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...or why we must not base all our assumptions about housing and how to solve our needs on Gordon Brown, Yvette Cooper and Kate Barker's diktat that "we must simply build more to supply the demand".

In last weekend's Sunday Times, Simon Jenkins in Housing crisis? What crisis? The most puffed up panic in the land hits many nails on the head:

"There is no housing crisis. There is just a housing market. There is no housing “need”, unless you are sleeping in the street. There is just housing demand and housing supply. There is also housing panic, housing lobbyists and housing stark raving madness, the last much in evidence last week.

"The news that the government wants all children to learn economics is fine but ministers should go to the head of the queue.

Most especially, he floats the idea of Land Value Tax:

Need in an open economy is demand and demand is a function of price and supply. This demand for 40,000 unavailable and affordable homes a year could vanish with a change in interest rates or a tax on underoccupancy or encouragement to students to live at home. All might be sensible policies but none is mentioned.

Get that? A "tax on underoccupancy" - that's Land Value Tax. It encourages people to consider whether remaining at their current location after their need for all the particular unique benefits of that location have gone is justified. Do you still need to be in that school catchment area once your kids have grown up? Do you really need to be within walking distance of of the rail station for your 50 minute commute to Marylebone once you've retired? All of these, things over which you have no say or influence as merely the owner of a prime location benefitting from a good school or nearby rail station feed into the land value of your property. If that land value were taxed, instead of your income for example, you might decide voluntarily that paying a relatively high tax compared with your new needs and financial circumstances for holding onto something you no longer absolutely need while others clearly do is not worth it and you can move to a lower tax area - where you'd be freer to spend your newly increased income on luxuries and "nice to haves".

And let's not underestimate the extent of underoccupancy in the UK. I actually found Jenkins' article Googling for a report from 2006 mentioned in another housing article, this time in the Observer, this weekend that claimed that:

36.4 Percentage of English houses that are under-occupied , according to a 2006 local government survey.

2.5 Percentage of English houses that are overcrowded , according to the same survey.

I would quibble with a couple of things in Jenkins' article though. First...

The assumption that every adult citizen has a “right to a decent home” that they can “afford”, courtesy of the government, must be the last hangover of postwar socialism and a brainless basis for policy.

Well, he might be right that we should not expect housing "courtesy of the government" but there must be an absolute right to somewhere to "lay your hat", derived merely from the fact that we only have this one planet on which to be born, live, work and die. And since location is a quasi monopoly, there is a role for the community as a whole, call it government if you will - though I'd prefer to take the politics out of it by making it automatic - to intervene in that natural monopoly. Else eventually, when someone else owns everything (as they already in fact do) those without ownership of land have no means of self-ownership - the ability to keep what you toil for, because the land owner can charge you what he likes for access to somewhere to base yourself in order to earn your crust. Even John Locke agreed with that.

And secondly...

Owner-occupation in the United Kingdom is now 70% of housing tenure, against 42% in Germany and roughly half in most comparable countries. The private rented sector, the most fluid and efficient form of housing, is ridiculed and persecuted with red tape, comprising a mere 12% of the market, against 23% in France and 53% in Germany.

The first part of this is trotted out with monotonous regularity - that Britain is somehow unique in high rates of home ownership. But actually we're about slap bang in the middle, sharing 69% with the US, and while France and Germany are low (but catching up, in Germany at least, partly because of government allowing a lot of flexibility in the way municipalities plan and develop increased housing) Ireland (at 77% off its peak of 80%+ a few years ago), Spain (85%), Greece (83%), Hungary (a whopping 92%), Italy (70%), Norway (77%) and so on are all ahead of us in ownership... Sweden is an interesting one, where there is only 42% home "ownership" but 40% of urban homes are in a type of mutual tenure much as some of us here want to develop in Community Land Trusts. But it's not actually terribly relevant - housing should be a cost of living, and a fairly predictable cost of living at that - not an alternative living...

...which is where my criticism of the second part of that comes in - that private rentals are efficient. This is not necessarily the case - private landlords, just like owner occupiers, are mini monopolies at the location of their "investment" so the majority of their rental income comes straight from the land values that they have done nothing to contribute to - and are, as in Oxford, actually seen as having a negative impact on. Land Value Tax would also mean that they had to consider the quality of their property, the "improvements" on the land value, because that's what their income would be based on after the tax for the location value was taken into account. Yes, private rental provides liquidity in the market but it's reaping what it does not sow.

But there are other snippets of wholesome goodness in Jenkins' article pointing towards a thoroughgoing change in the way we understand housing and policy to make best use of the land we already have:

Even so, if we can tear our eyes away from crazy headlines about London prices, the rate of house price inflation has not wildly outstripped other forms of saving. Only in the past two years (of cyclical boom) have houses caught up with the 10-times rise in equities since 1980. Terrorising the British people out of lending to the productive economy into oversupplying themselves with living space has been the stupidest thing this government has done. Then to claim a “housing shortage” is absurd.

