and self-interest, it is not to be found here. It is in accordance with this CEO logic that the mechanisms for redressing the inequality created through wealth generation are placed in the hands of the wealthy, and in a way that ultimately benefits them. The worst excesses of neoliberal capitalism are morally justified by the actions of the very people who benefit from those excesses. Wealth redistribution is placed in the hands of the wealthy, and social responsibility in the hands of those who have exploited society for personal gain.
Meanwhile, inequality is growing, and both corporations and the wealthy find ways to avoid the taxes that the rest of us pay. In the name of generosity, we find a new form of corporate rule, refashioning another dimension of human endeavour in its own interests. Such is a society where CEOs are no longer content to do business; they must control public goods as well. In the end, while the Giving Pledge’s website may feature more and more smiling faces of smug-looking CEOs, the real story is of a world characterised by gross inequality that is getting worse year by year.
Thursday 16 November 2017
Why Brexit Britain needs to upskill its workforce
Simon Kuper in The FT
A British hospital director told me he was hunting for staff to replace foreign doctors and nurses leaving because of Brexit. He hadn’t found many qualified Britons queuing to replace them. In fact, he specified: “Not one!”
A British hospital director told me he was hunting for staff to replace foreign doctors and nurses leaving because of Brexit. He hadn’t found many qualified Britons queuing to replace them. In fact, he specified: “Not one!”
You could interpret this as yet another cautionary tale about Brexit. In an age when the chief global business cliché is the “war for talent”, the UK is fighting a war against talent. But if I were a Brexiter, I’d say: Brexit should be the prompt for Britain finally to start training enough of its own talent.
Obviously, I’m not arguing that every departing foreigner frees up a job for a Briton. Economists dismiss such reasoning as the “lump of labour fallacy”. Rather, I’m saying that if the UK wants to avoid economic decline, it will need to train far more of its own nurses, construction workers, bankers, architects, etc. For a country whose policy has always been not to educate the working class, that would be a reversal of history. It would come too late for the over-45s (the generation that actually voted for Brexit), but it could transform the futures of young Britons. And it’s doable.
The British tradition is to educate each class separately, writes historian David Cannadine in Class in Britain. Even in the 18th century, posh males went to public schools and Oxbridge, whereas the poor were taught almost nothing. The purpose of education then, says Cannadine, “was more to teach people their place than to give them opportunities to advance”. His words apply pretty well to today’s country. The alumni of nine expensive “public” schools are now 94 times more likely than the average Briton to reach the elite, according to London School of Economics research. (The conservative Daily Telegraph reported the findings under the headline, factually accurate as far as it went, “Boys’ public school dominance over British elite has ‘diminished significantly’ over time”.)
The UK — without any more wars of conscription and with few surviving factories or mines — now struggles to find a use for low-skilled people who live in places where they can’t perform personal services for higher castes (see this week’s cover story on Blackpool).
Before Brexit, the rest of the country didn’t need these people. High-skilled immigrants staffed world-class British sectors such as the City and London’s creative economy. In healthcare, the UK developed a brilliant racket: let a poor country like Romania fund a nurse’s education, then underpay her to look after sick Brits. Low-skilled immigrants eager to work all hours for little money gave the UK cafés, carers and corner shops that seldom closed. Low-skilled Britons could have done these jobs, but mostly didn’t.
The coming wave of British talent is largely immigrant too: the kids who have made London’s state schools the UK’s best, plus the offspring of Russian, Chinese and other foreign elites who fill the public schools. Many of these people would love to stay and make the UK richer.
But Brexiters want to cut immigration. The obvious, if tricky solution: equip working-class Brits to do jobs from nursing to banking. “That’s the opportunity,” says Charles Leadbeater, a consultant who has long advised British governments on innovation and education. “I just think it won’t happen. It would require something like a wartime national mobilisation of people and skills. That would require state leadership of the kind most Brexiteers abhor.”
Leadbeater points out that Tory Brexiter politicians — almost none of whom send their children to state schools — rarely talk about apprenticeship schemes à la Switzerland. Instead, their vision seems to be a low-tax, low-regulation Britain.
Jonathan Portes, economics professor at King’s College London, adds: “The problem of UK vocational education has been known for at least a century. We’ve always neglected it. When I was involved in government we had a new skills strategy every two years, and none of them worked.”
Anyway, executing Brexit will distract ministers and civil servants for years to come. “The government has neither the fiscal room nor the mental bandwidth to do much about skills,” says Portes. In fact, in August the UK removed the NHS bursary for people training to be nurses, midwives and speech therapists, among other professions. Students now have to fund their courses themselves, knowing they can expect a low lifetime salary.
