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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  • j coleman

    Would love to see you as an SNP MSP. Why didn’t you just agree to follow the whip. OR stand as an Indy MSP.

    Meanwhile Edinburgh could be next onto the inflationary house price spiral as the foreign developers move in.

  • Blegburnduddoo

    When the Tories came in they cut housing benefit for shared accommodation in Bolton Lancs. by £5 from £50 to £45 (to give one example). Other rates were similarly cut and even greater cuts for large families.

    Benefit used to be calculated on the 50th percentile of commercial rental rates i.e housing benefit tenants excluded. So that people on benefit had enough to rent half the properties available, if landlords would accept them at all. The Tories cut that to the 30th percentile, so that 70% of properties available are out of the reach of people on benefit.
    Are we really sure that demand for no more than 30% of properties is driving up property prices?

    The Tories will cut housing benefit completely for 17-21 year-olds from April 2017. I am not sure whether this will lower house prices or merely lead to more homelessness.

    Housing Benefit rates will be frozen for four years from April 2016. Another measure which Craig can support.

    Housing Benefit is not paid to landlords except in special circumstances. Under Universal Credit it has to be paid to claimants.

    Since the government is already pursuing some of Craig’s recommendations perhaps the housing crisis will soon be solved.

  • Loony

    #Summerhead: It is not a question of blaming people be they “migrants” or “morons.” However if you operate a policy of constraining the supply of new housing and selling existing real estate to people who use UK property as a money laundering and tax avoidance vehicle whilst simultaneously increasing the population then you can expect upward pressure on prices.

    These price pressurea are an explicit aim of policy – policy that was certainly not devised by either the “migrants” or the “morons” to which you refer.

  • Mark Golding

    I agree RoS to building more social housing which sadly in Osborne’s world is an ‘affordable rent’ property where land-lords can charge up to 80% of the local true, organic market rate; the previous amply subsidised construction of social housing succumbed to the Bullingdon class.

    As Craig explains the ‘organic’ rent is really genetically modified by subsidising landlords with Housing Benefit- about £350/week max for a 3 bed in Lewisham and £120/week for 3 beds in Argyll and Bute.

    As a result government spending on the construction of shared ownership and affordable rent homes has been cut by three-quarters; it spent £2.5bn in 2010-11, but this had dropped to £651m by 2013-14 and now a paltry £368m.

    Nearly 40,000 social rented homes a year were built in 2009-10, the year before the coalition came to power, but that number has dropped to an embarrassing 2800 today.

    This nasty bunch of blue injuring zombies has lusted after and caressed the ‘affordable rent’ scam such that 60,000 social rented homes have been forfeited in the past two years, this according to the UK Housing Review.

  • harry law

    Craig gives no thought to investors in property like Wayne Rooney Income from football £15 million who is having a bad time at present with his property investments. As is former Liverpool footballer and now multi millionaire Robbie Fowler Liverpool fans sang “We all live in a Robbie Fowler House” to the song of Yellow Submarine by Ringo Starr. Craig you are heartless.Hej

  • Macky

    Craig; “The landlord class of course encompasses the political class, many of whom (including Cherie Blair, famously) are also landlords.”

    This tars all landlords, as some sort of a moneyed “class” & as synonymous with the rich “political” class; truth is rather different, as many middle to lower middle class people either have invested in a buy-to-let, or have let their own house, mostly by remortgaging to buy something else cheap & modest in less expensive areas, or even moved abroad; people are losing faith in the State being able to provide a decent pension, and are becoming landlords almost through necessity.

  • JB

    “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 speculation can be in other parts of the UK – and the rent comes back to London. Black holes are consumers of light.

  • Andrew

    One way to bring sanity to the UK housing market would be to limit mortgages to no more than 10 times a property’s annual rental value, according to the rebel economist Steve Keen.

    For example, if a property could be rented for £1,000 a month, its annual rental value is £12,000. In that case, a buyer couldn’t borrow more than £120,000 (10 x £12,000) from a bank or building society to finance the purchase. Anything above that amount would have to come from the buyer’s savings.

    This would burst the London/southeast property bubble, bring house prices down to rational levels and reduce household debt burdens.

    The banks and their supporters at Westminster would fight any attempt to limit their lending, because bankers’ incomes depend on increasing debt levels. But if Jeremy Corbyn is reading this blog, this might be another interesting proposal to add to his arsenal.

    (Keen himself is a Corbyn supporter —

    p.s. When you think about it, all welfare benefits go to businesses because people who need government help spend every penny they receive, typically passing on the money to landlords (as Craig points out), supermarkets, chemists and other shops. As a result, the Conservative war on the poor directly weakens the economy.

  • Mary

    Are the DWP benefit statistics quoted going to be different two and a half years on?


    A horrible BBC programme, entitled ‘Homes Under the Hammer’, has encouraged the trend to buy-to-let. Quite often whenever I have seen it, you hear of ‘property portfolios’.

