‘Why Can’t You Afford A Home?’ by Josh Ryan-Collins – a researcher at University College London’s Institute for Innovation and Public Purpose – is about the phenomenon which he dubs ‘residential capitalism’.
It follows on from his less snappily-titled volume ‘Rethinking The Economics of Land and Housing’, which was written jointly with fellow economist Laurie Macfarlane and policy wonk Toby Lloyd and published last year.
Both books address the question of why a growing number of people are being priced out of the property market, with rising house prices accelerating away from household incomes.
The answer is financialisation – and it is not an aberration, according to Ryan-Collins. The ‘housing crisis’ needs to be understood primarily as a product of the banking system.
For starters it’s not just a British problem; this is a trend which has gripped developed economies across the world over the past three decades.
“Two of the key ingredients of contemporary capitalist societies, private home ownership and a lightly regulated commercial banking system, are not mutually compatible,” he writes. Instead they “create a self-reinforcing feedback cycle”.
The post-War popularisation of home ownership put pressure on governments to reduce property taxation, which made it more attractive for banks to lend, with the result that mortgage lending replaced corporate lending as banks’ main area of business.
In the early 1980s, business lending equated to around 40 per cent of GDP on average in advanced economies, while mortgage lending was around 25 per cent. By the time of the financial crisis, mortgage lending had grown to 75 per cent of GDP while business lending had only grown slightly, to 45 per cent.
Much of the reason why policymakers have failed to tackle the ‘housing crisis’ is because they have not grasped that land is fundamentally different to other economic inputs, Ryan-Collins argues: “Land is immobile, irreproducible and appreciates in value over time.”
Lending to business supports capital investment and wages, fuelling growth, but lending on existing property and land is by comparison unproductive. Land is unusual in economic terms, in that it exists in fixed quantity; increased lending against it serves therefore only to drive up its value. And the banking sector’s health has become dangerously intertwined with property prices.