Thursday, Jul 30, 2009
Could We All Be Winners From This Crash?
The Economic Voice: A Coordinated Property Crash part 2
This is the second part to an "Evolving" proposal for a way out of this mess. All HPCers have the potential to add to this proposal which if far from perfect but if adopted could be a rallying call for many.
Posted by titaniccaptain @ 02:39 PM (997 views) Add Comment
12 Comments
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1. 51ck-6-51x said...
TC
- I was thinking about the x*salary rule of thumb for mortgage lending, and do not think it is either enforceable or truly sensible to enforce such a rule :
1) Sure, it makes sense for the average Jo at the moment, but it does not hold for a high earner - because the true input should be disposable income ( so a high earner with a stable job and with no dependants ) can afford far more than this average Jo, and a low earner with many dependants cannot afford much, if any leverage.
2) There is no fundamental reason tying the price of a basket of essential goods, energy and services to that of a house, so the multiple would change ( unless, again, we work from disposable income ). Fixed rules in a changing market act to distort.
3) There will be ways around any such law, adding further friction to the market.
2. titaniccaptain said...
Thanks for your response you raise good points 666.....
As I said its evolving and nowhere near perfect.
1. I have to say your right this is catering more for the average Joe....but he makes up the majority.
2. The reason for fixing it to inflation is to prevent profiteering from property and an increase linked to a government target of 2% seems like one way to simplify the whole process.....I like simple (Maybe I am simple...hmmm)
3. There is always a way around most laws but if it can be kept water tight with a little thought it might have legs.
3. uncle tom said...
TC,
1) The Tories blueprint for better banking includes provision for a return to RPIX as the inflation target (i.e. housing costs included) and they note the need for the BOE to detect and combat speculative property booms.
- So, assuming they get elected, we need to hold them to that.
2) The legacy of debt needs to be gently eroded. Neither runaway inflation nor perennial debt is desirable, and a 2% erosion rate is going to be too slow; so target maybe 5% inflation.
3) An essential part of the road to recovery is to keep people working, and one of the best ways to do that is to encourage construction. Self-build schemes in particular, provide hope and opportunity.
- So, for a start, identify maybe 50,000 acres of surplus MOD land in all parts of the country (you'd be amazed how much they are sitting on), parcel it up into self build plots, each with an extensive choice of pre-approved home designs to choose from. Then flog them off for £20k each, using the cash raised to build roads, schools etc.
4) Simplify all aspects of the public sector to focus on core needs, removing all consultants in the process. End the tyranny of the health and safety industry, make schools and hospitals lawyer-free zones (if you want to sue, go private..) and give authority back to teachers, with the power to maintain discipline. Tell Brussels to get stuffed. Make prison hell.
4. titaniccaptain said...
Uncle Tom thanks again for your contribution to this proposal.
Your points:-
1. Agreed
2. Would the nequity write offs I have mentioned coupled with a raise in interest rates and legislation with regards to the newly found capital position of the banks and capping bank lending would that not curb any potential inflation risks?......
3. Agreed on self builds but I hope we would not put too many eggs into the construction industry again.
Also a possible re imagining of our cities and what a city is.....if we can make cities greener and the abilty to blur the lines between rural and city we would be on to a winner....there are ideas floating around by creative thinkers that could make cities self sufficient with food removing reliance on imported food stuffs.
On the MOD land it is surprising to find that is where we have best nature reserves in the country and where the English landscape has returned to its pre agricultural state....I understand deer flourish there even amongst the odd bullet and tank shell....with all the empty property in the country just under 1 million homes...I see little reason to prioritize new building but should push harder legislation against empty property and give local authorities the ability to act swiftly and hard.
4. Agreed Agreed Agreed.
5. jack c said...
TC - moving off topic R U OK as I read the recent thread on your health scare? Sincerely hope all is well.
6. titaniccaptain said...
Thanks Jack c and ALL who sent their kind words.
Feeling a little better than I was....was meant to have biopsy today and minor op but they are not doing minor ops in my doctors this week so its been postponed until next week which is VERY annoying. But all in all I feel okish
7. jack c said...
TC - thanks for the update, pleased to hear you are feeling a wee bit better and that you make a swift return to full health.
8. uncle tom said...
TC,
- If you start writing off negative equity, the prudent will cry foul. There is also the matter of who funds the write-off. Better to let nature take its course on that one, and avoid micro-management.
- One of the great problems with our planning system is its Stalinist roots in the post-war Attlee government. When people in high places start dictating planning policy, and having grand and complex ideas (such as 'eco-towns'), those on the ground get very defensive.
As it stands, no town or parish council dares mention that their community could benefit from a few extra houses, for fear of being seen as a soft touch, and flooded with hundreds.
Better to employ a carrot and stick approach. Ask every local council (at its lowest level) to consider the suitability of their housing stock, and to identify areas of land that could be developed to advantage. At the same time, give them an absolute veto over any planning application.
