Daily Archives: October 24, 2010

The vicious poison in the British economy is the outlandish cost of housing

The price of housing, both to purchase and rent, is severely distorting British society. The absurd cost of property now – around £165,000 on average and considerably more in areas such as  Central London where a studio flat costs  upwards of £200,000 – makes it impossible for the large majority of people to get on the housing ladder which in turn inflates rents. The lack of housing scandal, for that it what it is, poisons the lives of ever increasing numbers of people in Britain.  The fault lies at the feet of reckless politicians who allowed the incontinent housing boom, failed  to build adequate  social housing for 30 years and  permitted  mass immigration.

Things used to be very different. In 1955, a time when there was  still a shortage of housing after the war,  the average price of a UK  property was £2,000 (1) , which adjusted for inflation is £39118 in today’s money  (2 ). The average weekly wage  was £10 17s 5d  (3),  worth £ 212  in 2010 (2).  This meant that someone on average earnings in 1955 could purchase the average priced property  for less than four times yearly earnings.

Today  the average wage is approximately £25,500 having dropped from £28,000 in the first six months of 2010 (4) , With the average price at £165,000, the average earner needs more than six and a half time annual earnings to purchase the average property.   In fact, the would-be purchaser today is even worse off because the taxation of  the average wage now is more severe than it was in 1955.

To the problem of obtaining a mortgage today  is added the need for much increased deposits  since the economic crisis became full blown in 2008 after the collapse of Lehman Bros. To get property suitable for raising a family in most parts of the UK would cost in the region of £200,000. Even on an income of £50,000 a couple would struggle to find the now commonly required 15-25% deposit for such a property.

As for the large majority earning around the average income or below , a property purchase is out of the question. In places such as London even those on £50k would be priced out of the market  because a studio flat can cost £250-300k. The sad truth is that most people who have not already got on the housing ladder are unlikely to ever get on it as things stand. Instead they will have to pay extortionate rents with precious little security of tenure.

Imagine how easy it would be to live in Britain now  if housing was in real terms as cheap now as it was in 1955.  Someone on less than half average earnings would be able to buy a starter home. The private rental sector would fall considerably  both  because much of the cost of renting comes from the capital value of the house and the demand for rented housing would be much reduced.

The cost of housing is striking at the heath of society in the most fundamental  way: it is preventing people from  starting a family viz.:

“The findings suggested 18 per cent of 18 to 44 year olds, equivalent to 2.4 million people, are actively putting off having children because of high housing costs. This rises to 24 per cent among 18-34 year olds. One in five 18-44 year olds have waited for as long as six years to start a family, while 37 per cent expect housing costs to continue to delay their plans for another four years, according to the survey by the charity Shelter.” Two million Britons delay having a family due to high housing costs – Myra Butterworth : Daily Telegraph 18 Jan 2010)

This is unsurprising,  for how can a young couple today who cannot afford to buy a property – the vast majority – be expected to have any sort of settled family life when they cannot   buy , social housing is scarce and private rented property has little security of tenure.

The coalition government has just made a bad situation worse. In the 2010 spending review it announced that new tenants for social housing would have to (1) pay 80% of the market rent – which would make it impossible for large parts of the population to live in places such as London – and (2) not have security of tenure for life. (There  is policy creep on these things and it is odds on that once the principle is established, part of all of the new regime  will be extended to existing tenants.)

It is important to understand that it isn’t only those who have purchased a property or who own it outright who are effected. If only a fifth of those struggling to pay their mortgages lose their homes that will be hundreds of thousands of people in need of rented accommodation on top of the hundreds of thousands who are already on council and Housing Association waiting lists.  Such an influx will not only increase competition for social housing,  it will push up private rents. The other major effect of reducing house prices will be fewer and fewer new build houses.

We are rapidly returning to the housing shortages of the post-war decade. Then a massive programme of council housing was followed by first  Labour and then the Tories. The same is needed now together with action to force developers to build on land they hold or the land to be subject to compulsory purchase at a price for the land without planning permission.   The following is also needed:

1. The end of the Right To Buy

2. The end of buy-to-let mortgages

3. The re-imposition of formal controls on mortgage lending to ensure there is not another housing bubble – see appendix.

4. A restriction of social housing to those born British citizens.   It is indefensible for foreigners to be given housing before those born and bred here have their needs satisfied.

