Britain's housing market has become a Ponzi scheme — built not on value, but on debt, illusion and exclusion. Successive governments have turned homes into speculative assets, trapping generations in rent, despair and insecurity. In this video, I explain how tax breaks, financialisation and political cowardice created a housing system that rewards luck and age, not effort — and what must now be done to rebuild homes, communities and hope.
This is the audio version:
This is the transcript:
Britain's housing market is a giant Ponzi scheme.
Ponzi schemes are named after a Mr Ponzi. What he sold was a savings scheme where he claimed that the rates of return to savers were going to be phenomenal. And it all worked on the basis of luring more and more people into an arrangement where there was nothing of value at all, but where returns to early savers were created by those additional people being lured in, whose money was being used to pay the supposed high rates of return that those early savers were getting. It was all fake. It was all a charade. It was corrupt. It was false. And of course it collapsed, and Mr Ponzi spent most of the rest of his life in prison in the USA, and that's what we have in the UK with regard to housing.
It's taken a long time for it to become apparent that this is what we have, but we are living with a market for housing in the UK that is little better than Mr Ponzi's savings scheme.
Housing was once about shelter and community. But it became an investment vehicle backed by tax breaks and cheap credit. In particular, the idea that people should not pay taxes on the homes that they own has created considerable perverse incentives, meaning that people have vastly overinvested in their houses, believing that this is the safe way to build up a nest egg they can pass on to their children in a way that has become totally destructive for society. The motivation might have been good. The reality has been bad.
Successive governments have encouraged house price inflation in the UK to create the illusion of prosperity. They are as guilty as anyone in the housing market itself, as well as the bankers who have, of course, provided the money to make this scheme possible, in creating the illusion of prosperity.
When once houses were about shelter and community, now more than ever, they're about financialised assets, and their ownership has become deeply unequal. Of course, all of this has been emphasised by the creation of the buy-to-let market, but even if we ignore that, the divisions are extraordinary.
Those who got early into this game have made extraordinary windfall gains, which they never earned. This claim, "I saved hard and I worked hard to create the value of my home," is complete nonsense. I know because I have a house at the age of 67, which I own. This place is what I could call mine for as long as I'm here on Earth, but the point is, I didn't pay for it.
The current value of this house, whatever it is, and I'm not really sure, is much higher than what I ever paid for. It was inflation in house prices that gave me the asset I now live in .
And those who have entered the market since I did in 1983 have done much worse. Those who now start to rent or buy face almost impossible costs, when frankly, my costs of entering the housing market over 40 years ago were entirely affordable.
The housing system has rewarded luck, older age and inheritance, but it has never rewarded effort or contribution, and those who claim otherwise are talking complete and utter rubbish.
Those of my age who are sitting on a considerable value of household wealth usually have made it simply because they've sat around for long enough in the house that they bought when they were young. 📍 The result is that inequality is now built into the bricks and mortar of Britain.
Governments do, in that case, fear falling house prices more than they do rising homelessness.
They're frightened of the backlash from the middle classes, who believe that their wealth will be dissipating.
They provide continuing tax relief, including inside inheritance tax, to deal with this and to preserve wealth in a way that is unjustified.
They put in place planning restrictions that still keep house prices high.
And council house sales, of course, just fuelled the bubble, as Margaret Thatcher always wanted them to do.
Politicians defend homeowner value to protect votes, but they don't do it to protect fairness. If they really cared, they wouldn't be cutting stamp duty, which increases house prices, and they wouldn't be seeking to preserve the tax privileges that homeowners already have, because they too lock the young out of homeownership.
Worse still, and very quietly and largely unnoticed to many people, during the course of the last decade or so, hundreds of millions of pounds of public money, provided by the Bank of England, has been used to underwrite mortgage debts so that this system has endured, George Osborne being the worst culprit with regard to this particular policy.
