Friday, July 11, 2008

Policies for the crisis – housing

The worsening recession is taking an increasing toll on jobs, mortgages and home ownership, and threatens to bring down the entire banking system at the same time. Housebuilders are laying off workers, mortgages are virtually unobtainable while many owner-occupiers cannot afford to maintain payments and face the prospect of repossession.

Mark Clare, chief executive of Barratt Developments, one of Britain’s biggest housebuliders, says the company will lay off 1,200people out of its 6,700 employees. Yesterday, he warned that job cuts across the industry could reach 60,000 out of 300,000 people employed in the sector. The 20% fall in building jobs is only part of the story as it does not take into account the secondary effect on the supply chain, comprising manufacturers and suppliers of kitchens, solicitors, mortgage advisers, and estate agents.

Add in a free-fall in house prices – they are predicted to slump by up to a third – and you can see why the disintegration of the entire British banking system is gathering speed. The banks are loaded with bad debt, the result of playing fast and loose with the global financial system and giving mortgages to anyone who asked, irrespective of whether they could make the payments. Now the banks are finding it virtually impossible to raise new capital to shore up their balance sheets and are staring at the abyss. In the US, shares in major mortgage holders Freddie Mac and Fannie Mae have slumped to their lowest level since 1991. They hold a half of all American mortgages.

As the onset of recession turns to slump on a scale unprecedented in history, some are invoking the ghost of Lord John Maynard Keynes, who among other things advocated the printing of money by governments to stimulate growth. They despondently call for a unified approach by the world’s governments and central banks to reflate the economy by reducing interest rates, reintroduce controls on capital movements and "rebalance" the relation between capital and labour.

This is simply not going to happen under conditions of a fully globalised economy and financial system, which operates to a great extent outside of the control of central banks and governments. Just witness the paralysis at this week’s G8 in Japan for verification. The Bank of England’s Monetary Policy Committee yesterday ignored the frustrated Keynesians, and sat on its hands, unable to raise interest rates for fear of worsening the recession, or lower them for fear of accelerating the prices spiral. No solution can be found that won’t worsen the already desperate state of the economy.

Fortunately, the citizens of the United Kingdom include many millions who have lived their lives following different objectives. Those who have worked in the NHS, in education, in the social services, even the BBC, and, before they were privatised, the railways, buses, electricity, gas, post and telecommunications - and the rest of us who have used their services are aware that things can be organised differently to meet needs rather than make profits for shareholders.

It is to those millions to whom these policies are addressed, both individually, through their communities and the many campaigning organisations including unions, to which they belong.

* No-one should lose their home through mortgage payment default.

* Housing should be built and used to satisfy need rather than as a source of income or profit for developers, speculative builders, investors and landowners.

* Development land including crown and church holdings should come under the control of Community Land Trusts.

* The funds of all mortgage lenders should be transferred to existing or new mutual organisations under the democratic control of committees elected by and accountable to savers and borrowers.

* The titles to all mortgaged properties should be transferred to local authorities or housing assocations and placed under the control of committees including occupants’ elected representatives.

* All mortgage debt should be cancelled and renegotiated as either affordable rents or repayments determined by the cost of new building and the ability to pay.

In the meantime, we should campaign for a collective refusal to pay what amounts to mortgage debt blackmail. It’s time to turn the tables on those responsible for the credit crunch by crunching back.

Gerry Gold
Economics editor

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