Tuesday, 13 March 2012

London house prices point the way to the future

The news last week - that London house prices (above) are touching an all-time high in cash terms - was a depressing reminder that the forces making for the rich-get-richer crisis in our society are as strong as they've ever been.

Russian oligarchs. The Olympics. Bankers' bonuses. The sheer shortage of land near London on which to build homes. Together they mean that, while the rest of the nation's property-owners languish in what's likely to be a long stagnation, London householders are getting tens of thousands of pounds of free cash stuffed through their letterboxes on a monthly basis. Propertly prices that are already very high compared to other cities are the ones zooming upwards, which means that the cash bonuses are all the larger.

This at a time when more and more of London's property will be housing richer and richer people, due to the Government's benefit cap and housing benefit reforms. And at a time when it's clear that the rest of the country's housing market can't even scrape together a few first time buyers.

The last two years have been an instructive lesson in where our society is now going. For most of the 1990s and 2000s, we have been 'running up the down escalator'. Growing inequality in terms of life chances, and career options, has been masked by enormous prosperity, higher benefits, tax credits and labour market reforms. In summary, New Labour made sure that the rising tide of inequality flattened out for a decade or more. Certainly the mix was more progressive than the policies that existed in 1997 - even if it was hardly social democratic on the old model. Now that's all gone.

The overall impression? We are about to see a huge leap upwards in the overall level of relative income inequality. And a big boom in poverty - especially child poverty. Instead of running up the down escalator, the UK government has now decided to stand still and let the escalator take us downwards.

Downwards to the future! What a slogan.


  1. You mean "London homeowners are getting tens of thousands of pounds of free cash stuffed through their letterboxes on a monthly basis", not householders - a large part of the point here is that owner-occupation in London is only about 50%.

    Which leads into the other issue - you can't really make broad statements about house prices without looking at rent and interest rates. Even in LB Kensington & Chelsea, cash buyers with hedge fund or oligarch money are the exception rather than the rule. What is driving the price up here is buy-to-let investors, financed by mortgages, and therefore what is driving prices up is the fact that the rental yield is higher than the cost of funding. Which in turn is basically a result of the fact that interest rates are very low.

    I'm not sure whether this affects your final conclusion, but your example of inequality ought to be an upper-middle-class burgher who has £50,000 in his pension fund and doesn't fancy the stock market. Such a person is clearly part of the top percentiles of the income distribution, but we're kidding ourself if we pretend that we're only talking about the sort of people who have reality shows made about them.

    (Also, the "relative to the rest of the country" point is a bit misleading. The rest of the country is seeing worse house price outcomes than London because it had more of a boom than London).

  2. Great post, I appreciate you and I would like to read your next post