When bosses of house building companies receive hundred million pound bonuses to perform a basic commercial role you know something has gone badly wrong with our economics and also with our governance. When they can’t provide quality products or decent customer service you also realize that something has gone badly wrong with their business model.
Government subsidies like ‘Help to Buy’ have gone straight from the bank accounts of home buyers into the pockets of homebuilders whilst keeping house prices artificially high. Designer and CEO of Open Systems Lab, Alistair Parvin and engineer and home buyer, Paul Smith joined with Renegade Inc. to help people navigate this new build house financial racket.
Help towards chaos
Paul Smith is a ‘Help to Buy’ new build home owner. His terrible experiences at the hands of developers are indicative of the kind of problems encountered by many other UK home owners:
“Right from day one, we’ve had everything from the usual snags through to larger, major defects”, says Smith. I have a chimney that appears to have mortar falling out of it that sits conveniently over my neighbor’s back door. It has never once been structurally investigated up close. I also have [significant] drainage problems, subsided pipes underneath my floors and drains that are violating building regulations in both the front and the rear gardens.”
Smith says that the issues he faces are compounded by similar problems experienced by his neighbours, resulting in everything from cupboard doors and toilet seats falling off, up to more serious problems such as the lack of working drainage. In relation to the latter, Smith and his family have had to abandon the house. “It’s been a mental, physical and financial hell”, exclaims Smith, who adds:
“I’ve had to fight this with legal teams. I’ve had to uncover and use my engineering background to determine that what appears to be a mundane problem, actually goes a lot deeper. This is like an onion, peeling layers upon layers of problems to find more problems.
How can I be living in a house without building regulations or building controls agreeing that the house is build worthy or fit for habitation? I don’t know how that can happen.
The notion that members of the public who use government subsidies to buy a home only to learn subsequently that the said homes are unfit for human habitation, is a major scandal. Smith raised the above issues with the house builder but ultimately his concerns were met with deaf ears:
“In the beginning they were cooperative. They were appearing to be supportive. But as you find the more deep rooted problems and look deeper and deeper, they tend to step away and don’t want to get involved.
Their preferred ‘solution’ is a quick fix:
“They want to walk away from the problem as fast as possible, as cheaply as possible without any recourse and without anybody else finding out”, claims Smith.
The reluctance on the part of house builders to accept blame for faults and to push problems down the line raises the question of liability:
“I believe it’s in their best interests not to publicly admit there is a problem…Plausible deniability comes to mind”
“If you’re unwilling or you decide that you’re not going to agree that there is a problem then you can plausibly deny that you need to fix the problem”,
Smith’s predicament is more widespread than perhaps is generally acknowledged:
“I know that there are substantial amounts of people just within my immediate vicinity that are unhappy with their house and the way that the developer has handled the situation. And that is purely just on my doorstep. I also talk to a variety of different people on Twitter. I can see that the problem is huge. And this is not one particular developer, it’s across the board”, says Smith.
The wider context
Architect and CEO, Alistair Parvin, commented on the problems Smith and others face within a wider socioeconomic and political context. The mutually-beneficial relationship between house builders and developers presents its own set of conflicts that appear to work against the notion of the construction of good quality homes:
“We have a public and political misunderstanding of what these [house building and property] companies do. A lot of that is rooted in the fact that we call them house builders despite it not being their business model”, claims Parvin.
A more apt term for them is contracts management companies in as much as their role is to maximize their profits.
Building good quality housing is not concomitant to a neoliberal business model predicated on maximizing profits. Thus the former is regarded as an inconvenience.
“Their business (trade) model – the role for what they are employed to enact – is to buy land and sell it for more than they bought it for. If they have to build a house in order to sell it, they’re selling it to the mortgage market. If they have to build a house that’s an inconvenience, what they can do is capture the land value uplift – brought about by planning permission or new infrastructure or whatever it might be, or just rising house prices – and then just sell it on without even building any homes.”
