1 00:00:00,040 --> 00:00:05,200 So if you took a brand new highly desirable 3 bedroom 2 00:00:05,200 --> 00:00:10,440 family home from say 1935 and you adjusted its original 3 00:00:10,440 --> 00:00:12,240 purchase price for inflation today? 4 00:00:12,440 --> 00:00:12,840 Right. Just. 5 00:00:12,840 --> 00:00:14,960 Pure inflation, yeah, just strict inflation. 6 00:00:15,080 --> 00:00:18,920 That brand new house would cost roughly 60,000 lbs today. 7 00:00:19,120 --> 00:00:21,480 Which is just. I mean, it's a completely mind 8 00:00:21,480 --> 00:00:22,680 blowing figure. It really is. 9 00:00:22,800 --> 00:00:26,240 So why is that exact same house, which is now, you know, almost a 10 00:00:26,240 --> 00:00:29,800 century old, probably quite drafty, leaking heat and 11 00:00:29,800 --> 00:00:31,360 requiring pretty constant maintenance? 12 00:00:31,720 --> 00:00:34,000 Why is it selling for half £1,000,000 today? 13 00:00:34,000 --> 00:00:35,640 Or more, depending on the street. 14 00:00:35,880 --> 00:00:38,640 Exactly or even more? Welcome to our deep dive. 15 00:00:38,640 --> 00:00:41,000 Today we are taking a really hard look at the 16 00:00:41,000 --> 00:00:43,520 financialization of the UK housing market. 17 00:00:43,520 --> 00:00:45,520 And we're doing this by looking at some pretty incredible 18 00:00:45,520 --> 00:00:47,000 primary sources. We are. 19 00:00:47,000 --> 00:00:51,080 We're using original 1930s property brochures to decode how 20 00:00:51,080 --> 00:00:54,320 this simple, you know, pile of bricks basically mutated into a 21 00:00:54,320 --> 00:00:57,600 hyper valuable economy dominating financial asset. 22 00:00:57,680 --> 00:01:00,480 Because it really is the central economic paradox of our time, 23 00:01:00,480 --> 00:01:02,840 isn't it? We are essentially living inside 24 00:01:02,840 --> 00:01:06,400 this giant, slow moving financial derivative that we 25 00:01:06,400 --> 00:01:08,080 just mistakenly still call a house. 26 00:01:08,320 --> 00:01:10,200 A financial derivative with Bay windows. 27 00:01:10,200 --> 00:01:12,600 Right, exactly. And to really ground this for 28 00:01:12,600 --> 00:01:15,880 you listening, I want to take a mental walk down a very 29 00:01:16,240 --> 00:01:19,640 specific, yet entirely ubiquitous kind of St. 30 00:01:19,760 --> 00:01:22,320 The. Classic British suburban St. 31 00:01:22,320 --> 00:01:25,240 Yeah, picture an ordinary suburban St. in southeast 32 00:01:25,240 --> 00:01:28,120 London. If you spent any time at all in 33 00:01:28,120 --> 00:01:32,080 the UK, it is practically baked into your cultural subconscious. 34 00:01:32,080 --> 00:01:33,840 You can see it with your eyes closed. 35 00:01:33,960 --> 00:01:37,720 You really can. Rows of semi detached houses, 36 00:01:38,160 --> 00:01:42,120 modest brick walls, pitched roofs, the classic Bay windows 37 00:01:42,120 --> 00:01:44,320 in the front. It's the absolute definition of 38 00:01:44,320 --> 00:01:46,240 ubiquitous. I mean, there is no grand 39 00:01:46,240 --> 00:01:48,360 architectural statement being made here at all. 40 00:01:48,360 --> 00:01:49,720 No, none. And you have to look at the 41 00:01:49,720 --> 00:01:51,400 context of the street itself too. 42 00:01:51,400 --> 00:01:54,400 Like they small front gardens that were originally intended 43 00:01:54,400 --> 00:01:57,680 for, I don't know, a few rose bushes or a neat little lawn. 44 00:01:57,680 --> 00:01:59,440 Right, the whole Metroland aesthetic. 45 00:01:59,440 --> 00:02:02,240 Exactly. But today they have almost 46 00:02:02,240 --> 00:02:06,680 entirely been paved over to create parking spaces for cars. 47 00:02:06,680 --> 00:02:09,520 Completely bathed. It is entirely utilitarian now. 48 00:02:09,720 --> 00:02:11,960 And when you look at these buildings, they were clearly 49 00:02:11,960 --> 00:02:15,800 designed to just do a job, you know, to be a basic shelter. 50 00:02:15,880 --> 00:02:17,200 Which is what a house is supposed to be. 51 00:02:17,680 --> 00:02:21,600 There is absolutely nothing about them that screams luxury 52 00:02:21,600 --> 00:02:24,880 or or exclusivity. They're just perfectly ordinary 53 00:02:24,880 --> 00:02:25,960 brick houses. Just. 54 00:02:25,960 --> 00:02:28,720 Standard issue boxes. But then you go online, you look 55 00:02:28,720 --> 00:02:32,000 at the property listings for that exact St., and the whole 56 00:02:32,000 --> 00:02:33,640 narrative just completely shatters. 57 00:02:33,640 --> 00:02:38,240 Because you see the numbers. Half £1,000,000, sometimes 600 58 00:02:38,240 --> 00:02:41,640 or even 700,000 lbs if you happen to be like a 5 minute 59 00:02:41,640 --> 00:02:43,920 walk from a rail station. Which is, frankly, an 60 00:02:43,920 --> 00:02:48,360 astronomical sum for a structure that was never, ever designed to 61 00:02:48,360 --> 00:02:53,240 be anything more than standard functional shelter for a single 62 00:02:53,240 --> 00:02:57,040 income working family. The disconnect between the 63 00:02:57,040 --> 00:03:00,960 physical reality of those aging bricks and the economic reality 64 00:03:00,960 --> 00:03:04,000 of the modern price tag is just it's staggering. 65 00:03:04,040 --> 00:03:07,800 And that is exactly what we are unpacking today. 66 00:03:08,040 --> 00:03:10,160 And to be clear, we are not just going to sit here and complain 67 00:03:10,160 --> 00:03:11,920 about the housing market being expensive. 68 00:03:11,920 --> 00:03:15,040 Because, I mean, everyone knows that that's not news. 69 00:03:15,280 --> 00:03:17,520 Right, you don't need us to tell you that we're going to do 70 00:03:17,520 --> 00:03:21,240 something much more forensic. I have a stack of historical 71 00:03:21,240 --> 00:03:24,200 records sitting right in front of me, specifically to original 72 00:03:24,200 --> 00:03:28,360 1930s property brochures advertising brand new homes in 73 00:03:28,360 --> 00:03:31,960 Bexleyheath in Barnhurst. Which is prime southeast London 74 00:03:32,000 --> 00:03:33,760 commuter territory. Exactly. 75 00:03:34,040 --> 00:03:38,520 And we're going to use these brochures as a baseline to 76 00:03:38,520 --> 00:03:42,800 really understand the invisible and honestly almost inescapable 77 00:03:43,200 --> 00:03:46,240 economic traps that are keeping us all locked into these 100 78 00:03:46,240 --> 00:03:48,440 year old buildings. Because to understand the 79 00:03:48,440 --> 00:03:51,920 madness of a half million pound price tag on a basic semi 80 00:03:51,920 --> 00:03:54,880 detached house, we really have to establish that baseline. 81 00:03:54,880 --> 00:03:55,960 You have to know where we started. 82 00:03:56,080 --> 00:03:58,840 Right, we have to look at the psychological and economic 83 00:03:58,840 --> 00:04:01,680 environment into which these specific houses were born. 84 00:04:01,720 --> 00:04:04,080 So let's open up these brochures and if I mean the very first 85 00:04:04,080 --> 00:04:06,600 thing that jumps off page when you look at these is the tone. 86 00:04:06,680 --> 00:04:09,160 It's so different from how we talk about property today. 87 00:04:09,360 --> 00:04:13,920 It is the marketing is so incredibly confident and just 88 00:04:14,200 --> 00:04:17,480 deeply, deeply optimistic. Listen to this specific 89 00:04:17,480 --> 00:04:19,200 phrasing. They used to sell Bexleyheath 90 00:04:19,560 --> 00:04:22,600 they call it. Quote the health resort of 91 00:04:22,600 --> 00:04:24,480 Greater London A. Health Resort. 92 00:04:24,480 --> 00:04:27,440 I mean, it is wonderfully evocative, isn't it? 93 00:04:27,560 --> 00:04:29,680 It's amazing. But it also tells you exactly 94 00:04:29,680 --> 00:04:32,000 what they were selling, and, perhaps more importantly, what 95 00:04:32,000 --> 00:04:34,360 they were not selling. Right, because they go on to 96 00:04:34,360 --> 00:04:37,240 boast about the fresh air, the space for children to play, the 97 00:04:37,240 --> 00:04:40,600 gardens, and then they heavily promote the infrastructure, 98 00:04:40,920 --> 00:04:44,360 making a huge point of noting that there are electric trains 99 00:04:44,440 --> 00:04:47,200 every 10 minutes into the city. Which, if we look at the 100 00:04:47,200 --> 00:04:50,840 macroeconomic environment of the 1930s, makes perfect sense. 101 00:04:50,840 --> 00:04:52,760 Because London was pretty grim back then, right? 102 00:04:52,760 --> 00:04:54,680 Exactly. London was rapidly 103 00:04:54,680 --> 00:04:58,560 industrializing, but it was also literally choked with smog. 104 00:04:58,960 --> 00:05:01,880 The inner city was incredibly crowded, it was polluted, and 105 00:05:01,880 --> 00:05:04,240 frankly, it was often highly unsanitary. 106 00:05:04,440 --> 00:05:07,160 So getting out was the dream. It was the ultimate dream. 107 00:05:07,160 --> 00:05:11,000 These brochures were selling a really profound promise to the 108 00:05:11,000 --> 00:05:13,400 emerging middle class. So your clerks, your managers, 109 00:05:13,680 --> 00:05:16,760 the skilled tradesmen. The people who had steady jobs 110 00:05:16,920 --> 00:05:19,680 but didn't have massive generational wealth. 111 00:05:19,720 --> 00:05:21,840 Right. And the promise was basically, 112 00:05:22,960 --> 00:05:26,480 you can escape the soot, you can raise your family in clean air. 113 00:05:26,480 --> 00:05:29,960 But, and this is the crucial part, you won't sacrifice your 114 00:05:29,960 --> 00:05:33,000 livelihood to do it, because this fancy new electric train 115 00:05:33,280 --> 00:05:35,720 connects you directly back to your desk in the city. 116 00:05:35,800 --> 00:05:40,000 The classic Metroland dream. Just life out in the leafy 117 00:05:40,000 --> 00:05:41,400 suburbs. Precisely. 