    Going back to the 60s when I first came to London, I shared the top floor of a house in North Acton with two friends who were ward sisters at the Central Middlesex Hospital. The rent per week was £10 between the three of us. Now? Just looked. Something similar £400+ pw

  • fedup

    The housing bubble is the direct result of poor interest rates and huge amount of money slushing around the place. All that “quantitative easing” printing money and pouring it into the hands of the same bunch of gamblers who had ran out of monopoly money by cheating each other.

    The fundamental problems of the economy are to get even worse in the coming years given the degrees of automation that is about to be unleashed. There is a need for rethinking and reinventing the economic theories. The little needle factory of Adam Smith time is no longer the marvel of the cutting edge production, as the industry has moved forward.

    Our society is caught in a time warp with values of the old nineteenth century. As the zero hour contracts manifestly indicate a total disregard of the “entrepreneurs” to philanthropy, all the while the governments benefit cuts under the guise of “universal benefits” lumping it together will make it look a lot more than the miserable outlay that is being considered to be paid to the destitute.

    Why should the 42/8 hour a week still be considered as the mandatory work hours? Why should the wage or return on the labour to be so low that the government needs to subsidise the workers who are working full time for these workers to supplement their meagre income by benefits handout?

    The taxation policies and the obligations and responsibility of the government towards its people are patently risible and border irresponsibility by providing a surplus of cheap labour through creation of swathes of poor and destitute. Concurrently providing huge funds for the same carpetbaggers who are gaming the system and will ultimately bring the system to a grinding crash.

  • Je

    ” 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.”

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

    “The national housing benefit budget is £23.7 billion a year – and an estimated £9bn is paid to private landlords. The rest goes to local authorities or registered social landlords.”

    That £9bn is a fraction of the total rent payed so it can hardly “underpin the entire system”:

    “landlords earned £112bn last year from rent and rising house prices… the total amount of rent paid in the year rose 7.2 per cent to £46.8bn.”

    Housing benefit is the thing that keeps a roof over the heads of millions of people. It makes millionairres of others because there aren’t rent controls, there’s a shortage of housing, and tenants don’t have enough rights. They’re the problem – not the benefit.

    “Latest official figures show the biggest single cause of formal homelessness is households being forced to leave their private rented home “.

  • Je

    And you can see from the original Guardian article you cite how small a part of the overall benefits housing benefit is.

  • Tony_0pmoc


    You and some of your fans have written and done some brilliant stuff recently.

    Your “Doune the Rabbit Hole” looked (and Sounded) Brilliant…We were at a Rock Festival in Lancashire at The Time – it Pissed Down With Rain Almost Continuously…But Was Wonderful – the People Were So Friendly – and The Musicians Brilliant (and Beer Cheap £2.50 a pint)

    But We haven’t Finished Yet – Currently Packing The Camping Gear For This…It Ain’t Too Big Yet….We have been most years since it started…and there was about 7 tents there….Now Rather More Than That…But Even So – I’m Easy To Spot…

    I actually described myself to a bloke who posts on The Telegraph about another Festival I was going to In Surrey..he had absolutely no problem finding me…

    I just said – Look For The Blondes – Dancing at The Front…The one in The Middle is Me…Most Of Us Speak Broad Lancashire..(Well My Wife and Girlfriend – I call Her My Sis).

    Loads more Blondes This Year and The Weather Will Be Good.

    (Check Out Frensham Ponds For an Early Morning Swim – It Has a Sandy Beach and Is Safe To Swim – But Don’t Touch The Alice-In-Wonderland Mushrooms – They are Poisonous – but Incredibly Beautiful Red – with beautiful colours)

    Amanita muscaria

    Sorry for boring you.



  • Chris

    Excellent post. Love this blog. It is always beautifully written and most thought-provoking (tho I disagree with much…)

    Quite true: housing benefit is playing the same role that mortgage tax relief used to, in raising house prices to the benefit of the owners.

    I do not know what the relative effects of housing benefit and low interest rates are: I would suspect low interest rates are even more important, and are caused by an iniquitous policy to benefit the rich by inflating the price of bonds, and hence other financial assets.

    6% seems a high rental yield for London. I spoke to a property agent who said that many foreign speculative buyers do not rent their flats out, as it is simply not worth the trouble: the point of the flat is as a politically stable store of wealth, and they don’t want potential legal problems with tenants.

    High house prices mean a crazy building boom. The official figures on new residences seem curiously low to me: I can count over 40 building sites from the roof of my small central London flat; many of these are residential, and small blocks of flats and conversions are continuously under construction in all the neighbouring streets, and indeed everywhere I look in South London. No doubt it would be theoretically possible to build at a faster rate – but the amount of new construction in London seems impressive.
    On a recent trip to Paris, I saw only one large building site in a day walking round the centre. There was a public viewing gallery (!) and quite a number of people taking a look. This building site would be not worth a second glance in London.