And the costs are enormous. One of the costs is that people actually can't now afford to move. So great are the costs of moving because of the amounts of money involved in the housing market - and here, stamp duty is a problem I will admit - that workers literally cannot move to live near their jobs, and so we have a country where productivity is falling.
But we have the same problem with regard to rent because people cannot afford to upscale the amount of rent they need to pay and the deposits that are required if they're to move jobs as well. That is impossible for many people, and as a result, wages are stagnating just as housing costs consume ever more as a part of disposable income. The paradox is unbelievable: because people can't move, housing costs are actually getting more onerous for them.
We're also seeing other costs. Young people are delaying families and careers because of unaffordable rents. They also can't take risks, for example, to set up their own businesses, and they most certainly can't afford more than one child if they have one at all. This is a real cost to society, a human cost uncounted, but real nonetheless. Britain's economy is now shackled to its property addiction, or the property addiction of its middle class.
And what we know is that all Ponzi schemes, like our housing bubble, because housing bubble it is, will be dependent upon new entrants into the market. That has always been true. As long as more and more people arrived into the market because of an expanding population, and we have had an expanding population, or because people moved out of rent and into homeownership, there was always going to be a continuing bubble, and that's what we've seen for 40-plus years, but now that situation is changing.
People now can't afford to buy. The average age of a new homeowner is rising significantly, and interest rate risks are exposing the fragility of this whole model, and some people are questioning, "Why stay in homeownership?" They're actually quitting, whilst the declining buy-to-let market is also dumping property onto the market.
The fact is that the housing market has reached the point where its survival on the basis of faith - and that is the only reason why prices have remained high, let's be clear about it - is at risk. Fundamentals say that there is no value in the housing market at the level that current prices are being charged at.
There are a declining number of buyers and a declining number of people looking to invest in buy-to-let properties - if investment you can call it - and the consequence is that at some point, our Ponzi scheme, our housing bubble, is going to collapse.
What do we need to do now? We need the government to underpin our housing market. We need there to be order within it. A collapse would not help anyone. But what we do need to do is make sure that this order is used to provide people with homes. So if there is a risk of a net selling market, and that is a possibility because of the demographic and because of the affordability ratios that now exist around housing, then we should be seeing government step in to buy houses for people.
And we should understand houses as being homes for people now. They are vital economic infrastructure for society, but above all else, they're homes and not investment opportunities.
And the idea of returning to a situation where we have mass social housing must become a national priority. And that can be existing homes as well as new ones. I don't understand the obsession with the fact that all social housing must now be new. There is no problem with existing housing stock moving into public ownership, if, as a consequence, landlords are fair, rents are fair, and people are protected and have the right to long-term tenancies which provide them with the protection for their families so that they won't face disruption every year or so as they're forced to move by a landlord who wants to move them on to increase the rent.
Houses must once more be about living and not leveraging.
Britain's housing market has stopped serving the public good. It now actively harms it by denying hope to millions, creating economic and political despair, and we can see where that's going. Reform is riding on a wave of that despair.
The wealth that is created by housing is illusory. It's built on debt, and it's built on exclusion, and it's built on the basis that you have value when in practice, if you had to move, you'd realise none.
Any reform will be resisted. Let's be clear about that. We know that's true. Those who are invested in housing want to believe that their property is going to carry on rising in value because that has been their lived experience. But to delay reform now is to risk collapse by any other name.
We know that the Ponzi scheme of housing could burst. We have to plan to make sure that we have an orderly restructuring of our markets instead.
We can build homes, or we can perpetuate the bubble, but we can't do both. There's only one of those, which is a wise choice. And we have to build homes, and we have to bring homes into public ownership.
Unless we do that, unless we make housing social again, and unless we commit to a policy that is focused around people and not property, we cannot have a functioning society in the long term, and that's what I want.
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You’re preaching to the converted as far as I am concerned – the financial use of housing over its use as shelter is something I was made aware of in the 1990’s studying social housing.
One symptom of this was ‘negative equity’. OK – so the cash value of your house has gone down – but you still might have somewhere to live!! You know, an address, shelter.