If Britain doesn’t upskill its workers fast, it will lose skilled jobs. It will continue to have the world’s best universities per capita only if it can find enough Britons to replace departing foreign academics. Much the same applies to finance or design. Meanwhile, low-skilled foreign fruit pickers have already melted away since the pound plunged. With few Britons queuing to replace them, much of this year’s produce rotted in the fields.
So the most likely post-Brexit outcome is a Britain that cannot keep itself in the style to which it has become accustomed. The war against talent will probably leave the UK looking a bit more like today’s English seaside towns, or most of the country in the 1970s: culturally homogeneous, relatively poor and under-serviced. On the upside, housing should be cheaper. For many Brexiters, I suspect the trade-offs will be worth it.
Saturday 22 April 2017
Property feeds the roots of inequality in Britain. Inheritance will entrench it
Ian Jack in The Guardian
What did our grandparents leave us? That will depend on who they were and what they possessed, but in my case, not untypical of my generation, it wasn’t very much.
From my father’s side the treasures included: a stuffed canary; a tiny stuffed crocodile (a gharial, taken from the Ganges); some crested china bought in seaside resorts; and a canteen of excellent cutlery given as a wedding present in 1899 and never taken from its box. On my grandmother’s death, a display cabinet was bought to accommodate this sudden Victorian infusion into our household, which already had a fine little portrait of Rob Roy inherited from my mother’s father, to be followed much later (after a diversion to an aunt and then a cousin) by a wall-clock and a watercolour of a street in Kirkcaldy that looked very pretty from a distance. I’m sure to have forgotten other items – for example, I’m just now remembering the 78rpm discs of Enrico Caruso and Harry Lauder – but basically that was it.
If there was money, there was very little. No property, you see. Neither side of the family had ever owned a house – and so, in terms of material changes to their children’s lives, their deaths were inconsequential. I, on the other hand, do own a house. More than that, I own a house in London. My death, and that of a million like me, will be very consequential.
According to Steve Webb, policy director of the Royal London mutual insurance company, “a wall of housing wealth [is] set to cascade through the generations in the coming years”.
A study published this week by Royal London estimates that roughly £400bn presently tied up in homes owned by people aged 65 to 85 will be handed down to their children and grandchildren. A typical estate of what the study calls this “wealth mountain” is worth between £400,000 and £500,000, to be shared out between four or five children or adult grandchildren and often to be reinvested in property.
The study is based on a YouGov survey of more than 5,600 people covering three generations: the so-called “grandparents generation” of 65- to 85-year-old homeowners; the “sandwich” generation of parents aged 45 to 64, who have living parents from whom they might expect to inherit; and a “children’s” generation of adults aged 25 to 44 who have owner-occupier parents and grandparents.
Surveys are only surveys: caveat emptor. Nevertheless, the report discovers some intriguing differences between generations. While the youngest group believes that their grandparents should spend freely to enjoy their retirement, the grandparents themselves think it right to hoard their money for their grandchildren. Many don’t wait to die. A third of those aged 75 and over had given sizeable sums of money to their grandchildren, a generation that according to the study’s calculations have received a total of £38bn from both their parents and grandparents – often, especially in London and the south-east, to spend on property. And while grandparents tend to act out of a sense of distant benevolence, parents are responding to the “pressure” exerted by their children’s predicaments. The study’s title picks up this theme: Will harassed “baby boomers” rescue Generation Rent?
Earlier this year, the Institute for Fiscal Studies published research on the growth of inheritance as a phenomenon in British life. It showed how less than 40% of the cohort born in the 1930s have received or expect to receive a bequest, while for those born in the 1970s the figure is 75%. Their benefactors are on average much richer. In 2002-3, the household wealth of people aged 80 and over averaged £160,000; 10 years later, thanks mainly to increases in home ownership and house prices, the average had risen to £230,000.
So far, the impact of inheritance on entrenching or heightening inequality has been fairly small – the average inheritance equals only 3% of the other income its recipient can expect to generate in a lifetime. But neither the Royal London nor the IFS study expects that to last. “We are entering an unprecedented era where the older generation is retiring with vast housing wealth,” says the first in its final paragraph. “That wealth is largely being preserved through retirement and will in due course find its way down through the generations. Public policy making needs to take far more account of these very substantial financial flows and perhaps focus more attention on those who are not likely to be the beneficiaries.”
In other words, we are re-entering the world of the Victorian novel, in which suitable marriages, contested wills and misplaced legacies drive the plot, while the poor – the people without lawyers – press their faces against the window of this vigorous, scheming world and merely invite our sympathy.