Nor is there anything exceptional or “critical” about present housing costs. Political attention focuses on first-time buyers. For them the key figure is not the purchase price of a house, which they will probably sell long before they have paid for it, but the cost of finance. Lower interest rates have led to this plummeting. Median housing payments for first-time buyers were 16% of income in 1975, 18.4% in 1980, a savage 27% in 1990, 14% in 2000 and 16.8% last year. That is why banks will lend five times income today as against three in the 1980s.

The "Eddie George" effect - low interest rates kept us borrowing more and more against land so that we didn't go into recession in the mid-late nineties. Who pays? We all do - in artificially inflated house prices and now in higher interest rates to try to stem the flow before it becomes too inflationary - the price-earnings ratio of buying a house has been artificially ramped up because the dividend cover was so high, but now comes the crunch, and both must inevitably fall.

The housebuilders’ lobby argues that prices are high because of a shortage of developable land. There is no shortage of land any more than there is of houses. The prime minister might care to join me on a tour of Portsmouth or the Thames Gateway, of the west Midlands from Solihull to Wolverhampton, of Derbyshire and South Yorkshire from Chesterfield to Barnsley, of the Merseyside M62 corridor, of Wearside and Tyneside.

A sound planning policy would encourage all new developments towards city and town centres, expecially in the Midlands and north, for the simple reason that this uses roads, sewers, schools and shops more efficiently, discourages car use and promotes community. Urban Britain is woefully underdeveloped but this is reversible. In a matter of five years, the population of inner Liverpool has risen fivefold simply by good planning of private sector activity. It could rise another fivefold.

Exactly - we just need to encourage that land to be developed up to its optimal market use - presently housing in most places - by levying Land Value Tax so that owners again are forced to look at whether they are making the best use of their asset given the tax due on it. And establish a corporate taxation policy that encourages business to locate to underused areas - for housing is no good without work and economic activity. But again - that points to replacing Corporation Tax with Land Value Tax.

If such effort, backed by land clearance grants, were repeated across Britain, Brown’s new homes would emerge overnight.

Don't give them grants though - why do you now argue for subsidy? Just make it financially attractive to redevelop land based on the tax payable on it!

But the message is clear - we need, no must, look beyond Barker, beyond the crude supply and demand calculations and the very crude "finger in air" centralised/regional planning. Yes, we can build our way out of a crisis, for a while, but it will return one day, in another round of blighted areas (now called "Housing Pathfinder" areas) and another round of pressure points of unaffordability. The answer to all of Simon's points is, unequivocally, Land Value Tax. Until we have that, we will never, literally, have a level playing field.

Technorati Tags: affordable housing, housing, land value tax, Simon Jenkins

Sir Josiah Stamp, reckoned at the time to be the second wealthiest person in Britain, sometime Bank of England director, Chairman of the LMS railway and Liberal economist, winning a 1912 prize for an essay about taxing the "unearned increment" instead of incomes, is quoted as saying:

"Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money ."

Particularly apt this week I should say. You see, what's been happening this week should make most of us take to the streets in demonstration and revolt; if only we understood our unwitting role in the gargantuan pyramid selling fraud that's been playing out in global financial markets this last few weeks and who, ultimately, is going to pay in the fall out.

Follow the money trail...

The economy needs money to function just as we need air to breathe. The more we produce, the more money we need circulating to consume that production. That production is our collective creditworthiness - the measure of how much wealth we are all creating and swapping with each other. We trust the money that facilitates those swaps because we are told to. The green/blue/purple crinkly stuff, of which there exists less than £50 billions' worth, says on it "I promise to pay the bearer on demand the sum of..." as that most potent national icon, the monarch, smiles benignly up at us in reassurance.

So, do we have a benign national institution that keeps watch on economic activity and creates the currency to match our national creditworthiness? Do we hell. We have an Old Lady that the monarch once gave a monopoly to to create money and sell it back to him who can no longer be bothered to do the job and has subcontracted it to private banks. She keeps an eye on all the economic activity and so on, she has all the figures and tools needed to do as good a job as anyone else, but instead of actually creating money into productive circulation she lets that cartel of private bankers know how much she thinks should exist by telling them the rates of interest they should be charging for actually lending the money into circulation. They create nothing except numbers. Pixels on a computer screen that we all trust we will be able to turn into those "promises to pay" whenever we need it.

These bankers, being a conservative breed at heart, not wishing to lose their investment, look to lend to those most likely to pay them back with interest. But even making such a risk calculation based on the prospective borrower's ability to repay, they look also to take some security, something they can sell to get as much of their money back as they can if the borrower finds he can no longer repay. And what's the safest security? Safe as houses? Well, houses of course, or more particularly the land value it sits on (a house, like any other capital good depreciates and needs constant maintenance to hold its value).