The ‘story’ of housing is the story of most ‘markets’ in the Neo-liberal age. A market should be a place where exchanges of value take place.
However, in reality I just see markets as a shop window for the rich to hoover up assets and rich pickings as a mechanism to simply outbid others on price, not value, and suck wealth to the top of society. It’s a place where collusion with estate agents and banks takes place and grows debt.
Housing’s use as a pension pot or hole in the wall is symptom of other policy failures in pensions, employment and wages. It is a system that feeds rentierism, yet is portrayed as some sort of ‘freedom’. What sort of freedom is the misery of being made to compete with others for school places and post codes whilst other areas are neglected? And what astonishes me is how with the growth of AI is a housing market going to be sustained? How is the condition of the housing stock going to be maintained!?
On top of that many new developments are having their street cleansing and maintenance offered to private management companies whereby new home owners will be paying poll tax AND an estate charge. I can see these estate charges becoming a problem if the providers get bought out by some corporation.
I agree with your post 100%.
UK Housing is housing a huge crisis – that’s what it is housing. It’s a shit-show.
Much to agree with
A few points………..
Firstly there are about 1.5 million ‘unbuilt’ planning consents or about 6 years worth of ‘output’ at current rates – far more than the big housebuilders need to simply keep going.
The volume builders control the ‘build out’ rate because – obviously if they complete a new development to quickly they will cause a drop in local prices
The cost of construction has risen roughly in line with the RPI since the end of WW2 so your house – and mine would not cost in real terms any more to build than when they were first put up.
Pre WW2 land was as little as 5% of the cost of a new house now its over 50%
There are now few controls on mortgage lending unlike when you and I first bought
Basically we need to control who can buy land and property in the UK, what use they can make of it and how much can be borrowed against it…………..
Solved….
I am waiting for the call to the Palace to assume the office of Prime Minister
You are?
What have you done?
This is likely one of the biggest sources of anxiety in the nation. Many people lament being born in the wrong era or not having the luck of inheritance or wealth. It’s disheartening when 70% of your wages go towards bills, and luxuries are becoming increasingly scarce. When I reflect on it, most of my hard work ends up benefiting the government, landlords, and corporations. Now in my late 40s, I realise that I will likely never own a home here and am simply working to survive.
What adds to the sadness is that large corporations like BlackRock, Ikea, Marks and Spencer, and John Lewis are now entering the housing market. Leisure activities are becoming less and less affordable. Cinemas have fixed pricing for seats, while restaurants impose mandatory service charges. Just this past weekend, I looked at the events listed in the Londonist, and all of them had entrance fees ranging from £20 to £40, so I ended up just going for a walk instead. I find myself wondering where hope lies in life these days.
Save up for a pair of binoculars – even cheapish ones and every walk will be a source for pleasure forever.
I am not patronising you.
I have opted out of most manufactured leisure these days.
I have a DSLR Camera instead of binoculars and enjoy taking pictures of the world with my wife. The joy of coming out of a profitering world.
🙂
I get that too.
A ponzi scheme is where people put their money into a scheme where is is little or no intrinsic value. This is clearly not the case with property where you have a home for the rest of your life and a legacy backed up by legal ownership. Fair enough you might pay over the odds or you might not but it is by definition not a ponzi scheme.
The speculative dimension is
Grok tells me that homeowners stay in a house for either 9.2 years if they have a mortgage or 23.2 years if the mortgage is paid off. Then add in the considerable costs of buying and selling (stamp duty, agents fees, legal fees, surveyors fees) and I felt see the “speculative dimension” you refer to.
