Alice Martin, in The Guardian, May 2017
It is a strange kind of economy where land and property routinely earn more than people do. But that is what we have – and the amount of wealth tied up in these areas has increased dramatically over the past few decades. Today the value of property in the UK stands at over £5tn – nearly 60% of the UK’s entire net wealth – up from just a little over £1tn in 1995.
When the value of land under a house goes up, the total productive capacity of the economy is unchanged or diminished because nothing new has actually been produced. Those who own land get wealthier from this process, but those who don’t own land get poorer due to rising rent or demands for even bigger deposits and more mortgage debt. As a result, people spend less, which is bad for them and their families and bad for the economy as a whole as demand falls.
Those who own land and property have benefited directly from public investment in infrastructure and services: so we are all paying into the gigantic fortunes of Britain’s wealthiest property moguls.
The Sunday Times Rich List, published on 7 May, reveals that a staggering 26 of the top 100 richest people in the country have property listed as a major source of their wealth. That dwarfs the other biggest sources. Just six of the top 100 made their money from industry, and seven from retail. Finance and investment have 10 entries apiece.
Srichand and Gopichand Hinduja, at the top of the list, increased their wealth by more than £3.2bn last year, but it is property that is Britain’s real wealth creator. There are 164 property moguls in the top 1,000 richest people in Britain, and they are worth a combined £143.7bn. Financiers, in contrast, are worth a mere £65.2bn.
Property wealth is effectively a zero sum game. When the value of land under a house goes up, the total productive capacity of the economy is unchanged or diminished because nothing new has actually been produced. Those who own land get wealthier from this process, but those who don’t own land get poorer due to rising rent or demands for even bigger deposits and more mortgage debt. As a result, people spend less, which is bad for them and their families and bad for the economy as a whole as demand falls.
Our dysfunctional land market has led to a crisis of deepening inequality, poor prospects for sustainable growth, intergenerational conflict, low productivity and financial instability. And the housing crisis is at the heart of it all.
Home ownership is at its lowest levels since 1985, more than 70,000 households are in temporary accommodation – and the government is propping up this broken market to the tune of £20bn a year in housing benefit.
At the New Economics Foundation we are working with local communities and campaign groups to take back some control and demand housing projects that really meet local need. But this has to be supported by policy at a national level.
Part of the answer would be to halt the fire sale of public land using it instead to provide genuinely affordable housing and community-led schemes. It would also help to strengthen councils compulsory purchase powers, enabling the state to capture land value uplift and reinvest it in infrastructure and services. Exploring the creation of a public land bank responsible for purchasing, developing and leasing land could provide revenue for the state and help retain value for the public.
The British property market is making a few people very, very rich while leaving millions at the mercy of a dysfunctional market, with little or no influence over where they get to live.
Alice Martin heads the work of the New Economics Foundation on housing.