It wasn’t supposed to happen. “Come with us, then, towards the next decade,” said Margaret Thatcher, winding up her speech to the Conservative party conference in 1985. “Let us together set our sights on a Britain where three out of four families own their home, where owning shares is as common as having a car, where families have a degree of independence their forefathers could only dream about.”
Anyone under the age of 45 is now much less likely to be a homeowner than people of the same age 25 years ago
Two years later the writer Neal Ascherson wrote a prescient column in the Observer that he recalls as “the most popular column I ever wrote … It was greedily read by the yuppie generation – and then fiercely denounced for being wrong.” Foreseeing that soaring house prices meant that London’s middle-class young would inherit many millions when their parents died, Ascherson predicted an “explosion of liquid wealth that would create instant and colossal inequality”: a society with an upper class rich enough to maintain servants, in a “court city” drained of industry that had reverted to the production of luxurious baubles.
Economists pointed out that the cash raised from property sales wouldn’t be “liquid” – it would be sucked up by the inflated cost of the new houses the inheritors moved into – but from today’s vantage point Ascherson’s futurism does not look so wrong. A new super-rich class with butlers and housemaids has moved in, though mainly from overseas rather than Britain, while owner-occupation has become a mirage for growing numbers of the less well-off.
Homeownership today stands just slightly above the rate when Thatcher made her speech: 64% of all households compared with 61% of all households in 1985, having declined from a peak of 71% in 2003. Anyone under the age of 45 is now much less likely to be a homeowner than people of the same age 25 years ago, while the reverse is true of older age groups.
Private renters account for more than 20% of the housing market; in 1985 the figure was 9%. High rents rule out the kind of savings needed for a deposit on a house – with an average price in London equivalent to more than 16 times the average London salary, and 12 and 13 times the mean income of people in their 20s and 30s in prosperous cities such as Cambridge and Brighton. Meanwhile prices, which might be expected to slump amid the economic uncertainty of Brexit, have instead held reasonably steady because the fall in the value of sterling has made them more attractive to international investors.
As the IFS says, these developments mean that inherited wealth is likely to play a more important – I would say crucial – role “in determining the lifetime economic resources of younger generations, with important implications for inequality and social mobility”. What can grammar schools do – supposing they really are agents of social mobility – against this coming weight of money, which will deepen privilege like a coastal shelf? The metaphor is borrowed from Philip Larkin. “They set you up, your mum and dad. They say they mean to, and they do.” For some of us, This Be the Verse.
From my father’s side the treasures included: a stuffed canary; a tiny stuffed crocodile (a gharial, taken from the Ganges); some crested china bought in seaside resorts; and a canteen of excellent cutlery given as a wedding present in 1899 and never taken from its box. On my grandmother’s death, a display cabinet was bought to accommodate this sudden Victorian infusion into our household, which already had a fine little portrait of Rob Roy inherited from my mother’s father, to be followed much later (after a diversion to an aunt and then a cousin) by a wall-clock and a watercolour of a street in Kirkcaldy that looked very pretty from a distance. I’m sure to have forgotten other items – for example, I’m just now remembering the 78rpm discs of Enrico Caruso and Harry Lauder – but basically that was it.
If there was money, there was very little. No property, you see. Neither side of the family had ever owned a house – and so, in terms of material changes to their children’s lives, their deaths were inconsequential. I, on the other hand, do own a house. More than that, I own a house in London. My death, and that of a million like me, will be very consequential.
According to Steve Webb, policy director of the Royal London mutual insurance company, “a wall of housing wealth [is] set to cascade through the generations in the coming years”.
A study published this week by Royal London estimates that roughly £400bn presently tied up in homes owned by people aged 65 to 85 will be handed down to their children and grandchildren. A typical estate of what the study calls this “wealth mountain” is worth between £400,000 and £500,000, to be shared out between four or five children or adult grandchildren and often to be reinvested in property.
The study is based on a YouGov survey of more than 5,600 people covering three generations: the so-called “grandparents generation” of 65- to 85-year-old homeowners; the “sandwich” generation of parents aged 45 to 64, who have living parents from whom they might expect to inherit; and a “children’s” generation of adults aged 25 to 44 who have owner-occupier parents and grandparents.
Surveys are only surveys: caveat emptor. Nevertheless, the report discovers some intriguing differences between generations. While the youngest group believes that their grandparents should spend freely to enjoy their retirement, the grandparents themselves think it right to hoard their money for their grandchildren. Many don’t wait to die. A third of those aged 75 and over had given sizeable sums of money to their grandchildren, a generation that according to the study’s calculations have received a total of £38bn from both their parents and grandparents – often, especially in London and the south-east, to spend on property. And while grandparents tend to act out of a sense of distant benevolence, parents are responding to the “pressure” exerted by their children’s predicaments. The study’s title picks up this theme: Will harassed “baby boomers” rescue Generation Rent?
