Owen Jones says the Tories are the “Landlords Party”. This is true in a deeper sense than the mere fact that so many Tory MPs are themselves landlords. It’s because fiscal austerity has contributed to rising house prices.

There’s a simple reason for this. Fiscal conservatism and monetary activism – to use Osborne’s phrase – means low interest rates, low expected rates and low gilt yields. And as the Bank of England said (pdf), this means higher asset prices generally. This is simply because lower rates mean that future rents are discounted less heavily, which raises their net present value. As Simon said:

Just as low real interest rates boost the stock market because a given stream of expected future dividends looks more attractive, much the same is true of housing (where dividends become rents). Stock prices can rise because expected future profitability increases, but they can also rise because expected real interest rates fall. With housing increasingly used as an asset for the wealthy, or even as a way of saving for retirement, house prices will behave in a similar way.

My chart shows the point. It shows that lower index-linked yields have been accompanied by higher ratios of house prices to incomes. Yes, fiscal austerity means lower incomes and hence lower house prices, other things equal. But in reality, that mechanism has been more than offset by lower interest rates. And yes, George Osborne hit buy-to-let landlords with higher taxes – which perhaps vindicates Phil’s point that the Tory party “has not been a suitable vehicle for the interests it's supposed to represent.” And of course, austerity is one of only many causes of low real yields – many of which are global. But it has contributed to low yields and hence higher house prices. Ilgyhp

On balance, though, the Tories have probably been good for landlords. This explains one of YouGov’s findings (pdf) – that homeowners vote Tory. 53% of these voted Tory against only 31% voting Labour, whereas among renters Labour led by 51% to 32%.

Which brings me to a problem. High house prices are probably, net, bad for the economy.

Granted, they provide collateral and so allow potential entrepreneurs to borrow. But this mechanism is offset by others. Rising house prices encourage banks to lend against property rather than to productive new firms. High rents depress disposable incomes and so reduce demand for new goods and services. High house prices lead (pdf) to long commutes and less job mobility which depresses productivity. And rising prices incentivize “property development” rather than more dynamic forms of entrepreneurship.

I suspect, therefore, that the Tories are now rather like the party they were in the days of the Corn Laws: they represent interests which are hostile to economic progress.  

There is of course nothing original in the claim that landlords’ interests are a block on economic growth. As somebody once said:

Unearned increments in land are not the only form of unearned or undeserved profit, but they are the principal form of unearned increment, and they are derived from processes which are not merely not beneficial, but positively detrimental to the general public…The land monopolist only has to sit still and watch complacently his property multiplying in value, sometimes many fold, without either effort or contribution on his part!

That was Winston Churchill in 1909. Tories like to compare themselves to him. But in one respect at least, they are more reactionary now than he was a century ago.