This “optimum outcome” is one of the features of an high inflationary housing and land price bubble which is at odds with the needs of society beset by huge swaths of homelessness – one of the contradictions inherent to neoliberal capitalism previously referred to. The ‘assets’ thus accrued are, as Parvin suggests, tantamount to a “form of wealth that comes at a huge cost on businesses; the cost literally on all of us which is the rising rents and our mortgage payments going up.”
Human and social costs
Then there are the human and social costs which people like Paul Smith are bearing the brunt of:
“[Rather than having to move my family in the middle of the night]…I would [as an engineer], much rather be spending my time doing constructive things”, says Smith, who adds, “I don’t feel that me snagging a house that should have been built properly in the first place is constructive.”
“Why am I in a position where I have no building regulations and why is my house not signed off as habitable by my local authority a year down the line?”
Parvin interjected by emphasizing the insurance angle:
“No insurance company is just going to say, ‘Oh you got problem, here’s the money’ It’s not that easy. Fundamentally, if that system is working properly you should be able to say, ‘Oh here’s a defect, here’s your money’ and then when that becomes chronic there should then be pushback on the house builders. But clearly, something in that system is not working correctly”, says Parvin.
Unlocking land values and capital lift
Could it be the case that the warranty is another instrument to enable the unlocking of land values to thus allow capital uplift? This could explain the lack of building regulations. Paul Smith believes that warranty is being used in place of building regulations “in a lot of cases.” How do my neighbours have completion certificates eight months after they moved in? That shouldn’t happen”, claims Smith.
Perhaps even more pertinently, why is the government allowing this to happen?
Alistair Parvin adds some insights by relating the question back to the issue of land price inflation. Parvin rhetorically asks:
“What usually happens to a government if there’s inflation going on? It’s considered to be a governmental failure that needs to be reined in – usually by some means of taxation. Land is this weird exception where we don’t do that. We started counting it as growth”, says Parvin, who adds:
“Now not only did that happen but then… so you have this situation where… coming up to the 1990s and through the 1990s governments had this dilemma which is do we rein this inflation in or do we let it continue but try and sort of tax some back and redistribute it. Guess which option they went for? So most developed countries in the world run on this model called the developer contribution system. You might have heard of ‘affordable housing’ or ‘Section 106’ and things like that.”
“But one of the problems of this”, says Parvin, “is that essentially puts local and national governments in a position of creating a land speculation market which nobody really asked for. The speculators didn’t ask for it and actually the people working in government didn’t really asked for either. But nevertheless, it created a situation whereby we have become dependent on these companies. And there is also a certain level of intellectual capture going on.”
Here, Parvin returns to the contradictory nature of neoliberal capitalism:
“One of the great ironies of the system is the difference between if a house builder made their money by building houses and selling them they would build as many as they could as quickly as they could. As we all know, and as the Letwin review superbly articulated, that’s not how it works because there are land speculators. What they do is they build and trickle them onto the markets to make sure they keep prices high.
They will never build the quantity or the quality of homes that Britain needs because it’s not in their business model to do that. And yet we’re locked into this dependency on that model to do the very thing that it doesn’t want to do.
“And that goes into our language of the use of the term, house builder because as house building supply gets thinner and thinner and we can’t build enough houses, ministers say, ‘Oh right, we need more houses. Who builds more houses? The house builders. So let’s give them more subsidies’. And so we get trapped consuming the same poison thinking it’s medicine.”
Dealing with the devil – the insider outsider dichotomy
The prevailing orthodoxy described is sponsored by two parties – the government and the electorate. In this sense, “it’s one of the few topics in which we are genuinely all in together”, says Parvin. The reason why a deal with the devil exists of a kind that prevents the emergence of a genuine property-owning democracy, is because the prevailing orthodoxy reflects the classic insider-outsider dichotomy.
