Monday, May 14, 2007
Whats happened over the last 10 years
The Guardian: Albion Drive: a saga of modern Britain
Nice reminder of how far this bubble has inflated, and how property prices are not based on value - but are now in the realms of fantasy.
Posted by acidrob @ 12:06 AM (1194 views) Add Comment
31 Comments
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1. confused76 said...
Great article!
Best quote:
"In France, this is the kind of thing that sends whole banlieues out on to the streets to riot. In Britain, it has led to a national fixation with property programmes and the change in status of houses being homes to them being pension funds, saving schemes and get-rich-quick dreams."
Are we totally stupid or what? And what bunch of idiots are in charge!!!
2. Scott said...
Confused76, do not blame the shepherds, blame the millions of sheep!
3. doomwatch said...
Quite a long piece, but well written and I think Ms Cadwalladr has captured all the salient points of madness.
It's a shame she didn't write this 5 years ago, instead of waiting for the ABN research document to point it out.
The last 5-10 paragraphs say it all. Some snippets:
"Dr John Muellbauer, professor of economics at Oxford University, as disinterested an expert on the property market as you'll find, ums and ahs over the definition of 'affordability', equivocates about whether there are any signs that the crashes we have seen in Spain and America and Ireland could happen here, and generally sits on the fence.
And then just when I'm about to give up, I ask him a final question about what the government could do, if anything, and he launches into a tirade: 'I am very disturbed by the large distribution of wealth that has happened against the young. And particularly against the young who don't have any relatives with property to leave them money. An entire social class is being created that is being denied access to property, and I think it's disgraceful that it's been presided over by a government that claimed to be acting to end social exclusion.
'It's a question of political choice. The government could have done things on the demand side and on the supply side. People in £20m houses pay the same tax as people in £1m houses ... we're the only country in the world where that is true. They could have freed up planning restrictions so more houses could be built. It has become very much harder for the less affluent to become more affluent. The drawbridges have lifted.'
And, if you still think this is just a London problem, think again. Albion Drive is what the future in the rest of Britain will look like. It's a shame, I can't help thinking, that young people don't riot any more. They should be setting fire to cars and looting supermarkets. They're being robbed blind, and what have they got to lose? A 30-year-mortgage on an ex-council flat they bought with a friend on a mortgage of five times their salary? A lifetime of lining the pocket of a property investor or funding the round-the-world cruises of a pensioner? Why, young folk, do you not simply go on a first-time buyer's strike?
You are the money supply: without you, and with a helpful interest rate rise that'll see off the buy-to-letters, prices will simply collapse. You are the bank for the whole of England, Scotland, Wales and Ireland too, the cash-machine that's keeping the whole rackety affair afloat.
The unaffordability of the housing market is not an insoluble problem, simply a political one. Bank lending could be better policed, property investments taxed, social housing built. But what do politicians care? They have their homes. And they have the votes of their generation who have been buoyed into a consumerist shopping spree by the 'feelgood factor' of overinflated house prices."
4. tyrellcorporation said...
Brilliant commentary (and depressing in equal measure). Well worth a read...
5. talking rot said...
If the Observer regularly featured such quality articles, I'd be tempted to buy it.
I think it is ironic that New Liebour, who promotes social mobility, has caused the "drawbridges" to lift. My MP is Gerald Howarth so there is little point me sending the article to him. Does anyone have a high-up Labour official as an MP? If so, please could you email a link of the article to them? Cheers.
6. royston said...
I am now utterly convinced that a 30 year property slump lies ahead of us. Property prices have gotten so far ahead of themselves. However, property owners will rather stick their head in the sand that acknowledge this, so there will be no flood of houses looking for buyers in the immediate future. In the next few years, we will begin to feel the economic effects of our finite oil reserves becoming ever more scarce. This will drive up the price of food, consumer durables, energy and transport (and possibly interest rates). At the same time, the Chinese and Indians, who are steadily building their earning power now, will begin competing with the west for consumption. In the midst of this, BTL pensioners will try to cash in their assets. Can anyone offer any serious counter-argument to this scenario, i.e. other than "house prices always go up in the long run"?
7. Me Me Me said...
Fantastic article! Prices are so ridiculous my expectation of house ownership is about the same as space flight, which incidentally will be cheaper than the houses on murder mile. It is a good point that we dont riot. The Governemnt machine has made us FEAR, which causes INACTION
8. Tara747 said...
"Can anyone offer any serious counter-argument to this scenario, i.e. other than "house prices always go up in the long run"?"
No.
9. The Capitalist said...
Excellent article - I used to live in Hackney and know that road. In fact I bought in Hackney in 2000 and sold in 2002 - bloody hell I've lost a fortune.
She does miss the point that cheap credit has fuelled mega-inflation in all assets - classic bubble.
10. confused76 said...
