Monday, 7 April 2014

The return of a feudal society?

Although it may not be obvious yet, campaign season is starting in the run up to the next general election.  We are an increasingly unequal society and 2015 will be a crucial opportunity for us to make a choice about the kind of country we want to develop for ourselves and our children.  So before the manifestos are launched amidst much fanfare and the political mudslinging starts, let's focus on a few of the issues that really matter to people.  Property ownership to property owners is a source of great pride and often a sense of smugness at how smart they were to "invest" in property as if those who don't have a choice.  To those on the outside looking in despite being in good so-called middle class jobs, property ownership can be a source of frustration and insecurity.

Only 1 in 10 homeowners in the UK is under the age of 35, the average age of a first time buyer is now 30 and in the last decade the percentage of people owning their own homes has decreased for the first time since 1918.  More people rent than own in London.  Perhaps even more tellingly the average age of a person making their second house purchase, more likely to be a family home, is 42.  The reasons for this are complex and differ by region.  The social consequences are also important.   Is it purely a coincidence that the age when people are starting a family is rising when the age when people have security over their living arrangements is also rising?

In London there is a global market where UK residents are competing with international investors to purchase property.  With research stating that 75% of new build properties in inner London are sold to foreigners, this is clearly having a  massive effect on price inflation and demand.  So what is the answer?  Banning foreign investment?  As the causes are complex so the solution must be.  A complete ban on foreign investment would be seen as isolationist and could provoke reciprocal bans in other nations.   However, we could designate certain properties as only for purchase by owner occupiers.  This would not restrict ownership to British people but a purchaser would need to be able to evidence a right to reside in the UK to be able to purchase.

Even with this release of supply, it isn't clear that house prices would fall in London.  More likely prices would rise more slowly.   Nationally, the problem could be said to be more one of supply than demand.  Here the potential solution is to build more new homes and it likely that both political parties will make commitments on house building in their manifestos. It is estimated that we need to build around 250,000 new homes per year nationally and currently we build around half this amount.  New homes though, won't address the fact the we use our housing stock inefficiently, around 50% of owned-homes are under occupied - that's 15 million bedrooms!  There are schemes to address this, for example, the rent a room scheme that provides tax breaks. However, the thresholds haven't been revisited since 1997 when rents have risen over 100%.  Under-occupation has also recently been the focus of welfare changes - the spare bedroom subsidy or the bedroom tax depending on your political persuasion.   Under-occupation also causes other problems, for example, increased energy consumption and bigger carbon footprints.  It isn't clear whether when we're building new housing stock,  it is of the right type.  Do we need 1 bedroom flats or 4 bedroom houses?

So if we built more and more of the right type of stock,  if we put some restrictions on the sale of some properties so that they could only be purchased by owner occupiers with a right to live in the UK and if we increased the tax breaks available to those who rent a room, would we solve the problem?  In my view - no.  The reality is that since the post-war building programmes of the 1950s and 1960s we have not built anywhere near enough houses.  I lack faith that any political party has enough control over all the various players, from landowners, to building companies, to planning committees, to NIMBYS, to actually succeed in building what is needed.  Also, even if they did build enough supply, there are still big problems of social segregation.   Planning requirements for any development to include an amount of affordable housing only lasts one purchase I.e. as soon as the initial sale has been made, market forces weigh in and properties rise in value.  Some developers manage to avoid "polluting" their luxury developments with affordable housing by building the affordable stock in a different location.  Likewise shared ownership schemes have not taken off in a big way and are complex to administer.