    In South East England, the other effect on the rental market is immigration. Very large numbers of people have arrived, and there is an undeniable increase in population. People have to live somewhere, and it seems we live in ever smaller and more expensive boxes.
    I suspect there are local political problems in loosening planning restrictions to build affordable housing if existing residents believe that the new dwellings will be occupied by outsiders. This is human nature.
    These pressures seem totally different to those in Scotland, where there seems to be no corresponding population increase.

  • Hieroglyph

    The Housing bubble shows us the mediocrity, short-sightedness and simply greed of our political classes. I personally, in my low level role, have heard an exchange between a staffer, and a state Minister that runs like this. Staffer: the newspapers are criticising us about the rise in house prices. Minister: These rises are good for property owners, so there’s no problem.

    I paraphrase but this exchange is essentially accurate. And it wasn’t a low-level Minister either. They do not see the problem. Honestly, you have to be either terminally stupid, or just greedy, not to see the problem. I’m old enough to recall that the bank used to have a 3.5x rule. You could get a mortgage for 3.5x your annual salary. Seems sensible enough to me. Wonder what happened to that?

    It’s all moving in the historical cycle, which bends towards authoritarianism, inequality, and – ultimately – some form of revolt. But in this period of History, is any sort of revolt possible? I’m not so sure.

  • Herbie

    This chap, Prof Richard Werner, is quite good at explaining what’s wrong with Banking currently, and what to do about it:

    Brief talk on Banking and the economy:

    Loads of other interviews and lectures:

    There’s also a full film documentary based on his book, Princes of the Yen, about the Japanese experience of Central Banking.

    Not dry at all. Very well produced. Easy to watch history of why we are where we are today:

  • Herbie

    “Wonder what the Irish think about their own cultural and racial subordination?”

    Well, with 800 years experience of that already, I’d say, “What’s new?”

    Perhaps the Irish can develop a whole new industry of Coping Strategies, books, vids etc, for those who are new to the game.

  • RobG

    CanSpeccy, whilst I can’t speak for Ireland, of the 350,000 a year immigrants who come into the UK more than half are students, who pay for their education in the UK, and most of whom go back to their own countries.

    And about 25% of the yearly immigration figure is people from the EU, who mostly come here to earn a buck before returning to their own countries (did you know that London, as a city, has the second biggest number of French after Paris).

    The dusky skinned people you seem so concerned about are mostly a result of wars and interventions by the US and its poodle, the UK. The refugees who make it as far as Calais are the wealthier ones. The vast majority of refugees fleeing USUK mayhem end up in squalid camps in neighbouring countries, such as Pakistan, Iran, Turkey, Lebanon and Jordan.

    The way that right wing UK politicians use immigrants to excuse the total failure of neo-liberalism is quite disgusting; and it’s all backed-up by the huge propaganda machine that is the mainstream media.

    Sadly, too many people buy into the lie.

    And I don’t mean that in any sense when I say to Tony_0pmoc, please keep posting. I for one love your posts, even if we don’t always agree on political stuff.

  • Edward

    Economist Michael Hudson has written about the problems of the rentier state we live in these days. As I recall his solution is to change tax policy.

  • Ben-Hemp Rules

    Irish and fellow whites to be outnumbered in US by 2020. I just hope that ethnic/racial homogenization and assimilation does not give rise to the human tendency to look for differences to the extent of one Delta tribe’s. Tradition assumed villagers would wear a ring through the right earlobe, but some rebelled by choosing the left. The resulting war was rumored to last for years and resulted in a permanent split in tribal ancestral lines. Thus is human nature.

  • Jives

    Rebekah Brooks returns then..

    I guess Murdoch is more knee deep in vacuous whores than normal..

    Cunts all.

  • Robert Crawford

    Did you see that poor little boy boy lying dead on the beach?

    Man’s inhumanity to man.

  • Mary

    Remember this one and his contribution to the US arm of Save the Children giving BLiar their Global Legacy award?

    Save the Fatcats

    Justin Forsyth President is Chief Executive Officer of Save the Children UK. Previously, he was the Director of Strategic Communications and Campaigns at No.10 Downing Street. His career at No.10 started as an adviser on environmental and international development issues in the Policy Unit in 2004 when he was appointed by Tony Blair. He led the preparations for the Gleneagles summit in 2005 and subsequent development and environment work. Prior to joining Downing Street, Forsyth was Director of Policy and Campaigns at Oxfam GB and was instrumental in growing Oxfam GB and also the founding and development of Oxfam International. Forsyth has a BA (Hons) in History and Politics from Oxford Brookes University, United Kingdom.

    This is him sitting on the RH side of BLiar.

    He has just been spouting off on Sky News and shedding crocodile tears on the humanitarian aspects of the refugee crisis. Nary a mention of BLiar’s part in the creation of the mayhem that has led to it.

    Migrant crisis: Europe should be ‘ashamed’ says Save the Children CEO


    PS It gets even more ironic on Sky News. They are now interviewing Sir Peter Sutherland on the subject. Capo of the gangsters-in-charge.

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