I14 years ago, in the summer of 2007, the first signs of the global financial crisis appeared: the liquidation of two hedge funds heavily invested in mortgage-backed securities and the onset of the collapse of Northern Rock. This is more than enough time for a new business model to take shape. After all, 14 years after Richard Nixon signaled the end of the “Keynesian” era by dissolving the fixed exchange rate system that shaped the post-1945 economy, Margaret Thatcher was on the cusp of her third. election victory, and London was inundated with “yuppies” making fast money on the stock market.
The picture of Britain’s economic settlement after the crash was clear even before the dramatic impact of Covid. To put it bluntly, the proceeds of economic growth in the UK are now going entirely to asset owners – including owners. Study after study has shown that in the decade following the financial crisis, average real wages simply stopped rising – something that had never happened in two centuries of industrial capitalism.
And yet the UK housing market defies all threats and economic shocks. While wages stagnate, the UK average house price is now about 50% higher than it was in January 2009, and in London about double. While the economic crisis of 2007-2009 was accompanied by a real estate crash, the first year of Covid-19 saw a soaring real estate prices. In 2020, London topped Hong Kong and New York in the number of “super-luxury” properties (costing over $ 10 million) sold. There is perhaps no better symbol of our new national priorities than the ‘Stanley Johnson clause’ in the Covid travel rules announced last month, which allows visits abroad but not with family.
The ratio of housing wealth to GDP in the United Kingdom is now above the level seen in Japan before its historic crash in 1991 – but there is no indication that policymakers want to change the place of real estate in the UK economy, or even its dominant imprint on our politics. George Osborne’s refusal to use fiscal policy to support the economy after 2010 means the UK has become even more dependent on monetary policy – very low interest rates and quantitative easing – which has simply made it possible to inject more money into assets, making asset owners hugely richer at everyone’s expense. To try and get the economy moving, it was – as Mark Blyth and Eric Lonergan said in their book Angrynomics – like trying to fill your kettle by flooding your entire house.
As might be expected, Chancellor Rishi Sunak’s package of measures to revive the economy in the summer of 2020 included a stamp duty holiday, which further inflated the housing boom. After extending the vacation in his March budget, Sunak now faces the danger of triggering a real estate crash when he finally ends it. The OECD recently joined the chorus of right voice requiring that the vacation be permanent.
Most economic commentators agree that this boom is unlikely to end well, whenever the end comes. But very little attention has been paid to the political and social damage already done to British society by this new model of capitalism over the past decade. Further study of the consequences of an artificial housing boom could shed light on particular deformities in our politics and help explain a number of seemingly unrelated afflictions – from the Brexit vote to the enduring power of ‘war provocations’. cultural ”by Downing Street and its legal press.
Consider what a bizarre pattern of “growth” has ruled Britain since the crash – where the value of a house increases by around 5% every year, but the value of an hour of labor does not increase at all, year after year. What does this do to us, psychologically and culturally? The main source of legitimacy for capitalism since 1945 is that everyone some share the spoils of its growth, even if some get much larger shares than others. This has now been abolished: those who have no assets (who are mostly younger) no longer participate in this growth. This helps explain the growing appeal of socialism to people born since 1980.
But it is also not clear that this business model aroused much contentment among its apparent beneficiaries. Substituting housing price growth for collective prosperity can breed a paranoid and resentful mentality among asset owners, in which any vision of social change seems fanciful and even threatening. Knowing that your home is worth 5% more than a year ago may generate some indoor comfort, but it does not represent a commensurate improvement in quality of life, as a 5% increase in income would.
Recent research showing that those who have wealth were more likely to support Brexit, confirmed that the crude narrative of ‘left behind’ Brexiters was inaccurate. But she also asked questions about the political psychology of real estate ownership in an era of wage stagnation. The authors of the study suggested that “insurance” of real estate could allow riskier policy choices. What has not been sufficiently explained is why the apparent “winners” of our business model have become so unhappy.
One explanation is that progress and prosperity are now widely seen as private rather than public ideals. After a decade in which austerity measures have allowed the public domain to crumble, many people think there is not enough money for everyone, and you need to hold on even harder closely to what you already have. Voters who switched from Labor to Tories in 2019 in the so-called ‘red wall’ may have felt ignored by London, saw their main streets surrounded and their public services underfunded – but many of them they still had large amounts of housing. equity.
This odd model of capitalism, in which houses rise in value but people don’t, may not have been consciously planned, but it was also no accident. It is a consequence of a homeownership ideology that has been central to the Conservative Party’s political agenda since Thatcher came to power. But it has never been exploited so deliberately and in such a divisive way: it is the real innovation of Johnson’s “vote holiday” government. The most extraordinary feature of the post-crash British political era is that the Tories have steadily increased their share of the vote while delivering very little that looks like growth or prosperity.
It is in these particular economic circumstances that “cultural” factors become politically significant. Conservatives have become experts in overseeing and manipulating a new kind of post-growth economy, in which there is no attempt to produce a “rising tide that lifts all boats”, and the state is simply stepping in to divert the money to the voters who deserve it. and away from those who don’t.
A blatant moralistic opposition between the traditional owner family and an “awakened” crowd that knocks down statues becomes more vivid and electorally powerful in a dysfunctional economy, which resembles zero-sum competition. Given the nature of their current coalition, one has to ask: If the Conservatives had the ability to end wage stagnation and provide affordable housing, would they even take it?