Category: housing

UK government housing policy is driven by greed, not human need

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By Daniel Margrain

The creation of major housing asset bubbles is a consequence of deliberate Tory government policy geared towards satisfying the asset diversification needs of the super rich rather than meeting the human need for homes for ordinary people to live in. In other words, the key motivating factor shaping government housing policy is not to end the housing crisis, but to bolster the investment opportunities of the rich which will make it worse.

In January, 2016, former Tory PM David Cameron, announced the government’s decision to demolish what remains of council homes and replace them with private housing. The Housing and Planning Bill, which became law four months after Cameron made his announcement, enabled the government to set this process in motion. The legislation is forcing families living in social housing and earning £30,000-£40,000 in London to pay rents nearly as high as those in the private sector.

It is also compelling local authorities to sell ‘high value’ housing, either by transferring public housing into private hands or giving the land this housing sits on to property developers. The purpose is to create firm foundations for foreign investment funds and financial safe havens for billionaires.

It is this combination of factors that explains the exponential growth in the construction of new tower blocks throughout London and other major cities, vast swaths of which lie empty. The development that arguably symbolizes Britain’s housing crisis is the London sky-scraper, St George Wharf tower. Eighty-six per cent of the 214-units in the tower lie empty, while almost two-thirds of them are foreign-owned.

Meanwhile, rough sleeping estimates in England show an increase of 134 per cent since 2010. The most effective way to house people is through mass council house building. But this undermines the profits of private firms. One way investors do this is to hold onto land rather than developing it, so that prices are pushed upwards. As prices within the private rental market soar, more firms are trying to get their hands on the profits generated.

To help facilitate demand and attract investors, an assortment of private agencies that specialize in marketing and branding have emerged. “One of the things that attracts people to the UK is the relative stability,” said John Slade, CEO of BNP Paribas Real Estate in the UK. “The government remains absolutely committed to ensure that the UK remains one of the most open places for investment,” he said.

Bucking the market

But investment opportunities are undermined following any attempts to increase supply – a policy that Labour leader Jeremy Corbyn has publicly endorsed. “There is no convincing solution to the housing crisis that does not start with a new, very large, very active council house building project”, he remarked.

Corbyn’s intention is to buck the market by increasing housing supply. This partly explains why the elite media establishment – many of whom have extensive property portfolios – regularly attack the Labour leader in their newspaper columns.

Increasing supply would also adversely affect the investment opportunities of numerous politicians. The 126 MPs who declared that they receive rental income from property, represent over 19 per cent of the House of Commons, the vast majority of whom are Tories. It’s therefore in the joint interests of MPs and major property developers who lobby on their behalf to continue to push the market further into housing and to limit the building of affordable homes.

In the immediate post-war years (1945 to 1951) the Labour government built 1.2 million new council homes. In 1968, a record 425,000 homes were constructed, over 180,000 of which were local authority builds. The introduction, in 1980, of the Tories right to buy programme, reduced the existing council housing stock by 1.6m, while during the 13 years of the Blair and Brown governments, a paltry 7,870 council houses were built. In 1979, 42 per cent. of Britons lived in council homes. Today that figure is just 8 per cent. 

Filling the void

The impact on council house provision that stem from the policies of successive UK governments over the last 40 years has resulted in the gutting of the sector. With an in-work poverty rate in London of 58 per cent, and the average annual salary in the capital approximately one-twentieth of the house price average, the vast majority of the city’s workers can’t afford to buy their own homes. Private rented dwellings have filled the void.

According to 2015 research from Paragon PLC: “The private rented sector (PRS) is the second largest housing tenure, accounting for one-in-five homes in England alone, overtaking the social rented sector for the first time since the 1960s. This represents a significant increase in the number of households living in private rented homes.”

The report added:

“The PRS has more than doubled since 2001 and is now the second largest housing tenure…PRS is now home to 4.9 million households.”

But investors think that the change in numbers is down to the market reflecting what people want. Tory policy for housing focuses on getting people to buy houses. But this ideological drive is out of sync with the needs of capital. Investors need a political climate in which renting is encouraged.

