International Space Station Assembly
A Collective Construction Site 

www.tlio.org.uk

Social and economic polarisation in the UK and London's role as a world 
financial hub:

The economic divide between the beneficiaries of the financial property 
bubble and non-homeowners continues to widen in the UK, with upward 
pressure on land values and affluence-driven development. The cost of 
housing has now risen in real terms hundreds of percent in the last two 
decades, and now for the first time, household expenditure on housing 
has overtaken that on food and leisure as the biggest item in the weekly 
expenditure (the sale of houses in UK in 2002 reached the staggering 
total of £184 billion). In 1995 the average UK house price was £50,930. 
By the end of 2005 that figure had more than trebled to a staggering 
£158,745. That's an increase of 211%. During this time, average wages 
have failed to keep pace, rising only 54% over the same period, leaving 
houses more unaffordable than they have ever been. It is the primary 
indication of ever-widening wealth disparity; young families are 
increasingly priced out of the market with even key-worker housing 
schemes showing very low take-up rates because they are still 
unaffordable, particularly in London. Government targets for “affordable 
housing” become meaningless in a massively appreciating market. Many 
social housing schemes for subsidised ‘low-cost’ rent-and-buy housing 
require applicants to have a minimum annual income (in some cases this 
is as much as £28,758). Under these conditions the very definition of 
affordable housing needs to be brought into question.

SPECULATION
Speculation on housing in general is having a destabilising effect on 
house prices ‘crowding out’ low income groups. In the wake of the 
property/developer gold rush is the social fallout from rising rents, 
tenancies becoming less secure, and less social housing provision. 
Rising prosperity within the property bubble belies the reality of 
increasing economic inequality, and social disenfranchisement 
particularly of younger generations with limited scope to step onto the 
property ladder in a vastly inflating property market. The 18 to 35 age 
bracket are particularly caught in a highly-inflated private rented 
sector, unable to afford to get onto the property ladder within a market 
where house prices are completely out of their reach. Particularly in 
the UK, inflated property values have become the collateral investment 
stores of wealth for a financial hub in the City of London which is 
recycling economic proceeds from investments across the world, with the 
proceeds shared through big bonuses and share dividend payouts creating 
an elite section of the property-ownership class. While at least 42 of 
the 54 billionaires with UK status protect the majority of their wealth 
through utilising overseas tax-havens either through ‘non-domicile’ 
status, or ‘non-residence’ status, the majority of the rich have also 
seen the proportion of their income paid in tax in per-capita terms 
within the UK drastically reduce over the last 20 years. Tax avoidance 
by the super-rich is the outcome of the big business agenda of the New 
Labour government, which has actively sought to redistribute wealth away 
from working people towards the super-wealthy and major corporations. 
Much of “wealth creation” today originates from the financial services 
industry in the City of London and Canary Wharf. Meanwhile, the growing 
underclass in sink-estate Britain continues to get further economically 
marginalised, whilst for the public sector working population, pay 
awards for productivity gains are frozen. Across the board, local 
authority budgets are continually stretched year-on year as limits to 
annual increases in provision of council services prevail. Housing 
Associations receive state support and accumulate vast revenue streams, 
protecting part of their asset base from tax through their charitable 
status whilst tenant’s rights are eroded as dubious management practices 
are executed and rents rise in real terms over time.

RIGHT TO BUY – RIGHT TO SELL
 From the early 1980s onwards, the reduction in the amount of council 
housing stock came about because of the drive towards right-to-buy under 
Margaret Thatcher, with the offer of the sale of council houses at huge 
discounts to sitting tenants. Money realised on sale was not ploughed 
back into social housing, and, because of absurd rules on the use of 
capital receipts and the less-than-value sales, councils were prevented 
from building new homes to replace those sold. Through this process 
'housing' became only 'property' and Government policy ever since the 
early 1980s has been destroying the stranglehold large municipal 
authorities have on housing and reconfiguring basic needs as demand in a 
privatised market.

