It was 14 years ago, in the summer of 2007, that the first signs of the global financial crisis appeared: the liquidation of two hedge funds heavily invested in mortgage-backed securities, and the start of the collapse of Northern Rock. This is more than enough time for a new economic model to take shape. After all, 14 years after Richard Nixon signalled the end of the “Keynesian” era by disbanding the fixed exchange rates system that shaped the post-1945 economy, Margaret Thatcher was on the cusp of her third election victory, and London was awash with “yuppies” making fast money out of the stock market.
The picture of Britain’s post-crash economic settlement was clear even before the dramatic impact of Covid. To put it bluntly, the proceeds of economic growth in the UK now flow entirely to asset-owners – including homeowners. Study after study has shown that in the decade after the financial crisis, average real wages simply stopped rising – something that had never happened in two centuries of industrial capitalism.
And yet, Britain’s housing market defies all economic threats and shocks. While wages have stagnated, the average British house price is now approximately 50% higher than it was in January 2009, and in London around double. While the economic crisis of 2007-9 was accompanied by a housing crash, the first year of Covid-19 saw a boom in property prices. In 2020, London overtook Hong Kong and New York for the number of “super-luxury” properties (costing more than $10m) sold. There may be no better symbol of our new national priorities than the “Stanley Johnson clause” in the Covid travel rules announced last month, which allows visits to property overseas but not family.
The UK’s ratio of housing wealth to GDP is now above the level seen in Japan before its historic crash in 1991 – but there is no sign that policymakers wish to alter the place of housing wealth in the UK economy, or indeed its dominant imprint on our politics. George Osborne’s refusal to use fiscal policy to support the economy after 2010 meant that the UK became even more dependent on monetary policy – very low interest rates and quantitative easing – which simply allowed more money to be poured into assets, hugely enriching asset-owners at the expense of everyone else. As a way of trying to get the economy moving, this was – as Mark Blyth and Eric Lonergan put it in their book Angrynomics – like attempting to fill up your kettle by flooding your entire house.
Predictably, the chancellor Rishi Sunak’s package of measures to jumpstart the economy in the summer of 2020 included a stamp duty holiday, which further inflated the housing boom. After extending this holiday in his March budget, Sunak now faces the danger of triggering a property crash when he finally ends it. The OECD has recently joined the chorus of rightwing voices demanding that the holiday be made permanent.
Most economic commentators agree that this boom is unlikely to end well, whenever the end arrives. But very little attention has been paid to the political and social harm already done to British society by this new model of capitalism over the past decade. A closer study of the consequences of an artificially engineered housing boom might cast light on the particular deformities of our politics, and help explain a number of seemingly unrelated afflictions – from the Brexit vote to the enduring power of “culture war” provocations by Downing Street and its court press.
Consider what a bizarre model of “growth” has governed Britain since the crash – where the value of a home rises by roughly 5% every year, but the value of an hour’s work rises not at all, year after year. What does this do to us, psychologically and culturally? Capitalism’s principal source of legitimacy since 1945 has been that everyone gets some share in the spoils of its growth, even if some get much larger shares than others. This has now been abolished: those without assets (who are predominantly younger) now have no share in that growth. This helps explain the rising appeal of socialism to those born since 1980.
But it’s not clear that this economic model has bred much contentment among its apparent beneficiaries either. The substitution of house price growth for collective prosperity can engender a paranoid and resentful mentality among asset-owners, in which any vision of social change looks fanciful and even threatening. Knowing that one’s home is worth 5% more than it was a year ago may generate some inner comfort, but it doesn’t represent any commensurate improvement to quality of life, in the way that a 5% increase in income might do.
Recent research, showing that those with wealth were more likely to support Brexit, confirmed that the crude narrative of “left behind” Brexiters was inaccurate. But it also posed questions about the political psychology of property ownership in an age of wage stagnation. The study’s authors suggested that the “insurance” of housing wealth might allow for riskier political choices. What has not been adequately explained is why the apparent “winners” in our economic model have become so discontented.
One explanation is that progress and prosperity are now widely viewed as private rather than public ideals. After a decade in which austerity measures have allowed the public realm to crumble, many people believe there isn’t enough money to go around, and you must cling all the more tightly to what you already have. Those voters who famously swung from Labour to the Conservatives in 2019 in the so-called “red wall” may have felt ignored by London, seen their high streets boarded up and their public services underfunded – but many of them still had large amounts of housing equity.
This weird model of capitalism, in which houses appreciate in value but people don’t, may not have been consciously planned, but nor was it an accident. It is a consequence of an ideology of home ownership that has been essential to the Conservative party’s policy agenda since Thatcher came to power. But it has never been exploited so deliberately and divisively: this is the real innovation of Johnson’s “vote leave” government. The most extraordinary feature of Britain’s post-crash political era is that the Tories have steadily grown their share of the vote while offering very little that looks like growth or prosperity.
It’s under these distinctive economic circumstances that “cultural” factors become politically significant. The Tories have become expert at overseeing and manipulating a new sort of post-growth economy, in which there is no attempt to produce a “rising tide that lifts all boats”, and the state simply intervenes to divert money toward those voters who deserve it and away from those who do not.
A blatant moralistic opposition between the traditional home-owning family and a “woke” statue-toppling mob becomes more vivid and electorally potent in a dysfunctional economy, which feels like a zero-sum competition. Given the nature of their current coalition, one has to wonder: if the Tories had the option to end wage stagnation and deliver affordable housing, would they even take it?
Originally Appeared On: https://www.theguardian.com/commentisfree/2021/apr/26/boris-johnson-tories-economy-rising-house-prices-wages