But private market rents in London are not affordable for the vast majority of workers. The only option for many is housing associations. But government funds for this sector are drying up. In order to make money these associations are effectively forced to sell their properties to the private sector. The profits gained are then reinvested into their businesses reducing the overall availability of affordable housing stock. Essentially, housing associations behave like private companies.

Social cleansing

The consequences of the lack of availability of affordable housing are profound. It results in the effective social cleansing from major cities of the poor and those on middle incomes. Moreover, it reduces the demographic mix of locales, restricts social networks and undermines local economies upon which local businesses depend for their livelihoods.

The formal ordering and disciplining of the poorest within urban spaces has had the affect of pushing them to the periphery, out of sight and out of mind of urban powers for whom responsibility is increasingly disavowed. In this way, spaces are shaped by neoliberal economic forces which alter the landscapes of cities and re-package them under the banner ‘urban renaissance’. A Labour government under Jeremy Corbyn will begin to turn things around.

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Grenfell: Woven into the fabric of neoliberal Britain

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By Daniel Margrain

Residents were trapped

Back in January, 2016, former Tory Prime Minister, David Cameron announced in the media his intention to demolish some of England’s worst council estates and “rebuild houses people feel they can have a future in”. The key motivating factor that underlined Cameron’s decision was not a genuine desire to improve the quality of life for ordinary people, but to help sustain the fractional reserve banking racket and to perpetuate asset bubbles.

Housing and Planning Bill

Cameron’s announcement was made two days in advance of the Commons vote on the Housing and Planning Bill. The bill, which became law last May, compels local authorities to sell ‘high value’ housing, either by transferring public housing into private hands or giving the land it sits on to property developers. In other words, what is driving the government’s housing policy is not to bring to an end the housing crisis, but rather to bolster the investment opportunities of the rich. MPs also have a stake. This will make a bad situation worse.

The 126 MPs who have declared they receive rental income from property, represent over 19 per cent of the House of Commons, the vast majority of whom are Conservatives. All 72 Tory MPs who voted against a Labour amendment to the bill which would have required private landlords to make their homes “fit for human habitation” are themselves landlords.

Clearly, major fire hazards within homes render such homes unfit for human habitation. The voting through of the bill into law, which clearly represents a major conflict of interest, have led to soaring rents meaning that ordinary people have found it increasingly difficult to afford to live in the capital city.

In short, the bill forces local authorities to sell off council housing. The proceeds are then used to encourage housing associations to extend Right to Buy. The bill has also accelerated the extent to which housing associations behave like private companies. This kind of privatization agenda isn’t the case in countries such as Holland or Germany where government investment in social housing for rent is the norm.

Sell-offs

According to the Department for Communities and Local Government annual report into social housing selloffs, of the 21,992 dwellings sold in the year to 2016 in the UK, 12,557 were sold by local authorities and 9,435 by housing associations. The local authorities figure is a 1 per cent increase on the previous year. The housing association figure represents an 18 per cent rise. Government funds for housing associations are drying up. In order to make money, these associations are effectively forced to sell their properties to the private sector. The profits gained are then reinvested into their businesses reducing the overall availability of affordable housing stock.

Mass council house building is the most effective way to house people but this undermines the profits of private firms. One way they do this is by holding onto land rather than developing it, so that prices are pushed upwards. As prices within the private rental market soar, more firms are trying to get their hands on the profits generated.

According to research from Paragon PLC, the private rented sector (PRS) “is the second largest housing tenure, accounting for one-in-five homes in England alone, overtaking the social rented sector for the first time since the 1960s. This represents a significant increase in the number of households living in private rented homes.” The report added, the PRS has “more than doubled since 2001 and is now the second largest housing tenure…PRS is now home to 4.9 million households.”

Tory fractional reserve banking has resulted in the rise of private rented homes and created asset bubbles. This is illustrated by the exponential growth in the construction of new tower blocks throughout London and other major cities. These are not intended for local residents to live in, rather they are being built for foreign investment funds and billionaires to buy as financial safe havens.

However, investment opportunities of the rich are undermined following any attempts by the government to increase supply which also adversely affect the property investment portfolios of politicians. It’s in the joint interests of MPs and major property developers who lobby on their behalf to continue to deregulate the housing market and to loosen planning controls.

