The Great Wealth Transfer to the London Elite 86


The Guardian has a fascinating piece on house prices which deserves to be read and studied in detail. In London in 2013 the median house price had reached 300,000 while the median salary was 24,600. House prices are 12.2 x salary. That means it is in practice impossible for working people, without inherited wealth, to buy a house.

But the point is, that it should be equally impossible to rent a house. Landlords look for a rental return of approximately 6% of rental value. So that would put median rent in London at around 18,000 pa, which is a realistic figure. But nobody on a salary of 24,600 before tax can pay 18,000 pa in rent. So we should be at a stage where it is impossible for Londoners who have not inherited homes to live there at all.

Very little of the apparent gravity-defying power of the London property market is due to foreign buyers. Their major effect is very much concentrated on the top end of the market. Very few wealthy foreign buyers are purchasing semis in Plumstead or Acton. For prices to be this distorted from the potential of local buyers to pay would require literally hundreds of thousands of foreign purchasers in all segments of the market. They just do not exist.

No what is causing this incredible distortion is the conjunction of buy to let and state housing benefit. The state pays out 18 billion pounds a year in housing benefit, and the vast majority of that goes straight into the pockets of private landlords in the South East of England. State housing benefit underpins the entire system.

Now the brilliance of the trick is that, as it is labeled a benefit, the left fight to keep housing benefit as though it benefited poor people. In fact this is a great illusion. It does nothing of the sort. What would truly benefit poor people is lower rent or affordable homes. Housing benefit goes straight into the pockets of the landlord class.

The landlord class of course encompasses the political class, many of whom (including Cherie Blair, famously) are also landlords. As housing benefit is paid for from general taxation, the entire system is a massive transfer of wealth from the poor to the rich, and above all from the North and West to the South and East. The landlord class benefit not only from the taxpayer giving them enormous rents, but from the possession of artificially inflated property on which they can raise further money for more speculation.

The problem is national but is much worse in London and the South East of England. The reason that IDS has not made a serious assault on housing benefit is that it puts money straight into the pockets of most of his Tory chums. The largest benefit recipients in the UK are the great landlords.

The policy mix to tackle this must include building much more council housing, but must also include a phasing out of the payment of state housing benefit to private landlords. Let me put this simply – given a 6% rental return, pumping in 18 billion pounds of state money a year to rents adds 288 billion pounds to property values. Let me say that again because it is very, very important but not that easy to follow.

Given a 6% rental return, pumping in 18 billion pounds of state money to rents adds 288 billion pounds to property values. That explains how you reach the apparently impossible situation of median property at twelve times median income.

The landlord class will endeavour to ensure that any phasing out of such benefit causes maximum dislocation pain to tenants. But correcting the situation is an economic necessity. Ultimately property values have to halve, and rents too. That will provide pain to not just the landlord class but the entire Ponzi economy that Blair built. The ratio of property prices to income almost trebled in the Blair/Brown years, and is the aspect of their economic charlatanry which still overhangs us.

Seen from Edinburgh, another reason to escape to Independence as quickly as possible. The problem is not nearly so acute in Scotland. In England the situation can continue for a while. The Conservative government is delighted with this massive transfer of money to the rich. But once interest rates start to rise, it will bring a crash of gigantic proportions.


86 thoughts on “The Great Wealth Transfer to the London Elite

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  • Jon

    For watchers of Scotland and the SNP, interesting:

    “A LEGAL challenge to the ­election of former Scottish Secretary Alistair Carmichael as the MP for Orkney and Shetland is to be televised live, with the full proceedings due to be broadcast.

    “A petition has been lodged at the Court of Session in Edin­burgh by four of Mr Carmichael’s constituents in an effort to oust him as the MP for the seat he won on 7 May.”

    http://www.scotsman.com/news/politics/top-stories/court-hearing-bid-to-oust-alistair-carmichael-on-live-tv-1-3874364

  • Jon

    Fred, the Scotsman carried a story on the same topic – “illegal” isn’t quite right. Scotland’s Court of Session has OKed the move, but the Scottish Whisky Association are appealing to the European courts:

    Scottish ministers must show that no other measures could be taken to achieve the goal of improving public health, the Advocate General of the European Court’s Advocate General [has said].