There's very little, in the ordinary course of things, less likely to go south in value than land, except perhaps very small specialized bits of land like gold and other rare natural resources. Keeping those rates low makes the money borrowed more affordable. More people think they can afford it. The banks lower the interest cover they're prepared to take by increasing the multiples of income people can borrow. Still the insatiable economy needs more money circulating, so the banks, usually not the front liners with big reputations to keep, go chasing more and more marginal borrowers. The house price/land value increases make people who don't own nervous that they never will if they wait as prices rise, so the age old human natural inclination to want to "own" the place you live in takes over and you stake more than you could comfortably afford in less benign economic conditions on getting your foot on that housing ladder.

The more front liner banks are however prepared to back up this borrowing with "managed risk" packages of these loans. But when the Old Lady gets a bit nervous about inflation at the centre of this web and decides money should be more expensive and the cartel operators duly follow suit, whilst those of us with enough simply cut down on spending now to afford the higher interest payments, those of us who were only just able to afford to get on the ladder at the lower rate now find it impossible and stop paying. The image from "Life in the Freezer" comes to mind of chin-strap penguins trying to get ashore on a south Atlantic rocky crag where the unfortunates that only slightly mistime the wave scrabble about and fall back into the thrashing ocean.

The security, the house and its land value, takes a while to turn into liquid cash, the buyers of the "managed risk" packages that back up those loans see the prospect of getting the yield they expected diminishing and tighten their belts. This whole house of cards rests on every card in it honouring their obligations every night and so suddenly the Old Lady awakes, reaches over to the button that is all it takes to create credit into the system and rather than the private bankers see their stockholders losing their investment the retail debts of dubious morality they marketed and created are magically covered.

Excuses, excuses...

Of course the banks and monetary authorities give out all sorts of excuses that, because of the mystery they have created of smoke and mirrors and the awe with which we will believe the sort of people who are obviously so brilliant they merit multi-million pound a year bonuses and management fees, us mere mortals swallow out of fear of recession, slump, unemployment, meltdown...

The "sub-prime" market is made up of feckless folk who really should have known better that they really couldn't afford to borrow. They fail to explain that it is being relentlessly sold to them through aggressive marketing and in the hype that they might miss the bandwagon if they don't sacrifice now to get on the rapidly rising housing ladder, rising of course because of the amounts of money they've created over the past few years chasing the monopoly of desirable locations. Not only are these sub-prime chin-straps cast back into the tumultuous briny, but they are pulled down by the under-tow. Not only have they lost their home, and whatever credit rating they had achieved, but now they probably also owe money on something they no longer own. They are not just back at square one, but off the game board for a good long while.

The liquidity injection protects the creditworthiness of the pound in your pocket. They fail to tell you that its creditworthiness has only been compromised because the subcontractors that actually create the vast majority of it took bad investment decisions in the pursuit of ever more profit for their shareholders.

That we're all protected because we are all, or nearly all, shareholders in banks through our pension funds. They fail to tell us that the vast majority of non-housing financial assets are held by a tiny minority of the wealthiest people on the planet and that the bottom third or so of folk, including, most likely, the hapless sub-prime mortgage market, do not own any financial assets. Besides, the propensity in the UK for pension funds to hold bank shares comes at least in part because through all the special privileges involved in creating our money stock out of nothing and the protectionism in having a sugar daddy in the form of a lender of last resort that will ensure the whole thing doesn't go down the tubes they are usually a pretty dependable investment.

That we need to prevent a run on equity markets becoming a rout. Of course they tend not to point out that the underlying business prospects of the companies facing huge write-downs in their values because of the "dash to cash" to shore up the credit markets have usually not changed. That these values are being slashed by large volume gamblers for whom the shares in those companies are little more than poker chips to buy and sell, swap into other assets and so on in technical trading, game theory scenarios and arbitraging between all but unrelated markets.

And that, dear reader, is why the collective noun for bankers is "wunch".

A call to arms...

This kind of money system, based on debt and causing the very asset price bubble that brings about its own collapse is first and foremost unsustainable. Every time there's an expansion it's the big players, those on the inside of that smoke and mirror fraternity, that gain by skimming off the cream from their ever increasingly precarious plate spinning, and those on the outside, with everything to lose, who get dumped on. And our governments collude in this iniquity.

If it weren't for this last fact, that it's always the little man that loses in this, I'd be hoping and praying this weekend that the whole house of cards does collapse this time and we are forced to find a different way to monetize our national creditworthiness for the future without creating these artificial asset bubbles and mountains of debt.