The combination of lax planning, greater deregulation and the lack of availability of affordable housing, is two-fold. First, it results in the social cleansing of the poor and those on middle incomes from major cities. In terms of London, for example, the graph below shows the number of families with children who have been moved out of the capital each year since 2010/11 (Thanks to Dan Hancox):

 

Introduced by the Tory-Lib Dem coalition government, the Public Space Protection (PSPO) is another form of social cleansing that is intended to criminalize those sleeping rough and to drive them from towns and city centres.

In other words, the formal ordering and disciplining of the poorest within urban spaces has had the affect of pushing them to the periphery, out of sight and out of mind of urban powers for whom responsibility is increasingly disavowed. In this way, urban spaces are shaped by economic forces which seem beyond the control of ordinary people, that alter the landscapes of cities and communities and re-package them under the banner ‘urban renaissance’, ‘regeneration’ and ‘gentrification’.

Secondly, the combination of factors described alters the dynamic of urban space whose reconfiguration not only changes the demographic, cultural and ethnic mix of spaces, but also undermines social networks and local economies upon which local businesses depend for their livelihoods.

Hollowing-out

More broadly, the hollowing out of large parts of cities alters perceptions of what constitutes private and public spaces and for what use the state intends to put them to. Last year, the Guardian reported on a London rally that protested against the corporate takeover of public streets and squares. Protesters cited London’s Canary Wharf, Olympic Park and the Broadgate development in the City as public places now governed by the rules of the corporations that own them.

The issues underpinning the protests relate to how neoliberalism is re-redefining many urban spaces as cultural centres of production. This is leading not to diversification and aesthetic pleasure, but instead to a uniformity of corporate culture. These kinds of privatized public zones are increasingly a feature of modern Britain. Examples include Birmingham’s Brindley place, a significant canal-side development, and Princesshay in Exeter, described as a “shopping destination featuring over 60 shops set in a series of interconnecting open streets and squares”.

Contradictions

Begun under New Labour, the neoliberal ideology that underpins these shifting landscapes, reflects a historical contradiction between planning in terms of social need and the process of competitive accumulation – a contradiction that can be traced back to the 1947 Town and Planning Act. Although urban planners have often been cast in an heroic role protecting the public from shoddy contractors and the short-term drive for profit by speculators, town planning has been skewed historically by deeply undemocratic practices.

Having been granted wide-ranging powers as a result of the Town and Planning Act, that include the approval of planning proposals, local authorities are able to carry out redevelopment of land themselves, or use compulsory purchase orders to buy land and lease it to private developers. With the authorities playing lip-service to objections to the way communities are prioritized to corporate interests, public voices are being drowned out and the bureaucracy of the state seemingly ever more remote from the issues and concerns that affect the daily lives of ordinary people.

Grenfell

It’s precisely the contradictions and the lack of a culture of democratic accountability described, that culminated in the Grenfell Tower fire which has brought the UK housing crisis under intense scrutiny. As journalist James Wright put it:

“Successive Conservative-led governments have created artificial housing scarcity that further enriches property owners. Starving the supply of genuinely affordable accommodation inflates house prices and rents. Such a housing strategy, coupled with a deregulatory agenda, is forcing more and more ordinary people into dangerous and uncomfortable conditions.”

Interviewed in one of the most economically unequal and ethnically diverse neighbourhoods in one of the most expensive real estate locations in the world, local resident, singer and activist, Lily Allen described how the local Tory-run council in which Grenfell formed a part, is driving a wedge between the local community: “People are encouraged not to congregate and discuss what is happening in the area. They are not encouraged to have a community spirit”, she said.

Allen argued there could well be a reckoning in the pipeline for a Conservative deregulatory agenda that appears to trample over the safety of working class residents. In addition, the singer claimed the death toll is being “micro-managed” by the government and the media for political purposes. At the time of writing (July 5, 2017), 87 discoveries of human remains have been reported in the tower. However, the real death toll is likely to be closer to 450.

The notion that the mainstream media are deliberately drip-feeding information in attempt to pacify the community, is borne out by two local residents on the ground who agreed the media including the BBC are deceiving the public. “What you are seeing here [on the ground] and what you are seeing on the news are two different stories”, they claimed.