118 00:05:41,480 --> 00:05:44,520 But here is the real kicker for me looking at these pages. 119 00:05:44,920 --> 00:05:47,960 Nowhere in this brochure. Not in the fine prints, not in 120 00:05:47,960 --> 00:05:51,240 the bold headlines. Nowhere do they say buy this 121 00:05:51,240 --> 00:05:54,160 house and it will double in value in 10 years. 122 00:05:54,160 --> 00:05:56,800 Which is how literally every property is marketed. 123 00:05:56,800 --> 00:05:58,920 To exactly. Asset speculation is just 124 00:05:58,920 --> 00:06:00,400 completely absent from the pitch. 125 00:06:00,400 --> 00:06:03,240 Because it wasn't a thing. They were selling a consumable 126 00:06:03,240 --> 00:06:06,440 lifestyle product, a utility. Like buying a really nice 127 00:06:06,440 --> 00:06:07,920 washing machine or something. Exactly. 128 00:06:07,920 --> 00:06:10,680 They were absolutely not selling a financial asset. 129 00:06:10,760 --> 00:06:14,200 They were selling a promise of a better life that was, crucially, 130 00:06:14,200 --> 00:06:17,000 structurally within reach for the ordinary worker. 131 00:06:17,280 --> 00:06:21,360 And when we actually look at the original, prices Within Reach 132 00:06:21,800 --> 00:06:24,680 wasn't just marketing fluff, it was reality. 133 00:06:24,680 --> 00:06:27,600 What were the actual numbers? I guess so the prices listed for 134 00:06:27,600 --> 00:06:33,280 these brand new health resort adjacent homes are 575 pounds, 135 00:06:33,400 --> 00:06:38,120 660 lbs and £750 for the really big ones. 136 00:06:38,120 --> 00:06:39,520 So. Obviously we have to adjust for 137 00:06:39,520 --> 00:06:42,480 the era, right? Because to a modern era, you 138 00:06:42,480 --> 00:06:45,560 know, £500 sounds like a slightly expensive weekend away. 139 00:06:45,680 --> 00:06:48,120 Yeah, it's maybe a couple of nights in a nice hotel. 140 00:06:48,200 --> 00:06:53,560 Right, but in the 1930's the average wage for, say, a clerk 141 00:06:53,560 --> 00:06:56,640 might have been around 150 to £200 a year. 142 00:06:56,680 --> 00:06:58,120 OK, so let's do the math on that. 143 00:06:58,200 --> 00:07:02,320 So a £600 house was roughly 3 to 4 times the average annual 144 00:07:02,320 --> 00:07:04,640 income. OK, which means it definitely 145 00:07:04,640 --> 00:07:07,800 required saving. Yeah, you couldn't just find 575 146 00:07:07,800 --> 00:07:10,080 lbs down the back of the sofa. No, it was a major life 147 00:07:10,080 --> 00:07:11,800 purchase. You needed a deposit, you needed 148 00:07:11,800 --> 00:07:13,760 a mortgage. Which, by the way, we're mostly 149 00:07:13,760 --> 00:07:16,040 handled by local building societies back then, right? 150 00:07:16,040 --> 00:07:18,760 Not these massive, faceless global bank. 151 00:07:18,760 --> 00:07:20,960 Exactly, it was community based lending. 152 00:07:20,960 --> 00:07:22,560 So it required financial discipline. 153 00:07:22,760 --> 00:07:26,640 It required discipline, yes, but it was structurally possible. 154 00:07:26,760 --> 00:07:28,680 That's the key. Because the numbers actually 155 00:07:28,680 --> 00:07:29,720 made sense. Right. 156 00:07:30,000 --> 00:07:33,520 The mortgage repayments were directly aligned with the actual 157 00:07:33,520 --> 00:07:36,400 wages being earned in the local economy at that time. 158 00:07:36,720 --> 00:07:39,760 The entire financial apparatus was designed around this idea 159 00:07:39,760 --> 00:07:43,320 that the home would be paid off over, say, 20 or 25 years by a 160 00:07:43,320 --> 00:07:45,800 single breadwinner. A single breadwinner? 161 00:07:45,800 --> 00:07:48,680 That's almost unheard of now. It really is, and the whole 162 00:07:48,680 --> 00:07:51,720 point was that by doing this it would leave the family with a 163 00:07:51,720 --> 00:07:53,760 secure shelter for their old age. 164 00:07:53,960 --> 00:07:57,080 That was the goal security, not wealth generation. 165 00:07:57,120 --> 00:08:00,200 OK, let's unpack this and bring that 660 LB figure into the 166 00:08:00,200 --> 00:08:02,080 modern day, because this is where my mind just sort of 167 00:08:02,080 --> 00:08:03,680 melts. The inflation adjustment. 168 00:08:03,680 --> 00:08:07,880 Yeah, if we strictly adjust that for inflation, meaning just the 169 00:08:07,880 --> 00:08:12,200 pure purchasing power of the pound, from 1935 to today, that 170 00:08:12,200 --> 00:08:16,360 brand new 3 bedroom house cost roughly 60,000 lbs. 171 00:08:16,480 --> 00:08:20,200 It is a figure that completely, totally shatters our modern 172 00:08:20,200 --> 00:08:23,800 expectations of what housing costs. 60,000 lbs. 173 00:08:24,120 --> 00:08:26,000 I mean you can barely get a high end. 174 00:08:26,160 --> 00:08:29,480 It's an extension in London for £60,000 today. 175 00:08:29,720 --> 00:08:32,559 Let alone an entire 3 bedroom house with a front and back 176 00:08:32,559 --> 00:08:34,400 garden. Brand new from the developer. 177 00:08:34,400 --> 00:08:37,720 No, it's impossible. Buying a house in the 1930s was 178 00:08:37,840 --> 00:08:41,600 essentially the equivalent of buying a dependable, maybe 179 00:08:41,600 --> 00:08:43,880 slightly higher end family car today. 180 00:08:44,120 --> 00:08:47,480 That is a really great analogy. Actually, like it's a major 181 00:08:47,480 --> 00:08:49,320 purchase. Obviously you take out a loan, 182 00:08:49,440 --> 00:08:52,640 you make your monthly payments, but ultimately you are buying a 183 00:08:52,640 --> 00:08:55,480 utilitarian tool. You expect a car to transport 184 00:08:55,480 --> 00:08:57,360 you, and you expect a house to shelter you. 185 00:08:57,520 --> 00:09:00,800 And crucially, following that car analogy, you don't expect 186 00:09:00,800 --> 00:09:03,520 your family estate car to magically make you a millionaire 187 00:09:03,520 --> 00:09:04,920 over the next 30 years. Right. 188 00:09:04,920 --> 00:09:07,400 You don't buy a Honda Civic expecting to retire on it. 189 00:09:07,400 --> 00:09:09,560 Exactly. You view it as a consumable 190 00:09:09,560 --> 00:09:12,160 necessity, one that will eventually wear out, need 191 00:09:12,160 --> 00:09:14,920 massive repairs, and maybe eventually need replacing 192 00:09:14,920 --> 00:09:17,760 entirely. Yes, and that analogy perfectly 193 00:09:17,760 --> 00:09:21,080 encapsulates the psychological chasm between the 1930s buyer 194 00:09:21,320 --> 00:09:24,480 and the modern buyer. The 1930s approach was grounded 195 00:09:24,480 --> 00:09:27,000 entirely in utility. Where is today? 196 00:09:27,080 --> 00:09:30,160 Today, the expectation is a maximum financial leverage. 197 00:09:30,800 --> 00:09:33,680 You buy a house because the asset is expected to appreciate 198 00:09:33,680 --> 00:09:37,200 completely independently of its actual utility as a shelter. 199 00:09:37,600 --> 00:09:39,240 Which brings us to the great decoupling. 200 00:09:39,320 --> 00:09:43,840 Yes, the crux of the issue. If that house, the exact same 201 00:09:43,840 --> 00:09:47,160 arrangement of bricks from 1935, is now selling for half 202 00:09:47,160 --> 00:09:52,440 £1,000,000, we have to figure out what actually gained 440,000 203 00:09:52,440 --> 00:09:55,720 lbs in value. And this is a conceptual hurdle 204 00:09:55,720 --> 00:09:59,360 that is just absolutely vital for anyone listening to clear We 205 00:09:59,360 --> 00:10:03,000 must rigidly, strictly separate the value of the physical 206 00:10:03,000 --> 00:10:05,240 building from the value of the land beneath it. 207 00:10:05,320 --> 00:10:07,000 Because they are two completely different things. 208 00:10:07,000 --> 00:10:08,880 They are. When people say house prices are 209 00:10:08,880 --> 00:10:11,840 going up, they are almost always using the wrong terminology. 210 00:10:12,040 --> 00:10:14,880 House prices aren't going up. Right, because let's actually 211 00:10:14,880 --> 00:10:16,280 look at the physical building itself. 212 00:10:16,640 --> 00:10:19,920 Have these 1930s semi detached houses become 10 times 213 00:10:19,920 --> 00:10:22,560 structurally better over the last 90 years? 214 00:10:22,680 --> 00:10:25,120 I mean quite the opposite. From a purely structural 215 00:10:25,120 --> 00:10:27,760 standpoint. They are actively depreciating 216 00:10:27,760 --> 00:10:30,640 assets. They have aged the brickworks 217 00:10:30,640 --> 00:10:36,160 balls, the timber rots, the roofs need completely replacing 218 00:10:36,160 --> 00:10:39,640 after 50 or 60 years. They require continuous, really 219 00:10:39,640 --> 00:10:42,560 expensive modern maintenance just to not fall down. 220 00:10:43,000 --> 00:10:45,240 Just to remain legally habitable, yes. 221 00:10:45,240 --> 00:10:47,840 Not to mention the energy efficiency because we are 222 00:10:47,840 --> 00:10:52,560 talking about what solid brick walls or maybe very early cavity 223 00:10:52,560 --> 00:10:55,600 walls with absolutely 0 insulation inside. 224 00:10:55,600 --> 00:10:57,640 Them the exact. Suspended timber floors that 225 00:10:57,640 --> 00:11:00,160 just let the draft right up through the floorboards into the 226 00:11:00,160 --> 00:11:00,640 living. Room. 227 00:11:00,720 --> 00:11:03,040 Oh, the drafts are legendary in those houses. 228 00:11:03,040 --> 00:11:06,160 Single glazed windows originally, which OK, they 229 00:11:06,160 --> 00:11:08,960 probably replaced with double glazing by now, but even that 230 00:11:08,960 --> 00:11:11,560 double glazing is probably 20 years old and blowing its seals. 231 00:11:11,640 --> 00:11:14,360 Right, they leak heat like an absolute sieve. 232 00:11:14,360 --> 00:11:16,480 So they fall drastically short of modern standard. 