Of those suggestions all  but the last are still within the remit of Westminster. If Britain was  outside of the EU she could if she chose  stop immigrants from taking social housing, but as was shown by the response to Gordon Brown’s “Social housing for local people” in his last months in number 10, under present circumstances  any preference for native Britons  would fall foul of both British and European law; British law because of the requirements  of our equality legislation  and the obligation on local councils to house vulnerable people in need, especially those with dependent  children, and European law because any person legitimately resident in the EU has the right to move to any part of the EU and receive equivalent treatment in terms of social provision to the citizens of the receiving state. It is also probable that the Human Rights Act would come into play, most probably with the clause relating to the right to enjoy a private life.  Britain would have to either leave the EU or force a change in EU law to stop EU residents from  outside the UK taking social housing.

The problem of immigrants taking social housing is significant. The Equality and Human Rights  Commission  produced a report in 1989 which showed immigrants in approximately  10 per cent of social housing (5).  Even with the coalition government’s proposals for new tenants,  t his  is likely to increase substantially   as those who flooded into the UK when the new entrant countries such as Poland joined will soon begin to qualify for social housing.

The cruel truth is that the prudent have been subsidising the imprudent since the beginning of  this crash. Those without mortgages, both those who own outright and those who rent, are paying through depressed wages, lower benefits, reduced public services and the long term debt caused by the excesses of the past 12 years. Those who are being subsidised are the people who took out massive mortgages, often by the straightforward fraud of exaggerating their incomes, and/or ran up vast debts by drawing on the equity in their homes. The heaviest losers are those who have never owned a house outright or had a mortgage. They have gained nothing during the property boom and have had every rising rents inflicted upon them as property prices inflated unconscionably.

(1)  http://www.wwwk.co.uk/culture/housing/index.htm/

(2) http://www.bankofengland.co.uk/education/inflation/calculator/flash/index.htm/

(3) http://www.thisismoney.co.uk/news/article.html?in_article_id=486323&in_page_id=2/

(4) (http://www.dailymail.co.uk/news/article-1293121/Average-annual-salary-drops-2-600-just-months.html


A sane policy on mortgage granting would require these simple controls:

1. No mortgage of more than 3 times earnings for an individual or 4 and half times earnings for a couple.

2. Minimum of 15% deposit.

That was roughly the position until Thatcher removed the controls on lending in the 1980s.

The end of self certificated incomes for mortgages is welcome but it needs to be done efficiently. It is no good looking at just pay slips for those under PAYE or accounts for the self employed because these are potentially under the control of the mortgage seeker through the forging of convincing payslips (easily done with modern computers and printers) or a collusion between the mortgage seeker and a crooked accountant.  Moreover, an honest accountant is dependent on what the self-employed give them by way of accounts.

For the vast majority (those under PAYE) the check  should be done using not only current payslips,  but the previous year’s P60 (this is HMRC’s statement of earnings and deductions for those under schedule E (effectively those under PAYE). In addition, bank statements and credit card statements should be sought to verify claims of indebtedness or the lack of it. The mortgage provider also has many opportunities via Internet searches in including most pertinently credit rating agencies and county court judgements. I would not mind betting these searches are not made in the vast majority of cases.  What is not needed is a minute audit of a person’s spending habits.

For the self employed the position is more complex because the best they can ostensibly do is provide accounts compiled by a qualified accountant.  Here they often find they have shot themselves in the foot because in  preparing accounts for tax purposes real incomes are almost invariably  understated if the person is earning above the tax threshold. Thus they evade tax but find the mortgage providers taking the tax income figure as the earnings even though it is much below the real income. However, provision of bank and credit statements could go some way to mitigating the problem by providing evidence of the real income. In addition, things such as credit rating checks and county court judgement searches would be most important because a self-employed person is more likely to end up with county court judgements against them. They are also much more likely to have been made bankrupt.

The people of England

One of the most frequently voiced myths of the England haters  is  that  the English are a peculiarly  mongrel  people.  The  truth  is  that  compared with most  other  peoples,  England  between  the Conquest and 1945 contained  a very  homogeneous  community.

A   little  thought  will  show  the  improbability  of   the “exceptional mongrel”  claim. The simple fact that Britain is an  island  suggests that there will be  greater  racial  and  cultural homogeneity  within her borders  than in continental  lands  which  share borders and which consequently are more vulnerable to immigration and invasion (there is not a  major  country  in  Europe which has not been invaded  in  the  past century).  England  by contrast   has not  been  successfully invaded by people from outside the British Isles since  1066,  while mass immigration was a rarity until our own day.