The systemic and structural issues outlined, underscored by a complicit corporate media, is what led Labour MP David Lammy to contend the fire that engulfed the Grenfell Tower was akin to “corporate manslaughter”. Academic and activist, Rob Hoveman, was explicit in naming and shaming four individuals who, as a minimum, he regards are worthy of being charged with the offence. These are:

  1. Councillor Nick Paget-Brown, Conservative leader of the Royal Borough of Kensington and Chelsea.
  2. Nicholas Holgate, Chief Executive of RBKC. (Anyone who knows anything about local government will know the Chief Executive is an immensely powerful usually extremely well-paid employee of the council who works hand-in-glove with the leader).
  3. Robert Black, Chief Executive of the Kensington and Chelsea Tenant Management Organisation.
  4. Councillor Rock Feilding-Mellen who is both Deputy Leader of RBKC and “has the specific responsibility for promoting better housing for borough residents…and regeneration initiatives”.

The alleged crime scene, in which the UK government under Theresa May is also potentially complicit, must be viewed within a context in which, according to the Equality Trust, the UK’s richest 100 families have increased their wealth by £55.5bn since 2010 while average incomes have risen by £4/week. The Office for National Statistics point out that the UK’s richest 10% of households own 45% of total wealth – 5.2 times greater than the bottom 50% of households.

This level of austerity and inequality is reflected in government cuts to front line emergency services which have come under intense scrutiny since the fire. Tory cuts in London resulted in ten fire stations closing, three of which were in the area of Grenfell Tower. In the UK as a whole, 10,000 firefighters – one in six – have been cut since the Conservatives came to power in 2010. The Conservative-Liberal Democrat Coalition cut fire and rescue funding by 30 per cent. Furthermore, as a consequence of the reduction in staffing levels, safety checks in tower blocks have been cut by a quarter.

Grenfell Action ignored

In the months and  years leading up to the fire, a residents’ organisation, Grenfell Action Group (GAG), expressed major health and safety concerns in relation to the Grenfell Tower which included out of date fire extinguishers and inadequate fire fighting equipment.

The group also accused Kensington and Chelsea Council of ignoring health and safety laws. In January 2016, GAG warned that people might be trapped in the building if a fire broke out, pointing out that it had only one entrance and exit. GAG frequently cited other fires in tower blocks when it warned of the hazards at Grenfell.

The undemocratic and contradictory forces that prioritize profit before people, were further highlighted after GAG alerted the Royal Borough of Kensington and Chelsea (RBKC) Cabinet Member for Housing and Property about their numerous concerns. They even warned them that a catastrophic fire was likely to break out in the block. Not only did GAG not receive any replies  to the concerns raised, but the group alleged Kensington and Chelsea Council harassed them and threatened GAGs blogger with legal action. But because of Tory cuts to legal aid, the group couldn’t afford lawyers to defend themselves.

The Grenfell tragedy is a salutary reminder of how neoliberal ideology, the politics of austerity and corporate corruption that lie at its root, are interwoven within the fabric of the British state. More than ever, the country desperately needs a Corbyn-led government in order to begin to turn things around.

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September 12, 2015: the day Blairism died

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By Daniel Margrain

The momentous nature of Jeremy Corbyn’s landslide victory  one year ago should not be underestimated. It has to go down as one of the most sensational and politically earth shattering events in modern British political history – the impacts of which sent tremors throughout the entire establishment. After the announcement was made that Corbyn had won, it was obvious that the smiles, handshakes and applause of the vast majority of the calculating and opportunistic labour elite were as a fake as Blair’s claim that Saddam was about to attack Britain within 45 minutes.

A pointer to the overwhelming inspiration underlying Corbynism was the fact that no less than 160,000 volunteers who seemingly emerged out of nowhere, were recruited to the cause. The grass roots support that Corbyn engendered – by far the biggest of its kind in history – was almost certainly the catalyst that propelled him to victory. Although the activists were mainly young people, they were by no means exclusively so. In fact the demographic was wide ranging.

Corbyn’s straight talking, lucidity, and unambiguous commitment to a programme of anti-austerity brought many older activists who had felt betrayed by the direction the party had gone under Blair, back into the fold. To put Corbyn’s victory into context, he secured a higher percentage of votes than Blair in 1994  Even more significantly, the 554,272 votes he achieved was more than double Blair’s, and no less than 76 per cent of them actually voted, a higher percentage turnout than Blair received.

