o The Observer, Sunday 8 March 2009
To paraphrase Tolstoy, all countries are unhappy in the global recession but each country is unhappy in its own way. Germany had an export-led economy, and when the market for exports crashed so did its economy. Spain had a housing boom and bust, but not a banking crisis because the Spanish government no more accepted Gordon Brown’s claim that the light-touch regulation of high finance benefited the economy than it accepted the British claim to Gibraltar. In Europe to date, only Britain has had to cope with a banking crisis and a property bubble.
Everyone accepts that after bringing the nation to the edge of ruin, the banks need thorough-going reform – everyone, that is, except that small group of nostalgic eccentrics who constitute the Labour government. But what reform does “everyone” want for the housing market? It depends on who you are and what you have got. Most homeowners must want to rewind the tape to the bubble property market of 2007, as surely as Labour wants to go back to the bubble economy’s financial system. For if a beaming Kirstie Allsopp and Phil Spencer could once again boost an ever-rising market, it would not only be a desire for untaxed gains which would make the viewers cheer them on.
For the young middle class in particular, a return of inflation is not a bonus but a financial necessity. They are learning to regret at leisure the assurances of their elders that no cost was too high if it levered them on to the housing escalator. Prices have fallen by 20 per cent from their peak, and show every sign of falling by another 10. Millions will have to live with negative equity. It took eight years for prices to recover from the crash of the early 1990s, which was far less precipitous than today’s slump. But property values roared ahead eventually, and not only because hot money saw a speculative opportunity.
In her 2004 report for Gordon Brown, Kate Barker, of the Bank of England’s monetary policy committee, showed Britain has had a shortage of homes for decades, and the mismatch of supply and demand inevitably produced inflation. Since 1974 the real prices of British houses had increased at twice the European average. Periodic property market crashes did not slow the trend, as each fall stopped on a plateau higher than its predecessor. Fewer new homes were being built than in any peacetime year since the 1920s, Barker continued. To get house price inflation under control at least 240,000 were needed each year, preferably more. Her recommendations seemed optimistic at the time, and look utopian now.
Adam Sampson, the director of Shelter, spelled out for me how a severe housing crisis had turned critical. Far from 240,000 homes being built in 2009, he expected to see a mere 80,000. The building industry is on its knees, and will take years to recover from the loss of skilled labour and the bankrupting of building companies and their suppliers. Thus even when recovery comes, new houses won’t come with it. Meanwhile the supply of homes for those at the bottom of the heap is meaner than ever. One million were on waiting lists when Labour came to power in 1997. By last year the figure had grown to 1.77 million. Who knows what it will be this time next year. Two million certainly, possibly 2.5 million, as unemployment shoots up, and secure jobs wither into temporary work.
Dramatising the effects of a housing shortage is one of the hardest tasks in journalism. The overwhelming majority of its victims do not provide an arrestingly Dickensian spectacle by sleeping on the streets, and in my experience readers have a limited tolerance for descriptions of the “Ms P, 27, who sleeps with her two children in a Hastings bed and breakfast” variety.
The best way to understand housing deprivation is to imagine being in need of a housing association or council house yourself. If you’re young and can’t get one, you will have to carry on living with your parents. If you want to have children, you will not have the space for them. If you have children, they will drive you mad as they encroach on your limited space. If there’s work in other parts of the country, there will not be an affordable home for you nearby.
Perhaps you can imagine it all too easily. In economic theory, an accentuation of an already severe housing shortage should help those on the ladder by ensuring that prices bounce back when good time returns. But if the events of the past two years have taught us anything, it is that economic theory is a poor guide to practice.
Potential first-time buyers can’t buy because although prices have fallen, banks now control lending by demanding 25 per cent deposits. Ministers say that they don’t want “a return to mortgage rationing” when they reject demands for a British Glass-Steagall Act, which would stop the banks bankrupting themselves and the tax-payers by speculating in securities. They have not grasped what the young know: the busting of under-regulated finance has brought back mortgage rationing already. Meanwhile tens of thousands of the millions in negative equity whose homes will be repossessed will need affordable private or public housing, not least because they will still have mortgage debts to repay.
Shelter and Kate Barker are calling for a new deal for housing. They want the chancellor to commit in the budget to building 100,000 social rented homes over the next two years and to save 30,000 construction jobs in the process.
Perhaps I’m wrong to think that the financial crisis is making the once Cinderella cause of social housing popular. Even if I am, Labour should start to build. Homes should never have been an object of speculation. An adequate supply of shelter, like an adequate supply of water or food, isn’t an extravagance but an essential. Labour’s dismal record would look slightly better if it left 100,000 homes behind when it left office.
• Nick Cohen’s essays, Waiting for the Etonians, are just out from 4th Estate