233 00:11:16,480 --> 00:11:20,280 They fall short on space, on insulation, on environmental 234 00:11:20,280 --> 00:11:22,760 performance, because you have to remember they were built for a 235 00:11:22,760 --> 00:11:26,520 1930s lifestyle. Which means what practically? 236 00:11:26,640 --> 00:11:29,840 It means a lifestyle where perhaps you only heated one 237 00:11:29,840 --> 00:11:32,440 single room in the house with a coal fire during the winter. 238 00:11:32,440 --> 00:11:35,040 You didn't heat the bedrooms. Oh wow, yeah, you just wore more 239 00:11:35,040 --> 00:11:37,800 jumpers, right? They were not built for a twenty 240 00:11:37,800 --> 00:11:41,720 20s lifestyle where we expect 21° of central heating in every 241 00:11:41,720 --> 00:11:43,640 room. Multiple bath, bathrooms and 242 00:11:43,640 --> 00:11:45,680 home offices. OK so let me get this straight, 243 00:11:46,360 --> 00:11:50,920 if the physical house is depreciating and actively 244 00:11:50,920 --> 00:11:55,080 draining my wallet with maintenance costs every year and 245 00:11:55,080 --> 00:11:58,440 basically bleeding expensive heating into the atmosphere, yes 246 00:11:58,440 --> 00:12:01,720 I am essentially paying half £1,000,000 for a patch of dirt. 247 00:12:02,120 --> 00:12:05,440 Precisely, You are paying for the legal right to occupy a 248 00:12:05,440 --> 00:12:07,720 specific set of geographic coordinates. 249 00:12:07,840 --> 00:12:11,240 The value we see in the market today is completely 100% 250 00:12:11,240 --> 00:12:13,280 decoupled from the structure sitting on top of. 251 00:12:13,280 --> 00:12:16,160 It it is like, OK, it's like paying millions of dollars at an 252 00:12:16,160 --> 00:12:20,880 art auction for a terrible, rotting painting simply because 253 00:12:20,880 --> 00:12:24,920 it happens to sit inside a priceless, exquisite frame that 254 00:12:24,920 --> 00:12:27,080 is permanently bolted to the wall of the Louvre. 255 00:12:27,200 --> 00:12:29,760 Oh, I like that you were just buying the location on the wall. 256 00:12:29,960 --> 00:12:32,360 The house itself is just a decaying placeholder sitting 257 00:12:32,360 --> 00:12:35,440 inside the frame. It is a stark visual, but 258 00:12:35,440 --> 00:12:37,480 economically it is highly accurate. 259 00:12:38,120 --> 00:12:41,920 So the question we must ask is, why did the value of this 260 00:12:41,920 --> 00:12:45,600 specific frame, this patch of dirt in southeast London? 261 00:12:46,480 --> 00:12:48,640 Why did it skyrocket so violently? 262 00:12:48,800 --> 00:12:52,040 Yeah, what drove the land value to such absurd heights? 263 00:12:52,560 --> 00:12:55,800 Well, the data points directly to the agglomeration effect of 264 00:12:55,800 --> 00:12:57,640 London itself. Agglomeration effect. 265 00:12:57,640 --> 00:13:01,240 Yes, over the past century, London didn't just expand 266 00:13:01,240 --> 00:13:04,160 physically, it fundamentally changed its economic nature. 267 00:13:04,600 --> 00:13:08,520 It became this incredible economic black hole, pulling in 268 00:13:08,520 --> 00:13:11,800 talent, capital and global finance from all over the world. 269 00:13:11,920 --> 00:13:14,040 Agglomeration economics is the key term here. 270 00:13:14,040 --> 00:13:17,440 Exactly as London transitioned away from being a manufacturing 271 00:13:17,440 --> 00:13:20,360 center with docs and factories and became a global hub for 272 00:13:20,360 --> 00:13:23,960 finance, technology, media, and law, employment became 273 00:13:23,960 --> 00:13:26,560 massively, massively concentrated in the center 274 00:13:26,760 --> 00:13:28,160 right. And when you concentrate that 275 00:13:28,160 --> 00:13:31,840 many highly skilled industries in one place, the productivity 276 00:13:31,840 --> 00:13:34,320 of a worker in London becomes significantly higher than a 277 00:13:34,320 --> 00:13:36,120 worker doing a similar job elsewhere. 278 00:13:36,160 --> 00:13:38,440 Because they're surrounded by other high productivity workers 279 00:13:38,440 --> 00:13:41,520 and companies. Exactly which drives up wages in 280 00:13:41,520 --> 00:13:45,240 the capital, which in turn acts as a magnet and draws even and 281 00:13:45,240 --> 00:13:47,160 more people in. And then the infrastructure 282 00:13:47,160 --> 00:13:50,280 evolved to support that magnet. I mean, those 1930s electric 283 00:13:50,280 --> 00:13:53,000 trains were just the vanguard. They were just the start. 284 00:13:53,120 --> 00:13:56,320 Now you have the DLR, you have the Jubilee Line extension and 285 00:13:56,320 --> 00:13:58,720 obviously Crossrail. The Elizabeth line changed 286 00:13:58,720 --> 00:14:00,120 everything. It really did. 287 00:14:00,400 --> 00:14:04,280 The transport network basically acts as a giant funnel, allowing 288 00:14:04,280 --> 00:14:07,120 millions of people to commute into this highly concentrated 289 00:14:07,120 --> 00:14:09,760 zone of high paying employment every single day. 290 00:14:09,880 --> 00:14:13,160 Therefore, the demand for the right to live within a one hour 291 00:14:13,160 --> 00:14:16,880 commute of that specific economic engine intensified 292 00:14:16,960 --> 00:14:20,480 exponentially over the decades. Everyone wants to be near the 293 00:14:20,480 --> 00:14:21,480 money. Right. 294 00:14:21,840 --> 00:14:24,280 But, and this is where the entire system broke. 295 00:14:24,400 --> 00:14:28,480 If demand intensified that much, why didn't supply simply rise to 296 00:14:28,480 --> 00:14:30,520 meet it? Yeah, as traditionally economics 297 00:14:30,520 --> 00:14:32,120 suggests it always should. Right. 298 00:14:32,160 --> 00:14:35,200 Normally, if everyone wants a product, companies make more of 299 00:14:35,200 --> 00:14:37,280 that product. Why couldn't we just build 300 00:14:37,280 --> 00:14:41,280 millions of houses around London just like they did in the 1930s? 301 00:14:41,640 --> 00:14:45,680 Because, as our sources point out, the 1930s actually saw the 302 00:14:45,680 --> 00:14:48,720 biggest private house building boom in British history. 303 00:14:48,720 --> 00:14:51,560 They were building everywhere, but that boom was halted 304 00:14:51,560 --> 00:14:55,720 abruptly by a massive structural change in how land was governed 305 00:14:55,720 --> 00:14:57,440 in the UK. OK, what happened? 306 00:14:58,000 --> 00:15:02,240 We have to look at the post war period, specifically the 1947 307 00:15:02,240 --> 00:15:05,200 Town and Country Planning Act. The 1947 Act. 308 00:15:05,200 --> 00:15:09,200 Yes, this piece of legislation is arguably the most important 309 00:15:09,200 --> 00:15:12,240 factor in the modern housing crisis because it effectively 310 00:15:12,240 --> 00:15:14,080 nationalized the right to develop land. 311 00:15:14,080 --> 00:15:15,600 Wait. Nationalized the right to 312 00:15:15,600 --> 00:15:17,320 develop. What does that mean in practice? 313 00:15:17,400 --> 00:15:21,280 Well before 1947, if you owned a field on the edge of London, you 314 00:15:21,280 --> 00:15:23,120 could pretty much just decide to build houses on it. 315 00:15:23,120 --> 00:15:24,280 You just hire some builders and go. 316 00:15:24,280 --> 00:15:27,720 Pretty much, yeah. But after 1947, you still own 317 00:15:27,720 --> 00:15:30,880 the field, but the state now owned the right to develop it. 318 00:15:31,080 --> 00:15:33,360 You had to ask the government for permission to change what 319 00:15:33,360 --> 00:15:37,600 the land was used for. And at the exact same time, they 320 00:15:37,600 --> 00:15:40,440 instituted the Greenbelt policies, right to stop London 321 00:15:40,440 --> 00:15:43,520 from just endlessly sprawling out into the Home Counties. 322 00:15:43,520 --> 00:15:46,240 Exactly. The Greenbelt placed a hard 323 00:15:46,240 --> 00:15:49,240 physical legal corset right around the city. 324 00:15:49,320 --> 00:15:51,400 So they literally trapped it. They did. 325 00:15:51,800 --> 00:15:54,600 So you have a booming economic engine drawing in millions of 326 00:15:54,600 --> 00:15:56,920 people, generating massive wealth. 327 00:15:57,240 --> 00:16:00,760 But you have artificially capped the total amount of land 328 00:16:01,000 --> 00:16:03,360 available to actually house those people, right? 329 00:16:03,640 --> 00:16:06,560 And on top of that, you have created this discretionary 330 00:16:06,560 --> 00:16:10,960 planning system that makes it incredibly slow, risky, and 331 00:16:10,960 --> 00:16:13,640 difficult to build even on the land that is theoretically 332 00:16:13,640 --> 00:16:16,920 available inside the Greenbelt. So you basically have boiling 333 00:16:16,920 --> 00:16:19,760 demand just crashing straight into an artificially restricted 334 00:16:19,760 --> 00:16:22,120 supply. And when demand consistently 335 00:16:22,120 --> 00:16:25,800 outstrips supply over decades, not just for a few years but for 336 00:16:25,800 --> 00:16:28,680 generations, prices don't just rise, they compound. 337 00:16:28,680 --> 00:16:31,680 The snowball effect. Yes, the appreciation of one 338 00:16:31,680 --> 00:16:34,160 year becomes the baseline for the very next year. 339 00:16:34,560 --> 00:16:37,440 This creates what economists call economic rent. 340 00:16:37,800 --> 00:16:39,480 Economic rent. Define that for me. 341 00:16:39,480 --> 00:16:43,080 In this context, it's basically unearned income derived simply 342 00:16:43,080 --> 00:16:47,040 from owning A scarce resource. In this case, the resources land 343 00:16:47,040 --> 00:16:50,240 with planning permission near a global economic hub. 344 00:16:50,280 --> 00:16:51,800 So you don't actually have to do anything. 