Alistair Parvin explains what this means:
“Basically the people on the inside never want to change anything and the people on the outside don’t have enough power to change anything. Now that’s actually what’s interesting, is that’s changing, we’re seeing this massive generational shift. So actually throughout the 1990s/2000s everybody, not just the Daily Mail but even the BBC, would report on rising house prices as a ‘boom’. Around 2013 that began to switch and there was this massive shift in public opinion to the point that now even the Daily Mail will talk about house price inflation as a bad thing.”
“And what happened is actually it wasn’t that suddenly a whole load of people woke up and realized, ‘Hold on a minute this is killing us all. Nobody benefits from this on the long run. It’s just the private sector tax on our lives.’ No, what happened is the baby boomers realized they couldn’t help their kids and so there was this generational inside outsider problem that was happening.”
But alongside this realization, are the various causal myths relating to immigrants and overpopulation. Parvin acknowledges that the issues are more complex than that:
“I very much have a strong affinity with the notion that land values could replace most taxes. The economist, Henry George advocated a land value tax – the one thing that privately every single person agrees with and yet everybody says will never happen.”
“We have”, says Parvin, “a kind of transition problem related to the inflated value of land primarily driven by debt which represents more than half of the UK’s net wealth”.
Parvin outlines the complexity of a situation that everybody appears to be locked into:
“Even if a very progressive government got into power tomorrow, they’ll be faced with a dilemma – an all moves lose situation. They know they can’t allow land prices to keep inflating forever because society and the economy will break. But equally, nobody wants to be the party that causes half of the value of the UK’s wealth to be wiped off our balance sheet overnight …We have to look for smarter solutions.”
“Most governments in recent years have had to play this weird double handed game where on the one hand they have to make announcements that look like they want to alleviate the housing crisis. But in fact most of the main policies being introduced were actively designed to do the opposite, to keep land prices high. ‘Help to Buy’ is the most obvious example of that. So when it kicked in in 2013 you can see house prices [and profits] started to kick off again.”
The ghost in the machine
The economic abstractions described of a kind in which Churchill envisaged land markets as the mother of all monopolies, bring to the fore questions relating to the nature of the real economy, who benefits from its rigging, who the real wealth creators inside the machine are and what the economy is based on?
“We’re told the economy works on the basis that wealth is primarily created by businesses investing in jobs and the businesses that make things. But if you actually look at the UK economy that’s a relatively small part of it. We have a significant service economy.
“But primarily the main driver of land has been effectively allowing the private capture of land value uplift”
The problems are systemic. Perceived victims of house builders are more pertinently victims of financialization because they are deemed to be an obstruction to debt vehicles which are needed to drive Q1, Q2 profits. In other words, individuals like Paul Smith who speak out, are seen as an inconvenience.
The more people like Smith expose things, the more they get pushed back:
“I’ve had everything from being told not to go to residential meetings through to letters that are designed to scare me. I’m not going to be scared by them”, says a defiant Smith.
End of the road?
According to Alistair Parvin, people inside the house building industry are aware that they are running into a dead end. They understand more than government policymakers how the system works and are clear that the generation of huge profits and bonuses are entirely driven by government subsidy and that the money was entirely “Help to Buy”.
“They know that this model can’t go on forever because”, says Parvin, “eventually you run out of stuff to mine… You can pursue things like class action lawsuits etc but I actually think maybe a more interesting way to approach this is begin to say, ‘Well if everybody is beginning to realize that this is a system that’s running into a dead end, can we begin to design a different land and housing system that is investable; that is scalable; that can exist alongside the existing one as a kind of lifeboat.’
“We’ve started to explore ideas around this. We published a paper called, ‘Affordable Land‘. You can go find it at www.opensystemslab.io/affordableland, where we’ve set out one particular idea which is essentially inventing a new form of home ownership. But I’m sure there’s many others. I think that’s probably a more productive way. Let us collectively, as a nation, begin to transition ourselves into a new house building and land economy.”