Further laws are needed to achieve genuinely affordable housing in the long term.  First, affordable housing should constitute a percentage of the actual development. Not built somewhere else.  Not in a separate cul de sac with a separate entrance.  We're talking complete parity  with the "unaffordable" housing (for want of a better phrase!) other than as to space or size of plot or fanciness of building material.  Second,  if you purchase affordable housing, you should only be able to sell it for x percent more than you bought it for.  "X" should be based on RPI or wage inflation not house price inflation.   Finally, I think we need to go further and provide that all private developments should have a certain percentage of social housing, meaning housing owned by a local authority or a housing association which will be provided for rent at an affordable rate.  Perhaps controversially,  I don't think there should be a right to buy these houses.  We have surely learnt the lessons of depleting social housing stock through right to buy.  For the medium term, newly built social housing should not be subject to right to buy until we reach a tipping point where there is enough housing for those on social housing registers.   As an additional condition, social housing stock built by private builders should be sold to local authorities or housing associations at cost price meaning not for a profit, similar to s. 106 requirements where builders have to set aside money for the benefit of the community.

Ok. So if we did all of this, would we have long term affordable housing stock?  Possibly.   However, a big issue facing those trying to get on the ladder without help from rich relatives is saving for a deopsit - and yes, if mum or dad can lend you £20,000 for a deposit without hardship,  they're rich!    People can't save for a deposit due to pervasive unemployment amongst under 25s, low wages for the employed and high private rents with even higher and sometimes punitive administration fees charged by landlords and estate agents that are not helped by short tenancy periods - tenancies typically do not extend beyond 12 months. 
Some people have talked of rent control as a solution. But as far as I can tell rent control has never really worked.  People have found ways around it or a black market has been created in controlled properties.   However,  prescribing the maximum administration fee that can be charged for a tenancy agreement could be done.  So could extending the concept of assured tenancies so they could last up to 36 months with clauses in there to link rental increases to wage inflation or RPI.  There could also be a government kitemark scheme for ethical landlords so customers can make more informed choices about their landlord - often you go into a tenancy blind as to whether the landlord is ever going to fix anything or will hike your rent by 15% in a year's time.  Dampening down the profitability of the rental sector will also have an impact on supply and demand.  Whereas we used to be a nation of shopkeepers we now seem to be a nation of landlords as no other asset class has delivered the security and returns of property so now many pension pots are invested in bricks and mortar.

Although this blog is quite long, it is actually a relatively quick canter through the various issues and potential solutions.  And maybe this is the biggest problem of all... solving the housing crisis can't be reducd to a sound bite. One line in a manifesto. A catchy campaign poster. This is gnarly, meaty issue and to date no political party has done more than scratch the surface of the causes, let alone hit on solutions that are likely to change things.  Again, here may be another problem - is there really an appetite to change things?  When the vast majority of voters are over the age of 50 and the property weath of the over 50s equates to almost 70% of the property wealth of the country, does this group really want to see property values rise more slowly or even stagnate?  Not everyone votes selfishly but still, if a political party promised that house prices would grow more slowly would they really get voted in to power?  People say they want affordable homes, but without massive wage increases (which are not on the horizon), the only way to make homes more affordable is to slow house price inflation.   Maybe this pill is just too bitter to swallow so the political parties will continue to pay lip service to the issue.  They'll commit to building lots and lots of homes without control of the supply chain to make that happen and in 10 years time, we'll see further decreases in overall home ownership and an expanding and profitable rental sector, with sharks of estate agents charging huge administration fees for short tenancies. 

We'll have created a new feudal system.  Not one based on aristocratic wealth but one still based on property.  There will be the landowners and the "others".  With the landowners able to assist their offspring into landownership.  The most disturbing part of the housing crisis is not just that people can't buy a home and have a secure roof over their heads, it is the social segregation created by the "affordable" vs "unaffordable" housing in new developments.  It is the huge drag on social mobility that property ownership is becoming and will increasingly become.

Jo

Sunday, 17 October 2010

Why feminists should oppose the EU's plans to increase maternity rights...

At my previous employer despite around 60% of new hires being women only 15% of management had the biological characteristics necessary to bear children.  These figures haven't changed for years and are thoroughly demoralising when you are an ambitious young female professional.  But, not only do women stay in the junior ranks of employment, the pay-gap between women and men still sits between 16% and 27% depending on age, so some women are earning three-quarters of what an 'equivalent' man earns.  Why hasn't this improved? Worryingly, the changes to these figures seem to be stabilising.