Yet there are a couple of ways to use the current turbulence to effect far-reaching changes so that our money system becomes more stable. Depending largely on whether you view the world from the market or the state point of view:

We could on the one hand break the link between the state and the real creators of credit, the commercial banks, by refusing to be the lender of last resort, by completely privatising currency so that what and whose money we use and trust most will be down to which of the commercial banks are best managed. Instead of Dollars and Yen, Pounds and Euro we might use Barcs or Honkers, BOSses, AirMiles or CitiCash right around the globe. Those with a favour for market solutions would point out that this removes the state protectionism, removes trade tariffs (by abolishing national currencies in favour of competing, global, commercial currencies) and crucially does not involve anything that could be connected to government.

On the other hand, for those of a more statist constitution, or perhaps just too timid to sever the ties between crown and the "coin of the realm", there's another possibility - the C H Douglas style national credit authority. Controlled by statute rather than by government, such a body would do as the Bank of England does now in monitoring economic indicators and deciding whether there should be more or less money in the system to cope with the economic climate. But instead of subcontracting the power of new money creation to a cartel of commercial interests, they would create all new money and be the lender of first resort to a banking system reduced to brokering loans between people who have cash to invest and people who need that investment. The national credit authority makes a profit as it does so on the lending of newly created money that costs it little or nothing to produce that can then go to its shareholders - the people of Britain, as a dividend, or our representative, the government, as money to spend.

And we could begin to make this latter change right now, with no legislation needed and no expenditure required. Instead of buying back all the liquidity central bankers have put into the system these past few days when markets stabilize, they could just increase the reserve requirements by the same amount, forcing the commercial banks to keep the debt-free money and restricting the new debt-money they can create on the back of it. Over time this reserve requirement could be increased until the majority of money is created by the national credit authority in response to economic growth needs.

But in order for there to be a will for such a thing to happen, people need to understand how skewed towards those who already wield wealth and power the current protectionist system is, and who loses...us. Nearly all of us. So why aren't we marching? We aren't even daring to discuss it. We're accepting that the situation financial markets are in today is because of feckless borrowers wanting to better themselves beyond their means. And that we all have to take a bit of pain for the irresponsibilities of our fellow borrowers.

And THAT, dear reader, is also why the collective noun for bankers is "wunch".

Technorati Tags: credit crunch, debt money, fiat money, monetary reform

So, last night saw the first meeting of the "editorial board" of a new project initially being sponsored by Lib Dems ALTER , the party's only affiliated group focussing solely on radical economic issues, to publish a book of essays, in a similar vein to "The Orange Book" or "Re-inventing the State". We will set out the case that the "Liberal Economic Tradition " holds the key to the permanent eradication of poverty and the freedom to chose one's own path through life.

We hope to publish in time for the end of August this year, which will be the 100th anniversary of the passage through parliament of the Liberal Government's Old Age Pensions Act in 1908, a key landmark in the development of the modern welfare state, and a few weeks after the 60th birthday of the NHS, conceived by Liberal economist, William Beveridge.

It will truly take Liberal Democrats "out of their comfort zone", for many at least, by arguing that much of what we now have, a "state of welfare", started as a set essentially temporary fix-its intended to alleviate the worst poverty while the entrenched privilege caused by state protected monopolies was dismantled through such radical change as land reform and tariff reduction leading to truly free trade. It will promote the idea that this "unfinished business" is just as relevant and important for today's world, paving the way for what banker and author Bernard Lietaer has called "sustainable abundance".

Over the next few weeks we will firm up the range of topics and start looking for people who may wish to contribute an article in each area, hopefully mostly, and perhaps exclusively, from within the Liberal Democrats themselves. We would like it to be a truly collaborative effort with contributions not just from the "great and the good" within the party, but from the many grass-roots members who we believe share some of these ideas .

So, if any of you are interested in contributing something, do please get in touch with your ideas, or a subject area you would be interested in writing about. From time to time I'll keep people up to date on here, but we're also likely to create a "Liberal Alternative" website where we can co-ordinate the effort.

Remind me again, was it not Frankenstein's monster that was brought to life with jolts of electricity? So, is giving Cardinal O'Brien a pacemaker not "an unprecedented attack on the sanctity and dignity of human life" after all...

BBC NEWS | Scotland | Cardinal O'Brien gets pacemaker:

The leader of the Roman Catholic Church in Scotland has had a pacemaker fitted following recent heart problems. Cardinal Keith O'Brien was fitted with the device under local anaesthetic at Edinburgh Royal Infirmary. The 70-year-old, who suffers from a heart murmur, had experienced dizzy spells in recent weeks and fainted prior to Palm Sunday mass.

On Friday he will attend a public meeting to campaign against the government's Fertilisation and Embryology Bill. At his Easter Sunday mass the cardinal accused Prime Minister Gordon Brown of "an unprecedented attack on the sanctity and dignity of human life", and warned the research could lead to experiments of "Frankenstein proportions".