District Councillor Nick Cox argues we need a new approach to crack the housing crisis, moving away from a reliance on the private sector. A different way of delivering homes people can afford to rent or buy whilst protecting green spaces.
Two narratives dominate discussions about the housing market:
- That house prices have risen due to high immigration, arguing that the influx of people has generated so much competition for properties that they’re now unaffordable.
- That rising house prices are caused by a lack of supply – we’re simply not building enough new houses.
Both are underpinned by a common rationale; house prices are rising because supply cannot keep up with demand.
If this is true then the Labour government’s new build programme should eliminate house price inflation, and if over supply is sufficient, house prices should fall.
However, if supply and demand is not the driver, we could be sacrificing our green belt and disfiguring our towns and villages needlessly.
Travelling around England, you don’t get the impression that building has stalled. On the contrary, towns appear to be being strangled by sprawling new housing estates. The numbers confirm this feeling – in 2001, there were 21.21 million houses in England and 49.45 million people, 2.33 people per household. In 2023, there were 25.4 million1 houses and 57.7 million2 people, 2.27 people per household.
More houses per person and lower occupancy should have resulted in cheaper housing in a supply and demand situation. The reality is very different – in 2001, the average house price in England was £84,377, in 2023, it was over £302,000.3 In just 22 years, the price of the average home in England has increased by more than three and a half times!
What is the real driver behind rising house prices?
M2 is a measure of the money supply that includes cash and deposits readily convertible to cash. The M2 money supply in the UK in January 2001 was £835 billion, rising to £3.1 trillion4 in January 2023. This 371% increase is remarkably close to the 358% increase in the house price index, suggesting that the house price index is tracking money supply not housing demand. Relative to the money supply, houses cost about the same as they did 22 years ago.
In Jan 2001, average weekly earnings in the UK were £321, in Jan 2023 this had risen to £6375 – an increase of 198%. Measured as a percentage of the money supply, we are paid less than we were 22 years ago, salary increases have not tracked money supply increases, whilst house prices are closely aligned to it. In real terms, house prices have not risen, salaries have fallen, causing the housing affordability crisis.
We accepted this cut in our salaries because it didn’t happen transparently. It’s not clear how much a salary needs to rise each year to maintain its real value. Most people expect their salary to follow the Retail Price Index (RPI), but this tracks the cost of consumer items. Neither the money supply nor house prices are included in the RPI.
The situation was made worse by Quantitative Easing – between March 2009 and November 2020 the Bank of England bought government and corporate bonds6 – but they didn’t use existing money to pay for them, they created “new” money, increasing the money supply. Mechanisms such as ‘Help to Buy’ (HTB) and ‘Stamp Duty Land Tax’ (SDLT) relief provided additional stimuli to the housing market.
Since 1931, our currency has been ‘fiat money’, not convertible to gold or any other asset and the words on bank notes, “I promise to pay the bearer on demand the sum of…” have been a lie. Fiat money holds its value simply because people have faith that other parties will accept it, based on trust in the government and its ability to levy and collect taxes7. Harold Wilson famously said that devaluation “does not mean, of course, that the pound here in Britain, in your pocket or purse, or in your bank, has been devalued”8. Wilson lied, breaking the trust with the people whose trust underpins the value of our money, and the lies continue.
Even if we could abolish immigration and build 300,000 new houses a year, house prices wouldn’t fall. They might rise less quickly, but probably still faster than wages. The crisis isn’t caused by a lack of housing or house building, it’s caused by investors treating housing as an investable commodity. The driver for the increase in house prices has been the increase in the money supply and inflated house prices have turned us into indebted wage slaves.
We can use taxation and legislation to make housing unattractive to investors but squeezing them out gradually without crashing the market will be difficult. It might be easier to squeeze the money supply to stabilise the housing market, but this risks recession, job losses and, paradoxically, falling wages.
We need to be honest, admit that the private sector can’t provide for those that have been left behind, and embark on an urgent programme of publicly-owned social house building. Atlee’s government built over 800,000 new council houses9, whilst simultaneously establishing Green Belts to protect our countryside10. We can do it again!
More about Councillor Nick Cox:
Nick Cox is East Herts District Councillor for Ware Trinity and Parish Councillor for Stanstead St Margarets. He has lived in East Herts for 37 years, is a self-employed building services design and project manager and a leading authority on sustainable refrigeration and air conditioning. Nick was involved in the successful Hoddesdon incinerator campaign, is a long-standing member of Greenpeace, a life member of the Environmental Investigation Agency (EIA) and is XR East Herts Political Liaison Officer. He lives with Alison, his wife of 38 years, and their 7-year-old blue roan cocker spaniel, Alfie.
Sources:
1. Statista: Total housing stock in England 2001-2023
2. Statista: Population of England from 1971 to 2023
3. Land Registry: House Price Statistics
4. Trading Economics: UK Money Supply
5. Trading Economics: UK Wages
6. Bank of England: Quantitative Easing
7. Investopedia: How Currency Works
8. Money Week: Harold Wilson’s ‘pound in your pocket’ little white lie
9. Property Wire: Labour vows for Clement Attlee-style ‘new towns’10. Wikipedia: Town and Country Planning Act 1947