On Valentine’s Day 2007, a short news item inside the Financial Times was the first report that the housing bubble in the US was about to collapse. Financial analysts in Germany had found that the US sub-prime housing mortgage market was seizing up.
Now ten years on, the worldwide economic waves from the collapse of the US housing bubble are still rocking the shores of the UK. The reports so far have focused on the impact on the major banks, with pictures of their big shiny office buildings in London and New York.
A better analysis would look beyond the banks and into local economies. UK housing values outside of London have not had a good decade. Some communities have seen property values collapse to 50% or less from their peak. The conventional explanation given is that the local economy has collapsed, too few jobs, too little pay. Blame the locals for their low skills.
Another explanation would swap the cart and the horse around: the collapse of housing values has drained wealth from the local economy. This is especially so since the 1980s when people were first encouraged or coerced to use the value of their home for their retirement income and for social care costs. But since then housing has switched from being a source of family capital to becoming a source of business revenue through high rents.
Politics and economics are two sides of the same coin. The collapse of the UK housing bubble, triggered by the US in 2007, has been very uneven. The so-called Northern Heartlands have seen the worst, especially outside of the main Northern cities. Wealth has been drawn back to London, and the London housing bubble continues to just about hold up, but under intense pressure.
Now map the Brexit vote onto the selling price movements in the UK housing market since 2007. The correlation is very clear.
Yes, the Brexit vote to leave was a protest. And it did involve a protest with London. But it wasn’t about metropolitan values, experts, or liberal elites – it was the sense in the wider country that London had used its tight hold on economics and politics to save its own housing market at many other people’s expense.
Populist movements have since tried to link the Brexit vote to immigration, sadly with some success. But London is a world city – so diverse, so many cultures, so many languages, and so many immigrants. Yet London voted to remain in the EU, while many other areas with negligible numbers of immigrants voted to leave.
To fix Brexit we need to fix the economy, and to fix the economy we need to resolve the aftermath of the UK housing bubble, a solution which has to include London.
Pundits are wrong when they claim that the Brexit leave voters wanted to go back to the 1950s. They didn’t. They just wanted to go back to 2006, before their homes and the local economy tanked.