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.

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

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  • John Goss

    Good analysis. Interest rates are never going to rise while the neocons are in charge. They have not risen as far as I can recall this century – certainly not significantly. This increases the gap between the rich and the poor, and those with property and those without as you outlined, and that is what the powers that be want.

    Hopefully, if Jeremy Corbyn becomes leader of the Labour Party and then Prime Minister, we, ordinary people, can start to claw some our losses back form the banking sharks.

  • philw

    Very true. Which is why interest rates wont rise. No government can afford the crash. Stopping this wealth transfer is essential, but will be very tricky.


    Blindingly obvious but very clearly laid out with detail and numbers.

    I’d like to get in a jab at Thatcher who sold off council houses cheap. But Blair did nothing to redress her crimes and added to them.

  • philw

    The governments cap on benefits is actually a good thing as regards deflating the bubble. Landlords need to realise they cannot keep increasing rent. However, what is increasingly happening is that dwelling units are made smaller and smaller. So we need far more regulation of the private rental sector, plus increased taxation of landlords. Plus a programme of government buying up property, to be rented out by housing associations, to manage a fall in property prices and provide affordable accommodation.

  • Daniel

    It’s been clear for a very long time that the main purpose of the tax system is to provide benefits to the wealthy. The minister responsible for cutting income support for the poor, Iain Duncan Smith, lives on an estate owned by his wife’s family. During the last 10 years it has received €1.5m in income support by way of farm subsidies from taxpayers. Housing Benefit paid to property owners, many of whom are politician’s who rent out their second homes already purchased at a subsidy at the tax payers expense,is another example of the massive transfer of wealth from the poor to the rich.

  • Sam

    “But once interest rates start to rise, it will bring a crash of gigantic proportions.”

    That assumes that interest rates are governed by some kind of natural process, rather than set by central banks and (by extension) governments. We’re addicted to cheap credit and the government knows the Ponzi is so unstable that the slightest hint that rates might ever return to ‘normal’ will bring the whole facade down.

    Extend and pretend.

  • Nationalist

    Thanks for coming back to England we need you more than the Scots, we have very many fights ahead of us as the devils try to use our State to bomb their enemies, with the support of our presstitutes and gays. One big weapon, the BBC, is completely in the hands of this evil axis.

  • Techno

    Not to mention that two of the biggest Buy-to-Let lenders are Lloyds Banking Group and Bradford and Bingley, both of whom collapsed and had to be bailed out with tax money.

    And now even one of the last remaining mutual building societies Nationwide – set up to help build homes and allow savers to buy them – does Buy-to-Let. They seem to have dropped the “Proud to be Different” slogan.

  • Daniel

    Yes, but the governer of the Bank of England has already stated publicly that interest rates will begin to rise early next year.

  • Ba'al Zevul

    Peripherally – I’ve just had a letter from my bank to tell me that the Government’s deposit protection scheme, designed to reimburse bank depositors in the unlikely, lol, event of the bank’s failing, has just lowered the limit on the amount thus protected. From £85K to £75K. Who knew? Was it in the Budget?

    And is it due (a) to the government’s belated realisation that banks are liable to go down the drain, and redusing its possible losses when they do so (again)?
    Or (b) to the neoliberal economic credo which despises small savers, preferring them to spend extravagantly on stuff they don’t need (or houses) to create ‘growth’; or IOW to reinflate the bubble, add layers to the Ponzi pyramid and ultimately enrich the very rich even more?

  • Ben-Hemp Rules

    In the US there is Section 8 funding for low-income housing. Landlords love it because the checks arrive like clockwork. Anything similar in the UK? There are rent-to-own provisions which apply a percentage of rent to a down payment. Do you have homeless living in a vehicle? Fairly common here. In fact recently some orgs have been building van size small homes to park on the curb. This is not a solution, but then there isn’t a lot of money in solving the homeless issue so it will persist.

  • Republicofscotland

    The vicious circle that is the landlord class, could be broken if housing associations built more social homes for rent, but all over the UK that just isn’t happening.

    When London Labour were last in power in Scotland they built a grand total of six houses for social renting six bloody houses no wonder landlords on the private sector can charge virtually what they like.

  • fred

    “Was it in the Budget?”

    Nothing to do with the chancellor.

    Bank deposit guarantees are fixed across Europe at 100,000 euro. In 2010 when the scheme was set up that was £85,000, now it is £75,000 thanks to a strong pound.

  • Republicofscotland

    This looks promising, and jusf adds to the reasons why the SNP must include a indy ref in their next manifesto.

    More than half of Scots would vote for independence if a second referendum were held tomorrow, according to a poll commissioned by STV.

    The Ipsos Mori survey shows 53% would vote yes, 44% would vote no and 3% are undecided.

