The rise of the property-owning plutocracyPosted: March 8, 2013 Filed under: Buy to let, Housing market, Labour market, Private renting, Right to buy 12 Comments
If you had to think of one article of faith for the Conservative Party, a property-owning democracy would come pretty close to the top of the list.
David Cameron reached back to the idea in his ‘magic money tree’ speech yesterday:
‘It is important that people who work hard and do the right thing are able to buy a home. As I said in my party conference speech – it is a rebuke to those of us who believe in property owning democracy that the average age for someone buying their first home today, without any help from their parents is 33 years old. And we are determined to tackle that.’
The prime minister was clearly hinting at something to come either in the Budget or the housing announcement he’s planning just before it. Whether that’s a new stamp duty holiday, or an extension to FirstBuy or even perhaps making existing homes eligible for NewBuy remains to be seen.
For my money it will take more than just another government initiative to achieve very much. As the recent English Housing Survey revealed, home ownership fell for the seventh year in succession in 2011/12 to 65 per cent of households. The fall is about much more than just the financial crisis: the proportion of households who own outright is still rising but the proportion buying with a mortgage is now back at mid-1980s levels.
Walking in the footsteps of Eden
That got me thinking about the deeper implications of a property-owning democracy. The phrase is indelibly associated with Margaret Thatcher and the right to buy but it’s actually been woven into the DNA of the party for decades. The woman herself talked of walking ‘in the footsteps of Anthony Eden, who set us the goal of a property-owning democracy’ in her first speech as party leader in 1975. It was actually coined by Noel Skelton in the 1920s (more on him here from David Torrance) but taken up by Eden and Macmillan after the war and passed down through the Tory generations.
The attraction is not surprising since ‘property-owning democracy’ seems to combine everything that’s good about traditional Tory values: aspiration and self-reliance placed in a context in which liberty means defending property rights.
However, it’s always struck me as a bit of a contradiction in terms. After all, surely the point of a property-owning democracy is that everyone owns property. That sounds more like egalitarianism or even socialism than conservatism.
There are other, quite different versions of ‘property-owning democracy’. For the British economist James Meade, writing in 1964, it meant complementing the welfare state with ‘measures for the equalisation and the socialisation of property ownership’. In the 1970s, the American philosopher John Rawls developed the idea as a way of distributing wealth and capital as widely as possible. He argued that welfare state capitalism could not satisfy his two principles of justice as fairness or of a just society: that it should guarantee basic liberties for all and that social and economic inequalities must satisfy both fair equality of opportunity and be to the greatest benefit of the least-advantaged members of society. In contrast (see here for more):
‘The background institutions of property-owning democracy work to disperse the ownership of wealth and capital, and thus to prevent a small part of society from controlling the economy, and indirectly, political life as well. By contrast, welfare-state capitalism permits a small class to have a near monopoly of the means of production.’
In the context of the last US election, and Mitt Romney’s comment about ‘the 47 per cent’, those ideas were developed in a book edited by Martin O’Neill and Thad Williamson last year. See here for more on Property-Owning Democracy: Rawls and Beyond.
The rise of renting
Back on this side of the Atlantic, the prospects for a property-owning democracy look grim however you choose to interpret the phrase. While the obvious explanation might seem to be restrictions on mortgages imposed by the banks since the credit crunch, much more is going on than that. As I blogged earlier this week, figures published in the UK Housing Review show that home ownership was falling among younger age groups (the 16-24s, 25-34s and 35-44s) from the 1990s onwards. That has rippled up as time has gone on, with rates for the 45-54s falling from the early 2000s and even the 55-64s falling after 2008.
The counterpart to the fall in home ownership is the rise of private renting. As the Census showed, the highest rates of private lending are in inner London boroughs but the biggest increases over the last 10 years have come in Northern Ireland and the north of England.
Meanwhile an investigation by the Daily Mirror and GMB union revealed this week revealed what has happened to the cornerstone of Margaret Thatcher’s housing policy: the right to buy. Freedom of information requests to local authorities revealed that a third of council flats bought by tenants are now owned by a leaseholder with a different address. In Wandsworth, one of the birthplaces of the right to buy, whole swathes of former council property are owned by private landlords: 57 by two Guernsey-registered companies owned by former venture capitalists; and at least 40 owned by Charles Gow and his wife. Symbolically, he is the son of Ian Gow, a housing minister under Margaret Thatcher in the heyday of the right to buy.
The rise of private renting has been fuelled by the explosive growth of buy to let. Two years ago Fergus Wilson, one of the pioneers, said that the credit crunch meant it was ‘absolutely dead and will never return’ but CML figures last month revealed that buy-to-let advances are now running at the highest level seen since 2008. The papers are once again full of articles like this.
