Cllr Nick Cox on the housing crisis: ‘We need to be honest, admit that the private sector can’t provide for those that have been left behind and embark on an urgent programme of publicly owned, social housebuilding’
East Herts Council has begun updating the District Plan, setting out where new housing should be built. The revision of construction targets comes against a backdrop of Labour Government plans to build an extra 1.5 million homes over the next five years. Cllr Nick Cox, the Green Party’s candidate for Hertford and Stortford in July’s General Election and a member of East Herts Council, believes there is a way to beat the affordability crisis, protect the Green Belt and build the properties people need.
Two narratives dominate discussions about the housing market. The first is that house prices have risen due to high immigration, arguing that the influx of people has generated so much competition for properties that they’re now unaffordable. The second is that rising house prices are caused by a lack of supply – we’re simply not building enough new houses.
Both are underpinned by a common rationale: house prices are rising because supply cannot keep up with demand.
If this is true then our Government’s new-build programme should eliminate house price inflation, and if oversupply is sufficient, house prices should fall.
However, if supply and demand are not the drivers, we could be sacrificing our Green Belt and disfiguring our towns and villages needlessly.
Travelling around England, you don’t get the impression that building has stalled. On the contrary, towns appear to be being strangled by sprawling new housing estates.
The numbers confirm this feeling. In 2001 there were 21.21 million houses in England and 49.45 million people – 2.33 people per household. In 2023 there were 25.4m houses and 57.7m people – 2.27 people per household.
More houses per person and lower occupancy should have resulted in cheaper housing in a supply-and-demand situation. The reality is very different.
In 2001 the average house price in England was £84,377 – in 2023 it was £302,000. In 22 years, the price of the average home in England has increased by more than three-and-a-half times!
What is the real driver behind rising house prices?
M2 is a measure of the money supply that includes cash and deposits readily convertible to cash. The M2 money supply in January 2001 was £835 billion, rising to £3.1 trillion in January 2023. This 371% increase is remarkably close to the 358% increase in the house price index, suggesting that the HPI is tracking money supply, not housing demand. Relative to the money supply, houses cost about the same as they did 22 years ago.
In January 2001 average weekly earnings were £321 – in January 2023 this had risen to £637, an increase of 198%. Measured as a percentage of the money supply, we are paid less than we were 22 years ago. Salary increases have not tracked money supply increases, while house prices are closely aligned to it.
In real terms, house prices have risen and salaries have fallen, causing the housing affordability crisis.
We accepted this cut in our salaries because it didn’t happen transparently. It’s not clear how much a salary needs to rise each year to maintain its real value.
Most people expect their salary to follow the Retail Price Index (RPI), but this tracks the cost of consumer items. Neither the money supply nor house prices are included in the RPI.
The situation was made worse by quantitative easing. Between March 2009 and November 2020 the Bank of England bought government and corporate bonds – but it didn’t use existing money to pay for them, it created “new” money, increasing the money supply.
Mechanisms such as Help To Buy and stamp duty land tax relief provided additional stimuli to the housing market.
Since 1931, our currency has been “fiat money”, not convertible to gold or any other asset, and the words on banknotes, “I promise to pay the bearer on demand the sum of…”, have been a lie.
Fiat money holds its value simply because people have faith that other parties will accept it, based on trust in the Government and its ability to levy and collect taxes.
Harold Wilson famously said that devaluation “does not mean, of course, that the pound here in Britain, in your pocket or purse, or in your bank, has been devalued”. Wilson lied, breaking the trust of the people whose trust underpins the value of our money, and the lies continue.
Even if we could abolish immigration and build 300,000 new houses a year, house prices wouldn’t fall. They might rise less quickly, but probably still faster than wages.
The crisis isn’t caused by a lack of housing or housebuilding, it’s caused by investors treating housing as an investable commodity.
The driver for the increase in house prices has been the increase in the money supply, and inflated house prices have turned us into indebted wage slaves.
We can use taxation and legislation to make housing unattractive to investors, but squeezing them out gradually without crashing the market will be difficult.
It might be easier to squeeze the money supply to stabilise the housing market, but this risks recession, job losses and, paradoxically, falling wages.
We need to be honest, admit that the private sector can’t provide for those that have been left behind and embark on an urgent programme of publicly owned, social housebuilding.
Clement Atlee’s 1945-51 Labour Government built more than 800,000 new council houses while simultaneously establishing Green Belts to protect our countryside. We can do it again!