Book review: The Financialization of Housing

The Global Financial Crisis was a wake-up call to the world about the dangers posed by a toxic mix of finance and housing, one that has still not been properly heeded.

The mortgage-backed securities, collaterialised debt obligations and other financial instruments that financed the expansion of sub-prime and predatory lending were the result of a wave of innovation by a finance industry that had been deregulated over the previous 20 years. Britain marked the 30th anniversary of the Big Bang in the City last month but similar things happened around the developed world.

All that innovation and securitisation led to exponential increases in the amount of credit circulating within the financial system but it still needed something to be secured against. Which is where housing came in: a mortgage finance system that had been based on long-term mortgage lending funded from savings was transformed into a vehicle for the expansion of credit. And the relationship between the price of homes and the earnings of people buying them was also transformed.

9781138950580

The Financializaton of Housing: A Political Economy Approach, a new book by Manuel Aalbers, is the most comprehensive attempt I’ve seen to outline this process and its consequences. It’s part of a multinational research project based at the University of Leuven in Belgium on what he calls the Real Estate/Financial Complex in 12 different countries around the world. The metaphor is a deliberate echo of the military/industrial complex and serves to emphasise the connections not just between the real estate and financial sectors but also between each of them and the state.

Read the rest of this entry »


Off target

Originally posted on August 24 on Inside Edge 2, my blog for Inside Housing

A million new homes by 2020? The latest housebuilding statistics for England suggest little progress towards the government’s target or aspiration or ambition. I forget which it is this week.

There’s the usual mix of good news (starts up slightly on the previous quarter and last year) and bad (completions up on the previous quarter, down a bit on last year).

But is this graph shows there are few signs of a step change in output. After an uptick in 2013/14, starts have now been stuck on just over 140,000 for the last nine quarters. Completions have now caught up.

start comp

And this is before any real impact from the Brexit referendum. Projections by Capital Economics in a report by Shelter yesterday suggest that housebuilding will fall by 8% over the next year because of uncertainty following the vote and that output will be down 66,000 homes as a result.

So a year into that five-year non-target, it seems perfect timing for chancellor Philip Hammond to launch his much-touted fiscal stimulus in the Autumn.

Read the rest of this entry »


Going lower

Originally posted on August 4 on Inside Edge 2, my blog for Inside Housing

Record low interest rates have been great for people with mortgages but terrible for the housing system as a whole.

Like the Bank of England’s decision in March 2009 to cut the base rate to 0.5%, Thursday’s further reduction to 0.25% is motivated by concern about the economy as a whole. But nobody imagined in 2009 that seven and a half years later interest rates would still be as low, still less even lower.

The result has been severe distortion in the housing market. What was only meant to be a temporary fix has instead become a semi-permanent feature of the system that has benefitted home owners and landlords at the expense of everyone else. The effect of Thursday’s small cut will be limited in itself but it means that effects of the low rate regime will be with us for much longer.

Read the rest of this entry »


Owning the future

Originally published on June 30 on Inside Edge 2, my blog for Inside Housing

The shift in subsidy from renting to owning under this government may be obvious but it’s only when you see it laid out in total that you appreciate its scale.

This year’s UK Housing Review Briefing, published at the CIH conference on Thursday, sets out total government support for different kinds of housing from 2015/16 onwards. The total for social and affordable rent is just over £2 bn. The total for home ownership and the private market is a cool 21 times bigger than that: £42.7 bn.

Read the rest of this entry »


Home alone: what Brexit could mean for housing

Originally published on June 24 on Inside Edge 2, my blog for Inside Housing

As the dust settles on the momentous vote for Brexit, the one certainty seems to be uncertainty.

I blogged last week about what would follow a Leave vote that seemed a possiblity but no more than that. Here’s my updated take on the likely consequences for housing now that it’s a reality. 

Housing market

The markets are signalling, no screaming, that they expect huge dislocation. Shares in leading housebuilders led the stock market plunge, with falls of 40% or more at one stage, and banks were not far behind with falls of 25%.

You could read this as a signal that the City expects house prices and land prices to fall with severe impacts for both – or as a reaction to panic and uncertainty.

Either way, there will be short-term consequences. Housebuilders look certain to scale back development, stop opening new sites and hold off on decisions to invest in land. Equally, few people will want to buy in a market that could be about to see prices fall and the wider market will stall.

Read the rest of this entry »


A right to own?

Originally posted on June 13 on Inside Edge 2, my blog for Inside Housing

What should we do if we really want to reverse the decline in home ownership?

That’s the question posed in a new book published by centre right think tank Civitas (downloadable here). The answers are interesting and surprising, not just because of where it sits on the political spectrum, but also because the author is a longstanding evangelist for the home owning society and opponent of ‘Marxist’ housing advocates.

Peter Saunders wrote a seminal book called A Nation of Home Owners in 1990 that made a passionate argument for the expansion of home ownership as the choice of most people and as a force for good in promoting community cohesion and civic participation.

As such, you might have thought he’d be completely in tune with David Cameron, George Osborne and Brandon Lewis and their policies to satisfy the 86 per cent of us who want to be home owners.

Read the rest of this entry »


Stable door

Originally published on Inside Edge 2, my blog for Inside Housing

Back in 2010 a Conservative housing minister mused that a period of stable house prices would be a good thing. Six years later – and in the context of the European referendum – it would apparently be a disaster.

A report today from the Treasury warns that prices could be 10%-18% lower by 2018 if we vote for Brexit next month. It’s part of a message that a leave vote would trigger what David Cameron calls a DIY recession that would cost hundreds of thousands of jobs.

I’ll leave the wider economic arguments to others (though note this would be quite a mild recession by comparison with the recent past) and concentrate here on house prices. This may seem a minor point by comparison with the more general impact on the economy but it’s interesting that this was the aspect of today’s Treasury analysis that George Osborne chose to trail last week.

Read the rest of this entry »