Why Do We Have A Housing Crisis?

Private rents are so high that people have in any given year to work from January 1st until 31st May to earn enough to pay the year’s rent. That’s nearly half a year’s hard graft going on rent.

Since the 1970’s, median wages have pretty much remained at the same level – once you account for inflation. But property prices have rocketed. This chart shows the difference between wages and house prices.

Throughout the 1970s, Britain’s built 240,000 homes a year, while the population rose by 40,000 a year.

Since 2000, we’ve only built 140,000 homes a year, despite a population rise of 400,000 a year.

Yet house building is more profitable than ever. Take a look at the accounts of building firms, and you’ll see a 20% profit margin is not unusual.

Two strategic housing polices have caused this crisis.  Finally, under Jeremy Corbyn, we have a manifesto committed to reversing them.

First is the destruction of social housing. Right to buy was introduced by Margaret Thatcher.  It deliberately penalises councils who build council housing.  Only three years after building them, councils can be forced to sell them at least 30% below market price, without any compensation from central government.   The law prevented councils from using the proceeds of sales to build new houses.     

The loss of social housing skews the market. With over a million families on waiting lists, and only 290,000 homes available last year,the private rented sector can continue to push rents ever higher.  Housing benefit goes straight into thelandlord’s pockets, so where’s the incentive to keep rents affordable?  Market forces have failed: the freedom to be homeless is no freedom at all.

The second policy causing the crisis is the deliberate financialisation of our economy. Throughout the 50s, 60s and 70s, banks and finance houses made about 5% a year profits, while manufacturing made about 15%returns. From Thatcher onwards, those figures swapped place.

Manufacturing builds real things, and provides large numbers of well paid jobs.  Banking makes money from debt. Before the crash, centrist politicians really believed that the housing boom was a genuine economic miracle. The miracle was a mirage, but the centrists still cling to failed economic models. 

Median house prices may have rocketed, but median wealth hasn’t.  All those houses were bought with debt.  Some working people were lucky to be born at the right time.  They bought when they could afford it, and have made a tidy return.  Although much of that equity is lost with social care costs later in life.

In a generation no working class people will own property.We’re heading back to the Victorian era, albeit an era with iPhones instead of monocles, but where work is precarious and millions depend on charity to avoid starvation. 

In 1981 2 million people lived in private rented housing.  Now it’s over 5 million and rising fast.  We pay over £50 billion a year in rent.  All those buy-to-let mortgages are enriching the shareholders of banks.  It’s a massive transfer of wealth from the working people to rich asset owners.  Private renting is rarely a choice, for most tenants, it’s either that or be homeless.   

We need a Labour government to change the law on council housing. 

Yet there are things councils – and Mayors – can do, even with the powers we have now.  But only if politicians seriously believe in democratising wealth. Wringing hands about Tory funding formulas won’t cut the mustard.

We can rebuild social housing.  Not enough to turn the tide, but enough to create islands of decent, affordable housing for hundreds and thousands of people.  That’s my mission. 

Housing cooperatives are exempt from right-to-buy legislation.  They are owned by the people, not the state. The new Mayor has powers to set up development corporations.A Mayor who believes in centrism and neoliberal economics could partner with developers, which is mostly what happens now. Developers build the houses for sale, with a few ‘affordable’ ones thrown in.  But affordable means costing80% of the other homes in the development.  Even 80% of unaffordable is still unaffordable.

A Mayor like me, who believes in democratic ownership, can partner with cooperatives.  We can help them secure low cost capital to buy the land and build the homes. We can provide training and support through adult education on community enterprises,so the tenants learn to self-manage their cooperatives.  Instead of paying rent to private landlords,the profits from these community housing coops can fund local services.  We can create financially self-sufficient services like gardens and parks, and youth & community work.

We can mix Community Housing Coops with Community Land Trusts.  This is where the land is owned communally by the residents.  People can buy the homes on the land at a lower price than normal.  In return, when they come to sell, they share the profits back into the Trust.  The legal format creates an asset lock.  This means the whole enterprise can never be privatised – it’s always owned communally by the people who live there.

Even people who can afford a mortgage are working to pay the bank. For every £1 you borrow on a mortgage, you pay back £1.60, even at today’s historically low interest rates. That 60p buys you nothing – and funds bankers’ bonuses and ends up in tax havens like the Cayman Islands.

We can tackle this financial drain by creating our own banks. Banks whose legal form requires them to use their profits for the benefit of the community, instead of distant shareholders.  These are already happening in Britain; in fact mutuals used to be the standard way of getting a mortgage. It will take a couple of years to go through the regulatory process. Then all those £millions paid in interest can be reinvested in local communities: cooperative nurseries,building repair companies, whatever the community chooses. This makes us independent of central government funding.

Neoliberal thinking got us into this mess. Only a change in thinking can get us out of it. These policies work – they’re already happening across our country, in a small way, with solid results. The task is to accelerate them and scale them up. That takes a Mayor who believes in socialism and always has. 

When I interviewed John McDonnell this summer, he spoke of an irreversible shift in wealth and power. He said that for real socialists, not centrists, the whole point of getting power is to give it away to the people. That’s what I’m going to do if you elect me as Mayor.