There is also the growing “equity release” and “lifetime mortgages” impact to take into account. If the market collapses it will severely impact these lenders. If, like me, you wish to relocate in retirement and downsize you face the additional problem of a lack of age-appropriate new homes. Successive governments have facilitated the development of millions of “executive homes” on soulless out of town sites with little or no genuine associated social infrastructure. The problem is further exacerbated by the concentration of house building amongst just a few (often private equity owned) house building companies so that there is little in the way of competition. Successive governments have also enabled the rise of pure speculative development companies that acquire sites on options then pursue planning applications and appeals and, when they win, flog the sites onto the house builders. Central government helps them achieve this with the operation of the ridiculous “five year supply” policies in the National Planning Policy Framework. Local planning authorities have no mechanism to ensure that, once permission is granted the new homes will be built. All the developer needs to do is a “token” implementation which then keeps the permission alive in perpetuity. Central government also assists by allowing developers to wriggle out of section 106 obligations on the spurious ground of viability. The sell-off of council homes and the refusal to allow local authorities to build and retain replacement housing has worsened the situation. With the promotion of the buy-to-let market, those homes in the private rental market are often of sub-standard quality. In reality, there is no genuine housing market. Of course, saddling the public with massive mortgage debt is a way of keeping us peasants in our place! Add to that student debt and limited employment rights and you have the political class exploiting the public for the benefit of the very few vested interests.
Much to agree with
I have long argued that a ‘fiscal rule’ that we *do* need is to ensure that house prices remain static in absolute terms, by building new homes at an appropriate rate, or by other means such as rent controls. This will allow inflation to eat away at our ridiculously high housing costs, without the political damage of “destroying voters’ wealth”.
The Scottish government ended the right to buy social housing in 2016. England should have done so years ago.
Since the English government creates money – and Northern Ireland, Wales and Scotland are not allowed to at present – is it lack of political will rather than ‘balancing’ Reeves’ books which prevents England from building social housing?
England has the means but does as little as it can get away with for its people. Your governments would rather watch people struggling than lift a finger to help them. Weren’t they elected to do just that – make life bearable for them, I mean?
The English government’s stance and behaviour is mystifying.
Borrowers ‘love’ inflation. At first sight, they of all people are the ones who seem to gain most from inflation; and of course they do benefit in a significant way as the falling value of money reduces their burden of debt. There is, however, an indirect penalty they pay. They lose a sense of what wealth means. They borrow money to invest in ‘real assets’ (usually second-hand bricks and mortar) which they can see rising in value over the years while the value of the borrowed money falls. So by Pavlovian conditioning they come to believe that bricks and mortar are wealth.
In truth, living in a home is a form of consumption. Next month, I will finally pay off my mortgage after 15 years in the same property. That has less significance than many think. Whilst it will be nice not to have to pay the £1,500-odd to the building society any more, it will not change the costs of living in our home. Half in jest, I said to a client yesterday that I would nationalise housing – the huge stock of capital tied up idle in houses being (in my opinion) a shocking waste and a handicap to economic growth. And, of course, I can only sell my house to someone who already has one.
My hunch is that reversion to the mean means a ‘fall’ in house prices of 30%-50% is inevitable.
That will be tough.
But probably required.
Completely right. You sum it up well when you say, “Houses must once more be about living and not leveraging.”
Firstly it is important to note that we do not have too few homes overall. “In terms of the Organisation for Economic Co-operation and Development countries, the UK has roughly the average number of homes per capita: 468 per 1,000 people in 2019. We have a comparable amount of housing to the Netherlands, Hungary or Canada, and our housing stock far exceeds many more affordable places such as Poland, Slovenia and the Czech Republic.” https://www.theguardian.com/lifeandstyle/2024/mar/19/end-of-landlords-surprisingly-simple-solution-to-uk-housing-crisis
Clearly it is the unequal distribution of houses that is the problem.
I hypothesise that this housing market Ponzi scheme is, yet another, inevitable consequence of neoliberalism. Since neoliberals abhor government money creation, it is left to the commercial banks to “create money”. But, in a Minsky like cycle, more and more net debt must be created to keep the economy afloat. The main place this debt is created is for property loans including houses. To do this interest rates must trend down over time (not just short term variation), so that people can borrow more. Even then there is a limit because the capital must be repaid even if interest rates are near zero. And, I would suggest, that we are near the point of maximum debt, the Minsky moment, where the Ponzi scheme, of increasing house debt, cannot sustain.