Royston,
Yours is a sensible "base case" scenario. However ... "property owners will rather stick their head in the sand that acknowledge this", but so long as they can remain solvent.
We can consider 2 alternatives, IMHO having the same probability of your scenario:
- market sentiment weakens and a proportion of the BTLs (say 25%, or 200k properties) "take profit" and put properties on the market accelerating the price decline
- BoE rate hits 6%, forcing some owners to sell
To the extent that the above 2 cases drive the latest market entrants into negative equity (i.e. amplification effect) this could lead to an abrupt price correction.
Can I point out that the housing "system" is far less stable than the words "brick and mortar" suggest.
11. Keisty said...
TR. I have a high up NL MP as a cousin. Caroline Flint MP for Don Valley and Minister for Public Health.
12. David20040_0 said...
To Royston,
I am a 20 something and don't own my own house.
These commentaries of oh they can't go up forever have been coming out for about 4 or 5 years. Houses have continued to do so.
London, to foreign investors is a great place to invest in. There has been no slowing down in their investment at all. House prices have continued to rocket like crazy.
The CPI is bound to go down, we can't have the old Bank of England or Gordon Brown looking bad can we? Therefore the BoE will not increase rates any further and may even possibly drop them. This will add further fuel to the fire and house prices will continue to rise at stupidly high rates.
If you look at the graph at front of this site you will see how much prices have risen but it is too far gone now, if there was going to be a crash with houses unaffordable for 99% of key workers it would have started a long time ago.
Houses are now not somewhere to live in, they are cash machines and until that piece of mentality changes house prices in the UK will never crash.
13. royston said...
David20040_0,
So, would it be fair to sum up your point of view as "house prices always go up in the long run"?
14. David20040_0 said...
They usually do yes.
I want these things to crash, it is crazy that houses are STILL rising at £1,500 a month. I used to think about 3 years, nah this is rubbish they will crash eventually. But if anything they are rising even faster now.
It is stupid, it really is.
The British public are loving the value of their houses rocketing, they absolutely love it.
In my area, E Mids, which is not exactly a great area, houses rose by £25k round here, hardly anyone round here earns that in a year.
I have completely lost the faith, even if house prices crashed 20% they still wouldn't be affordable.
I doubt I will ever be able to buy in the UK, so I am looking to leave the UK permanently in the next 4 years. If I do get the opportunity to leave I will never set foot on this overpriced island ever again.
15. David20040_0 said...
Royston stop worrying about house prices and just leave the UK. Canada, Australia and New Zealand are all beautiful countries.
16. Chilli said...
David20040_0
"The CPI is bound to go down, we can't have the old Bank of England or Gordon Brown looking bad can we? Therefore the BoE will not increase rates any further and may even possibly drop them"
This is fundamentally wrong: Cheap interest rates encourage debt which encourages consumerism, which inflates prices. If the CPI is to go down either; goods must be produced more cheaply or interest rates go up resulting in fewer of us buying on credit, which reduces demand, which lowers inflation.
There have been numerous property bubbles in the past. There was a case in Florida a couple of years before the Great Depression in the US. It crashed, and I believe everyone lost faith in property and put all their cash into the stock market.
What is happening now, I think, is that due to the dotcom bust, everyone has lost faith with the stock market, and have been investing in property.
It will come to an end. I know this because if we take a look at the past, we see many ups and downs. We haven't suddenly invented something like 'unlimited energy' or teleportation or anything, so we are still on the same world we were on twenty years ago.
And by definition; when you are in a bubble you always think it will keep on going. If you didn't the bubble would end.
17. talking rot said...
Keisty
Would you consider passing a copy of the article to her? I suppose it could be regarded as within her brief because quality housing is one factor in poor public health. I would not expect Ms Flint to ever comment on a single article (or even a series of articles) but I would be interested to see the Labour response now that Gordon B has the reins.
Thank you.
18. Orwell said...
Yes as an Estate Agent I think that prices will always continue to rise and I will always be able to go home for crumbly candy bars and cream teas.
19. Nova Sideliner said...
So as stated above:
"I am a 20 something and don't own my own house. These commentaries of oh they can't go up forever have been coming out for about 4 or 5 years. Houses have continued to do so."
If you were older than 20 something (and I am), you'd have seen that 4 or 5 years is not a long term thing. It is typical of bubble/booms. I was (barely) old enough to have friends get hit hard by the previous property bubble bust, and I also had friends in California who got hit hard in their bust around 1990 or so.
Just a few years ago, once I finally thought I could afford to buy, I found myself in London staring at the prices soaring monthly faster than I could save! How little I knew that what I thought was unaffordable at the time would become even more so! Well, I basically took "Davi20040_0's" advice and in disgust left the UK for good. Seriously. So did three of my friends within a year. And despite what the Yanks thought of as a bubble at the time (2001), it was nothing compared to London, and we four lads now each have our own over-large houses on good plots here, and all well within our budgets -- completely impossible in SE England.