345 00:16:51,920 --> 00:16:54,480 Nothing at all. The landowner does absolutely 346 00:16:54,480 --> 00:16:57,800 nothing to improve the land, but their wealth skyrockets simply 347 00:16:57,800 --> 00:17:01,240 because the society around the land becomes more productive and 348 00:17:01,240 --> 00:17:04,319 more desperate for space. Which perfectly sets up this 349 00:17:05,079 --> 00:17:07,280 frankly bizarre thought experiment from the sources. 350 00:17:07,280 --> 00:17:09,400 Oh I love this one. It's so good. 351 00:17:09,520 --> 00:17:14,240 OK, let's say we recognize that the 1930s houses are old, but we 352 00:17:14,240 --> 00:17:16,920 still really like the style. Sure, people love the aesthetic. 353 00:17:16,920 --> 00:17:19,400 Right, so let's imagine we have a time machine. 354 00:17:19,960 --> 00:17:23,599 We go back to 1935. We scoop up a crew of original 355 00:17:23,599 --> 00:17:26,599 1930s builders. We grab all their tools, their 356 00:17:26,599 --> 00:17:28,520 blueprints, and we bring them forward to today. 357 00:17:28,560 --> 00:17:30,080 OK, 10 traveling builders. Got it. 358 00:17:30,240 --> 00:17:33,480 And we drop them on an empty plot of land right next to our 359 00:17:33,480 --> 00:17:37,080 street in southeast London. And we tell them build the exact 360 00:17:37,080 --> 00:17:41,240 same 3 bedroom, semi exact same bricks, exact same labor hours. 361 00:17:41,520 --> 00:17:45,280 Right Here's the question. Would it cost £60,000? 362 00:17:45,560 --> 00:17:48,840 And the math on modern construction tells us absolutely 363 00:17:48,840 --> 00:17:50,160 not. Not even close. 364 00:17:50,160 --> 00:17:52,280 Not even close. And the crucial thing to 365 00:17:52,280 --> 00:17:55,680 understand here is that it's not because the cost of bricks has 366 00:17:55,680 --> 00:17:59,360 massively outpaced inflation. Or because modern brick layers 367 00:17:59,360 --> 00:18:02,960 are demanding exurberant wages compared to the 1930s guys. 368 00:18:03,000 --> 00:18:04,600 Right. The physical cost of 369 00:18:04,600 --> 00:18:07,360 construction, the actual material, the timber, the 370 00:18:07,360 --> 00:18:11,600 concrete and the labor is only a fraction of the final price of a 371 00:18:11,600 --> 00:18:13,840 modern home. OK, here's where it gets really 372 00:18:13,840 --> 00:18:15,080 interesting. Let's break down the math. 373 00:18:15,920 --> 00:18:20,720 Why can't I build that house for £60,000 if the materials aren't 374 00:18:20,720 --> 00:18:23,320 the problem? Because of how land valuation 375 00:18:23,320 --> 00:18:25,880 works in an artificially restricted market, it comes down 376 00:18:25,880 --> 00:18:28,880 to a concept called residual land valuation. 377 00:18:28,880 --> 00:18:31,160 Residual land valuation. OK, walk me through it. 378 00:18:31,320 --> 00:18:34,640 When a modern developer looks at an empty plot of land, they 379 00:18:34,640 --> 00:18:38,440 don't look at what the land is, they don't see a patch of grass. 380 00:18:38,600 --> 00:18:41,720 They look at what the finished houses will eventually sell for. 381 00:18:41,720 --> 00:18:45,040 OK, so they look at the 90 year old houses right next door that 382 00:18:45,040 --> 00:18:47,560 are currently selling for £500,000. 383 00:18:47,760 --> 00:18:49,960 Exactly. They see the market rates, so 384 00:18:50,200 --> 00:18:53,960 they calculate what's called the gross development value, or GDV. 385 00:18:53,960 --> 00:18:57,200 GDV, right? Let's say they can fit 2 semi 386 00:18:57,200 --> 00:18:59,040 detached houses on this empty plot. 387 00:19:00,080 --> 00:19:04,080 Based on the neighbors. That's a GDV of £1,000,000, half 388 00:19:04,080 --> 00:19:06,600 a million each. Got it. 1,000,000 in total 389 00:19:06,600 --> 00:19:08,920 revenue. Then the developer subtracts the 390 00:19:08,920 --> 00:19:12,040 actual cost of construction. Let's be generous and say it 391 00:19:12,040 --> 00:19:16,600 costs £300,000 to build both houses to modern building 392 00:19:16,600 --> 00:19:18,960 regulation. OK, so we're down to 700,000 393 00:19:18,960 --> 00:19:20,560 left. Then they have to subtract the 394 00:19:20,560 --> 00:19:23,600 required profit margin because they won't build for free. 395 00:19:23,920 --> 00:19:27,120 They subtract the cost of financing the debt to build it, 396 00:19:27,360 --> 00:19:30,480 the massive cost of navigating the planning system for three 397 00:19:30,480 --> 00:19:32,160 years. Because they have to pay lawyers 398 00:19:32,160 --> 00:19:33,840 and architects just to get permission. 399 00:19:33,840 --> 00:19:36,560 Exactly, and then they also have to pay section one O 6 400 00:19:36,560 --> 00:19:38,240 contributions to the local council. 401 00:19:38,240 --> 00:19:39,960 Wait, wait, pause. What are section one O 6 402 00:19:39,960 --> 00:19:42,480 contributions? It's essentially a tax levied by 403 00:19:42,480 --> 00:19:45,880 local authorities on developers. If you want permission to build, 404 00:19:45,880 --> 00:19:49,000 you have to agree to fund local infrastructure, maybe expand a 405 00:19:49,000 --> 00:19:52,440 school, or provide a certain percentage of affordable housing 406 00:19:52,440 --> 00:19:55,240 on the site. OK, so it's basically the 407 00:19:55,240 --> 00:19:57,880 Council extracting some of the value of the development for the 408 00:19:57,880 --> 00:20:00,240 community? Exactly, it's yet another 409 00:20:00,240 --> 00:20:02,520 massive cost layered on to the process. 410 00:20:02,880 --> 00:20:05,880 So the developer subtracts all of these costs, Construction 411 00:20:05,880 --> 00:20:10,960 Profit, Finance Planning Section One O 6 from that initial 412 00:20:11,040 --> 00:20:14,440 £1,000,000 GDV. And whatever money is leftover. 413 00:20:14,440 --> 00:20:17,840 Whatever is leftover, the residual is exactly what they 414 00:20:17,840 --> 00:20:20,080 can afford to pay the landowner to buy the dirt. 415 00:20:20,760 --> 00:20:23,360 And obviously the landowner already knows all of this math. 416 00:20:23,360 --> 00:20:25,760 Of course they do. The landowner isn't stupid, they 417 00:20:25,760 --> 00:20:28,720 know the finished houses will sell for half a million each, so 418 00:20:28,720 --> 00:20:31,600 they will not sell the dirt to the developer for £10,000. 419 00:20:31,600 --> 00:20:33,600 No, they'll demand the absolute maximum. 420 00:20:33,600 --> 00:20:36,600 They will demand the absolute maximum residual value, so the 421 00:20:36,600 --> 00:20:39,880 land already prices in the massive shortage of housing 422 00:20:39,880 --> 00:20:42,160 before a single shovel even hits the dirt. 423 00:20:42,200 --> 00:20:44,920 So you're telling me that even if we invent a time machine, 424 00:20:45,240 --> 00:20:48,480 bring back our 1930s builders and construct a whole new 425 00:20:48,480 --> 00:20:52,120 street, the modern economic system just instantly swallows 426 00:20:52,120 --> 00:20:56,760 it up and slapped a £500,000 price tag on it anyway, purely 427 00:20:56,760 --> 00:20:58,760 because of the location and the scarcity? 428 00:20:58,920 --> 00:21:03,440 Yes, the baseline cost is astronomically high purely 429 00:21:03,440 --> 00:21:05,560 because of the dirt. That is wild. 430 00:21:05,560 --> 00:21:09,680 And this completely subverts the really easy political sound bite 431 00:21:09,680 --> 00:21:11,640 we hear all the time of just build more houses. 432 00:21:11,640 --> 00:21:13,760 Oh, we hear that constantly. Supply and demand. 433 00:21:13,920 --> 00:21:15,560 Right. We are constantly told that 434 00:21:15,560 --> 00:21:17,400 basic supply and demand will fix. 435 00:21:17,400 --> 00:21:20,800 This increases supply of houses and house prices will naturally 436 00:21:20,800 --> 00:21:23,560 fall. But if the new supply has to be 437 00:21:23,560 --> 00:21:28,240 built on land, that already assumes a £500,000 end product. 438 00:21:28,600 --> 00:21:30,720 Building more homes doesn't actually actually lower the 439 00:21:30,720 --> 00:21:33,160 baseline price. Because the land is too 440 00:21:33,160 --> 00:21:36,520 expensive to start with, you are just adding more half million 441 00:21:36,520 --> 00:21:40,320 pound assets to a market that is already full of half million 442 00:21:40,320 --> 00:21:41,760 pound assets. Exactly. 443 00:21:41,760 --> 00:21:43,880 It's like you're expanding the size of the casino. 444 00:21:44,080 --> 00:21:46,600 You're putting in more roulette tables, but you aren't actually 445 00:21:46,600 --> 00:21:48,680 lowering the minimum bet at the tables. 446 00:21:48,680 --> 00:21:51,320 That is a perfect way to put it. The new supply is just instantly 447 00:21:51,320 --> 00:21:54,320 absorbed into the existing highly inflated pricing 448 00:21:54,320 --> 00:21:56,520 paradigm. OK, so if building new suburban 449 00:21:56,520 --> 00:21:59,520 sprawl doesn't solve it because the new land is already priced 450 00:21:59,520 --> 00:22:03,800 too high, it really forces us to look at the land we are already 451 00:22:03,800 --> 00:22:05,600 using. The existing footprint. 452 00:22:05,680 --> 00:22:09,200 Right, we have all these 1930s houses sitting on these massive, 453 00:22:09,520 --> 00:22:12,360 relatively speaking, plots of incredibly valuable dirt. 454 00:22:13,000 --> 00:22:17,560 From a purely logical, almost robotic perspective, the obvious 455 00:22:17,560 --> 00:22:20,440 answer is demolition and densification. 456 00:22:20,720 --> 00:22:23,000 The SIM City approach to urban planning. 