Speculators cash in as homelessness grows

While homelessness grows and people struggle to pay exorbitant rents, rich property speculators in central London are cashing in.

There were 52,960 households in temporary accommodation in England when the figures were last updated six months ago. They include an estimated 70,000 children who have no permanent roof over their heads.

Homelessness has risen 25% over the last three years. And the official increase back in 2011 was itself the largest in nine years. Over the last year, 5,700 people were sleeping on London's streets while some our million are on council waiting lists for a home.

This does not take account of 400,000 “hidden homeless” – those who squeeze into the homes of families or friends and never make it to the council lists.

The ConDem cap on housing benefits, currently claimed by some 660,000 people, will make many more homeless in the months to come.

The right-wing free-market Institute of Economic Affairs notes that: “Runaway housing costs have become one of the most pressing issues for low-income households in the UK. House prices have doubled in real terms since the mid-1990s alone, from an already very high level. No other developed country except Australia has experienced a price explosion of such a magnitude.”

Shelter, the housing campaign, estimates that 3.6 million children in the United Kingdom live in poverty after their housing costs have been paid.

When it comes to buying, most new households are priced out of the market. But for those speculating in property, soaring prices are truly wonderful.

Yes, that will be the super rich who are buying up luxury apartments at One Hyde Park. They include British entrepreneurs, Russian and Ukrainian oligarchs, Nigerian and Arab oil billionaires.  

One tax-haven sleuth has found that five flats in London were bought for a total of more than £82 million by a group of Isle of Man companies under the name of Rose of Sharon.  Ukraine’s wealthiest man seems to have bought two flats in Hyde Park for £144 million.

Despite forking out such astronomic sums, of course, you won’t find many of the billionaires actually living at these properties. In the case of One Hyde Park, only 17 out of the 76 apartments will actually be lived in. It’s an investment and buying through a company means that the owners can avoid a lot of tax.

There is an inverse relationship between the haves and the have-nots. The higher property prices soar, the harder things are for those lower down the scale. Even middle-class professionals are finding themselves priced out of the market.  

The solution to the housing crisis lies within the problem itself. There are over 300,000 long-term vacant properties in England alone. Housing practitioners have long proposed creative ways of bringing them back into use.

Instead of property developers, land speculators and private landlords controlling the supply and price of housing, we need a housing programme that works for people.

Immediate measures are needed:

• End housing benefits cuts and phase out private landlordism
• Reduce council and housing association rents to make them affordable
• Cash for refurbishment as part of a consistent national approach
• Requisition empty and unused properties
• De-criminalise squatting
• Replace mortgage debts with payments re-negotiated according to ability to pay
• A ban on building in the Green Belt
• Improve public transport links to low price property areas
• Social ownership of land, builders/developers and the financial sector.

In short, a housing strategy designed to meet need and for ecological care rather than as a source of income or profit for developers, speculative builders, investors and landowners.

Corinna Lotz

A World to Win secretary

The mirage in Dubai

Dubai was a property dream literally built on sand and borrowed money, where the rich could enjoy the sun and watch their assets soar in value. But like so much of recent capitalism, it has proved more mirage than substance.

Dubai World, the emirate’s main holding company, has asked for a six-month debt holiday from international bond holders because this oil-free state simply doesn’t have the cash. Result? Turmoil on world stock markets has returned with a vengeance as investors consider whether Dubai’s virtual default is the beginning of another round of the global financial crisis.

This is a story about a “boom” based on debt. Sounds familiar? It ought to because it’s a microcosm of how the consumer boom in the advanced capitalist countries was financed.

In a bid to emulate its oil-rich neighbours, Dubai borrowed heavily to build up a non-oil economy based on property, trade and tourism. The estimated total debt is estimated at $80 billion, although no one knows for sure.

Hotels soared into the sky, luxury homes were built on man-made lagoon islands and no expense was spared to build a ski slope. The environmental cost of making snow in Dubai is mind boggling.

Dubai doubled in size and house prices almost quadrupled in 2002-07, since when property prices have halved. Trade and tourism has suffered because of the recession and plans for turning Dubai into a regional financial centre have come to grief in the midst of the global credit crunch.

Today the cranes stand idle as construction projects have ground to halt. Skyscrapers are empty and apparently the airport parking lot is full of cars abandoned by expatriates who have lost their shirts in the property crash.

Graham Turner, of consultancy GFC Economics, said: "It gives you a picture of the fact that credit problem persists, despite everything that's been done. Despite having oil, it's still the case that many of these countries had explosive credit growth. It's very clear that in 2010, we've got plenty more problems in store."

That’s putting it mildly Graham! The near-collapse of the financial system in 2008 was only avoided by reducing interest rates to almost zero, printing vast quantities of electronic money and building up record levels of government deficits. Far from “restoring growth”, these measures have failed to prevent unemployment from soaring, especially in the United States. Many banks, notably in Germany, are still in some difficulties and the non-performing debt still overhanging the financial system is incalculable.

The amount of new money sloshing around the system has also fuelled a stock market boom, where share prices have soared by 50%. Andrew Clare, professor of asset management at Cass Business School, said: "I just don't understand the basis for the market rally: equity prices had gone too far. Investors are underpricing all the risks that are out there, and this is just one of them. Some of those risks are going to come home to roost, and this is just the first.

"And next year they're going to have the shock of realising that interest rates can go up as well as down; and you've also got places like the UK, where taxes are going to have to go up and public spending will have to be cut – and the US, too, has some difficult decisions to make."

Behind Dubai come countries like Ireland, Ukraine and Greece with sovereign debt they may not be able to repay. The United Kingdom won’t be far behind either. Dubai’s is not the only economy built on sand, speculation and other people’s money.