    This is the first poll since the referendum last September which says the country would vote yes when those who are undecided are included.

    The 1002 participants were polled between Monday and Sunday last week.

  • Tom Welsh

    Wow – thanks for the link to the Grauniad article, Craig. I’ve already noticed the author’s surprise that the government spends more on state pensions than on interest! That can’t be right – how are the banks supposed to survive without interest?

  • Republicofscotland

    O/T but in my opinion interesting.

    There should be no doubt of which group in US society pulls Hillary Clinton’s strings.

    A similar group pulss the strings at Westminster.

    Hillary Clinton asked Gordon Brown to intervene in a row between the Edinburgh International Film Festival, the Israeli Embassy in London, and filmmaker Ken Loach.

    According to emails released on Monday, in 2009 the then Secretary of State asked her officials to press Brown to intervene after Loach convinced the film festival to reject a grant from the Israeli government to cover the travel expenses of Tali Shalom Ezer, whose film Surrogate was being shown in Edinburgh.

    At the time Loach called for a boycott of the festival after it announced the Israeli film in the programme: “The massacres and state terrorism in Gaza make this money unacceptable. With regret I must urge all who might consider visiting the festival to show their support for the Palestinian nation and stay away.”

    In an email urging Clinton to get involved, prominent members of the US Jewish lobby said Edinburgh’s film festival, one of the world’s oldest, was inherently anti-Semitic.

  • John Goss

    Thanks Dan and thanks to all others who have signed this important petition.
    A Keynesian boom is what is needed to restart the economy and return the ill-gotten gains of the neocons back to those who created them. We have hardly any industrial base. Much work is done abroad exploiting slave-labour. The time has come (long gone in fact) for people to get wise. But it’s never too late.

  • Daniel

    So now the entire festival is regarded by the apologists for occupation and illegal expansionism as antisemitic? I mean, you couldn’t make this stuff up. Antisemitosis is becoming a disease that’s spreading like the plague….LOL.

  • Rachel

    Craig you are better on the outside. We need you on the outside where you can speak your mind not on the inside where you will have to keep shtum.

    “Given a 6% rental return, pumping in 18 billion pounds of state money to rents adds 288 billion pounds to property values.”
    …I’m numerically challenged. Explain please.

  • Loony

    There is no doubt that there will be a crash of gigantic proportions – however the timing remains unknown as does the exact trigger.

    Real estate prices are set by the marginal buyer – and as such the activities of foreign buyers may be more important than you think – even in Acton

  • RobG

    I live in a spacious 5 bedroom house (all en-suite) in a very rural part of France. It has a very large garden, a big barn; oh, and a swimming pool. The property is worth about 220,000 euro, which at present rates is about £170,000 (and talking of rates, the two council taxes you pay in France come to about 700 euro a year, about £500).

    At the other end of the scale, you can buy a small village house in this part of sunny south west France for around 15,000 euro (about £11,000).

    We’re a three hour drive from the coast, through Bordeaux wine country. A similar 5 bedroom property on the coast would cost up to about 1,000,000 euro, about £600,000. Likewise for a similar property in any of the big cities.

    For what a 3 bed semi in London now fetches you could buy a chateau in my neck of the woods.

    Just thought I’d give some perspective.

  • CanSpeccy

    House prices are 12.2 x salary

    But the price of houses that most people live in is not 12.2 X most people’s salary. In london, there is a very heavy top end to house prices that skews the mean price to income ratio. The price to income ratio, excluding the top 10% of houses and income earners bears no relation to the overall average of 12.2.

    But why do you care anyway, you’re a Scotch nationalist socialist Anglophobe, so the more the Anglos, aka mass immigrant population of London, suffers the better, surely.

    Anyhow, in the coming age of Trumponomics, interest rates, inflation and wages will all rise hugely, while house prices collapse.

  • Clark

    Rachel, I think the numerical argument goes like this. Finance will supply money to buy houses so long as 6% of their price can be recovered each year through rents. Therefore, £18 billion of rent supports 100/6 times 18 billion = about three hundred billion made available to buy property for letting out.

    The quantity of property isn’t increasing much, so most of that 300 billion becomes inflation in property prices, and hence rent prices.

  • Republicofscotland

    If housing associations built more homes to rent and the demand was met, I think would be, it could possibly bring down the sky high prices of homes to buy in certain areas.

    The problem is that not enough social homes to rent are being built, why is that you might ask.

    Germany is a prime example, if I recall they don’t put as much emphasis on buying as Brits do, and generally there’s a higher and more available standard of housing to be rented out.

  • Summerhead

    Of course, right now there are millions of morons out there who are blaming “migrants” for the over-valuation of property; and you can guarantee that those are the opinions that most of the parasitic politicians will respond to.

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