Cooking The Books 1: Housing madness
A photo of a row of empty newly-built houses in Dublin was featured on page 4 of the Times’s Bricks & Mortar supplement of 14 May. According to the accompanying article, “a recent estimate suggested that there were 345,000 empty homes in Ireland”. Why? Is it because there are no people living in substandard housing in Ireland? Or because the housing problem has been solved there? Neither. It’s because there’s no market – no paying demand – for them. The people who need better housing or to move house cannot afford to pay. It’s as simple as that.
This situation arose in classic capitalist fashion. Houses like everything else under capitalism are produced to be sold with a view to profit. They are not produced simply for people to live in. A few years ago, when the capitalist economy in Ireland was expanding, there was a strong demand for new houses, which speculative builders in Ireland thought was going to continue. In any event, they felt that they rather than their rivals would benefit from the demand for houses. So they arranged for more to be built:
“This nation of builders became a nation of developers. Massive tax incentives encouraged people to invest. You’d have been a fool not to. Buy one day for €100,000 (£86,750), sell a week later for €200,000. Nobody asked if Ireland needed these buildings or whether they were being built in the right places.”
But then came the slump of 2008 (itself sparked off by overproduction of houses in relation to paying demand in the US) and the market for houses collapsed. “Too many” had been built:
“Developers can’t get rid of them, nor can some pay off the bank loans they used to build them. The banks can’t acquire them because they are worth so much less than their loans.”
Meanwhile, the other side of the Irish Sea, banks and building societies have a different problem but still arising from the fact that houses are produced for sale and not directly for people to live in. They can’t get the money to re-lend at a rate of interest that those who want to buy a house can afford.
Banks and building societies are intermediary financial institutions which make their profits by borrowing at one rate of interest and re-lending it at a higher one. They borrow money from two sources: the money market (“wholesale”) and individual depositors (“retail”).
According to the Financial Times (22/23 May) the Council of Mortgage Lenders has
“…warned that its own members – who make roughly 94 per cent of all the mortgage loans in Britain – are facing higher costs as they compete for retail deposits to replace maturing wholesale loans. This is likely to mean that rates on mortgages may have to rise even if the Bank rate remains on hold.”
The “higher costs” are the increased rate of interest they will have to offer depositors to get these to lend them money, but, if they are to make the same rate of profit, this will have to be passed on to those to whom they lend money to buy a house. But, as houses buyers may not be able to afford the higher interest, mortgage lenders are not prepared to give them loans as they wouldn’t make enough profit, with the result that, in the words of the article’s headline, the “housing market recovery shows signs of stalling”. A neat illustration of how banks cannot just create the money they lend. A neat illustration too of how capitalism is not a society geared to meeting needs.