Earlier this year, the Institute for Fiscal Studies published research on the growth of inheritance as a phenomenon in British life. It showed how less than 40% of the cohort born in the 1930s have received or expect to receive a bequest, while for those born in the 1970s the figure is 75%. Their benefactors are on average much richer. In 2002-3, the household wealth of people aged 80 and over averaged £160,000; 10 years later, thanks mainly to increases in home ownership and house prices, the average had risen to £230,000.
So far, the impact of inheritance on entrenching or heightening inequality has been fairly small – the average inheritance equals only 3% of the other income its recipient can expect to generate in a lifetime. But neither the Royal London nor the IFS study expects that to last. “We are entering an unprecedented era where the older generation is retiring with vast housing wealth,” says the first in its final paragraph. “That wealth is largely being preserved through retirement and will in due course find its way down through the generations. Public policy making needs to take far more account of these very substantial financial flows and perhaps focus more attention on those who are not likely to be the beneficiaries.”
In other words, we are re-entering the world of the Victorian novel, in which suitable marriages, contested wills and misplaced legacies drive the plot, while the poor – the people without lawyers – press their faces against the window of this vigorous, scheming world and merely invite our sympathy.
It wasn’t supposed to happen. “Come with us, then, towards the next decade,” said Margaret Thatcher, winding up her speech to the Conservative party conference in 1985. “Let us together set our sights on a Britain where three out of four families own their home, where owning shares is as common as having a car, where families have a degree of independence their forefathers could only dream about.”
Anyone under the age of 45 is now much less likely to be a homeowner than people of the same age 25 years ago
Two years later the writer Neal Ascherson wrote a prescient column in the Observer that he recalls as “the most popular column I ever wrote … It was greedily read by the yuppie generation – and then fiercely denounced for being wrong.” Foreseeing that soaring house prices meant that London’s middle-class young would inherit many millions when their parents died, Ascherson predicted an “explosion of liquid wealth that would create instant and colossal inequality”: a society with an upper class rich enough to maintain servants, in a “court city” drained of industry that had reverted to the production of luxurious baubles.
Economists pointed out that the cash raised from property sales wouldn’t be “liquid” – it would be sucked up by the inflated cost of the new houses the inheritors moved into – but from today’s vantage point Ascherson’s futurism does not look so wrong. A new super-rich class with butlers and housemaids has moved in, though mainly from overseas rather than Britain, while owner-occupation has become a mirage for growing numbers of the less well-off.
Homeownership today stands just slightly above the rate when Thatcher made her speech: 64% of all households compared with 61% of all households in 1985, having declined from a peak of 71% in 2003. Anyone under the age of 45 is now much less likely to be a homeowner than people of the same age 25 years ago, while the reverse is true of older age groups.
Private renters account for more than 20% of the housing market; in 1985 the figure was 9%. High rents rule out the kind of savings needed for a deposit on a house – with an average price in London equivalent to more than 16 times the average London salary, and 12 and 13 times the mean income of people in their 20s and 30s in prosperous cities such as Cambridge and Brighton. Meanwhile prices, which might be expected to slump amid the economic uncertainty of Brexit, have instead held reasonably steady because the fall in the value of sterling has made them more attractive to international investors.
As the IFS says, these developments mean that inherited wealth is likely to play a more important – I would say crucial – role “in determining the lifetime economic resources of younger generations, with important implications for inequality and social mobility”. What can grammar schools do – supposing they really are agents of social mobility – against this coming weight of money, which will deepen privilege like a coastal shelf? The metaphor is borrowed from Philip Larkin. “They set you up, your mum and dad. They say they mean to, and they do.” For some of us, This Be the Verse.
Monday 14 November 2016
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?”
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?”
Tuesday 4 October 2016
Don’t blame foreign investors – the roots of the housing crisis lie closer to home
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?
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?
Thursday 2 June 2016
Why landlords should pass a fitting person test and criminal record checks
Penny Anderson in The Guardian
Being a landlord is a privilege, and it shouldn’t be available to everybody: with the power they have over their tenants should come a sense of responsibility
‘There are recurring issues, such as owners not understanding the concept of reasonable wear and tear, even when the low-quality carpets and sofas they chose were threadbare to begin with.’ Photograph: Popperfoto/Getty Images
There are the problems of legal management. Owners misunderstand, ignore or forget the legal requirement to issue proper notices to quit, or the need for prior warning of inspection visits, using the power of thought or suggestion instead. Some owners I have rented from imagine they can let themselves in whenever they see fit.