Rather than making it easier and increasing the cultural pressure on women to be the primary carers for their children and relatives by increasing maternity pay from 14 to 20 weeks, business should be required to increase the minimum wage and increase paternity leave rights.  64% of the lowest paid workers are women.  Increasing the minimum wage would do wonders for the number of families and children living in poverty.  Furthermore, spending the money improving paternity leave rights would stop there being an incentive for a woman to take a career break.  Would stop the inherent bias faced by women in the workplace every day as employers view you as a child-making time-bomb.  Couples would then have complete freedom to choose which parent took primary responsibility for childcare.

Every time there is a change which requires business to spend more money on their employees they protest that they can't afford it.  At the moment with cuts to the public sector and the government's need for the private sector to pick up the slack, business groups know that they have George Osborne's ear.  But now is the time to think radically on women's rights and fairness to families.  It is time to give men paid leave to stay at home with their children.  Perhaps rather than a transferable tax allowance, transferable statutory childcare leave (note the gender neutral tone) should be considered?

Without these changes our daughters and granddaughters will continue to go to work and earn less than their male counterparts whilst looking wistfully at the distant glass ceiling...

The calm before the storm...

Whilst most of the country is probably far more interested in finding out who gets voted off the X-Factor on Sunday night, the world of politics seems eerily calm.  Three days before the welfare state and the public sector will undoubtedly be massacred by the Tories there are no further government leaks about where the axe will fall.

With NHS funding ringfenced other departments will be cut deeper...but hold on a second, has Georgie Porgie reneged on his promise to ringfence health?  In the Guardian yesterday he says "we will work hard to protect it" wich does seem to be a lot less committal than: "We will guarantee that health spending increases in real terms in each year of the Parliament, while recognising the impact this decision will have on other departments." which was written into the Coalition's programme for goverment.  If you were waiting for an operation and your NHS doctor said he guaranteed you would be fine, you would be a lot more positive than if he said he would "work hard".

Perhaps this about turn on the NHS is because the Coalition have, effectively, had to protect defence spending ever since Hilary Clinton waded into the debate on budget cuts.  Hilary evidently thinks it is more important to fund the £35 billion, yes that's right, 35 BILLION POUND overspend in defence projects, which, to be frank, shows utter contempt for the budgeting process between government departments, than to fund health care.  Why is anyone surprised?  Obama is being called a Marxist by the Tea Party movement in the US as a result of his Health Care Bill.  Apparently, for the Repblican party, being a good Christian means making sure that people who can afford insurance get healthcare.  The same privileges shouldn't be provided to the poor and vulnerable in society.

No department shoud be reingfenced from spending cuts.  Every department should be subject to an efficiency review.  However, there are some departments where cutting services to save money doesn't make sense and the NHS is one of those departments.  But, I digress...Aidan to win X-Factor!!

Tuesday, 5 October 2010

The Tory conference - Boris strikes first

As the Tory party conference heads into its final day it will be remembered not for what was said at conference but rather for what Boris wrote in his Telegraph column and what George Osborne let slip to BBC breakfast news.  Boris' timing, as usual, was impeccable - he is a permanent thorn in Dave's side.  I doubt anyone in the Tory party was given prior warning of his column and without drastic action by Georgie-Porgie he would have stolen the headlines for the whole day....

Boris' call for strike ballots to require a minimum participation level of 50% in order to be valid seems, initially, to have merit.  Why should the minority of a union be allowed to hold the whole of London to ransom?  But Boris is on slightly less stable ground when you consider that a minority of the London electorate managed to inflict Boris on the entire city - voter turnout at the mayoral elections was around 45%.  The CBI unsurprisingly share Boris' view on minimum voter turnout for strike action but with a slightly lower threshold of 40% turnout.  The CBI is "the voice of business"  so they will be familiar with the thresholds for turnout imposed for corporate governance at shareholder meetings in the UK... none!