457 00:22:23,040 --> 00:22:25,080 Exactly, I used to play SIM City. 458 00:22:25,160 --> 00:22:28,800 If the land is worth an absolute fortune and the house sitting on 459 00:22:28,800 --> 00:22:32,080 it is a drafty energy inefficient liability, just 460 00:22:32,080 --> 00:22:33,560 bulldoze it. Just wipe it out. 461 00:22:34,160 --> 00:22:37,640 Buy up for these adjacent semis, knock them all down and build a 462 00:22:37,640 --> 00:22:42,240 beautiful, modern, highly energy efficient mid rise mansion block 463 00:22:42,400 --> 00:22:45,320 on the exact same footprint. Right, going up instead of out. 464 00:22:45,400 --> 00:22:47,880 You could house 20 families on the footprint of four, 465 00:22:48,080 --> 00:22:51,080 drastically improving the environmental impact, reducing 466 00:22:51,080 --> 00:22:54,280 carbon emissions from heating, and actually adding meaningful 467 00:22:54,280 --> 00:22:56,480 housing supply to a place with a train station. 468 00:22:56,600 --> 00:22:59,080 Why aren't developers doing this on literally every street in 469 00:22:59,080 --> 00:23:01,360 London? Well, if the market function 470 00:23:01,360 --> 00:23:04,360 purely on the basis of physical efficiency and logic, we would 471 00:23:04,360 --> 00:23:06,240 see exactly that. Cities would just naturally 472 00:23:06,240 --> 00:23:08,560 renew themselves. Yes, the housing stock would be 473 00:23:08,560 --> 00:23:12,280 constantly renewed, constantly adapting to the population 474 00:23:12,280 --> 00:23:15,560 density needs of the present. But we don't see this. 475 00:23:15,560 --> 00:23:17,760 No, we don't. We are basically frozen in time. 476 00:23:17,840 --> 00:23:21,560 And this brings us to the absolute core of the crisis, the 477 00:23:21,560 --> 00:23:26,120 systemic traps that actively, aggressively prevent the dynamic 478 00:23:26,120 --> 00:23:28,880 evolution of our cities. So we are paralyzed. 479 00:23:28,880 --> 00:23:31,440 Completely paralyzed. Let's dissect these traps then, 480 00:23:31,440 --> 00:23:34,960 because this is where the sheer crushing weight of the economic 481 00:23:34,960 --> 00:23:36,880 system becomes terrifyingly clear. 482 00:23:37,200 --> 00:23:40,640 You have millions of individuals who are trapped geographically, 483 00:23:40,640 --> 00:23:43,840 financially and psychologically. It's a multi layered trap. 484 00:23:43,840 --> 00:23:47,400 Let's start with the most immediate visceral danger to the 485 00:23:47,400 --> 00:23:50,800 individual homeowner, the macroeconomics of the mortgage 486 00:23:50,800 --> 00:23:53,520 system. Right trap #1 the mortgage 487 00:23:53,520 --> 00:23:56,760 system is basically the linchpin holding this entire illusion 488 00:23:56,760 --> 00:23:59,640 together. When someone buys that £500,000 489 00:23:59,640 --> 00:24:01,480 house today, they aren't paying in cash. 490 00:24:01,720 --> 00:24:03,520 Obviously not. They are taking out a mortgage 491 00:24:03,520 --> 00:24:08,400 for say 400,000 or 450,000 lbs. Their personal solvency, their 492 00:24:08,400 --> 00:24:11,280 entire financial existence, is completely predicated on that 493 00:24:11,280 --> 00:24:13,880 house never dropping below the value of the debt they owe the 494 00:24:13,880 --> 00:24:14,800 bank. Right. 495 00:24:15,160 --> 00:24:18,520 If the market corrects, say prices drop by 40% and the house 496 00:24:18,520 --> 00:24:23,400 drops to 300,000 lbs, they suddenly owe the bank £150,000 497 00:24:23,400 --> 00:24:25,520 more than the asset is actually worth. 498 00:24:25,600 --> 00:24:28,920 Which is negative equity and we all know the danger of negative 499 00:24:28,920 --> 00:24:31,080 equity. For the individual it is a total 500 00:24:31,080 --> 00:24:33,720 financial nightmare. You can't move, you can't 501 00:24:33,720 --> 00:24:35,640 remortgage. It destroys lies. 502 00:24:35,640 --> 00:24:38,400 It does, but at a macro scale, it's even worse. 503 00:24:38,640 --> 00:24:41,640 Having a significant percentage of suburban homeowners 504 00:24:41,640 --> 00:24:44,840 underwater on their mortgages effectively paralyzes the 505 00:24:44,840 --> 00:24:48,160 broader national economy. How so explain the macro effect 506 00:24:48,160 --> 00:24:49,840 of that? It creates what we call labor 507 00:24:49,840 --> 00:24:53,280 market ossification. Ossification like bone. 508 00:24:53,480 --> 00:24:54,840 Exactly. It becomes rigid. 509 00:24:54,880 --> 00:24:58,800 Imagine you live in Bexleyheath, you are in deep negative equity 510 00:24:58,800 --> 00:25:01,840 and you suddenly get offered a fantastic, highly productive, 511 00:25:01,960 --> 00:25:04,120 much better paying job in Manchester. 512 00:25:04,640 --> 00:25:07,520 You literally cannot take it. You cannot sell your house in 513 00:25:07,520 --> 00:25:11,400 Bexleyheath without crystallizing a massive 150,000 514 00:25:11,400 --> 00:25:13,760 LB debt that you have to pay the bank immediately, which you 515 00:25:13,760 --> 00:25:16,120 don't have. So you turn down the job. 516 00:25:16,400 --> 00:25:19,640 You stay in a less productive job in London purely because 517 00:25:19,640 --> 00:25:23,320 your massive housing debt traps you geographically to that 518 00:25:23,320 --> 00:25:26,840 specific semi detached house. So the entire national workforce 519 00:25:26,840 --> 00:25:30,880 becomes rigid and inefficient. People can't move to where the 520 00:25:30,880 --> 00:25:34,200 best jobs are. Yes, the economy slows down 521 00:25:34,200 --> 00:25:37,480 because labor can't flow efficiently, and furthermore, 522 00:25:37,480 --> 00:25:40,760 the banking sector itself holds trillions of pounds in this 523 00:25:40,760 --> 00:25:42,320 mortgage debt. Right, it's on the balance 524 00:25:42,320 --> 00:25:44,440 sheets. If the underlying asset values 525 00:25:44,440 --> 00:25:48,080 collapse, those loans go bad and bank balance sheets become 526 00:25:48,080 --> 00:25:50,360 completely insolvent. We saw a version of this in 527 00:25:50,360 --> 00:25:52,440 2008. The great financial crisis. 528 00:25:52,440 --> 00:25:54,800 Exactly. So the banking system 529 00:25:54,800 --> 00:25:57,960 essentially holds a gun to the head of the government, forcing 530 00:25:57,960 --> 00:26:01,080 lawmakers to prop up house prices at absolutely all costs 531 00:26:01,080 --> 00:26:03,400 just to avoid a systemic financial meltdown. 532 00:26:03,440 --> 00:26:05,680 Wow. So that is the geographic and 533 00:26:05,680 --> 00:26:07,880 the financial trap. But there is a psychological 534 00:26:07,880 --> 00:26:10,600 layer here too, isn't there? Because as we discussed, in the 535 00:26:10,600 --> 00:26:14,640 1930s, it was just a house. Now it's the financialization of 536 00:26:14,640 --> 00:26:17,960 the middle class. Yes, trap #2 the investment 537 00:26:17,960 --> 00:26:20,080 paradox. People aren't just scared of 538 00:26:20,080 --> 00:26:25,120 losing money, they are actively, aggressively relying on this 539 00:26:25,120 --> 00:26:29,520 1930s brick box to fund their entire future existence. 540 00:26:29,520 --> 00:26:32,040 Housing has become deeply intertwined with personal wealth 541 00:26:32,040 --> 00:26:34,880 generation. It is no longer just shelter. 542 00:26:34,880 --> 00:26:38,440 It is a savings account, right? It is the collateral used to 543 00:26:38,440 --> 00:26:42,400 start small businesses. It is the primary vehicle for 544 00:26:42,400 --> 00:26:45,960 generational wealth transfer, passing money down to your kids, 545 00:26:46,440 --> 00:26:49,280 and most critically of all, it is the primary source of 546 00:26:49,280 --> 00:26:52,600 security for old age. People literally look at their 547 00:26:52,600 --> 00:26:56,560 drafty 3 bed semi and think this is my pension, I'm going to 548 00:26:56,560 --> 00:26:59,840 downsize when I'm 70, move to the coast and live off the 300 549 00:26:59,840 --> 00:27:01,760 grand in equity. They absolutely do. 550 00:27:01,760 --> 00:27:05,160 The expectation of continuous above inflation appreciation is 551 00:27:05,160 --> 00:27:08,240 completely baked into the cultural psyche of the UK. 552 00:27:08,480 --> 00:27:10,520 People don't just hope their house gains value, they 553 00:27:10,520 --> 00:27:12,760 structurally rely on it to survive retirement. 554 00:27:12,880 --> 00:27:15,160 And this creates massive political inertia, doesn't it? 555 00:27:15,160 --> 00:27:19,040 Massive if a politician stands up and suggests policies that 556 00:27:19,040 --> 00:27:21,880 would genuinely actually lower house prices to make them 557 00:27:21,880 --> 00:27:23,280 affordable for the next generation. 558 00:27:23,280 --> 00:27:25,560 Like 60,000 lbs affordable. Right. 559 00:27:25,960 --> 00:27:29,080 If they try to do that, they are simultaneously threatening to 560 00:27:29,080 --> 00:27:32,360 vaporize the life savings and retirement plans of their 561 00:27:32,360 --> 00:27:36,160 largest, wealthiest and most reliable voting demographic. 562 00:27:36,200 --> 00:27:39,800 The homeowners. Yes, it is complete political 563 00:27:39,800 --> 00:27:42,600 suicide to suggest lowering house prices. 564 00:27:42,920 --> 00:27:45,240 Let me try another analogy here, because I think I'm really 565 00:27:45,240 --> 00:27:49,120 starting to understand the sheer weight of this trap. 566 00:27:49,240 --> 00:27:51,840 Go for it. It's like, OK, it's like being 567 00:27:51,840 --> 00:27:54,840 handcuffed to an antique car. Let's say you have this 568 00:27:55,080 --> 00:27:58,360 sputtering, incredibly inefficient antique car from the 569 00:27:58,360 --> 00:28:00,960 30s. You desperately want a modern 570 00:28:00,960 --> 00:28:02,880 electric vehicle. It's cheaper to run, it's better 571 00:28:02,880 --> 00:28:04,800 for the environment. It makes way more sense. 