In fact, for the same rent I paid for a semi in Staines, I could almost make TWO mortgage payments and own when I moved to America. And now to see the prices the article mentions in Hackney, of all places! I cannot see how this housing bubble can continue, not even to expand, but just to hold prices steady. Anyone buying right now could well be buying at the top, and a dangerous top indeed.
20. Dr K said...
My own feeling is that fancy economic theories and interest rate rises alone are wishful thinking, the key to this is Bank profitablility. IR are ~1% higher now than 2 years ago but HPI is increasing faster now than 2 years ago. Why? The last 2 years have seen year on year record profits at Banks and consequent Bonus payouts. In Banking, last years profit is next years baseline and whilst banks can write off 2 billion pa due to bad loans !!! (HSBC) and still make 12 billion clear without affecting their dividend the housing market will not fall. When the the bottom line profits of banks stabilise and reduce, as they undoubtedly will at some point, the Banks will then re-evaluate risk and tighten up the areas that are losing money i.e. bad loans. The subsequent tightening and "stricter regulation" of lending will dry up the easy credit and then house prices should stabilise. If this coincides with the current IR (hopefully higher!), the housing market wobble will start. But if it hasn't happened in 2 years, I am conceding defeat and will look to emigrate. I think you will all agree, there has to come a point when you throw in the towel.
21. rich said...
@David20040_0 said...
"These commentaries of oh they can't go up forever have been coming out for about 4 or 5 years. Houses have continued to do so."
This is a logical fallacy. Basically you're saying that because someone in the past said something and was incorrect (or too early... only time will tell), then the event they described is therefore impossible. It's a very weak argument.
One possible piece of (equally ludicrous) counter-rhetoric is that because the vast majority has denied the possibility of a crash just before ALL of the documented crashes in the UK this century... and since the majority is currently denying a crash, therefore there must be one about to happen.
22. Sherlock Homes said...
When i lived in Hackney in the 90 s for about 10 years the council told me it would roughly take me 16 years to get council accomadation, hohoho, so with all the other down n outs we had not much choice but to inhabit empty and derelict council properties of which there were hundreds if not thousands, later when the killing fields became known again as london fields and the islington types moved in the urban regeneration began and some squatters faced their nemesis and ended up with a house worth in excess of half a million ,,,see dave and others but that is not the point we like every other person just wanted somewhere to live that was affordable . were born here , we grow up here we work for a living but were treated like we shouldnt have homes.what the hell went wrong?
23. Kiesty said...
I'll try my best to get it to her.
24. wally said...
I remember 1988 when it felt like prices would go on rising forever. A one bed flat at that time in Woking was £72,000. Four years later they were £44,000. I don't remember anyone seeing it coming, but when it did it hit hard.
25. Kaitain said...
"Everybody has a story. And perhaps what's most surprising is that most people will tell it to me. But then, if there's one thing I learn, it's that we're all property experts these days. Pretty much everyone, apart from Alan, knows what their house is worth and everyone has an opinion - on the state of the market, on whether prices will go up or down and what the long term holds."
All of this is both reasuring and terrifying, depending on your position. Immediate echoes of the months building up to the Wall Street Crash of 29:
“When the shoe-shine guy gives you stock tips, it’s time to get out.” - Joseph Kennedy, just before the crash occurred.
The only way to create money seemingly out of thin air is by some variant of a pyramid scheme. This whole madcap period is, in effect, a pyramid scheme, driven tacitly by "bigger fool" reasoning. 'My house earns far more in a year than I do' - classic. Wealth does not just created out of nothing for nothing. The only way out of this is severe inflation or severe deflation; that one or the other will happen is not in serious question.
26. bufferbear said...
An extremely well researched piece of journalism. The story presented an alternative / realistic perspective for a change. This article nicely articulates the madness of it all. Shame she does not seem to think a crash is inevitable..........or does she?
27. Kiesty said...
I'll try my best to get it to her dude.
28. nearly30 said...
What a spot on article - absolutely a quality peice!!!!
Carole Cadwalladr you deserve a pay rise - so you can buy that flat!!!!
29. Pintail said...
Sarah Beeny tells me that the people 'who are really stuffed are the thirtysomethings who for one reason or another, and not through any fault of their own, didn't buy. They're absolutely stuffed.'
that me that is, bugger I should of bought, nah did'nt want to buy then and do not want to buy now, owning your own house is overated it's not the be all and end all.
30. paul said...
That's me too Pintail.
I feel shafted by Sarah Beeny and Krusty Clown. Ngggh.
31. sold 2 rent 1 said...
Kaitain,
"The only way out of this is severe inflation or severe deflation; that one or the other will happen is not in serious question."
I agree. Having thought about which one for a year now I am firmly in the deflation camp.
A liquidity crisis is not far away now.
IRs are losing their power.