    FWIW, I’m broadly in favour of this – and I’m a keen whisky drinker. Something does have to be done about alcohol-related deaths and health issues – the question is whether raising the MUP would actually work.

  • fred

    “FWIW, I’m broadly in favour of this – and I’m a keen whisky drinker. Something does have to be done about alcohol-related deaths and health issues – the question is whether raising the MUP would actually work.”

    The keen whiskey drinkers may well be in favour of the law, it won’t affect them much, not many bottles of whisky cost less than £14 and the single malts the MSPs drink cost considerably more. It’s us keen Lydles cider drinkers that will be hit hard.

    Raise the tax on alcohol if they must but raise it equally for all, more than double the cost of a drink for the ruling classes as well.

    Prohibition does not work, they tried it where I live and it was abandoned, drink was smuggled, illegal stills were built.

  • Jon

    Fred – is there any evidence to show that people would treat raised prices as “prohibition”? Are you aware of any alternative approaches to combat the health problem in Scotland?

  • fred

    “Fred – is there any evidence to show that people would treat raised prices as “prohibition”? Are you aware of any alternative approaches to combat the health problem in Scotland?”

    Raising the price of a bottle of cider from £2 to £5 would certainly make me think about firing up the old still up again. Making the price of a drink prohibitive is prohibition a far as I’m concerned.

    The major cause of death in Scotland is still heart disease not liver failure so how about introducing a minimum price per calorie for food? Starve the lower classes into losing weight.

  • Macky

    Je; “Was that made up off the top of your head Craig? Cause its nonsense.”

    Sssh! Pointing out things like that destroys Craig’s whole argument ! 😀

    John Whiting; “Remarkably — almost uniquely! — the quality of the comments on Craig Murray’s columns are nearly as high as the columns themselves.”

    Well not too sure about the quality of some of the quality, but yes the absence of certain trolling individuals does tend to make a difference.

  • Geoffrey

    Housing benefit,immigration and low interest rates all hold up property prices,which is why of course,big business favours all three.
    Even more important though is the fact that the whole of the British economy is held up by property.
    If property prices stop rising,the economy will grind to a halt.
    If property prices fall the economy will collapse,completely. The banks who have lent against private property would go bust again.
    People would no longer be able to go to the banks to borrow a little more against their properties,to pay for their consumption.
    The pound would collapse.
    Inflation,as all we consume is imported, would be through the roof.
    The government would be unable to raise taxes,as incomes would fall with economic activity,and any money it printed would be worth less than bog paper.
    Gordon Brown and Blair were well aware of the above,and their main aim was to increase house prices…..because they knew that rising house prices meant goodies all round! and they would be re elected.
    Cameron and Osborne have just reverted to Browns economic plan : Low interest rates, Housing and other benefits,and immigration.

  • John Spencer-Davis

    John Whiting
    03/09/2015 9:45am

    I’m sure all commenters will be disarmed by such a post. I will be so bold as to say thank you on the forum’s behalf. We’re all much obliged, I’m sure.

    I note from your blog that you say you have hardly any enemies. No idea what your opinions are, but if you start airing them on here I dare say that will change in a hurry. This forum is thundering good exercise if you fancy thickening your skin up a bit.

    Kind regards,

    John

  • Jon

    Fred, you’re right about the whisky – wonder why it the Scottish Whisky Association taking the Scottish Government to EU court? On the surface it will not affect their members, I would have thought?

  • jkick

    The way out of this cesspit of corruption is to remove, along with politicians, the very thing that the keeps the system afloat, the concept of value.

    Once value is removed from society then surplus value is no longer attainable.

    Surpus value, in a nutshell, is the basis of the predicament we find ourselves at this present moment in time.

    What we replace value with is another debate, however, if not replaced we will be forever on the path of corruption.

  • fred

    “Fred, you’re right about the whisky – wonder why it the Scottish Whisky Association taking the Scottish Government to EU court? On the surface it will not affect their members, I would have thought?”

    It would set a precedent, what the Scottish government can do using health as an excuse other countries would be able to do and they could do it to favour their own alcohol industries. Either you have free trade or you don’t, the whisky industry is worth four billion in exports.