572 00:28:04,800 --> 00:28:09,720 OK, but years ago you took out a massive life altering loan using 573 00:28:09,720 --> 00:28:13,200 the antique cars collector value as collateral for the bank. 574 00:28:13,200 --> 00:28:16,160 It's close, but we have to push back on that analogy slightly to 575 00:28:16,160 --> 00:28:17,920 be totally accurate. Oh really? 576 00:28:17,920 --> 00:28:20,360 Why? Because a car, even a very rare 577 00:28:20,360 --> 00:28:23,960 antique, generally depreciates eventually or just remains in 578 00:28:23,960 --> 00:28:26,240 each asset for collectors. It doesn't drive the whole 579 00:28:26,240 --> 00:28:27,320 economy. Fairpoint. 580 00:28:27,400 --> 00:28:31,160 The danger with housing is that the antique car in your analogy 581 00:28:31,480 --> 00:28:34,880 actually allows you to take out cheaper loans to buy other 582 00:28:34,880 --> 00:28:36,880 things. It collateralizes your entire 583 00:28:36,880 --> 00:28:37,880 life. Oh, I see. 584 00:28:37,960 --> 00:28:41,880 The trap isn't just that the car is expensive to maintain, it's 585 00:28:41,880 --> 00:28:45,640 that the antique car is the literal bedrock of your entire 586 00:28:45,640 --> 00:28:47,800 credit rating and your financial security. 587 00:28:48,000 --> 00:28:50,880 OK, I see the distinction. So you can't scrap the car, 588 00:28:51,680 --> 00:28:54,440 because then you owe this massive loan, but you have no 589 00:28:54,440 --> 00:28:57,320 asset to back it up exactly. And you can't afford to replace 590 00:28:57,320 --> 00:29:00,520 it because you can't get a new loan while holding the old debt. 591 00:29:00,720 --> 00:29:03,800 So you are completely paralyzed. You are forced to just keep 592 00:29:03,800 --> 00:29:07,880 driving this wildly inefficient machine, paying exorbitant 593 00:29:07,880 --> 00:29:10,680 maintenance fees every month, simply because the financial 594 00:29:10,680 --> 00:29:12,960 mechanics of the loan prohibit you from moving forward. 595 00:29:12,960 --> 00:29:14,920 Exactly. And that paralysis at the 596 00:29:14,920 --> 00:29:18,280 individual level, the homeowner who can't move scales up to 597 00:29:18,280 --> 00:29:21,000 create paralysis at the development level, which is the 598 00:29:21,000 --> 00:29:23,840 structural reality of why we don't bulldoze and rebuild like 599 00:29:23,840 --> 00:29:26,320 we talked about in some city. Right, back to the developer 600 00:29:26,320 --> 00:29:30,240 problem trap #3 why doesn't the math work for a developer to 601 00:29:30,240 --> 00:29:32,400 just buy these houses and build flats? 602 00:29:32,720 --> 00:29:36,400 Because of the insane baseline cost of the land, combined with 603 00:29:36,400 --> 00:29:39,040 the extreme risks of the planning system we talked about, 604 00:29:39,280 --> 00:29:40,760 let's look at the numbers again. Let's do it. 605 00:29:41,480 --> 00:29:46,280 If a developer buys four of those 500,000 LB houses with the 606 00:29:46,280 --> 00:29:49,800 intention of knocking them down, their baseline cost is 607 00:29:49,800 --> 00:29:54,520 £2,000,000 just to get the keys to the dirt. £2,000,000 before 608 00:29:54,520 --> 00:29:56,920 they've even hired a single Wrecking Ball, yes. 609 00:29:57,480 --> 00:29:59,720 Then they have to pay for the actual demolition. 610 00:30:00,160 --> 00:30:04,760 Then, crucially, they face the discretionary planning system. 611 00:30:04,760 --> 00:30:07,920 Right, the 1947 Act. Remember, they don't have an 612 00:30:07,920 --> 00:30:10,320 automatic right to build a block of flats there. 613 00:30:10,320 --> 00:30:13,240 They have to ask the local council for permission and the 614 00:30:13,240 --> 00:30:15,800 local council is elected by the local homeowners. 615 00:30:15,800 --> 00:30:18,200 Who definitely do not want a block of flats on their St. 616 00:30:18,440 --> 00:30:21,480 The NABY factor in my backyard. Precisely. 617 00:30:21,640 --> 00:30:24,160 The existing homeowners will fight it tooth and nail because 618 00:30:24,160 --> 00:30:27,760 they think a block of flats will devalue their own antique cars, 619 00:30:27,760 --> 00:30:30,320 so to speak. So they object to the planning 620 00:30:30,320 --> 00:30:32,080 application. And that planning application 621 00:30:32,080 --> 00:30:34,920 might take years, it might cost hundreds of thousands in legal 622 00:30:34,920 --> 00:30:38,320 fees, and at the end it might be rejected entirely. 623 00:30:38,520 --> 00:30:42,600 Leaving the developer where? Leaving the developer stuck with 624 00:30:42,600 --> 00:30:45,760 2,000,000 lbs of debt, paying interest every month and 625 00:30:45,760 --> 00:30:49,520 absolutely nothing to show for it but four empty rotting 626 00:30:49,520 --> 00:30:52,000 houses. That is an insane amount of 627 00:30:52,000 --> 00:30:54,360 risk. It is, and even if the 628 00:30:54,360 --> 00:30:57,480 application is approved, they then have to pay modern 629 00:30:57,480 --> 00:31:00,760 construction costs, comply with highly stringent modern 630 00:31:00,760 --> 00:31:04,000 environmental regulations, manage supply chain risks for 631 00:31:04,000 --> 00:31:06,320 materials. By the time they actually build 632 00:31:06,320 --> 00:31:08,320 something new, they've spent a massive fortune. 633 00:31:08,400 --> 00:31:11,680 So for the developer to make any profit at all on this venture, 634 00:31:11,680 --> 00:31:14,520 the new flats they build would have to sell for astronomical 635 00:31:14,520 --> 00:31:16,400 prices. Prices at the local suburban 636 00:31:16,400 --> 00:31:18,400 market probably won't even support. 637 00:31:18,400 --> 00:31:20,440 Because nobody's going to pay £1,000,000 for a flat in 638 00:31:20,440 --> 00:31:21,640 Bexleyheath. Exactly. 639 00:31:21,640 --> 00:31:25,080 The numbers simply do not work. The economic reality is that 640 00:31:25,080 --> 00:31:28,640 replacing an old, inefficient home is far, far less 641 00:31:28,640 --> 00:31:32,080 financially viable than simply leaving it standing, maybe 642 00:31:32,080 --> 00:31:34,800 throwing a quick coat of fresh paint on the Bay window and just 643 00:31:34,800 --> 00:31:37,720 selling it to the next buyer who is desperate for a patch of 644 00:31:37,720 --> 00:31:40,440 London Bert. Wow, so we are locked into 645 00:31:40,520 --> 00:31:44,120 preserving old structures out of brutal, inescapable economic 646 00:31:44,120 --> 00:31:45,360 constraint. We are. 647 00:31:45,400 --> 00:31:48,800 We freeze our cities in time. Not because we love 1930s 648 00:31:48,800 --> 00:31:52,240 brickwork, though some might, but mostly because the math 649 00:31:52,320 --> 00:31:54,960 dictates it. That is incredibly bleak. 650 00:31:55,000 --> 00:31:58,600 It really makes you realize the housing crisis isn't a lack of 651 00:31:58,600 --> 00:32:02,760 rocks or lack of builders, It is a systemic mathematical 652 00:32:02,760 --> 00:32:05,040 paralysis. It is entirely systemic. 653 00:32:05,240 --> 00:32:08,880 So if we are trapped by mortgages and we are trapped by 654 00:32:08,880 --> 00:32:12,160 pension investment expectations and we are trapped by 655 00:32:12,160 --> 00:32:14,800 construction math, yeah, how do we get out? 656 00:32:14,840 --> 00:32:16,960 That is the trillion pound question. 657 00:32:16,960 --> 00:32:21,000 Like how do we realistically rebalance the scales for future 658 00:32:21,000 --> 00:32:24,600 generations so my kids can buy a house without just detonating 659 00:32:24,600 --> 00:32:27,480 the entire economy today? Well, macroeconomists generally 660 00:32:27,480 --> 00:32:30,800 frame the solution as a very stark, almost binary choice. 661 00:32:30,800 --> 00:32:33,280 OK, what are the two options? There are really only two 662 00:32:33,280 --> 00:32:35,440 mathematical ways to improve housing affordability. 663 00:32:35,440 --> 00:32:38,000 Option 1 is that house prices fall dramatically back down, 664 00:32:38,000 --> 00:32:39,760 closer to their pure utility value. 665 00:32:39,760 --> 00:32:42,000 And option 2. Option 2 is that incomes rise 666 00:32:42,000 --> 00:32:45,440 dramatically to the point where a £500,000 mortgage is no longer 667 00:32:45,440 --> 00:32:47,360 a crushing burden for an average worker. 668 00:32:47,560 --> 00:32:49,480 OK, let's look at option one first. 669 00:32:49,480 --> 00:32:52,760 Prices crash. We touched on the macroeconomic 670 00:32:52,760 --> 00:32:56,080 fallout of negative equity earlier, but what would actually 671 00:32:56,080 --> 00:32:59,040 happen if the government just decided to pop the bubble? 672 00:32:59,360 --> 00:33:01,960 Like say they banned foreign investment, raised interest 673 00:33:01,960 --> 00:33:04,880 rates to 15% and intentionally crashed the market. 674 00:33:05,200 --> 00:33:08,280 It would be genuinely catastrophic in a modern Fiat 675 00:33:08,280 --> 00:33:09,880 economy. Worse than 2008? 676 00:33:10,120 --> 00:33:14,800 Potentially much worse. When asset values collapse that 677 00:33:14,800 --> 00:33:18,400 quickly, you don't just hurt rich property speculators, you 678 00:33:18,400 --> 00:33:21,120 destroy the collateral of the entire banking system. 679 00:33:21,160 --> 00:33:24,080 As we discussed, credit freezes entirely. 680 00:33:24,400 --> 00:33:27,240 Normal businesses can't get short term loans just to meet 681 00:33:27,240 --> 00:33:29,120 their payroll. People lose their jobs. 682 00:33:29,200 --> 00:33:31,680 The domino effect. And furthermore, you trigger a 683 00:33:31,680 --> 00:33:33,720 massive loss of consumer confidence. 684 00:33:33,920 --> 00:33:35,800 Economists call this the wealth effect. 