Flexible labour market
Many factors are responsible for this slow death of the Conservative idea of a property-owning democracy. The credit crunch, the housing boom that preceded it, buy to let and changing attitudes among mortgage lenders are obvious candidates. However, the underlying explanation may lie beyond housing and the financial system and in the other side of the Thatcherite revolution. The long-term impact of labour market deregulation, the defeat of the trade unions and contracting out in the public sector has been a profound shift in the nature of employment in Britain and levels of income inequality that match those seen in the 1930s. What price a property-owning democracy under a flexible labour market?
That has been compounded by the impact of the current recession. I’ve highlighted before the astonishing growth of self-employment (367,000 over the last four years) but that has been matched by the rise part-time employment. Over the same period, the number of part-time workers who want to work more hours (underemployment) has risen by 980,000. The full-time work that is available is more insecure and lower paid: a survey by the TUC this week found that real wages fell 4.5 per cent in Britain between 2007 and 2011, the largest decline in the world’s ten most developed economies. As I blogged a few weeks ago, a combination of austerity and low interest rates means a further redistribution of wealth from renters to owners.
In many ways, the short-term, insecure private tenancy is the housing market counterpart of insecure work in the same way that the 25-year mortgage was the counterpart of rising and secure employment. For lenders, the older investor wanting a buy to let mortgage seems a much safer bet than the young couple wanting to buy their own home. Buy to let effectively allows investors to borrow against the future incomes of their tenants while denying those tenants the chance to do the same. The switch to renting will also have long-term consequences for asset-based welfare and the benefits bill.
Property owning is clearly not dead in Britain when 65 per cent of us are still homeowners (although owners are in a minority now among the under-35s). By the standards of a political system that allows governments to gain an overall majority with 35 per cent of the vote, that might even count as vaguely democratic. However, the Conservative dream of a ‘property-owning democracy’ – one in which rising aspirations can be met – is surely over no matter what new wheezes David Cameron and George Osborne come up with the week after next.
And we seem to be moving towards the complete opposite of the Rawlsian idea of a property-owning democracy. A rising proportion of the population are locked out of home ownership and young people without access to parental help are trapped in renting. Meanwhile property wealth and all the other social advantages that flow from it are concentrated in the hands of existing owners and investors and insulate the political and business elite from the rest of society. Might what we have now be more accurately described as a property-owning plutocracy?
For those with access, the journal History of Political Thought carried an interesting article from Amit Ron on the development of the idea of property-owning democracy.
Since writing this, I’ve also come across two interesting academic pieces that are freely available:
Ben Jackson’s chapter on Property-Owning Democracy: A Short History from the book edited by Martin O’Neill and Thad Williamson’s 2012 book mentioned above.
Martin’s O’Neill’s paper on Liberty, Equality and Property-Owning Democracy.
‘The fall is about much more than just the financial crisis: the proportion of households who own outright but the proportion buying with a mortgage is now back at mid-1980s levels.’
Think that’s missing a bit.
‘As I blogged a few weeks ago, a combination of austerity and low interest rates means a further redistribution of wealth from owners to renters.’
Is the owners to renters bit the wrong way around?
Thankyou – the perils of proofing my own stuff. You’re right on both!
You’re welcome, thanks for the insightful article.
Good article. An important point about that seems to be partially overlooked – in particular the under 35s category – is the potentially huge debts that people are required to run up in student fees etc, to get a job which will pay enough for home ownership. This results in a vicious cycle of servicing debt and paying private sector rent which invariably is far more than the landlords mortgage repayments. Accordingly, the age of home ownership is going to balloon and, for many, is an aspiration too far.
Thanks Chris – good point and all of the above happened before student fees were trebled
Thanks for an interesting post. I can add to your real wage data as the Office for National Statistics recently published an article declaring that it felt that real wages had fallen by 7% since the credit crunch had begun. And if we look at the most recent data we see that they are still falling with no apparent end in sight.
Thanks for that Shaun – and with austerity set to last until 2017/18 or longer seems like that is set to continue and only reinforce the shift I’m getting at here.
Complex and interwoven issues but a very readable article Jules – Thanks.
As a life long exponent of ‘alternative tenures’ I still think that we are missing a trick – Open market shared equity models which work and bring with them many socio-economic benefits at little or no cost to the public purse either.; Choice flexibility, stimulus for market & economy… SE can be privately funded and create complete anonymity for the occupant – invisible assistance in an invisible tenure unlike so many ‘schemes’ which identify occupants as beneficiaries (eg. on site share ownership and new build AH on s106 sites)
In my view we can debate the benefits etc of owning v renting til the cows come home, but until we can break down society’s prejudice against those who cannot afford to do it on their own, we do not stand much chance of creating truly sustainable mixed balanced and cohesive communities where all live together happily ever after.
