New flats in the former Olympic Village in Stratford, east London. (Photo: Getty)
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This is no recovery, it is a spending boom powered by unsustainable house price rises

Having failed to usher in the export-led recovery he promised early in the coalition, the Chancellor instead latched onto house price inflation as one of the mainlevers of a consumer spending boom.

London’s property-owning classes are looking increasingly smug again as barely a week seems to pass without fresh data that their homes are spiralling exponentially in value. The latest update from the Nationwide shows house prices in the capital up by an astonishing 18 per cent in the past year. It’s not just London, now, either: with price rises rippling out across the rest of the country, the feelgood factor is spreading. But should it be?

There are important objections to be made about the growing divide between London and the rest of the UK, as well as the plight of first-time-buyers having to borrow ever greater multiples of their salary (if they can afford to buy at all). Then there is the knock-on effect to prices in the private rental market, rising homelessness, the list goes on. Even homeowners who may think they are benefiting from the rises are in fact getting poorer if they ever hope to move to a bigger property.

But there is a deeper reason why we should all – including propertied Londoners – be concerned about recent house price growth rather than taking heart at its renewed vigour, which is that the strength of the market in recent years has sowed the seeds of its own volatility. Of course there are fears of a bubble and whether the growing price-to-income ratio is sustainable. The truth may be that it already isn’t sustainable, but for one factor: hot money.

London property has in recent years become the investment vehicle of choice for international capital seeking a safe haven, as we at Civitas detailed in a recent report. In the wake of the worldwide economic downturn, turmoil in the Middle East and super-loose monetary policy, our capital’s housing stock has soaked up billions of pounds in global capital flows. This has only been encouraged by George Osborne.

Having failed to usher in the export-led recovery he promised early in the coalition, the Chancellor instead latched onto house price inflation as one of the mainlevers of a consumer spending boom that, he hopes, will get the Tories through the next general election. He didn’t just bet the house on this strategy – he bet everyone’s house on it. It is an easy gamble to embark on because so many homeowners are too easily convinced that large price rises are in their own best interests.

But central to encouraging house price growth in an already expensive market is encouraging buy-to-let (and even “buy-to-leave”) investors, many of which are non-resident. There are arguments to be made both for and against overseas buyers,but one potentially catastrophic problem is already looming into view, the only thing worse than so much foreign capital driving up prices: that now this money suddenly vanishes.

As central banks begin to raise interest rates around the world, as sterling strengthens with the economic recovery, much of this hot money will disappear. The threat of this taking place within the next year or so is raised in a new report from Deutsche Bank but there have been warnings for some time. The consequences of this for the rest of the market, and for the wider economy, could be deeply unpleasant.

But investors using the housing market to make money, and the volatility that follows, are not the root cause of the problem. What lies behind all of this is a collective weakness among voters for seeing their properties grow in value. Hopefully this will recede as the number of people priced out of the market continues to rise. But until it does, politicians will never build enough homes to level out prices, and the economy will remain beholden to a rollercoaster housing market.

David Bentley is co-author of the Civitas report ‘Finding Shelter: Overseas investment in the UK housing market’.

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Cambridge Analytica and the digital war in Africa

Across the continent, UK expertise is being deployed online to sway elections and target dissidents.

Cambridge Analytica, the British political consultancy caught up in a huge scandal over its use of Facebook data, has boasted that they ran the successful campaigns of President Uhuru Kenyatta in the 2013 and 2017 Kenyan elections. In a secretly filmed video, Mark Turnbull, a managing director for Cambridge Analytica and sister company SCL Elections, told a Channel 4 News’ undercover investigative reporting team that his firm secretly stage-managed Kenyatta’s hotly contested campaigns.

“We have rebranded the entire party twice, written the manifesto, done research, analysis, messaging. I think we wrote all the speeches and we staged the whole thing – so just about every element of this candidate,” Turnbull said of his firm’s work for Kenyatta’s party.

Cambridge Analytica boasts of manipulating voters’ deepest fears and worries. Last year’s Kenyan election was dogged by vicious online propaganda targeting opposition leader Raila Odinga, with images and films playing on people’s concerns about everything from terrorism to spiralling disease. No-one knows who produced the material. Cambridge Analytica denies involvement with these toxic videos – a claim that is hard to square with the company’s boast that they “staged the whole thing.” 

In any event, Kenyatta came to power in 2013 and won a second and final term last August, defeating Odinga by 1.4 million votes.

The work of this British company is only the tip of the iceberg. Another company, the public relations firm, Bell Pottinger, has apologised for stirring up racial hostility in South Africa on behalf of former President Jacob Zuma’s alleged financiers – the Gupta family. Bell Pottinger has since gone out of business.

Some electoral manipulation has been home grown. During the 2016 South African municipal elections the African National Congress established its own media manipulations operation.

Called the “war room” it was the ANC’s own “black ops” centre. The operation ranged from producing fake posters, apparently on behalf of opposition parties, to establishing 200 fake social media “influencers”. The team launched a news site, The New South African, which claimed to be a “platform for new voices offering a different perspective of South Africa”. The propaganda branded opposition parties as vehicles for the rich and not caring for the poor.

While the ANC denied any involvement, the matter became public when the public relations consultant hired by the party went to court for the non-payment of her bill. Among the court papers was an agreement between the claimant and the ANC general manager, Ignatius Jacobs. According to the email, the war room “will require input from the GM [ANC general manager Jacobs] and Cde Nkadimeng [an ANC linked businessman] on a daily basis. The ANC must appoint a political champion who has access to approval, as this is one of the key objectives of the war room.”

Such home-grown digital dirty wars appear to be the exception, rather than the rule, in the rest of Africa. Most activities are run by foreign firms.

Ethiopia, which is now in a political ferment, has turned to an Israeli software company to attack opponents of the government. A Canadian research group, Citizens Lab, reported that Ethiopian dissidents in the US, UK, and other countries were targeted with emails containing sophisticated commercial spyware posing as Adobe Flash updates and PDF plugins.

Citizens Lab says it identified the spyware as a product known as “PC Surveillance System (PSS)”. This is a described as a “commercial spyware product offered by Cyberbit —  an Israel-based cyber security company— and marketed to intelligence and law enforcement agencies.”

This is not the first time Ethiopia has been accused of turning to foreign companies for its cyber-operations. According to Human Rights Watch, this is at least the third spyware vendor that Ethiopia has used to target dissidents, journalists and activists since 2013.

Much of the early surveillance work was reportedly carried out by the Chinese telecom giant, ZTE. More recently it has turned for more advanced surveillance technology from British, German and Italian companies. “Ethiopia appears to have acquired and used United Kingdom and Germany-based Gamma International’s FinFisher and Italy-based Hacking Team’s Remote Control System,” wrote Human Rights Watch in 2014.

Britain’s international development ministry – DFID – boasts that it not only supports good governance but provides funding to back it up. In 2017 the good governance programme had £20 million at its disposal, with an aim is to “help countries as they carry out political and economic reforms.” Perhaps the government should direct some of this funding to investigate just what British companies are up to in Africa, and the wider developing world.

Martin Plaut is a fellow at the Institute of Commonwealth Studies, University of London. He is the author of Understanding Eritrea and, with Paul Holden, the author of Who Rules South Africa?