    The health claims are dubious anyway, deaths from alcohol related causes have been decreasing while deaths from illegal drugs are on the increase. More harm could be done by drinkers cutting back on luxuries like food and heating to cover the extra cost.

  • Jon

    Fred, thanks. I wonder if there is some academic study on this? For example, you say that it could cause more harm, due to determined drinkers turning off the heating, but how can a neutral observer satisfy themselves that is true? Might it not also reduce the amount people drink?

    I am opposed to the SWA or any other body using this as a political football – if alcohol health issues need tackling then industry using it as a strategic mechanism to harm their competitors would be an obscene thing. It needs to be science-led, and if that results in an incremental MUP, then fine. Any industry body is not a neutral observer.

  • Jon

    I don’t know how much this Irish story is relevant, but here an industry body is critical of supermarkets selling alcohol as loss-leaders:

    http://www.irishtimes.com/business/agribusiness-and-food/court-says-minimum-alcohol-pricing-may-breach-eu-law-1.2338842

    It occurs to me that the alcohol industry generally enjoys a better reputation than the tobacco industry, which has been in the gutter for perhaps the last decade at least. I wonder, with that in mind, that the drinks industry might not oppose a MUP measure as vigorously as might be imagined.

  • Habbabkuk (la vita e' bella)

    Mack’s dislike of Craig has apparently driven him to defend the private buy-to-rent class.

    Hilarious!

    +++++++++++++

    Good post Craig and certainly better than the previous one, which was really just a Munchian scream of anguish at the politico-economical ethos of the times we live in.

    I notice that few people have picked up on the need to build (a lot) more houses, if necessary public (social) housing.

    This is probably because most of the posters are house-owners and might, arguably, not welcome a policy which would stabilise and over time reduce the value of their own houses?*

    ________________

    * this idea is not, repeat not, only aimed at commenters leaving in the more expensive parts of the UK, eg Surrey. It also applies to, for example, the RobGs of the future.

  • Macky

    Habbabkuk; “Mack’s dislike of Craig has apparently driven him to defend the private buy-to-rent class. Hilarious!”

    Here Habby, since as the fallacy of Craig’s argument as pointed out by Je & myself evidently alludes you, have a good old belly laugh at this;

    Craig’s dislike of Russia has apparently driven him to make cheap political points on a piece titled “When the Politics Has to Stop” !

    Now that would be funny if the subject wasn’t desperate people trying to escape the bloodbaths caused by the West.

  • Habbabkuk (la vita e' bella)

    “Here Habby, since as the fallacy of Craig’s argument as pointed out by Je & myself evidently alludes you,…(something entirely irrelevant follows”

    ______________

    The word you were straining for, Macky, was “eludes”.

  • John S Warren

    The population of the UK was 52 million in 1960. In the 1950s the Conservative Government pledged to build 300,000 homes per year. In the 1960s, the Labour government pledged 500,000 per year; but the UK built 357,000 dwellings (all tenures) in 1969-70.

    The population of the UK in 2015 is circa 65 million, +13m or +25% on 1960. In 2013-14 the UK built around 160,000 dwellings, less than 50% of the number built in 1970 (ONS statistics: House Building Statistics, Dept., for Communities and Local Govt, Table 208). At the same time the average number of occupiers per household in the UK has fallen (more single occupation, and smaller families). In short we have constructed a supply and demand structure that ensures house price inflation. I wonder why?

  • Macky

    Habby Clown; “The word you were straining for, Macky, was “eludes”.”

    Give yourself a peanut, careful not to not choke. 😀

  • Wes

    “the entire Ponzi economy that Blair built” Hardly. “new labour” were and are a venal and obsequious bunch, but they wouldn’t know how to effect the transformation
    transformation. That was the handiwork of Geoffreye Howe and Nigel Lawson.

  • Tim Owen

    Great insights. Don’t know whether you’ve seen this or whether it helped you to see through the situation in the UK but I think it’s the best treatment of the great, epochal real estate fraud ever:

    http://michael-hudson.com/2006/04/the-new-road-to-serfdom-an-illustrated-guide-to-the-coming-real-estate-collapse/

    Another point of entry: how is it we seem to collectively believe that, in aggregate, we are able to get rich selling each other our dwellings. That is laughable on its face but the vast majority of people will swallow it whole.

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