THE Organisation for Economic Co-operation and Development (OECD) has sent out a New Year warning that global property prices have increased so dramatically that a ‘big correction’ is on its way.
The OECD represents the world’s most developed capitalist nations, and when it warns of a ‘big correction’ what it means is a crash exceeding that of 2007 when the bubble created by inflated prices of housing and property in the US exploded in what is called the ‘sub-prime’ mortgage crisis.
This crisis bankrupted the giant lenders, including Lehman Brothers Bank, and spread like wildfire throughout the entire world banking system. In 2007 the US banks and mortgage lenders used low interest rates to speculate by making high interest loans to heavily indebted, low or middle income families, borrowing cheap money in the short term to make long term high interest loans to families that could barely afford repayments.
Not that this worried the banks. They parcelled up all these loans as rock solid ‘assets’ that were then traded throughout the world banking system. It all came crashing down when this continuous round of speculation created a huge increase in property prices and a soaring rate of default by workers who had been encouraged to take on massive personal debt to fuel the banks’ greed for profit.
House prices collapsed, millions of workers and their families lost their homes, and the banks discovered that their ‘assets’ were worthless, un-repayable loans. Now, ten years on from the US property crisis that forced every bank to the edge of collapse and ushered in the period of nation states being forced to assume their colossal debts – debts that they are determined the working class pays for through austerity – the crisis is once again emerging but at a much higher stage.
This is what is so worrying the OECD when it warns that property prices have climbed to dangerous levels not just in the US but in many of the most advanced capitalist economies. Countries such as Canada, New Zealand and Sweden were picked out by the OECD as particular areas of concern as house prices have soared over the past few years.
As for London, the cost of housing in the capital has been described as ‘insane’. Only this week it was revealed that houses built under the Tories’ ‘affordable housing scheme’ would command prices in the region of £450,000. The signs are already emerging that the ‘big correction’ the OECD is warning about has started with reports that the number of homes sold in London for above asking price have halved in the last year.
This ‘correction’ in the sky high property prices could, the OECD warns, ‘be magnified by fire-sales’ if investors start to sell off all those properties they bought as cast iron investments ‘betting on continued price gains due to monetary policy support’. In other words, as central banks are forced to increase interest rates all these loans will see property prices fall, leaving the speculators and landlords facing huge losses.
They will sell out as quickly as possible accelerating the crash in house prices. Ordinary workers, forced to take on massive mortgages as the only alternative to paying exorbitant rents on properties they can be evicted from at any moment, will see their repayments shoot up to unaffordable levels.
With their houses in negative equity, worth much less than their mortgage debt, repossession by the banks will become an epidemic as it was in the US ten years ago.
This is the crisis that faces the working class of the whole capitalist world, as the OECD report makes plain; a crisis that places on the immediate agenda the historic requirement for the working class to overthrow this bankrupt capitalist system and replace it with socialism.
The only solution to the housing crisis in Britain is to kick out the Tories through the organisation of a general strike and advance to a workers government that will nationalise the banks, building societies and landlords and embark on a massive programme of house building at affordable rents and with complete security of tenure.