Let’s be reasonable. We know that property doesn’t manage itself, and can be costly to maintain. The obligation to repair causes tension once owners, even the best-intentioned ones, grow acquainted with the expense of emergency out-of-hours plumbing.
Some owners – through indolence or meanness – would rather let the place rot; a friend’s landlord knowingly allows water from the leaky tiles to be absorbed by cavity wall insulation. Ultimately, his roof will cave in, but he doesn’t seem to care – either about the tenant or the ultimate expense. Other owners issue “revenge” notices – where tenants are forced out for insisting on damage being made good. Tenants who stand up for their rights are frequently viewed as troublemakers.
Tenants are not angelic. Some give as good as they get in the owner-tenant relationship. But the balance of power between the two is clearly in the landlord’s favour. Isn’t it time for power with more responsibility?
A requirement for landlord training would allow neophyte property moguls to escape being bogged down in pointless, petty battles with tenants. They also would learn about both the availability (and wisdom) of landlord insurance and the pros and cons of letting agents, who charge up to 15% of income and often do very little to earn it.
Being a landlord is a profitable privilege, but it isn’t one that should be automatically available to everybody. It should be earned by those who prove themselves knowledgeable and capable, having passed both a “fitting person” test and a criminal records check. Don’t forget: landlords possess keys to their tenants’ homes, and need to understand obligations. Owners would also benefit from better safeguards and more clarity because both would improve their relationships with tenants, and contented tenants stay longer in their properties.
The rentier economy marches on and will continue to do so, because set against the decline in pensions and increasing job insecurity, property is regarded as a solid guarantee against poverty. The fact that people make money from renting isn’t a problem. Nor is the fact that these transactions occur in the private sector. What’s missing and badly needed is the idea of responsibility.
Being a landlord is a privilege, and it shouldn’t be available to everybody: with the power they have over their tenants should come a sense of responsibility
‘Owners misunderstand, ignore or forget legal requirement to issue proper notices to quit, or the need for prior warning of inspection visits.’ Photograph: Alamy
There are more private landlords than ever. Many are reasonable. Some are even excellent, but letting property is largely unrestricted.
Sadiq Khan, the mayor of London, has highlighted the failure of his predecessor Boris Johnson to sign up 100,000 landlords to his much vaunted London Rental Standard, which aims to help landlords with things such as having a gas safety check every year, and the laws around deposits and fire safety. After two years in operation, the scheme had attracted fewer than 2,000 landlords in addition to the 13,300 it inherited.
There are more private landlords than ever. Many are reasonable. Some are even excellent, but letting property is largely unrestricted.
Sadiq Khan, the mayor of London, has highlighted the failure of his predecessor Boris Johnson to sign up 100,000 landlords to his much vaunted London Rental Standard, which aims to help landlords with things such as having a gas safety check every year, and the laws around deposits and fire safety. After two years in operation, the scheme had attracted fewer than 2,000 landlords in addition to the 13,300 it inherited.
The files reveal that officials warned the mayor at the outset that his target was unattainable and that it would take “more than 50 years to accredit a sufficient number of landlords to meet the target”. Another note read: “We simply don’t have the resources to proactively enforce the London Rental Standard, which leaves us with an unacceptable reputational risk.” Johnson’s betrayal of renters in the capital after all the promises made is embarrassing for him, but a disaster for tenants. There is no doubt that the job needs doing.
Dilettante amateur property investors often know little about basic good practice, the law or simply what’s best for everyone when it comes to running their business in a civilised, humane fashion – and yes, it is a business, with the potential for profit and loss. They might be reluctant or “forced” rentiers (a term I prefer to landlord), with the family home in negative equity, compelled to rent it out if they want to move on. Outside London this is still a reality, and with the predicted house-price crash on Brexit, that practice may become more widespread.
This situation fuels the likelihood that tenants will be turfed out as soon as possible when the building increases in value. Remember that all tenants live under the threat of just two months’ notice when their initial assured shorthold tenancy rolls over. There is no security for renters.
There are recurring issues, such as owners who do not understand the concept of reasonable wear and tear expecting their properties to remain pristine and unmarked, even when the low-quality carpets and sofas they chose were threadbare to begin with. This in turn propagates the now traditional unlawful deposit retention/deduction battle, which can see mundane events – the simple act of using the sofa perhaps – cited as justification for the retention of hundreds of pounds, obliging tenants to fight for, and rarely succeed in getting, the return of hard-earned money paid up-front.