This suggests that ‘Corbynmania’ is no ‘flash in the pan’. On the contrary, it represents a new hope for people that society can make a great leap forward from the decades of Blairism where nothing happened, to weeks where decades happen. Neoliberal ideology and the cementing of the Red-Tory axis, which for many was perceived to have been fixed and immutable has, with the rise of Corbynism ,the potential to be swept into the dustbin of history. All that is solid really can melt into air.

When Corbyn was first nominated, he was seen by his opponents – both inside and outside the party – as a joke candidate. But an indication of how seriously he has been taken since he became leader is the extent to which the mainstream corporate media and Tory establishment continue to unanimously attack him.

Tories such as Gove, Fallon, Cameron, Osborne and Patel who thought an opposition party lead by Corbyn could only enhance their political careers, were the ones who subsequently read out an unsubstantiated claim contained within what was clearly a widely circulated Whitehall-issued memo which asserted Corbyn was a threat to national security. Gove then went on to misquote the Labour leader by implying he was economically incompetent and an apologist for Osama bin Laden.

The smearing wasn’t restricted to the media and Tories. On the labour side, around twelve MPs ‘lent’ Corbyn their support ostensibly to widen the contest. Blairites such as Margaret Beckett who nominated Corbyn clearly as a tokenistic gesture, described herself as a moron after Corbyn won. His victory had therefore rebounded back in her face.

No sooner had Corbyn’s victory based on clear and unambiguous principles been announced, then threats to resign by ‘modernizing’ frontbenchers followed. According to the Daily Mail at the time of Corbyn’s election victory, among the Labour figures refusing to serve in his team were high profile prominent Blairites Chris Leslie, Tristram Hunt, Emma Reynolds, Vernon Coaker, Michael Dugher, Shabana Mahmood, Mary Creagh and Lucy Powell. I’m sure the Tories will welcome these unscrupulous careerists with open arms.

The resignations were undertaken on the basis that Corbyn’s programme was too ‘extreme’. Is a refusal to be a part of the Labour friend of ethnic cleansing (sorry, Israel) rump within the party ‘extreme’? Is supporting the nationalization of the railways and utilities ‘extreme’?

Is it also ‘extreme’ to oppose nuclear weapons, war, the growing wealth gap and supporting the need for a massive affordable house building programme that benefits the mass of the population? How can it be that as far as the PLP are concerned, all these things are regarded as ‘extreme’, yet the bailing-out of bankers that benefit nobody other than bankers, is not?

It’s precisely the kinds of principles Corbyn espouses that has resulted in the regurgitation of the official/media meme which criticises him for voting against his party 500 times. This is represented as disloyalty. The notion that he might have voted against the Tories, while most of his Blairite colleagues, many of whom are war criminals, voted with them, is quietly forgotten.

The notion that the Blairites within the PLP will willingly work alongside Corbyn after having spent a large part of the past year conspiring against him – despite the elected leader’s continued attempts at reconciliation – is, I would suggest, delusional. If he wins the election on September 24, as expected, it’s almost certain that the war of attrition against him will continue. Any reluctance to act decisively against the destabilizing elements is likely to be seized upon resulting in a possible split within the party.

Corbyn might be banking on the possibility that a newly elected pro-Corbyn NEC will reinvigorate the party further from the grass roots up leading to a dissipation of the Blairites by stealth, akin to the melting of ice enveloped by steam. As the parties grass roots expand, the reliance on corporate funding and large individual donations lessens. This will give more confidence for Corbyn and his allies to expose, as John Moon put it, “the ongoing immoral motivations and machinations of their elected Blairite MPs”, thus initiating the possibility of deselection at the grass-roots level.

A year ago, I heard Ken Livingston on LBC say that under Corbyn the party will unify with little signs of any attempts to undermine him. In terms of the latter, he has been proven wrong. We await the outcome of the former. My fear is that in the absence of any purging of the Blairite clique, the gap between the ideology represented by the elite within the hierarchy of the party and the multitude of its members is so vast, as to be irreconcilable. I strongly suspect that something will have to give as the party moves forward, but we will see.