685 00:33:36,320 --> 00:33:38,360 How does that work? When people see the theoretical 686 00:33:38,360 --> 00:33:42,560 value of their home drop by 200,000 lbs on paper, they feel 687 00:33:42,560 --> 00:33:45,560 significantly poorer, even if they aren't planning to sell. 688 00:33:45,560 --> 00:33:47,920 Oh, so they stop spending money? Exactly. 689 00:33:47,920 --> 00:33:50,800 They stop going to restaurants, they cancel their holidays, they 690 00:33:50,800 --> 00:33:53,920 delay buying new cars. The velocity of money in the 691 00:33:53,920 --> 00:33:56,640 economy just plummets. So it's a localized Great 692 00:33:56,640 --> 00:34:00,120 Depression. A deep, immediate, very painful 693 00:34:00,120 --> 00:34:02,240 recession becomes almost inevitable. 694 00:34:02,880 --> 00:34:06,200 Therefore, no rational government of any political 695 00:34:06,200 --> 00:34:10,600 stripe will ever intentionally engineer a massive drop in 696 00:34:10,600 --> 00:34:13,320 nominal house prices. Because they'd be voted out 697 00:34:13,320 --> 00:34:15,760 immediately, assuming the economy didn't collapse first. 698 00:34:15,840 --> 00:34:18,480 Exactly. Which leaves us with option 2, 699 00:34:19,400 --> 00:34:21,120 incomes rising. The soft landing. 700 00:34:21,199 --> 00:34:23,920 Yes, the soft landing. It is the historically and 701 00:34:23,920 --> 00:34:26,679 politically preferred path. OK, For housing to become 702 00:34:26,679 --> 00:34:29,320 genuinely more affordable without destabilizing the whole 703 00:34:29,320 --> 00:34:32,000 financial system, average earnings must rise. 704 00:34:32,000 --> 00:34:35,760 Structurally, the ratio between house prices and earnings, which 705 00:34:35,760 --> 00:34:39,280 has decoupled completely over the last 20 years, must narrow. 706 00:34:39,440 --> 00:34:42,120 Meaning wages have to go up while house prices stay flat. 707 00:34:42,120 --> 00:34:45,080 Right earnings must grow significantly faster than house 708 00:34:45,080 --> 00:34:47,800 prices for a sustained extended period of time. 709 00:34:48,000 --> 00:34:50,040 But wait, let me make sure I'm following the math here, because 710 00:34:50,040 --> 00:34:53,400 this sounds flawed. Real wage growth in the UK has 711 00:34:53,400 --> 00:34:56,480 been virtually stagnant since the 2008 financial crisis, 712 00:34:56,480 --> 00:34:58,160 right? It has been very poor, yes. 713 00:34:58,160 --> 00:35:02,720 So if wages grow at a sluggish, say, 2% a year, and the 714 00:35:02,720 --> 00:35:05,840 government miraculously manages to keep house prices perfectly 715 00:35:05,840 --> 00:35:09,480 flat at 500,000 lbs with 0% growth. 716 00:35:09,720 --> 00:35:12,760 Which is very hard to do. Assuming they can even do that, 717 00:35:13,520 --> 00:35:17,160 it would take decades, decades and decades of flat prices and 718 00:35:17,160 --> 00:35:21,440 2% wage growth for that house to actually feel as affordable to a 719 00:35:21,440 --> 00:35:25,520 normal worker as the £60,000 equivalent did in the 1930s. 720 00:35:25,640 --> 00:35:29,400 Your math is completely correct. Are we basically doomed to just 721 00:35:29,400 --> 00:35:32,280 wait it out for 50 years of slow wage growth? 722 00:35:32,960 --> 00:35:35,200 Because that doesn't help anyone trying to buy a house today. 723 00:35:35,280 --> 00:35:38,280 That is the grim reality of the soft landing approach. 724 00:35:38,320 --> 00:35:40,520 It requires generational patience. 725 00:35:40,600 --> 00:35:43,360 Entire generations will be priced out while we wait for the 726 00:35:43,360 --> 00:35:44,960 race you to correct. That's depressing. 727 00:35:45,120 --> 00:35:47,880 But economists and housing advocates argue that to 728 00:35:47,880 --> 00:35:50,560 accelerate this, we don't just have to sit and wait. 729 00:35:50,880 --> 00:35:55,920 We need profound structural shifts in policy to actively 730 00:35:55,920 --> 00:36:00,080 push prices down and wages up. We have to actively reform the 731 00:36:00,080 --> 00:36:02,600 mechanics of the market. OK, what kind of reforms? 732 00:36:02,600 --> 00:36:06,400 Because we hear a lot of noise about the Y, MB, Y movement, 733 00:36:06,440 --> 00:36:09,680 yes, you know, in my backyard who are really aggressively 734 00:36:09,680 --> 00:36:12,640 pushing for zoning reform. And zoning reform is absolutely 735 00:36:12,640 --> 00:36:14,240 critical. We have to address the 736 00:36:14,240 --> 00:36:17,680 discretionary planning system that was created back in 1947. 737 00:36:17,680 --> 00:36:19,920 How do we fix it? Well, look at other developed 738 00:36:19,920 --> 00:36:23,440 economies for examples. Japan is a fantastic counter 739 00:36:23,440 --> 00:36:25,720 example to the UK and the US. Japan. 740 00:36:25,840 --> 00:36:27,920 I always thought Tokyo is insanely expensive. 741 00:36:28,000 --> 00:36:31,040 It is expensive, but it has remained relatively affordable 742 00:36:31,040 --> 00:36:33,320 compared to wages because they constantly build. 743 00:36:33,320 --> 00:36:36,640 Japan has a nationalized rule based zoning system. 744 00:36:36,640 --> 00:36:37,840 Rule based? What does that mean? 745 00:36:37,920 --> 00:36:41,720 It is heavily standardized into basically 12 national zones. 746 00:36:41,880 --> 00:36:44,280 If your land is zoned for residential use, you have a 747 00:36:44,280 --> 00:36:47,480 presumptive right to build on it up to certain standardized 748 00:36:47,480 --> 00:36:49,520 density limits. So it's not discretionary at 749 00:36:49,520 --> 00:36:50,840 all. You don't have to spend three 750 00:36:50,840 --> 00:36:54,400 years begging the local council and fighting off the neighbors 751 00:36:54,400 --> 00:36:56,240 complaining about their view being blocked. 752 00:36:56,240 --> 00:36:58,040 Exactly. You don't have to ask permission 753 00:36:58,040 --> 00:36:59,760 in the same way. It's what planners call a 754 00:36:59,760 --> 00:37:03,400 nuisance based system rather than a discretionary system. 755 00:37:03,400 --> 00:37:06,440 Meaning as long as you aren't a nuisance, you can build. 756 00:37:06,440 --> 00:37:08,480 Right. As long as you aren't building a 757 00:37:08,480 --> 00:37:11,440 toxic chemical plant or an industrial slaughterhouse right 758 00:37:11,440 --> 00:37:15,160 next to a primary school, you can build residential housing. 759 00:37:15,720 --> 00:37:20,240 And as a result of that constant predictable supply, Japanese 760 00:37:20,240 --> 00:37:23,240 housing actually depreciates over time, much like a car. 761 00:37:23,400 --> 00:37:25,840 Wait, really? The houses lose value. 762 00:37:25,840 --> 00:37:29,280 Yes, the physical structures are viewed as temporary consumable 763 00:37:29,280 --> 00:37:33,120 goods and the city's constantly dynamically rebuild themselves 764 00:37:33,120 --> 00:37:36,040 to meet demand. You see 30 year old houses being 765 00:37:36,040 --> 00:37:38,760 knocked down and replaced with modern flats all the time. 766 00:37:38,840 --> 00:37:41,440 That is fascinating. It completely breaks the UK 767 00:37:41,440 --> 00:37:42,280 paradigm. Yeah. 768 00:37:42,600 --> 00:37:45,680 So the Y MB Y movement here is essentially pushing to move the 769 00:37:45,680 --> 00:37:50,200 UK towards a more rule based right to build system to strip 770 00:37:50,200 --> 00:37:52,520 away all that risk and time cost for developers. 771 00:37:52,720 --> 00:37:55,520 Yes, to make the SIM City densification mathematically 772 00:37:55,520 --> 00:37:58,560 viable again by removing the planning risk, you lower the 773 00:37:58,560 --> 00:38:01,760 cost of building. But, and this is a big but, 774 00:38:02,240 --> 00:38:04,400 zoning reform alone isn't enough. 775 00:38:04,400 --> 00:38:06,520 Why not? Because it doesn't solve the 776 00:38:06,520 --> 00:38:08,680 core issue of land value capture. 777 00:38:09,280 --> 00:38:12,360 If you just up zone a street in London, meaning you suddenly 778 00:38:12,360 --> 00:38:15,960 allow blocks of flats to be built, the value of that dirt 779 00:38:15,960 --> 00:38:17,840 instantly skyrockets even further. 780 00:38:17,840 --> 00:38:19,840 Because the GDV goes up. Exactly. 781 00:38:20,000 --> 00:38:23,160 The landowner just gets richer and the end product is still 782 00:38:23,160 --> 00:38:25,360 expensive. This is where economists 783 00:38:25,360 --> 00:38:30,440 advocate for a very specific tax reform, a land value tax, or 784 00:38:30,440 --> 00:38:32,680 LVT. OK, I've heard this term thrown 785 00:38:32,680 --> 00:38:35,760 around in policy circles. How does a land value tax 786 00:38:35,760 --> 00:38:38,240 actually work in practice compared to the tax system we 787 00:38:38,240 --> 00:38:40,160 have now? Well, currently we have council 788 00:38:40,160 --> 00:38:42,560 tax, and council tax is based on the combined value of the 789 00:38:42,560 --> 00:38:44,840 property, meaning the land in the building sitting on top of 790 00:38:44,840 --> 00:38:46,520 it. But this system actually 791 00:38:46,520 --> 00:38:49,400 penalizes development. Think about it, If you take an 792 00:38:49,400 --> 00:38:52,800 empty, derelict, useless lot in a city center and you spend 793 00:38:52,800 --> 00:38:56,120 millions to build a beautiful high density block of flats, 794 00:38:56,800 --> 00:38:58,760 your tax bill goes up astronomically. 795 00:38:58,960 --> 00:39:00,200 Because the property is worth more. 796 00:39:00,200 --> 00:39:04,160 Right, you are actively punished financially by the state for 797 00:39:04,240 --> 00:39:06,080 improving the land and providing housing. 798 00:39:06,440 --> 00:39:08,280 That seems backwards. It is backwards. 