The right to withdraw labour should not be restricted.  Those who vote should determine whether strike action is authorised not those who are apathetic.  This is how democracy has operated in this country for years. Yes, that means that the life of the average Londoner will likely be disrupted pretty frequently over the next few years as the ConDem cuts are effected but the test of whether strike action is successful is public sentiment during and after the strike.

Tube strikes are so regular in London they are no longer that disruptive.  Every self-respecting inner-Londoner will be able to tell you at least three or four other routes they can use to get from work to home when the tube isn't running.  The strikes are unpopular because it is also increasingly difficult these days to understand what the strike action is really over and the union leadership seem unable to clarify the issues.  Bob Crow leaves you with the impression that he'd be more comfortable head-butting Boris than engaging in reasoned debate. 

To achieve real change and exert real pressure union action must have public-support and if Red Ed wouldn't even publicly support the strike things can't be good.  The union leadership should be mindful that strikes to obtain payrises are not going to go down well in the current economic environment and that they should pick their battles.  The unions have a role to play in ensuring that any public sector cuts are well thought through by government, are as small as possible and meted out in a fair way. 

A little charm goes a long way in today's 24-hour media society  a skill that is evidently beyond every union leader interviewed on TV.  Rather than pay Bob Crow £120,000+ the unions should club together and employ Alistair Darling or Peter Mandelson.  It may seem fickle but today's union fights are played out in the papers and both Alistair and Peter are able to lead the press core a merry dance with as much skill as the pied piper of Hamlin and with the flair of Gavin Henson dancing a waltz!

Saturday, 2 October 2010

Enough humility time for some ideas!

The road to recovery for the Labour party is going to be a rocky one particularly because the Tories seem to have really done their homework during all those years in opposition.  Gone are the days of stuffy old toffs whose main aim in life is to maintain the status quo.  On the eve of the Tory party conference I find myself genuinely interested in the ideas they have for social and economic reform.  Ian Duncan Smith's welfare plan is bold and radical in its thinking and for once the aim does not seem to be purely cutting benefits.  Rather than patronising those who are often trapped into poverty and moralising over how they are lazy and should get back to work, IDS has clearly researched the reasons why people are on benefits and the reasons that they stay on them. 

True capitalist socialism is not about blindly defending large benefit payouts it's about creating a culture of social mobility where your socio-economic status at birth does not determine your socio-economic status for life.  It's about creating jobs and ensuring those jobs pay a living wage.  The Tories are managing to lead the debate in this area - I feel like I'm in some surreal parallel universe!

Ed needs to stop talking about how the cuts don't need to happen, stop talking about a war that is now over and stop talking about humility.  Labour lost and no-one cares.  People will only start caring again when they start being inspired by Labour's ideas. Time for all those career politicians to step up and justify their existence, show some innovation and show some leadership.  Enough humility - start the fight back!

Next ... views on the Tory conference from Brum.

Friday, 1 October 2010

Are computer programs responsible for corporate governance? And why certain investors shouldn't be allowed to own public companies.

When taking a very occasional break from banker-bashing the newspapers have focused on institutional shareholders as playing a supporting role in the financial crisis.  Institutional shareholders, often pension funds, are significant investors in public companies.  Shareholders are, utlimately, responsible for appointments to the board of directors and therefore, indirectly responsible for how a company is run.  So why didn't shareholders intervene in the run up to the financial crisis when boards of banks were taking massive risks and paying even bigger bonuses?  The answer may be lurking in a slightly geeky story on the cause of a mini-stock market crash on one day in May....