The idea that a highly principled leader of a party who espouses peace and reconciliation can reconcile two diametrically opposing forces, seems to me to be a bridge too far. But equally, the notion that these irreconcilable forces are able to keep Blairism teetering on the edge of the precipice by its fingernails indefinitely, is as misguided as the insistence that a free-falling object is able to resist the gravitational pull of the earth.

As I type this, I’m watching Corbyn being interviewed by the BBC in relation to the proposed boundary changes against a backdrop in which fellow comrades are seen uniting behind those protesting against the police brutality at Orgreave. A year ago a newly elected Corbyn was protesting at a rally about the terrible treatment of refugees created by Cameron and Blair’s wars. Could, you dear reader, imagine Owen Smith or any of Corbyn’s predecessors post-Michael Foot doing that?

 

Britain’s high-debt, low-productivity economy spells long-term disaster

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By Daniel Margrain

The collapse of the Berlin Wall which was the trigger that brought the totalitarian dictatorships of the former Soviet Union and those of its satellite states to their knees, came to symbolize for many the triumph of capitalist free market democracy over tyranny and oppression. An adviser to the US State Department, Francis Fukuyama, received international acclaim in 1989 when he reiterated this message by declaring, no less, that the collapse of communism was ‘the end of history‘. Great social conflicts and great ideological struggles were said to have been a thing of the past. Numerous newspaper editors and television presenters agreed.

A little over a decade after Fukuyama made his famous declaration, Islamist terrorists attacked the Twin Towers in New York. The attack was, in part, the result of Wahhabism’s ideological opposition to Western imperialist hegemony. Numerous imperial wars have been launched against Muslim countries since. Thus, Fukuyama’s thesis was trounced on a single day back in September 11, 2001. Anthony Giddens, the former director of the London School of Economics and court sociologist to Britain’s then New Labour Prime Minister, Tony Blair, repeated a similar message to that outlined by Fukuyama in his 1998 book, The Third Way.

Giddens  said, “We live in a world where there are no alternatives to capitalism.” He was accepting and repeating a widespread but unsustainable assumption. The earliest merchant-form of capitalism began to emerge in the 17th century and industrial forms of capitalist production developed from the late 18th century. The organizing of the whole production of a country by capitalist means is barely three centuries old. It only began to become a dominant feature in terms of the universal dependence on markets some 60 or 70 years ago. Yet modern humans evolved about 200,000 years ago. In other words, what Giddens argued is that a capitalist economic system which represents a tiny fraction of our species’ life-span is set to last for the remainder of it.

Leaving aside the possibility of global catastrophe resulting from climate change or nuclear war, the notion that capitalism will continue to exist indefinitely into the future, is highly improbable. As the saying goes, ‘forever is a long time in history’. In just under two decades following the publication of The Third Way, capitalism has transformed into a finance-based neoliberal variant predicated on a form of systemic corruption underpinned by booms that zap productivity. The reason why financial booms impact on productivity in this way is in part the result of too much capital being mis-allocated to low productivity sectors which crowds out real economic growth.

Company buybacks illustrate this practice. Take Viacom as an example. The company issued debts of £10 billion and then bought back the shares which had subsequently reduced in value by 55 per cent. Similarly, Amazon issued £5 billion of debt prior to announcing they would also engage in this highly unethical practice. Issuing debt in order to buy-back stock implies an inability to grow companies organically. Rather, increasingly, the approach seems to be to boost the stock price artificially by a process of financial engineering. The problem is that levels of industrial production, the latest figures of which indicate a 0.3 per cent fall from the previous month, are not sufficient to support these kinds of debts.

Another illustration of the mis-allocation of capital to a low productivity sector, is in the realm of housing. Essentially, the UK economy is based on speculative-based property booms that are sustained through zero interest rates. This means that banks have access to almost unlimited credit which enables them to finance enterprises risk-free, underwritten by the tax-payer. The Conservative government under PM David Cameron is not investing in the productive parts of the economy but in financial ‘bubbles’ of which housing plays a significant part.