The general facts of immigration into England are these.  The English and England were of course created by the immigration of Germanic peoples. The British monk, Gildas, writing in the sixth century, attributed the bulk of the Saxon settlement to the  practice of British leaders employing Saxons to  protect  the Britons from Barbarian attacks after Rome withdrew around  410  A.D.  The English monk Bede (who was born in  A.D.  673)   attributed  the origins of the English to the Angles,  Saxons  and  Jutes who came to England in the century  following  the  withdrawal  of  the  Romans at the  request  of  British  war leaders.

Archaeological  evidence suggests that  substantial  Germanic  settlement   in England had a longer history and  dated  from  the  Roman  centuries,  perhaps from as early  as  the  third century.  What is certain is that in her formative  centuries  following  the  exit  of  Rome,   the  various  invaders  and  settlers  were drawn from peoples with much in  common.  They were  the  same  physical type,   there  was  a  considerable similarity of general culture, their languages  flowed from a  common linguistic well.

When the Norsemen came they too brought a Teutonic  mentality  and origin.  Even the Normans were Vikings at one remove who,if  frenchified,  were  not  physically  different  from  the  English  nor  one imagines utterly without  vestiges  of  the  Norse mentality. Moreover, the numbers of Normans who settled  in England immediately after the Conquest was small,  perhaps  as few as 5000.

After  the Conquest,  the only significant  immigration  into England for many centuries were the Jews.  They were expelled  from England in 1290.   There was then no large scale and  sudden immigration from outside the British Isles  until the flight of the Huguenots after the revocation of the Edict of Nantes (which granted limited toleration to the  Huguenots  within France) in 1684 by Louis X1V.

There was other immigration in the period 1066-1650,   but it was  small and highly selective.   Craftsmen of  talent  were encouraged particularly in the Tudor period. Italian families with  trading and banking expertise (such as it was in  those  days)   appeared  after the expulsion of  the  Jews.  Foreign merchants  were  permitted,  but for much of  the  period  on  sufferance  and  subject  to  restrictions  such  as   forced  residence within specially designated  foreign quarters.

The  reintroduction  of  the  Jews  to  England  during   the Commonwealth  (a  small  Jewish  community  was  in   England unofficially  before then) was substantial enough   to  cause  riots in London. However, their numbers were still relatively small, thousands rather than tens of thousands.  The  great  influx  of  Jews to England occurred in  the  nineteenth  and  twentieth  centuries as they fled first the  Tsarist  pogroms and then Hitler.

For  reasons of political correctness much is made  today  of  the long history of coloured peoples in England. Pedantically this is true,  but the pertinent question with immigration is always  how many?   I dare say that at any time  during   the Crusades  one could have found the odd Moor in England,  most  probably in London. Blacks, most of them slaves or ex-slaves, were brought into England from the sixteenth century.   Their numbers  in  London  by 1600 were  great  enough   to  prompt  Elizabeth to  pass an Act banning further black immigration. This Act had mixed success. There is no evidence of  widespread  black  settlement in the years  afterwards, but by the eighteenth century there was a significant population.  The blacks  of Elizabethan times and later were generally  slaves who  lived  with their masters. Those who  did  not,  settled  overwhelmingly  in  three  places:   London,   Liverpool  and Bristol.   The upper estimates of their numbers in  the  late eighteenth century (when settlement was at its peak)  suggest   a black population of perhaps  10,000. Substantial numbers of  these were resettled in Sierra Leone in West Africa, a colony which   was  established  in  the  late  eighteenth   century  specifically  for the purpose of returning blacks to  Africa. The  overwhelming majority who remained in England  were  men and  took white wives out of necessity.

The  flow of blacks into England was much reduced after  Lord Mansfield’s  narrow  and cautious judgement in  1772  on  the  status  of  a  slave in  England.  Mansfield  concluded  that  slavery  was such an obnoxious state that only  positive  law enacted by Parliament could make it legal in England.  In the  absence of such law,  slaves were  effectively free once they stepped  onto English soil.  This had the effect  of  gravely reducing  the  number blacks coming into  England.  With  the end of the Slave Trade in 1807, black immigration was reduced          to a bare trickle.   The combination of intermarriage and the ending of regular black immigration  meant that by the middle of  the nineteenth century they had left few descendants  who identifiably  black.  The impact of coloured immigration on  English   society  was   negligible  in  terms  of   cultural  influence before 1945.  The immigration since the last war is unprecedented in its nature and numbers.

Within the British Isles  the main mass movements of  people prior to this century were from Scotland and  Ireland  after the Clearances and the Famine.


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