Dilettante amateur property investors often know little about basic good practice, the law or simply what’s best for everyone when it comes to running their business in a civilised, humane fashion – and yes, it is a business, with the potential for profit and loss. They might be reluctant or “forced” rentiers (a term I prefer to landlord), with the family home in negative equity, compelled to rent it out if they want to move on. Outside London this is still a reality, and with the predicted house-price crash on Brexit, that practice may become more widespread.
This situation fuels the likelihood that tenants will be turfed out as soon as possible when the building increases in value. Remember that all tenants live under the threat of just two months’ notice when their initial assured shorthold tenancy rolls over. There is no security for renters.
There are recurring issues, such as owners who do not understand the concept of reasonable wear and tear expecting their properties to remain pristine and unmarked, even when the low-quality carpets and sofas they chose were threadbare to begin with. This in turn propagates the now traditional unlawful deposit retention/deduction battle, which can see mundane events – the simple act of using the sofa perhaps – cited as justification for the retention of hundreds of pounds, obliging tenants to fight for, and rarely succeed in getting, the return of hard-earned money paid up-front.
‘There are recurring issues, such as owners not understanding the concept of reasonable wear and tear, even when the low-quality carpets and sofas they chose were threadbare to begin with.’ Photograph: Popperfoto/Getty Images
There are the problems of legal management. Owners misunderstand, ignore or forget the legal requirement to issue proper notices to quit, or the need for prior warning of inspection visits, using the power of thought or suggestion instead. Some owners I have rented from imagine they can let themselves in whenever they see fit.
Let’s be reasonable. We know that property doesn’t manage itself, and can be costly to maintain. The obligation to repair causes tension once owners, even the best-intentioned ones, grow acquainted with the expense of emergency out-of-hours plumbing.
Some owners – through indolence or meanness – would rather let the place rot; a friend’s landlord knowingly allows water from the leaky tiles to be absorbed by cavity wall insulation. Ultimately, his roof will cave in, but he doesn’t seem to care – either about the tenant or the ultimate expense. Other owners issue “revenge” notices – where tenants are forced out for insisting on damage being made good. Tenants who stand up for their rights are frequently viewed as troublemakers.
Tenants are not angelic. Some give as good as they get in the owner-tenant relationship. But the balance of power between the two is clearly in the landlord’s favour. Isn’t it time for power with more responsibility?
A requirement for landlord training would allow neophyte property moguls to escape being bogged down in pointless, petty battles with tenants. They also would learn about both the availability (and wisdom) of landlord insurance and the pros and cons of letting agents, who charge up to 15% of income and often do very little to earn it.
Being a landlord is a profitable privilege, but it isn’t one that should be automatically available to everybody. It should be earned by those who prove themselves knowledgeable and capable, having passed both a “fitting person” test and a criminal records check. Don’t forget: landlords possess keys to their tenants’ homes, and need to understand obligations. Owners would also benefit from better safeguards and more clarity because both would improve their relationships with tenants, and contented tenants stay longer in their properties.
The rentier economy marches on and will continue to do so, because set against the decline in pensions and increasing job insecurity, property is regarded as a solid guarantee against poverty. The fact that people make money from renting isn’t a problem. Nor is the fact that these transactions occur in the private sector. What’s missing and badly needed is the idea of responsibility.
Tuesday 9 February 2016
If we want to solve the housing crisis, we must answer these three questions
Paul Mason in The Guardian
As housing charity Shelter turns 50, the country is still plagued by overcrowding, rogue landlords, insecure tenancies and homelessness. How do we even begin to make things better?
Boys from the City Of London school on a charity walk in aid of Shelter from Blackfriars, London, to Windsor, Berkshire, on 26 March 1969. Photograph: Len Trievnor/Getty Images
Its official name was Navigation Street, and a glance at a 19th century map suggests its origin: an isolated row of terraced houses leading down to the canal that runs through the middle of my hometown.
Canals were originally called “navigations” and the people who dug them “navvies”. This term – still in use in the 1960s – was code for poor, itinerant, Irish manual workers. So we called it “Navvy Street”: it was where the poorest people in the town lived and probably served that function from when it was built to when it was knocked down and turned into a “close”.
Navigation Street was the place I thought of when the housing charity Shelter reissued documentary photographs from the 1960s to mark its 50th anniversary. If you flick through Nick Hedges’ photos now, you could be forgiven for thinking they depict some kind of uniform, northern industrial bleakness at of the time. But you’d be wrong.
Shelter and the slums: capturing bleak Britain 50 years ago
The overcrowding, dirt and abject poverty in those images shocked people because they were exceptional. Two decades of post-war social housebuilding, plus a pro-active welfare state, had done a lot to suppress poverty. Places like Navigation Street were rare by the late sixties.