UK Chancellor, Gideon Osborne’s ‘help to buy scheme’ in which the UK tax-payer provides 40 per cent of the deposit for first-time house buyers, is clearly a policy aimed at the potential Tory voter in London. Many of the properties purchased will be used for the rental market as speculative investments thus boosting the housing bubble. Meanwhile, people who are part of the productive economy and make London tick, are steadily being priced-out and socially cleansed from the city. This is contributing to the decline in UK industrial output which has seen its biggest fall since August 2013. More importantly, this has impacted negatively on the UK’s trade deficit figures which are one of the highest, as a percentage of GDP, of any country within the OECD.

To emphasize this point, the UK’s trade gap with the European Union increased to a record high of £8.6 billion. The government’s suppose aim of re-balancing the economy by allegedly supporting its productive parts, is contradicted by its creation of risk-free speculative property bubbles of the kind described. The concept of free-market capitalism is supposed to be predicated on incentives, not state sanctioned socialism for the wealthy as the means to prop-up unsustainable economic bubbles. Yet the corporate controlled media, with their lurid headlines, continuously promote the latter.

The government’s subsidizing of house purchases is unhealthy for the medium to long-term economic well-being of the country as a whole. The subsidized property speculation bubble outlined is part of a centrally-planned Tory policy, no different in principle, to the socialist planned economies of the former Soviet Union and its satellite states that ‘the end of history’ allegedly supplanted. Low productive sectors within the UK have a knock-on effect in terms of the broader economy which is destined to decline as a result. This is because more needs to be produced for the pound sterling in order to counteract the affects of subsidized speculation which adds no value to the economy.

This principle also applies under conditions in which global investors pour money into government bonds which currently result in negative yields to the tune of some $6 trillion and growing. The infusion of greater amounts of subsidized money into the London economy runs counter to the government’s stated argument that they intend to diversify the wider economy by spreading investment throughout the UK as a whole. As a consequence of the Tory policy of socialism for property speculators, house prices in London are the most over-valued of any major city in the world.

Nevertheless, as long as potential property buyers and those already on the ladder in London have a perception that their homes are worth more than is actually the case, they will more likely be inclined to vote for the kinds of politicians who will perpetuate the bubble by continuing to offer some first-time buyers an injection of a huge cash-free gift as part of their deposit. If this was indeed the Tory plan prior to the London Mayoral election in order to assist the Tory candidate, Zac Goldsmith, then the strategy failed miserably. Whether Labour’s newly elected Mayor, Sadiq Khan, will attempt to scupper any moves by Jeremy Corbyn to put a break on the Tory’s high debt-low productivity economy policy, in order to further his broader opportunistic political ambitions, remains to be seen.

Housing crisis created from money produced from thin air

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By Daniel Margrain

Switzerland is set to hold a referendum to decide whether to ban commercial banks from creating money. This follows a move by over 110,000 people in that country who signed a petition calling for the central bank to be given the sole power to create money within the financial system. The campaign is designed to limit financial speculation by requiring banks to hold 100 per cent reserves against their deposits.

Banks will no longer be able to create money for themselves (euphemistically termed fractional reserve banking), rather they will only be allowed to lend money that they have accumulated from savers or other banks. Currently banks are able to lend money that they don’t actually have and then command interest on the non-existent money.

This is akin to x offering to loan y a sum of say, £100,000 that the former hasn’t got. The way around this conundrum is for x to then lodge the sum with another financial institution who happens to be in on the scam. Y then pays x interest on the money that x has never been in the position to lend in the first place. Switzerland is now considering whether or not to do something about this fractional reserve banking racket. If successful, the bill will give the Swiss National Bank a monopoly on physical and electronic money creation.

The idea of limiting all money creation to central banks was first touted in the 1930s and supported by renowned US economist Irving Fisher as a way of preventing asset bubbles and curbing reckless spending. It’s the former that most accurately characterizes the current financial system. The rising cost of housing is an example of a major asset bubble underpinned by a Tory government housing policy that is geared towards satisfying the asset diversification needs of the super rich rather than to meet the human need for homes for ordinary people to live in.

So the motivating factor determining the government’s housing policy is not to end the housing crisis but to bolster the investment opportunities of the rich which will make it worse. This is what David Cameron’s announcement yesterday (January 10) regarding the governments’ intention to demolish council homes and replace them with private housing is all about.