Paul Feldman
Communications editor

An inspector calls

As lovers of good detective stories know, the gradual accumulation of seemingly unconnected facts unerringly, but in always surprising ways, weaken the defences of the guilty, and end in a damning conclusion. And so it is proving for the British state.

First: The High Court has ruled that British security services colluded in the unlawful detention and facilitated the interrogation of Binyam Mohamed, a UK resident detained in Pakistan six years ago. Two judges found that the foreign secretary had a duty to hand over to Binyam Mohamed's legal team secret information that could support his case that he was tortured in Pakistan and Morocco before being sent to Guantánamo Bay where he remains locked up.

Second: The Home Office has lost confidential information on every prisoner in the country and more than 40,000 serious criminals. The records had been transferred to contractors PA Consulting as a consequence of the privatization of public services. The latest data scandal follows the loss of 25 million child benefit records last year and details of millions of learner drivers and army recruits earlier this year. Whitehall departments were ordered to tighten procedures in the wake of the previous crises and the latest loss has stunned insiders. There are concerns that prisoners may have the right to demand rehousing following the unlawful disclosure of their addresses. The potential costs are incalculable.

Third: The government's official statistics on property sales in the UK have been withdrawn from publication because they appear to be wrong. Or perhaps they’re just so shocking the government fears a revolt? HM Revenue and Customs said that revisions to the previous months' figures, going back to March this year, had cast doubt on their accuracy.

Figures for July were due out, but have been postponed. "Outputs obtained whilst updating the monthly series contained some significant and unexplained differences with the statistics published last month," a statement said. "All months in the statistical series are affected, with the differences showing falls in some months and increases in others," it added. "Our statisticians have come to the conclusion that something doesn't look quite right," explained an HMRC spokeswoman.

June's figures appeared to show that property sales had fallen that month to just 77,000. That was a 45% drop from the same month last year, when 140,000 properties were sold. This chimed closely with many other figures, which show that the market has gone through a sudden slump this year because of the credit crunch. For instance, the most recent report from the Land Registry for England & Wales showed that sales in April were down by 39% over the previous 12 months. The number of mortgages approved by lenders for house purchase was down by 69% in June, according to the Bank of England.

Also shaking the foundations of the economy built on property debt recycled through the City of London, comes news that - with a devastating and worsening slump in the housing market - some finance companies are paying people to take their mortgages elsewhere. Take this together with statistics from the Council of Mortgage Lenders confirming that of the few who have been taking on new loans, the bulk of mortgage lending this year has been to people who are not, in fact, moving house. Previous figures from the CML have shown that so far in 2008, only 29% of mortgage lending has been to house buyers.

Whilst the state and the economy was suffering a collective nervous breakdown yesterday, Gordon Brown was making a surprise visit to get closer to British troops serving in Afghanistan. He may well need their support the way things are going. But comparing their performance in the mad military adventure in Afghanistan to the pampered pussycats doing their thing at the Beijing Olympics may not have been the best message he could have delivered!

Gerry Gold
Economics editor

The rich cash in

Shares in General Motors have fallen to the lowest level for over half a century, a sure sign of the deepening global recession. Just as stark in the world of fantasy finance is the one-third decline in the value attributed to Countrywide, the country’s largest mortgage lender, since it was merged with the Bank of America in January.

The indications for the UK economy are just as dire. Mortgage approvals are 56% down on a year ago, and repayment costs are spiralling. Michael Hume, an economist at Lehman Brothers investment bank, says the statistics paint a "very worrying picture of how the credit crunch is unfolding", adding that a US-style housing slump looks "increasingly likely". American banks in May repossessed twice as many homes as they did a year and prices have plummeted.

HBOS, the parent of Bank of Scotland and Halifax, Britain's largest mortgage lenders, keeps revising its estimates. It now expects British house prices to fall 9% in 2008. But Jeremy Leach, of the British Property Opportunities Fund, expects it to be more like 20%. Meanwhile the gamblers in the world of derivatives are betting that Britain's housing downturn won’t bottom out until 2011 by which time average prices will have fallen by around 30% from their peak last August.

Jeremy Leaf, of the Royal Institution of Chartered Surveyors warns: "The property industry will not be the only casualty in the fall-out from the credit crunch, with the high street and purveyors of a range of household goods, including furniture and white goods, also feeling the pinch. Construction workers such as plumbers and bricklayers will start to see employment opportunities dry up as the pace of housing transactions continues to abate."

And it’s no better in the commercial market, with warnings of falls in prime property rents in 2008/09 of 15 to 35% per cent. It’s no wonder that the world’s richest people have been selling their property investments and transferring their wealth to the emerging markets where opportunities for speculative investments can still be found. The World Wealth Report, compiled by Merrill Lynch and Capgemini, underscores how the world’s rich have managed to avoid the heavy losses that have hit the banking business and continue to reap disproportionate benefits from expansion in the global economy.

The report says that the wealth of the world’s high net worth individuals (HNWIs) increased 9.4% to $40.7 trillion (that’s 12 zeros) in 2007, adding: “The number of HNWIs in the world increased 6% in 2007 to 10.1 million, the number of ultra high net worth individuals increased by 8.8%, and for the first time in the history of the report, the average assets held by HNWIs exceeded US$4 million.”

While the obscenely rich cash in, the rest of us have nowhere else to go in this crisis of capitalism’s making. We need different solutions which point towards a society based on equality and not exploitation. Markets in land and property should be ended, joining the credit markets which have been effectively closed for almost a year. For-profit, shareholder-owned banks should be turned into mutual funds. The land should be taken over by community land trusts. Community-based not-for-profit control and participation will be needed to decide how best to use scarce resources to meet the needs of the majority.

Gerry Gold
Economics editor