Shelter was born because people realised dwindling number of classic slum streets were not the only problem: there was widespread hidden homelessness expressed through overcrowding. The private rented sector was utterly insecure and housing costs were devouring the incomes of the poor.
Skip forward 50 years and we too have rising homelessness – 54,000 families in England last year, up 36% since the financial crisis began. Housing charities record rising overcrowding, precarious tenancies, predatory landlords and unaffordable rents. The difference is it’s not only the poor who suffer.
The shared student house has been reincarnated as the shared young professional’s house, with some even forced to share rooms. According to Crisis, there are 3.5m households containing a “concealed” adult or couple in England.
Meanwhile apartments too small to live in are being built across southern England: their occupants will have jobs once considered middle class. Precarious tenancies, outlawed during the housing reform movement of the 1960s, have created a “complain and you’re out” culture.
If you wanted to photograph the modern housing problem you’d go to the coffee shops where young people perch over laptops, late into the night, rather than endure their overcrowded flat. You would photograph the sofa-surfers; the migrants forced to live in converted garages; the families packing their bags as rent hikes and benefit cuts in the private rented sector force them to move to the periphery of towns and cities, or throw themselves at the local council for help.
The root of this problem is not one of policy – though the row over social housing and housing supply will probably shape this parliament – the deeper problem is the financialisation of home ownership.
At one point, rising home ownership solved many of the problems identified the 1960s. The predictably steady rise in house prices over time, like predictable inflation, created an escalator for the working class. If you combined that with vigorous social housebuilding, as practised by both Labour and Conservative councils in the 1970s, you created affordability at both ends of the scale.
If you then dramatically slash the supply of social housing, through right-to-buy and reduced council building, you create a permanent imbalance that turns home ownership into a form of asset investment.
‘Pay to stay’ trap will force working families out of council homes
What you get then is boom and bust. And the only way to cure the bust is for the government to greet every collapse in market prices with effective state subsidies for home ownership. This, in turn, induces a speculative frenzy of one way bets – on development, on buy to let, on off-plan investment buying from abroad.
To economists who study financial frenzy, the British housing market has followed the classic curve: the certainty of rising prices and short supply draws more and more people into the market, knowing a crash cannot wipe them out – because when confronted with falling house prices, governments have used taxpayers’ money and micromanagement of the banks to halt a spiral of repossessions and falling prices.
We don’t know what Britain would look like if the same levels of explicit subsidy and implicit preference had been pumped into the social rented sector. All we know is that the current situation is not tenable.
But we can ask ourselves the following questions:
First: how much space are people entitled to live in? The market sets no limits; even such formal rules as they still exist (they are being weakened) are flouted by the young salariat.
Second: what is the optimal balance between the private, social and state-owned rented housing and the owner-occupied sector? This cannot be hard to fathom since many cities in the 1980s and early 1990s achieved housing markets that “cleared” in economic terms: in Leicester in the 1980s I had no problem finding a secure private tenancy; no problem getting the council to hound my landlord to maintain it properly; very little problem moving from there to a housing association flat; very little problem transferring, as a key worker, from there to a council flat in London. Yes, London.
Third, what do we mean by “affordable”– when it comes to either rents or prices on state-specified newbuild homes? Under both Labour, Coalition and the Conservatives the concept of affordability has become delinked from incomes and attached to a percentage of the market rate. The same state that decided nobody should be repossessed during the 2008-11 housing slump could decide that nobody has to pay more than a fixed percentage of their incomes on housing costs.
Maybe we need to start with principles: that everyone has a right to a home; that every person has a right to a minimum amount of space in that home; and that those who claim the right to own houses nobody lives in should pay a hefty, disincentivising penalty.
Yes, that’s an infringement of the market – but housing in Britain has never been a free market: it is being created and re-created through regulation and deregulation – on benefits, on affordability, on building standards, on right to buy. The point is to shape the market towards smart outcomes.
As housing charity Shelter turns 50, the country is still plagued by overcrowding, rogue landlords, insecure tenancies and homelessness. How do we even begin to make things better?
Boys from the City Of London school on a charity walk in aid of Shelter from Blackfriars, London, to Windsor, Berkshire, on 26 March 1969. Photograph: Len Trievnor/Getty Images
Its official name was Navigation Street, and a glance at a 19th century map suggests its origin: an isolated row of terraced houses leading down to the canal that runs through the middle of my hometown.