This is also the precursor to the newly proposed Housing and Planning Bill (voted on today, January 12) which will force families living in social housing and earning £30,000-£40,000 in London to pay rents nearly as high as those in the private sector. It will also compel local authorities to sell ‘high value’ housing, either by transferring public housing into private hands or giving the land it sits on to property developers.

The 126 MPs who declared that they receive rental income from property, represent over 19 per cent of the house, the vast majority of whom are Conservatives. The voting through of the bill, which almost certainly represents a major conflict of interest, will lead to soaring rents meaning that ordinary people will find it increasingly difficult to afford to live in the capital. As the statement on a flyer that promoted a protest against the bill argued:

“It [the bill] takes public funding away from affordable homes for rent and does nothing to improve security or control rents for private renters.

“This is turning back the clock, taking away security and pushing up rents. It would force the selloff of council homes on the open market, to pay for housing association ‘right to buy 2’. Councils and housing associations will not be able to build replacement homes for rent.”

The exponential growth in the construction of new tower blocks throughout London and other major cities are not intended for local residents to live in, thereby helping to ameliorate the worst excesses of the housing crisis, rather they are being built for foreign investment funds and billionaires to buy on mass as financial safe havens.

Greenwich Mean Time (GMT), a relatively favourable temperate climate, convenient geographical location, the establishment of law and order, good schools and infrastructure, minimal history of revolution and good transport hubs and networks, means that London is a particularly attractive place for the rich to increase their property investment portfolios.

However, these investments in houses and apartments are essentially made of cards built on sand predicated on a financial illusion of which the Swiss example described is symptomatic. The context of the illusion that the Swiss people are soon to vote on is historically tied the the Swiss National Bank (SNB). Since 1891 when the SNB was established, the bank has had exclusive powers to mint coins and issue Swiss bank notes. But over 90 per cent of money in circulation in Switzerland now exists in the form of electronic cash which is created out of nothing by private banks. In other words, nearly all of the money in Switzerland, and arguably the world, does not in reality exist as a tangible entity.

In modern market economies central banks control the creation of bank notes and coins but not the creation of all money which occurs when a commercial bank offers a line of credit. Iceland, whose bloated banking system collapsed in 2008, has also touted the abolition of private money creation and an end to a practice in which a central bank accepts deposits, makes loans and investments and holds reserves that are a fraction of its deposit liabilities. Fractional banking means the production of money from thin air.

The entire financial system and the laws on which it is governed that many believe to be an exact science is, in reality, based on a gigantic illusion. The fact that Britain’s banks are paying far less in corporation tax than before the crisis, despite their profits improving and global tax payments staying constant, is illustrative of a flawed unscientific system that society has nevertheless hitched itself on to. Rather than the Cameron government investing in a productive based economy in which tangible things are made, bought and sold, it has focused disproportionately on financialization – an abstraction predicated on smoke and mirrors.

The money illusion stems from the Bill of Exchange Act of 1882. Effectively, money is created the moment a loan document from a bank or any other financial institution is signed. Having created a financial instrument as a result of any signature, the bank or financial institution then lends the money created in the form of a bill of exchange which in effect becomes a promissory note. The customer then gives the power of attorney within the signed document to the bank to then lend the said customer the money that has just been created as a result of the signature.

By removing the requirement of the government to insist upon the amount of gold being equal to the amount of currency in circulation (gold exchange), they created a debt based economy (Fiat currency). So by not basing money on anything material whatsoever, central banks are able to create limitless amounts of it effectively by pressing numbers on the keyboard of a computer. The origins of the promissory note stem from the promise to pay a physical sum of silver (subsequently gold) in exchange for the promissory equivalent (sterling was originally based on sterling silver).

The purpose was to prevent individuals from having to carry large sums of silver around with them. A silversmith would simply weigh the silver and give the owner a promissory note which could then be cashed in at a later date to be spent on goods and services. Up until the 1930s, governments’ were required to have in their possession an amount of silver or gold equal in value to the amount of promissory notes issued. This requirement was removed in the 1930s which then gave banks the right to create money out of nothing. This is a legacy that continues today. Will Switzerland be the catalyst for a paradigm shift in this state of affairs?