B --- UBI causes housing price inflation --- that disrupts the economy and turns the case

UBI enthusiasts can see the prospect of their dream coming true as our economies – so utterly reliant on wage-earning – struggle to come to terms with lockdown. But a hasty introduction of UBI without fully understanding its effects on some essential components of our economy could undermine its effectiveness and provide its opponents with ammunition.

UBI will significantly increase the disposable income of the population as a whole, providing the productive economy with lots of opportunities for new business. However, not all of these opportunities will be beneficial to us, individually or collectively.

Some of the things that we spend our money on are essential to life, and the markets for some of these essentials are effective monopolies because of the infrastructure that’s required to deliver them – electricity, gas, water, etc. Even with regulation the people who control these markets are adept at inflating prices whenever there is an opportunity to do so, and UBI is a golden opportunity.

At first glance housing might appear to lie beyond the reach of such avaricious monopoly but we have to look beyond the bricks and mortar to see who controls prices in the housing market.

 and  show us:

Average UK house price has quadrupled in the last 29 years from £57,000 to more that £233,000.

Rate of increase in house prices has been positive for all but 68 of the last 348 months. 

Between January 1996 and December 2007 the rate of increase was consistently positive, ranging between 2.1% and 28.4%.

Even in the last decade, after the financial crash of 2008/09, the rate of change has been positive apart from a minor dip in 2011/12.

These rates of increase represent a gargantuan amount of money. Where has it come from?

Our banking system has a monopoly on the creation of money in the form of debt and since deregulation in the 1980s it has been using this power with unrestrained gusto.

The inflation of house prices over the last three decades has been fuelled by mortgage lending, which continues apace.

At the end of 2019 the value of new mortgage commitments (lending agreed to be advanced in the coming months) was £70.6 billion, 4.0% higher than a year earlier. 

The outstanding value of all residential mortgages at the end of 2019 was £1,499 billion, 3.8% higher than a year earlier.

To put £1,499 billion into perspective, the UK money supply (M4) at the end of 2019 was approximately , which means that around 60% of the value of all of the money in the UK economy is owed in residential mortgage repayments.

Given the UK population’s addiction to the property market it is highly probable that a significant proportion of the additional disposable income from UBI will exacerbate the existing problem of house price inflation.

A proportion of the population in receipt of UBI will use the extra disposable income to invest in residential property – moving to a bigger/better home; buying a holiday home; investing in buy-to-let. Such investments will inevitably be geared – the spare UBI cash being multiplied threefold or more by mortgage providers.

The supply of residential property is limited by the number of people who want to move house and the number of new houses that are being built. Any increase in demand will certainly lead to an increase in asking prices.

Banks will happily respond by issuing mortgages that cover the inflated prices, encouraging more people with disposable UBI income to enter the market and contribute to further house price inflation. The more that banks lend – value and quantity – the more income they get from fees and interest.

The net result will be higher housing costs for everyone who rents or who has to move house due to a growing family or relocation.

But there will also be a negative effect on the rest of the economy. Money that could be used to support productive activity will be sucked into the coffers of mortgage providers and landlords and largely lost from general circulation.

For an economy to thrive money must be available and mobile. UBI is probably the best method of ensuring that a base load of money passes through every corner of the economy every month but its effectiveness will be severely compromised if a significant quantity of it is diverted into housing costs.

The continuous inflation of housing costs will also exert pressure to continuously increase the value of UBI payments which will create difficulties in the UBI funding mechanism.

If UBI is to work as its proponents imagine then there is a range of essential goods that will have to be protected from inadvertent or opportunistic price inflation. Housing is a prime candidate for such protection.