In May of this year the Dow Jones dropped 700 points in one day, losing 10% of its value.  The SEC, the american regulatory equivalent of the FSA, have determined that this loss was due to one trader's algorithm.  Algorithms are computer programs based on mathematical formulae.  Their purpose is to spot inefficiencies in the market and exploit them which, in layman's terms, means identify shares that are being undervalued in some way, maybe even by a matter of pennies or cents, and then buy them in large volume.  Then, when the market corrects itself (or, in layman's terms everyone else spots the inefficiency and buys the stock thereby increasing demand, increasing the price and rectifying the inefficiency), the program initiates a sale for a profit.

These types of trading programs are commonly used by investment banks and are often highly complex.  They are devised and operated by a particular type of maths geek known as a quantitative analyst or quant. If one quant can cause the Dow to drop 10% in a day, selling over $4 billion of shares in 20 minutes, how many other shares out there are owned essentially by computer programs? 

No wonder corporate governance by shareholders was slack when some of these shares change hands many times a day with each owner only in it for a short-term gain.  Maybe the best financial reform would be to divide the share classes of companies in the same way as hedge funds - yes, I'm saying that hedge funds may be doing something right.  Some hedge funds divide their share classes into ordinary shares - which have voting rights - and preference shares - which have no voting rights.  The ordinary shares are often owned by the manager of the hedge fund who is interested in the long term success of the fund.  Investors who want to make a buck buy preference shares and have no control over how the fund is run, as they have no voting rights, but pay their money and get their returns.

Why don't we restrict the ownership of ordinary (voting) shares in public companies to pension funds and other long-term investors and ban bank and hedge fund proprietary traders from owning these shares?  Companies should also be allowed to issue preference shares which give their owners a right to a return but no voting rights.  Proprietary traders would be allowed to buy these shares.

This would mean that shareholders who are interested in the long-term health of the company have the power to make decisions about the long-term future of the company as their percentage shareholding of voting shares would not be diluted by shares owned by computer programs and other quick-buck investors.  Long-term shareholders will make better decisions about how appropriate board compensation is, whether the risk profile of the company is acceptable, whether mergers or acquisitions are good for the long term health of the company. 

Directors compensation, which is often linked to share price,  should then for all public companies be linked only to the share price of ordinary shares as only then will an increase in value be a reflection of good long-term growth prospects rather than the answer spat out by some spotty nerds six-screened computer.

Wednesday, 29 September 2010

Would an unmarried prime minister offend our national sensibilities?

David Milliband's retreating to the backbenches under the guise of giving Ed space and family reasons.  Yawn!  David obviously thinks Ed's policies are completely bonkers, will take the party back to the 1980s (no wonder Neil Kinnock's endorsing Ed at every possible opportunity) and will ultimately make Labour unelectable.  At least by distancing himself from the shadow administration, when the proverbial brown stuff hits the fan (which will be 7 May 2015) he'll be able to mount a credible leadership challenge.  Milliband the Elder - the party's knight in shining armour - played by a thoughtful yet dashing Jude Law (after the movie rights to his memoirs are sold).

The more interesting Milliband story of the day is that the press have started asking Milliband the Younger when he's going to make an honest women of the mother of his child (soon to be children).  Is the British electorate ready to elect cohabitants to Number 10? Why do we still perceive non-marital relationships to be less stable than marital relationships?  The divorce rate is falling and is currently around 11%, which seems pretty low but there are no comparable statistics for unmarried couples who live in a committed relationship for a period of time and then part ways, so no objective test is possible.  It seems though that Britain is nostalgic for a way of life centred around family and community.  We want to have an aspirational leader - someone who lives the life we want to lead.  Someone who seems to have it all figured out - not someone who seems indecisive and flighty.

Like a Jerry Springer story unfolding, we've also heard how Ed isn't named on the birth certificate of his child.  Watch this space for the call from the cheap seats for a DNA test.  Perhaps next week in OK magazine we'll hear Ms Thornton's reasons for not naming Ed as her child's father whilst wearing a contemporary yet unrevealing outfit from Next...