MEET THE NEW LANDLORD
The legacy has been record high waiting lists, record low new tenancies, 
and the run-down condition of council stock due to years of inadequate 
council financing. Across Britain, the reality is that council housing 
was deliberately run down into a state of dereliction beyond councils' 
financial capability to deal with it, to then be used to justify the 
wholesale transfer of council housing stock to the private sector. The 
accusation is that Housing Associations are now little more than 
property development companies, criticised for being deliberately 
complex structures, set up that way to both avoid tax (through their 
charitable arm) and accountability. For many housing associations or 
'social landlords', the company structure is ‘Sui Generis’. There are no 
shareholders, and they are instead managed by a board, usually comprised 
of roughly one-third councillors, one-third tenants (usually selected by 
the Housing Association), and one-third outside business interests, 
which immediately means the tenants are a minority voice. Tenants rights 
are frequently undermined, with tenants’ rights for legal redress 
seemingly rendered unobtainable through systematic cuts to legal aid. 
Through links to political party donations (i.e. the New Labour 
project), the web of vested interests extends from the protection of 
large financial interests in the city, to political patronage which 
continues to the new administration under Brown (Brown’s main donor of 
substantial funder is Sir Ronald Cohen - chairman of one of the largest 
equity investment funds in the UK today – Apax). This is exemplified by 
one of the main housing associations – Notting Hill Housing Trust, also 
known through other shadow identities as Notting Hill Housing, Grove 
Lettings and others. Housing Associations benefit from legal and fiscal 
exemptions which even Rachman didn’t enjoy.

The overall picture is little more than the legalised plunder of working 
people’s incomes and social services for the benefit of an already 
privileged elite, as multinational capital encircles like a vulture to 
privatise more state services such as in the sectors of health and 
education provision. In Dalston, state schools are shut down while Swiss 
bank UBS builds a City Academy; in Hackney, swimming pools and leisure 
centres stay shut or reopen at middle class prices; doctors’ surgeries, 
playing fields, nurseries are sold off and local services cut. The UK 
has been a testing ground for what has been termed the 'structural 
adjustment of the North'. This logic is reflected in the new proposals 
to streamline the planning process to make it more receptive to the 
demands of big business, so that the situation of the Olympic 
Development Authority being both chief developer and planning authority 
at the same time is replicated around the country.

BANKING ON HOUSING
The underlying process of wealth accumulation through property and 
rising rental values, have served to make the local retail environment 
in many areas of urban and rural Britain in different ways economically 
out of reach of lower income people, such as the non-property owning 
sector of society. As with everywhere else, developers are only too keen 
to cash in on a rising property market and sell-off to the highest 
bidder. However, the extent of this rising property market and it’s 
socially-divisive ramifications is entirely due to excessive lending of 
the banking sector since the 1980s. Former Governor of the Bank of 
England - Eddie George, who headed the Bank for a decade from 1993, 
admitted to MPs on the Treasury Select Committee earlier this year that 
this relaxation of bank lending policy was deliberate government policy 
at the start of the 1990s, admitting that he knew the approach was not 
sustainable: 'In the environment of global economic weakness at the 
beginning of this decade, we only had two alternative ways of sustaining 
demand and keeping the economy moving forward - one was public spending 
and the other was consumption through extending credit for increased 
high street spending.' (evidence to the trasury Select Committee, 20th 
March 2007). On May 1997 Gordon Brown told the government of the Bank of 
England to use consumer spending to stimulate the wider economy. This to 
be achieved by increasing credit and debt. Therefore a credit boom was 
underwritten by a flow of mortgage finance, leading to an unlimited 
amount of money chasing a finite housing stock, pushing house price 
inflation above 25% at one point and high street spending growth to its 
highest since the late-Eighties boom. Rising house prices are central to 
this policy. UK house prices have risen by over 100% since 1999 
(according to the DCLG mix-adjusted house price index - Ref: 
http://www.houseprices.uk.net/articles/odpm_regional/ ).

Against the rising value of their house, owners borrow £264billon per 
annum. This represents £564 billion to the banks when mortgages are 
repaid with interest. This large sum dwarfs the Government PSBR which 
was £43billion in 2006/2007 financial year, as well as the social 
housing grant £2bn, the cost of building new houses £20bn, and the value 
of all houses existing and new purchased in a year at £200 billion. 
Consumer debt has reached £1.3 trillion in 2007 according to the Bank of 
England. The UK mirrors the credit spiral in the US. The housing market 
price-spiral bubble is similar to the gigantic pyramid of inflated 
credit. When ‘bust’ follows boom, the financial institutions are best 
placed to benefit. They hold the title deeds and those suffering 
negative equity lose their homes and their savings.

The ECB (Euro Central Bank) recently underwrote the banking system to 
bailout hedge funds who were in crisis as the financial markets panicked 
2 weeks ago, pulling something like 95 billion Euro out of their magic 
hat like a white rabbit - a measure of the banking system's ability 
create money out of nothing and it’s ability to appease the shortfall of 
capitalists to secure their speculative venture capital. In truth, it 
has been the necessary oiling of the engine-pistons of the world economy 
suffering a sudden shortage of liquidity.

