Bill Granger passed away today at the young age of 54. The self taught Aussie chef opened his first restaurant in 1993 in Darlinghurst, Sydney, Australia. He focused on simple, clean, healthy dishes and he popularized avocado toast.
Little did he know this would make him a symbol of all that is wrong in the global housing market. I married my wife Louise in 1993, and we lived in a house that I bought on my salary alone. That’s not to say it wasn’t a struggle, it always is. But the truth is housing was affordable, and not only in Ireland. It was affordable all over the world.
We moved from our first house in Santry to our second one in the leafy seaside Dublin suburb of Clontarf in 1995. That was the year when things went crazy in Ireland. A combination of population pressure from our baby boom of the 1960’s and the availability of cheap credit in the European Union drove a scramble for property. By spring of 1996 our house had trebled in value. We rode the tsunami of inflation and were lucky to be home owners when it began. Between 1995 and 2007 the value of that house increased tenfold.
By May 2017, despite a massive correction following the financial crash of 2007/2008 housing remained unaffordable for many salaried people. Australian millionaire property developer Tim Gurner said on 60 Minutes Australia that when he was saving for his first house he was not shelling out €22 a pop for Avocado Toast, This angered a generation of millennials who found themselves excluded from the housing market, and paying extortionate rents which contributed to Tim Gurner’s millions.
The truth is not that Bill Granger took your money, it is that Tim Gurner took your money. Well, Ronald Reagan took your money and gave it to Tim Gurner – it’s a little more complicated than that.
In 1971 the US Government abandoned the gold standard which had kept currency stable since the end of WW2. The “suspension” of the Bretton Woods Agreement made the US Dollar a Fiat currency, so it could be whatever value you wanted it to be. This allowed a government to print paper money at will, with no precious metal to back it up. It was the first stage in a process of financial deregulation that made billionaires possible.
Ronald Reagan introduced a number of financial reforms which are collectively termed Reaganomics. The most important of these was eliminating wealth taxes which fed money from the wealthiest to the poorest. He sold this on the great lie that is called “Trickle down economics”. We now know for sure money trickles upwards if you give it to the poor, but never trickles down if you let the rich hold it.
Reagan famously smashed the power of unions and deregulated the market to permit hostile takeovers, the pillaging of company assets, such as pension funds. ”Greed is Good” was the mantra of Gordon Gekko immortalized in the 1987 movie Wall Street. The world became a place for mergers and acquisitions. In the UK Margaret Thatcher happily embraced the American model and smashed the miner’s strike in the winter of discontent of 1984/5. She spearheaded the breakup of state organizations that took hundreds of years to assemble; British rail, British gas, Water companies etc Within a decade she had sold off the family jewels and a small group of close confidantes, the Mayfair set, trousered most of the cash.
The graph of productivity decoupled from that for wages. At first it was barely noticable. I could still afford a house on my salary in 1990. But it changed radically in the late 1990’s. The massive escalation in the price of property led to riskier and riskier behaviour as millions were made on speculation. The Irish Government had an opportunity in 2002 to take the heat out of the market. They introduced stamp duty for speculators and immediately the inflation rate stagnated. Howls of anguish went up from builders and developers all over the country. Chequebooks were firmly snapped shut in the Fianna Fáil tent at the Galway Races. The lobbiests won out and the sensible heads in the Fianna Fáil government were forced to backtrack and take the leashes off the market. The market promptly went wild. We are still paying for that failure of continence.
History does not repeat itself, but patterns in history certainly do. The pendulum has swung firmly in favour of the billionaires. We are now approaching a swing point in Economics. The key here is you can reform or you can dig in your heels. When the wealthy dig in their heels you get moments like the French Revolution. Reform is painful, but if you embrace it you are less likely to lose your head. Each year the movers and shakers of the world jet in and out of their exclusive think-tanks to agree the direction of economic policy. Around tables in private sessions at Bilderberg, Davos, COP and G7 the top nations make the decisions that effect issues like how many servings of avocado toast it takes to buy a house. People who own houses have something to lose. When you create a “generation rent” you create a critical mass of people with little to lose and much to gain in a revolution.
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