Attitude and stereotypical views are highly contagious and almost impossible to contain.
People do things to try to dis associate themselves from ‘tenure stigma’ but often reinforce the stereotype in doing so – ex tenants post RTB change the front door as if to tell their neighbours they now own – I have also witnessed significant shifts in their behaviour towards their former cohort which has sometimes been quite disturbing…. But, if all tenure was less obvious, and certainly assisted tenures invisible to others in the community, society might have a chance at focussing on what really matters – getting along with and caring for our fellow men irrespective of their perceived social standing or worth?
If we don’t start somewhere, do something and stop blaming others (and continuing to assume that the party politicians intended to create disasters) the rhetoric just ricochettes …..
Thanks Carmel – good comment and totally agree about mixed communities and choice flexibility. Shared equity definitely has a part to play – and maybe there will be something in the Budget – but we still have a market rigged in favour of existing owners and BTL that traps people in renting. I think the divide has widened as a result.
One issue often overlooked is the ability of households to change tenure without moving house.
We are seeing a shift in thinking in some of the more innovative landlords (mostly the big RSLs) who are looking at their tenants more as customers and thinking seriously about staircasing both up and down the equity ladder.
For too long we were obsessed with individual piles of bricks and mortar being “social” or “market” homes, now the lines are blurring. We are seeing the emergence of a better class of private landlord as well and there is also some evidence of “renter-renter” households. Usually people who move for work, can’t or don’t want to sell, and who instead rent out the home they own and rent another to live in. None of this is a bad thing.
We need to build more homes to restrain house price growth for at least a decade and that means finding the funding. Because of the state of the economy here and world wide, there is no state money beyond what has already been allocated, so we have to be innovative to generate those funds. I do think the Government will announce a move to grant Right to Buy to the remaining RSL tenants who don’t have it, perhaps with a qualification period. I’d also like to see them encourage investment into the market by small scale investors through SIPPs, which is currently banned.
I cannot simply fall to the Government to spend other people’s money all the time!
Thanks John – so you think right to buy for RSL tenants is a definitely on the cards? It seems an obvious move for the govt and has been in previous Tory manifestos but seemed to be on the backburner because of concerns over costs and undermining RSL finances. In the longer term, as with the original RTB, wouldn’t the homes just end up in the hands of private landlords and the govt spending more of other people’s money on housing benefit?
On SIPPs, that idea was floated a few years back and also rejected. Wouldn’t it just result in a flood of new investor money for rentals and second homes pricing out first-time buyers?
What about a programme of housing for rent now financed by borrowing but repaid from proceeds of later sale to tenants?
If one was a cynic ( which I probably am) then the whole issue of RTB takes on a different twist.
The timing and economic conditions for this mass sale of “social housing” was both ill judged and bordering on criminal.
With the wholesale closure of industry occurring and unemployment rising daily, to offer people mortgages (also considering the interest rates at the time) was economic suicide as far as a lender was concerned. The only reason it was so successful in it’s early years was the sudden decrease in “social housing” and the demand for more private rented accommodation fueling an unsustainable rise in property prices.
The huge discounts given to some RTB tenants (as much as 60%) should have meant that even in the event there was a catastrophic rise in interests rates those buyers would be protected.
Unfortunately we again come back to the banks and their role in the ensuing “bust”.
As most RTB tenants got a discount of some sort their toe in the property market should have been a cast iron one. However, those buying were also persuaded to take out loans for the difference between market value and the purchase price. This was a deliberate ploy by the lenders to make more profits off higher mortgages and set up fees. The prospect of being able to sustain payments in the face of interest rate rises was never mentioned.
Also more lending on the equity of those properties who’s values were rising fueled the flames of spending.
The inflation occurring at the same time was due in a small part to a boom in spending by these new “Landowners” Cars, furniture, holidays and other luxuries piled onto what would otherwise have been low mortgage amounts.
The rise in interest rates, which otherwise would have made little difference to RTB owners suddenly became a significant factor in the bust of the property market soon after.
“Negative equity” until this time had never occurred to anyone as property prices had always risen. However when one artificially creates a market it becomes unsustainable and coupled with peoples inherent greed will always cause a crash. Whether Housing, commodities, rubik’s cubes or whatever .
Just as a matter of interest the RTB scheme was never actually halted by Labour. The RTB scheme still exists and the current government (in England anyway) has set out to remind people of their RTB and is aiming to offer even bigger discounts (Mark Fisk Housing Minister 4 Feb 2013 hOUSE OF COMMONS )