The effects of a relative rising cost of living and the squeezing of 
council finances, is a process related to the underlying privatisation 
of the money system, i.e. the crowding-out of public money by swelling 
of private credit. Local government services are cut and Public-Finance 
Initiatives are justified, whilst hedge funds get access to massive 
credit to help shore up their ability to profit. The proportion of money 
created by government has fallen from around 50% of the total money 
supply in 1948, to 16% in 1976, to around 3% today, whilst indicating 
the rise of economic wealth, may be evidence that can be 
cross-referenced with this spectacular availability of credit for 
speculation and the explosion in property prices as the private banking 
sector through the loan-spiral process has ever-expanded with the 
relaxation of banking regulations. The lending of money 2 weeks ago by 
the ECB served to bail-out a financial system that has over-extended 
itself. On 31st August, Barclays borrowed £1.6bn from the Bank of 
England through the emergency lending fund to bankroll Barclay’s 
investments after a sudden shortfall in it’s exchanges on the open 
market. A shaky equities market post September 11drew pension funds and 
institutional investors away from the stock market and back to property, 
with a notable surge in investment of real estate investment trusts 
(REITs). A process that started around after 11 September because the 
stock market was too risky has recently started to be replicated again 
with the August sub-prime crash in the US, together with the biggest 
cash injection (3 trillions) in the stock market since the 11th of 
September 2001.


REITS: WHAT ARE THEY?
Real Estate Investment Trusts – a tool of asset accumulation as an 
escalation of the division of wealth and class separation in Britain and 
across the world:

REITs are trusts that buy commercial properties, such as apartments, 
office buildings, and shopping centres which produce income. When a 
person buys shares in a REIT, they become a part owner in all of the 
property holdings of the REIT. REITs are traded like stocks on the major 
stock exchanges, so they provide the liquidity of stocks with the 
diversification and income of commercial real estate. REITs first 
appeared in the US, after being approved by Congress in 1960 to offer 
small investors a chance to participate in the commercial real estate 
market. There are now more than 200 REITs available on the major stock 
exchanges, including about 150 REITs on the New York Stock Exchange, and 
dozens more on the American Stock Exchange and NASDAQ market.

AGAINST REAL ESTATE INVESTMENT TRUSTS (REITs):
Throughout the world, Real Estate Investment Trust (REITs) are playing a 
rapidly increasing role in organizing private financial investments in 
housing and cities. Real Estate Investments Trusts (REITs) are joint 
stock companies that primarily derive their income from real estate. 
They are free from corporate tax and they are legally forced to pay out 
high parts of their profits.

After a longer period of development in Northern America disastrous 
consequences on social housing are evident:
- Buying out of social, public and low-cost housing
- Rent increase and increase of heating costs, service charges etc.
- Demolishing of affordable complexes and replacement by more profitable 
buildings
- Disinvestments, neglect of/worse maintenance of the housing stock
- Pressure to leave on financially disfavoured tenants, replacements by 
wealthy residents
- Stop of social neighbourhoods programmes, participation process etc
- Construction on public spaces, privatization of public spaces
- Lobbying governments for weakening legal standards
- Exit to private funds

The large U.S. REIT AIMCO gave a shocking example how these investors 
treat tenants.
* Video on forced evictions by AIMCO at Lincoln Place
http://www.youtube.com/watch?v=UngEHGXlHb0

Although negative consequences in the USA, Canada and elsewhere are 
obvious, the introduction of REITs in most of the countries took place 
without protests and even without critical debate. They just happened in 
the extra-democratic spaces where financial lobbyists make their deals 
with governments.


HOW DO REITS WORK?
Lots of small investors can take part by owning shares in the Trust 
which owns the buildings. This means they can buy or sell their shares 
in the trust easily whenever they like exposing homes to the volatility 
of speculative markets. No tax is paid by the Trust; tax is only paid by 
the shareholder, with their dividend income return added to their annual 
taxable income. If the shareholder is a charity (such as a housing 
association which has a charitable arm), the shareholder may be exempt 
from paying any tax at all.

'In the United States and France, REITs have lead to higher rents and to 
asset stripping; where
the most profitable housing has been enhanced at increased rents, whilst 
the rest has been left to decay or emptied for redevelopment or 
demolition.' From London Tenants.org

There are several different types of REITs available on the market:
[1] Equity REITs own and operate income producing real estate, such as 
apartments, warehouses, office buildings, hotels, and shopping centres.
[2] Specialized REITs focus on a particular type of property, such as 
shopping centres or health care facilities.
[3] Geographically-focused REITs specialize in a single region or 
metropolitan area, while others try to acquire properties throughout the 
country. Mortgage REITs lend money to real estate owners and operators, 
and raise income from the interest payments on the mortgages. [
4] Hybrid REITs own properties and provide loans to real estate owners.