Housing and inequality

Jeff Randell, while comparing Bernie Madoff and Gordon Brown, cites Hector Sants, chief executive of the FSA, who "pointed to the Prime Minister's complicity in the economic criss. He said there had been ' a prevailing mindset of Government and society prmoting the benefits of credit and asset inflation, notably in housing'".

Let us consider how housing inflation undermined the fight for equality, on which struggle New Labour based much of its legitimacy. Under Blair and Brown, the government introduced numerous taxes to pay anti-poverty initiatives such as working tax credits, sure start, etc; but in allowing house prices to rise, an ever-increasing proportion of the working poor were cut out of the housing market: first postman, policeman, nurses in London, but then teachers, doctors, engineers spreading to the south-east and then throughout the country. The explosion of the City of London meant that financiers bid up the prices of housing, as did foreign investors. Key professions qualified for new government assistance schemes (funded by taxation), which had the added effect of fuelling house inflation further. It became increasingly difficult for young people to afford to set up as a family and bring up children, which has had an effect on the birth rate amongst some sections of the population.

The trickle-down theory of wealth distribution from rich to poor failed to work here because resources like housing are fixed. We should mind if a certain proportion of people get filthy rich because they price the rest of us out of the market. Note that other pillars of liberal economic orthodoxy also fall down due to scarcity of resources: even without trade imbalances, the Free Trade system will be have to be abandoned because countries like China monopolise sources of raw materials; even those previously committed to Free Trade will be forced to secure their own commodity sources as a defensive measure.

Add to this the effects of immigration, which put downward pressure on wage levels while putting upward pressure on the price of resources, housing being the most significant, and the striving classes were faced with a double bind. Meanwhile council housing increasingly went to asylum seekers and immigrants, because on the basis of pure need (having nothing when they came to this country), as well as single mothers and other categories that were without means of supporting themselves. People prepared to work were less poor in absolute terms so they were left to fend for themselves in the private housing market.

To what extent did the Government encourage immigration simply to keep the asset-boom going? treachery for a few extra points on GDP. Ideology had something to do with it, but you can see how the anti-racism agenda legitimised a situation where immigrant labour undercut the wages of the British worker, while driving up the price of housing. Yet I have heard people on the left say that immigration is good because it provides a more competitive labour market and british workers will have to work harder. The egalitarian left had embraced social Darwinism.The business lobby liked the low wages and flexibility of immigrant labour; the externalities, British people staying on the dole or earning so little that they qualified for welfare, were paid for by the taxpayer. It wasn't the responsibility of companies to provide a living wage, that was for government. Socialist redistribution and unscrupulous business practices worked hand in hand.

The rich could afford to buy houses; the underclass got council housing, based on need rather than entitlement; the rest of us had to work much harder to afford their homes, or fall off the housing ladder. Many were priced out. The most important division between haves and have-nots was one primarily of houseowners and people who could not afford to own their home; but oddly this did not register with the government, because the have-nots in this case, being willing to work, did not aim to claim state benefits and were not beneficiaries of the redistributive measures.

The housing crisis stayed off the political agenda for long after it became obvious that this was hurting ordinary people, because the connection with immigration meant that to cite housing as a problem was tantamount to racism. Political correctness won out over natural justice. Yet poverty initiatives continued apace, poverty being something that applied to people in absolute need that could be addressed by state action. The only inequality the redistributionists cared about was the type that could benefit from state handouts provided by beneficient left-wing politicians; inequality ameliorated by individual effort left them out of the picture. The worst effects of our unequal society were felt by those who were prepared to work rather than take government handouts.

The mainstream political parties dared not challenge the City of London, so the housing bubble continued. This is stark contrast with their lack of support for manufacturing, one of the most successful activities for wealth creation and therefore employee welfare: a large manufacturing sector helps fight inequality. All three parties allowed Rover to fail and supported a deal with the Chinese, which allowed the Chinese to take the company's IPR at a knock-down price.

Yet the government encouraged the bonus culture and immigration because both increased asset prices, which gave the government a source of tax income to finance their redistributive schemes. This was a bargain between a redistributive state, the Business lobby and the various politically correct agendas, struck at the expense of the virtuous low- and middle-income worker.