Action is needed to gently deflate the bubble and avoid a harmful crash.
An obvious change, as you mentioned, it to reform stamp duty. It makes no sense to have a tax on moving home.
And then we need to grasp the nettle of property taxes. Clearly these are possible given that they are common in the US and elsewhere. Clearly they are not a crazy, far left, woke, invention. The usual cry is “What about the asset rich, low income, old folks in large houses who can’t afford to pay”. Frankly I have little sympathy. But this easily dealt with by allowing (anyone) to pay the tax through a charge on their house (like a mortgage). Then owners would not have to stump up money they cannot afford, but the tax would be paid when someone moved or died (no inheritance tax required).
Thanks for the interesting post. 🙂
“The wealth that is created by housing is illusory. It’s built on debt, and it’s built on exclusion, and it’s built on the basis that you have value when in practice, if you had to move, you’d realise none.”
The above statement is so well put – I just wish more people would understand this. Even if my home ended up being worth over a £1m – its not something that I can then use to convince myself that I’m now a millionaire and buy myself a Ferrari but sadly many of the population do, they start to borrow against these so called gains putting themselves into more and more debt.
My family and I were thinking of moving but again, as you put it so well, the cost of moving prevented us from doing so. Stamp Duty thresholds have remained largely the same despite massive house price inflation – as have Estate Agent fees. Just moving in London could set you back £50k once you’ve considered removal firm and conveyancing fees too.
Much to agree with
A good description of the last fifty years, and the mess we are in.
The two words that spring to mind for me when it comes to housing are security and affordability.
Neoliberalism fails on both counts.
As someone who is close to retirement and condemned to a lifetime of renting, I find the numbers ahead scary.
Older tenants need extra £400,000 in their pension – the risks of renting in retirement
https://moneyweek.com/personal-finance/pensions/risks-of-renting-in-retirement
Because of the Ponzi scheme bubble, more older people are being forced into renting for their entire life. The numbers will only get worse as people priced out are living longer. Many will simply not be able to afford to retire. They will work until they drop dead. What a country — what a system we live in — capitalism at its best, for some.
If I live long enough, there will come a time when all my money goes to the landlord. I’m not joking, I’ve run the numbers. And there will be millions like me in the same boat.
I wonder if there will be any politicians around brave enough to want to stop that boat?
This cowardly not? I don’t think so…
I’ve recently received notification that my landlord intends to increase my rent by £75.00 a month.
I rent an ex-National Coal Board house, two bedroom, Band A, in an ex-mining own. Its actually a good solid house built in the 1950s, and I like it and the community. Happily I can absorb the rise, this year at least.
But its also in the lowest price range for the town. If I couldn’t afford it, there aren’t really any cheaper options locally to move to.
I’ve never met my landlord, who operates through a property letting agency. I imagine this helps to dehumanise me – I’m just a figure on a balance sheet rather than a human being with human needs, so the landlord feels no guilt at imposing more hardships.
The letting agent says : “I do appreciate that this is a jump in rent, but it is necessary for the landlord to continue to rent the property out. ”
That sounds like a threat to me – comply or we’ll find someone who will. Or sell it and make you homeless.
Part of the problem, it seems to me, is this tier of parasite companies, such as letting and estate agents, all of them adding to the rent. I do wonder whether this rent rise originated with the landlord or whether the letting agent persuaded them they should do it.
Where will it end ? With a massive number of homeless on one side, and a massive number of empty properties too expensive to rent on the other ? No doubt with landlords and the parasites scratching their heads and wondering how the situation came about.
It has to end with more social housing.
Coincidentally, just come across this :
EU executive targets short-term rentals as housing crisis worsens
The EU executive is preparing sweeping regulations targeting short-term rental platforms such as Airbnb and Booking.com, as Brussels seeks to respond to what it calls a deepening social emergency over unaffordable housing across the continent.
