A litany of political and regulatory failure… Britain’s housing crisis
Monday 2nd May
Over the last few years, the British Government and Bank of England have developed and implemented policy that has increased house prices - driving the UK's housing crisis to ever-greater extremes.
Here are a few such policy shifts that have worsened the housing crisis:
- British Government – Help To Buy
- Bank of England – Quantitative Easting, which has driven house prices higher and widened economic inequality
- British Government – Rishi Sunak’s Stamp Duty Holiday
- British Government + Bank of England – Covid response which is suffering mounting issues with fraud, with the likelihood that many fraudulent Covid payments have ended up “hidden” in the housing market.
Moreover, there are political and regulatory moves afoot that will drive house prices even higher, deepening the housing crisis… for example:
- British Government + Bank of England (PRA) – are considering policy moves that will give smaller lenders greater access to the mortgage market, which will increase mortgage lending and worsen the housing crisis
- Bank of England (FPC ) – may withdraw its mortgage affordability test requirements – again, this will release more mortgage cash to borrowers – further inflating house prices: here’s a broad overview.
Policy moves from the Bank of England have worsened the housing crisis:
Many of the Bank of England’s policies have increased house prices, worsening the housing crisis; the Bank of England argues it’s not their job to target house prices, while claiming to: “…work to maintain financial stability by protecting and enhancing the resilience of the system as a whole. And we supervise banks and insurers, to ensure that individual firms are run in a safe and sound way.”
Yet inflated house prices threaten financial stability, as experienced during the 2007/8 financial crisis – so the Bank of England’s remit does in fact require them to control house price bubbles where they heighten economic risk and threaten financial stability.
Indeed, analysts have warned of a major housing bubble in the UK, with house prices in London as much as 50% overvalued according to the ratings agency, S&P Global Ratings, who also assessed that UK housing outside London is around 20% overvalued.
The banks are profiting from the housing crisis
Mortgage lenders such as Lloyds Bank and Natwest have profited from the rapid increase in mortgage lending, supported by British Government and Bank of England policy. Working from the evidence, it could be argued that driving mortgage lending to ever-greater heights may in fact be a policy goal for both the British Government and Bank of England, while they seemingly turn a blind eye to the broader social and economic consequences.
Many banks and mortgage lenders are doing everything they can to push lending further, such as by extending the length of mortgages; despite the risks posed by mortgages that require repaying deeper into retirement – risks further amplified by the UK’s recent pension reforms, enabling those with private pensions to draw them down early; sadly, we were unable to secure a meaningful response when we asked the Bank of England whether its internal risk analysis and mortgage lending guidance had been tightened in response.
A litany of political failure…Britain’s politicians turn housing into a commodity
Britain’s politicians have facilitated the turning of housing in a commodity – an investment asset, while deflecting us from the negative consequences by suggesting the main issue driving the housing crisis is the lack of new housing supply, which sounds logical to the voting public… yet isn’t grounded in reality, as outlined here on our blog by Steve Keen, and also by this report from The UK Collaborative Centre for Housing Evidence (CaCHE), researched and written by Ian Mulheirn.
By stressing the need to hit some phantom number of new homes, politicians have successfully deflected our attention from the core fact that they themselves have created the housing crisis, and appear intent on driving it to new extremes.