Canals were originally called “navigations” and the people who dug them “navvies”. This term – still in use in the 1960s – was code for poor, itinerant, Irish manual workers. So we called it “Navvy Street”: it was where the poorest people in the town lived and probably served that function from when it was built to when it was knocked down and turned into a “close”.
Navigation Street was the place I thought of when the housing charity Shelter reissued documentary photographs from the 1960s to mark its 50th anniversary. If you flick through Nick Hedges’ photos now, you could be forgiven for thinking they depict some kind of uniform, northern industrial bleakness at of the time. But you’d be wrong.
Shelter and the slums: capturing bleak Britain 50 years ago
The overcrowding, dirt and abject poverty in those images shocked people because they were exceptional. Two decades of post-war social housebuilding, plus a pro-active welfare state, had done a lot to suppress poverty. Places like Navigation Street were rare by the late sixties.
Shelter was born because people realised dwindling number of classic slum streets were not the only problem: there was widespread hidden homelessness expressed through overcrowding. The private rented sector was utterly insecure and housing costs were devouring the incomes of the poor.
Skip forward 50 years and we too have rising homelessness – 54,000 families in England last year, up 36% since the financial crisis began. Housing charities record rising overcrowding, precarious tenancies, predatory landlords and unaffordable rents. The difference is it’s not only the poor who suffer.
The shared student house has been reincarnated as the shared young professional’s house, with some even forced to share rooms. According to Crisis, there are 3.5m households containing a “concealed” adult or couple in England.
Meanwhile apartments too small to live in are being built across southern England: their occupants will have jobs once considered middle class. Precarious tenancies, outlawed during the housing reform movement of the 1960s, have created a “complain and you’re out” culture.
If you wanted to photograph the modern housing problem you’d go to the coffee shops where young people perch over laptops, late into the night, rather than endure their overcrowded flat. You would photograph the sofa-surfers; the migrants forced to live in converted garages; the families packing their bags as rent hikes and benefit cuts in the private rented sector force them to move to the periphery of towns and cities, or throw themselves at the local council for help.
The root of this problem is not one of policy – though the row over social housing and housing supply will probably shape this parliament – the deeper problem is the financialisation of home ownership.
At one point, rising home ownership solved many of the problems identified the 1960s. The predictably steady rise in house prices over time, like predictable inflation, created an escalator for the working class. If you combined that with vigorous social housebuilding, as practised by both Labour and Conservative councils in the 1970s, you created affordability at both ends of the scale.
If you then dramatically slash the supply of social housing, through right-to-buy and reduced council building, you create a permanent imbalance that turns home ownership into a form of asset investment.
‘Pay to stay’ trap will force working families out of council homes
What you get then is boom and bust. And the only way to cure the bust is for the government to greet every collapse in market prices with effective state subsidies for home ownership. This, in turn, induces a speculative frenzy of one way bets – on development, on buy to let, on off-plan investment buying from abroad.
To economists who study financial frenzy, the British housing market has followed the classic curve: the certainty of rising prices and short supply draws more and more people into the market, knowing a crash cannot wipe them out – because when confronted with falling house prices, governments have used taxpayers’ money and micromanagement of the banks to halt a spiral of repossessions and falling prices.
We don’t know what Britain would look like if the same levels of explicit subsidy and implicit preference had been pumped into the social rented sector. All we know is that the current situation is not tenable.
But we can ask ourselves the following questions:
First: how much space are people entitled to live in? The market sets no limits; even such formal rules as they still exist (they are being weakened) are flouted by the young salariat.
Second: what is the optimal balance between the private, social and state-owned rented housing and the owner-occupied sector? This cannot be hard to fathom since many cities in the 1980s and early 1990s achieved housing markets that “cleared” in economic terms: in Leicester in the 1980s I had no problem finding a secure private tenancy; no problem getting the council to hound my landlord to maintain it properly; very little problem moving from there to a housing association flat; very little problem transferring, as a key worker, from there to a council flat in London. Yes, London.
Third, what do we mean by “affordable”– when it comes to either rents or prices on state-specified newbuild homes? Under both Labour, Coalition and the Conservatives the concept of affordability has become delinked from incomes and attached to a percentage of the market rate. The same state that decided nobody should be repossessed during the 2008-11 housing slump could decide that nobody has to pay more than a fixed percentage of their incomes on housing costs.
Maybe we need to start with principles: that everyone has a right to a home; that every person has a right to a minimum amount of space in that home; and that those who claim the right to own houses nobody lives in should pay a hefty, disincentivising penalty.
Yes, that’s an infringement of the market – but housing in Britain has never been a free market: it is being created and re-created through regulation and deregulation – on benefits, on affordability, on building standards, on right to buy. The point is to shape the market towards smart outcomes.
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