“In an interview for The Guardian and other European outlets, Dan Jørgensen, the bloc’s first-ever housing commissioner, said the European Commission plans to introduce new rules to curb short-term rentals and tackle the “huge problem” of online accommodation platforms reshaping local housing markets.
“If we don’t, as policymakers, take this problem seriously and acknowledge that this is a social problem and needs action, then … the anti-EU populists will win,” Jørgensen said, warning that the Commission had “failed to deliver” on several key elements of the housing crisis.”
Full article : https://english.almayadeen.net/news/Economy/eu-executive-targets-short-term-rentals-as-housing-crisis-wo
The right thing to do
And Prof Steve Keen has produced some graphs showing that there is a direct causal relationship between the change in the change of mortgage debt (i.e. the acceleration in amount of mortgage lending) and the increase in cost of housing. Neoclassical economists would say the increase in housing costs are due to the demand/supply curves, but Steve Keen shows from the actual data what is really happening, and this is across the globe.
Agreed
“They’re frightened of the backlash from the middle classes, who believe that their wealth will be dissipating.”
The unwillingness of politicians to tackle the issue is probably even more personal than simply the fear of losing votes. Most politicians are part of the (upper)middle class who own their own home and probably have some “investment property” on the side as well. They aren’t going to vote to diminish their own wealth right?
This article is music to my ears. As someone who bought her first house for £9000 in 1973 I have some understanding of the psychology which has underpinned the disastrous growth in house prices over my life time. I remember being advised quite explicitly at that time to take on the biggest mortgage we ( my husband and myself) could possibly afford. Why? Because of the rampant inflation at that time. There was no point in saving with inflation at over 20%. Inflation would destroy savings, but would also reduce the mortgage debt, so people began to save not in £ but in bricks and mortar. In the 80s we were told that there was no such thing as society. We were responsible for our own financial future. So even the house price crash of the early nineties did not dent the belief in bricks and mortar and house prices were soon rising again. The dotcom crash confirmed people in the belief that you could not trust financial products or stock markets. You were better off in housing and so began the buy to let boom, which went into overdrive after 2008 and the decline in interest rates. Why put money in a building society account when you could make a far better return on a flat? In property we trusted. Nowadays people are still “investing” in property with the likes of Airbnb. The devastating consequences for the primary purpose of the housing market- to provide people with homes is plain to see. As to whether house prices will now fall as they should, I thought that would happen about 10 years ago when prices became untethered from average earnings, because ” young people won’t be able to afford to buy a home.” Silly me. Foreign investors now are in on the act, buying up flats for their pension plans.
For me the housing disaster is the worst effect of what is a fundamental problem of our society- the lack of trust in our government, our economy and the people in charge.
Thanks
I note that the Green Party probably have the most radical solution.
Green Party backs plan to see end of private letting
The Green Party has committed itself to phasing out private landlords from the housing system.
https://www.bbc.co.uk/news/articles/cwy9zqzp44vo
Is this feasible?
I have to be honest, I would not be sorry to see the end of the private landlord.
I doubt it is possible.
I am not sure it is entirely desirable.
Do we want no holiday lets?
And if a person goes abroad for two years for work must their property stay empty? Why?
Interestingly, a chap wandered into my office at lunchtime asking if we helped with calculating and reporting CGT. When I asked why, he explained that the flat he bought in 2019 needs to be sold (quite why, he didn’t explain) and he wanted to know his potential tax liability. Whilst I could have helped, I referred him to a local accountant after he went on to say that he has lodged a S21 eviction notice to his tenants. When I asked “where will they go” he shrugged and said “that’s their problem.” I could never be a landlord.
With no exaggeration, that’s the sixth or seventh time I have had a similar inquiry in the last month. My hunch is that these are greedy people who have suddenly had a big increase in mortgage costs as fixed rate deals have ended. And I’m just in a Somerset village – anyone else hearing the same?
I do hear that…