Sunday, Jul 13, 2008
We're at the "tackle boom-bust cycle" stage of the boom-bust cycle
Observer: Call to tackle boom-bust housing cycle
An unconvincing short piece on how to stop boom and bust. About as convincing as Mr Brown's assurances.
Posted by letthemfall @ 12:30 PM (581 views) Add Comment
10 Comments
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1. denzil said...
We cant' really end the boom-bust cycle as it is the tool that gives a chance for incompetent fools to become Prime Minister.
Take HPI and massive debt away from Brown's economic miracle and there isn't really much remaining.
2. techieman said...
the ideas extolled shouldnt be critiscied too much. Some are what we have been advocating here already - e.g. the reduction of LTVs as the market "gets hot" alhough thats not defined - i would say base that on average affordability criteria - as multiples need to rise LTVs should fall. In any case the point is its all a bit after the horse has bolted, by the time we get to the bottom of this cycle these type of sensible restrictions will be long forgotten, or worse will be introduced when the market is on its knees. If these restrictions were brought in 2000, then the article is right the boom would still have happened but not be so pronounced.
3. icarus said...
As long as you have cheap money you'll have bubbles, boom and bust. If you make one bubble (e.g. housing) impossible bubbles will pop up elsewhere and destabilise economies, including housing. Let's see what happens to the dollar. As long as it's the dominant currency (i.e. it experiences little or no market discipline for loose monetary policy, devaluation and trade deficits) the Fed can make money cheap to bail out its chums in the banks.
4. icarus said...
make that "if you make one bubble impossible other bubbles...."
5. Neo-serf said...
Taxing land not wages would stop boom bust overnight.
Classical economics versus Neo-classical economics.
Very simple.
6. uncle tom said...
You CAN take boom/bust cycles out of the property market, if there is the will to legislate accordingly.
1) Impose maximum and moderate LTV's and income multiples, and require lenders to base the income multiples on the previous three years declared UK earnings. Provide that any lender breaking the rules (or is overseas based, so not subject to UK legislation) will be denied a possession order in the event of the borrower defaulting.
2) Devise a formula that requires local government to identify new land for development, if house prices in their locality exceed the RPI inflation rate. Make the calculation on an annual basis, and require them to identify suitable land within 12 months, or face a penalty. Stop trying to calculate long term 'housing need'.
3) Impose double council tax on any property left empty for more than six months.
4) Impose a 1% interest rate surcharge on any loan taken out for the purchase of residential property that is not the borrower's principal residence, or for any secondary mortgage (This will effectively kill off BTL mortgages and MEWing)
Thus by restricting borrowing, even when interest rates are low, by making the planning system responsive to increased demand, and supressing speculation; damaging cycles can be reliably taken out of the market.
7. Cheekie Charlie said...
"We're at the "tackle boom-bust cycle" stage of the boom-bust cycle."
8. Cheekie Charlie said...
"We're at the "tackle boom-bust cycle" stage of the boom-bust cycle."
I remember this stage last time. Yes, I worked in debt recovery at the Halifax, it took about 8 years to sort out.
9. Orwell said...
Denzil. Couldn't put it better my friend..
10. nooneo said...
The gummint had a chance to reduce the "boom and bust" cycle by increasing interest rates when the market first started overheating. Forget the independence of the MPC is a load of old tosh. Remember the dropping of interest rates in autumn 2005. The whole she-bang picked right up after a slight slowing, and we had 2 more years of ridiculous increase on top of ridiculous increases. T be honest the problems started long before this with our wonderful FSA and the sub-prime (self certification) market created here.
And we all know who to blame, the cretin with the Red budget Box at the time, our wonderful, unelected, unelectable, Prime Minister. I'm still betting on the people of Glasgow East getting rid of this man before we have to put up with 2 more years of this tw*t telling us how good we've had it and he can save us from the ravages of the crock economy he created.