799 00:39:08,280 --> 00:39:13,640 A land value tax flips this entirely, and LVT ignores the 800 00:39:13,640 --> 00:39:17,320 physical building completely. It only taxes the unimproved 801 00:39:17,320 --> 00:39:20,240 value of the dirt beneath it. OK, so how does that change 802 00:39:20,240 --> 00:39:22,720 behavior? Well, let's say you own a highly 803 00:39:22,720 --> 00:39:25,440 valuable plot of land near a major train station in London 804 00:39:26,320 --> 00:39:29,000 under LVT. You pay a massive tax bill 805 00:39:29,000 --> 00:39:31,440 because the location is highly desirable, sure. 806 00:39:31,760 --> 00:39:35,680 But you pay that exact same massive tax bill regardless of 807 00:39:35,680 --> 00:39:40,920 whether there is a single drafty 1930s house on the plot or a 808 00:39:40,920 --> 00:39:44,560 purpose built block of 20 flats. The tax is on the land, not the 809 00:39:44,560 --> 00:39:45,680 building. Oh, I see. 810 00:39:45,960 --> 00:39:49,120 So if you just leave the single 1930s house there, you are 811 00:39:49,120 --> 00:39:52,240 paying this massive annual tax bill out of your own pocket, but 812 00:39:52,240 --> 00:39:54,280 you're generating no extra income to cover it. 813 00:39:54,280 --> 00:39:55,760 Exactly. It bleeds you dry. 814 00:39:55,760 --> 00:39:58,920 But if you knock the house down and build 20 flats, you generate 815 00:39:58,920 --> 00:40:02,000 rental income from 20 different families which easily pays that 816 00:40:02,000 --> 00:40:04,680 exact same tax bill with profit leftover. 817 00:40:04,840 --> 00:40:08,160 Exactly. It creates A fierce, unavoidable 818 00:40:08,160 --> 00:40:12,120 financial incentive to develop land to its absolute maximum 819 00:40:12,120 --> 00:40:14,040 productive use. You have to pay the tax either 820 00:40:14,040 --> 00:40:14,680 way. Right. 821 00:40:15,000 --> 00:40:19,160 It punishes land hoarding, it punishes speculation, and it 822 00:40:19,160 --> 00:40:21,200 heavily rewards density and development. 823 00:40:21,200 --> 00:40:25,040 It actively forces the landowner to put the land to work, which 824 00:40:25,040 --> 00:40:28,600 drastically drives up the supply of housing and ultimately pushes 825 00:40:28,600 --> 00:40:31,520 down prices. That is, I mean mechanically 826 00:40:31,520 --> 00:40:35,160 that is brilliant, it uses the markets own greed to force 827 00:40:35,160 --> 00:40:38,040 housing supply. But I imagine politically trying 828 00:40:38,040 --> 00:40:41,600 to implement a land value tax on middle class homeowners who are 829 00:40:41,600 --> 00:40:45,240 currently sitting on £1,000,000 dirt in London, that would cause 830 00:40:45,240 --> 00:40:47,160 an absolute riot. Oh, it would be political 831 00:40:47,160 --> 00:40:49,080 warfare. Which brings us to the ultimate, 832 00:40:49,080 --> 00:40:52,120 and arguably the most difficult shift required to fix this 833 00:40:52,120 --> 00:40:53,720 crisis. And it's not a tax policy. 834 00:40:53,840 --> 00:40:56,680 No, it is not legislative. It is deeply psychological. 835 00:40:56,680 --> 00:40:59,280 It goes all the way back to what we talked about with those 1930s 836 00:40:59,280 --> 00:41:01,000 brochures. The mindset, yes. 837 00:41:01,680 --> 00:41:04,720 We have to fundamentally shift how housing is perceived by 838 00:41:04,720 --> 00:41:06,960 British society. The fundamental disconnect 839 00:41:06,960 --> 00:41:08,720 between a house and an investment. 840 00:41:09,000 --> 00:41:12,400 Exactly the synthesis of this entire crisis. 841 00:41:12,400 --> 00:41:16,040 Everything we've talked about today boils down to a single, 842 00:41:16,080 --> 00:41:20,240 irreconcilable conflict. UK housing currently occupies 2 843 00:41:20,240 --> 00:41:22,920 completely opposing roles at the exact same time. 844 00:41:22,920 --> 00:41:24,560 It's. Trying to do 2 things at once. 845 00:41:24,560 --> 00:41:28,720 Yes, it is a home, a basic fundamental human necessity for 846 00:41:28,720 --> 00:41:33,240 shelter, and simultaneously it is a financial asset, a 847 00:41:33,240 --> 00:41:35,640 speculative vehicle for wealth generation. 848 00:41:35,640 --> 00:41:37,800 And you simply cannot have it both ways. 849 00:41:37,800 --> 00:41:40,280 It is mathematically impossible. Think about it. 850 00:41:40,440 --> 00:41:43,640 If a house is a good financial asset, its price must constantly 851 00:41:43,640 --> 00:41:46,840 rise, it has to outpace inflation and it has to outpace 852 00:41:46,840 --> 00:41:49,600 wages to actually deliver a return on investment to the 853 00:41:49,600 --> 00:41:50,240 owner. Right. 854 00:41:50,240 --> 00:41:53,160 Otherwise it's a bad investment. But if it constantly outpaces 855 00:41:53,160 --> 00:41:56,240 wages, that means by definition it becomes increasingly 856 00:41:56,240 --> 00:41:59,320 unaffordable as a home for the next generation of workers. 857 00:41:59,840 --> 00:42:02,560 Conversely, if it is an affordable home, it's price must 858 00:42:02,560 --> 00:42:06,000 remain tied closely to local wages, which means it won't 859 00:42:06,000 --> 00:42:09,720 skyrocket in value, which makes it a terrible stagnant financial 860 00:42:09,720 --> 00:42:11,600 asset. So as long as we demand our 861 00:42:11,600 --> 00:42:15,840 houses be our pensions, we are actively, consciously demanding 862 00:42:15,840 --> 00:42:17,640 that our children be unable to afford them. 863 00:42:17,760 --> 00:42:21,440 That is the brutal, unavoidable truth of the current paradigm. 864 00:42:21,720 --> 00:42:24,960 As long as these two roles remain inextricably intertwined 865 00:42:24,960 --> 00:42:28,600 in the cultural and economic reality of the country, real, 866 00:42:28,600 --> 00:42:30,960 transformative change is completely impossible. 867 00:42:31,080 --> 00:42:36,120 We are stuck. Wow, that is that is a lot to 868 00:42:36,120 --> 00:42:38,240 process. It genuinely changes how you 869 00:42:38,240 --> 00:42:39,720 look at the entire built environment. 870 00:42:39,880 --> 00:42:42,040 Like a brick wall isn't just baked clay anymore. 871 00:42:42,280 --> 00:42:46,800 It's a solidified manifestation of economic rent and zoning laws 872 00:42:47,000 --> 00:42:50,600 and immense political inertia. It is a physical embodiment of a 873 00:42:50,600 --> 00:42:52,720 broken economic model. It really is. 874 00:42:53,680 --> 00:42:56,800 As we wrap up this incredibly deep dive, I want to bring you, 875 00:42:56,840 --> 00:42:59,400 the listener back to where we started at the very beginning of 876 00:42:59,400 --> 00:43:01,040 the hour. I want to bring you back to 877 00:43:01,040 --> 00:43:04,600 those two original 1930s property brochures sitting on my 878 00:43:04,600 --> 00:43:06,200 desk right now. The health resorts. 879 00:43:06,320 --> 00:43:08,200 Yeah, the health resort of Greater London. 880 00:43:08,440 --> 00:43:11,200 I want you to really think about those modest brick houses in 881 00:43:11,200 --> 00:43:13,400 Bexleyheath over the last 90 years. 882 00:43:13,520 --> 00:43:16,320 Those specific physical buildings didn't do anything 883 00:43:16,320 --> 00:43:18,480 special. They didn't innovate, they 884 00:43:18,480 --> 00:43:21,000 didn't cure a disease, they didn't become extraordinary. 885 00:43:21,000 --> 00:43:24,800 They just sat there weathering the rain, getting older, getting 886 00:43:24,800 --> 00:43:27,520 draftier and occasionally requiring new roofs. 887 00:43:28,280 --> 00:43:31,800 Physical reality of the homes remained entirely predictably 888 00:43:31,800 --> 00:43:33,800 ordinary. It was the world around them, 889 00:43:33,800 --> 00:43:36,960 the massive global economic engine of London, the 890 00:43:36,960 --> 00:43:40,800 nationalization of development rights in 1947, the subsequent 891 00:43:40,800 --> 00:43:43,480 restriction of supply by the Greenbelt, and the heavy 892 00:43:43,480 --> 00:43:45,200 financialization of the middle class. 893 00:43:45,480 --> 00:43:48,960 It was all of that which mutated completely beyond recognition. 894 00:43:48,960 --> 00:43:50,920 The houses stayed the exact same. 895 00:43:51,120 --> 00:43:53,120 The economic system around them went mad. 896 00:43:54,040 --> 00:43:56,760 And I think that leaves us with a really lingering question, a 897 00:43:56,760 --> 00:43:59,840 provocative question I want you to Mull over the next time you 898 00:43:59,840 --> 00:44:02,680 walk down an ordinary suburban St. and you look at those Bay 899 00:44:02,680 --> 00:44:06,080 windows and those can completely paved over front gardens. 900 00:44:06,160 --> 00:44:08,400 It's a question of what we actually value. 901 00:44:08,760 --> 00:44:11,200 Exactly. If housing continues strictly 902 00:44:11,200 --> 00:44:14,720 down this path, if it remains fiercely protected by government 903 00:44:14,720 --> 00:44:18,320 policy and cultural expectation as a financial asset first and a 904 00:44:18,320 --> 00:44:22,240 basic human shelter second, what happens to the very concept of 905 00:44:22,240 --> 00:44:26,280 home for the next generation? Will the idea of a family 906 00:44:26,280 --> 00:44:29,000 actually owning the land beneath their feet simply as a 907 00:44:29,000 --> 00:44:32,560 utilitarian place to live become an absolute relic of the past? 908 00:44:32,840 --> 00:44:36,440 Just a strange historical quirk that we only read about in 100 909 00:44:36,440 --> 00:44:38,800 year old property brochures. It's a sobering thought. 910 00:44:39,000 --> 00:44:40,800 It really is. It is something we all need to 911 00:44:40,800 --> 00:44:43,520 think about very carefully. Thank you for joining us on this 912 00:44:43,520 --> 00:44:44,040 deep dive.