Building on Sand

Hong Kong’s financial difficulties are partly due to land speculation. Britain has the same unhealthy patterns

By George Monbiot. Published in the Guardian 29th October 1997.

There is no shortage of explanations for the near-collapse of the Hong Kong stock market, which has precipitated such turbulence in London. The Hong Kong dollar was overvalued, interest rates were too high and Thailand’s baht crisis destabilised the market. But the edifice couldn’t have toppled so dramatically if it were not built on sand or, to be precise, alluvial mud and reclaimed saltmarsh.

Over 40 per cent of the Hong Kong stock market was invested in property speculation. Hong Kong, as we know, has very little land and a great deal of money. The result was a fiercely speculative market in the city’s most fundamental resource. Property prices rose to utterly unsustainable levels, and their inevitable collapse brought the rest of the market crashing down.

Britain looks nothing like Hong Kong. We have 217 times as much land, most of which, happily, has not yet been covered in concrete (though the extraordinary fact that Hong Kong has twice as many farming people per head of population as we do testifies to our outrageous agricultural practices). According to the Stock Exchange, only two per cent of our total share value is invested directly in the property market. We should, it seems, thank Providence that we live on a large island, not a small one.

Yet Britain is also showing symptoms of the epidemic that has felled Hong Kong. Yesterday’s disruption, like the 1987 crash, was preceded by several years of booming property prices. In some cities, land values are shooting up towards the Hong Kong level, partly, and ironically, because Hong Kong speculators have been buying up many of our prime sites. According to London Residential Research, an astonishing fifty per cent of the new homes sold in central and inner London in the first half of this year went to buyers in the Far East. Land in parts of central London now costs more than £3 million an acre: even in the provinces, urban land can fetch £2 million.

The share value of the property sector has risen by 67 per cent since June 1995. As the entire stock market is supposed to be linked, however crudely and loosely, to both earnings and the imputed value of assets, the brokers’ confidence is founded at least in part in earth and rock.

So why, in this very different and largely rural nation, have land prices mimicked those of Hong Kong, exposing us, like the Hong Kong people, to financial instability? The answer is simple: we too have an absolute shortage of development land, the result not of geography but of statute. Development zoning means that just fifteen per cent of the land in Britain is available for construction.

Few people would dispute that this is a good thing – indeed, it is the only thing that prevents the concreting of the countryside. The problem arises from the fact that this artificial market is allowed to function as if it were a free one.

The results are plain for everyone to see. Even people with steady jobs are discovering that affordable accomodation is next to impossible to obtain in many towns, either to buy or to rent. Rents are so high because house prices are so high. House prices are so high not because bricks and mortar are expensive but because the value of the land on which they sit has boomed.

Taxpayers pay through the nose for housing benefit and social housing costs whose real beneficiaries are sickle-finned speculators. Developers are forced to build only the most lucrative constructions in cities, rather than the affordable homes we so desperately need. At the same time, they are lobbying the government to let them dump houses all over the countryside, where land prices are still low.

It wouldn’t be hard to sort all this out. Simple planning policy guidance, listing basic social needs, then insisting that they are met before luxury developments can be approved, would slowly deflate the speculative price of urban land. It would release a huge amount of government spending: more than enough to help homeowners getting into trouble as a result of the adjustment. We’d reap a correction dividend worth billions.

The alternative is to carry on as we are, condemned to a perpetual cycle of speculative overvaluation, social exclusion, environmental destruction and market exposure, followed by violent correction, negative equity and social instability. Our economy, as we are now discovering so painfully, is as unsafe as houses.