Indicate that if they fail to find room to increase their housing stock by 3%, they will be subject to a modest penalty; but that if they find room for more than 3%, they will entitled to a share of penalties paid by other councils. In addition, provide that every new house built must pay a £5k fee to help fund local amenities. Areas that are already heavily developed might be exempted.
My MOD proposal is a more immediate one-off measure to combat quickly and specifically what is a developing and massive economic crisis. It has the advantage that it could be put into effect in a matter of months rather than years.
While the MOD does have some environmentally sensitive land, it also has a lot that has been pretty much trashed by the military.
9. titaniccaptain said...
@Uncle Tom
"If you start writing off negative equity, the prudent will cry foul. There is also the matter of who funds the write-off. Better to let nature take its course on that one, and avoid micro-management.".......indeed they will cry foul until the interest rates are whacked back up (And see their savings go through the roof) because the money is not borrowed it is printed by the BOE.....actual money printing that we have all been so scared of.....it will fill the black holes and leave the banks well and truly bursting with cash but they will not be able to spend it and invest it because there will be legislation in place to cap their lending...obviously more lending to businesses would then be possible but the risk would be have to remain sensible again from legislation.
As for all this forming new bubbles...look at points 3 and 7 in the original article.
"My MOD proposal is a more immediate one-off measure to combat quickly and specifically what is a developing and massive economic crisis. It has the advantage that it could be put into effect in a matter of months rather than years."....actually looking at it it does have great merit...especially when it comes to the potential for self builds without the building constraints that have held back architectural development in the past 50 years.....
"Better to employ a carrot and stick approach. Ask every local council (at its lowest level) to consider the suitability of their housing stock, and to identify areas of land that could be developed to advantage. At the same time, give them an absolute veto over any planning application.
Indicate that if they fail to find room to increase their housing stock by 3%, they will be subject to a modest penalty; but that if they find room for more than 3%, they will entitled to a share of penalties paid by other councils. In addition, provide that every new house built must pay a £5k fee to help fund local amenities. Areas that are already heavily developed might be exempted.
My MOD proposal is a more immediate one-off measure to combat quickly and specifically what is a developing and massive economic crisis. It has the advantage that it could be put into effect in a matter of months rather than years."......also a great idea....thank you so much Uncle Tom I will be bookmarking this and using it for reference for future amendments .
10. shipbuilder said...
1. 51ck-6-51x said...
"TC
- I was thinking about the x*salary rule of thumb for mortgage lending, and do not think it is either enforceable or truly sensible to enforce such a rule :
1) Sure, it makes sense for the average Jo at the moment, but it does not hold for a high earner - because the true input should be disposable income ( so a high earner with a stable job and with no dependants ) can afford far more than this average Jo, and a low earner with many dependants cannot afford much, if any leverage.
2) There is no fundamental reason tying the price of a basket of essential goods, energy and services to that of a house, so the multiple would change ( unless, again, we work from disposable income ). Fixed rules in a changing market act to distort.
3) There will be ways around any such law, adding further friction to the market."
I've heard point 1 a number of times now and I don't see how it stands up. House prices are set by what people can borrow. If you let some people borrow more (because, as you say, they have an income advantage), then the prices of the type of houses that those people want to buy will inflate and the advantage disappears. High earners will always be able to afford the bigger houses and better areas, no matter what. The caveats for those with stable jobs (are any jobs really stable? How do you judge?) and so on were already made when your bank manager reviews your mortgage application. I think it's simply an argument to return to the 'old' mortgage system.
I also don't see how this distorts the market - you are not fixing a price, just a relationship, so that earnings and price move in tandem, which is as it should be.
Simplicity is what is required - any more complicated method of calculating 'affordability' will be more likely to be circumvented and have unintended consequences and cause more friction.
No rule will work for everyone, so the simplest that works for the most is surely the best?
11. titaniccaptain said...
......an addition from a blogger on my site on how to control inflation if the given scenario were to manifest:-
"Ok lets combine both Keynsian & Moneterist policies?
Set interest rates as I have suggested. If there is a need to damp demand to control inflation do so not by raising interest rates but imposing a 'interest premium tax' on top of the interest rate already being charged. So if inflation is 2% a saver will receive 5% (2% inflation plus 3% 'profit') the bank would lend that out at say 7% and make a 2% margin. If there is a need to hold down inflation OR priick (Note from TC.... had to add an extra i for the swear filter) a house price bubble, the state might then charge the borrower a further 1-2% 'interest premium tax'. This 'tax' could go into the State coffers as a mere tax and/or be invested (on the borrowers behalf) as a 'pension contribution'?
That way in the short term inflation could be controlled by the medium of decreasing aggregate demand by a flexible interest (and tax) rate policy. BUT those paying the increased interest would benefit (in the long run) from a better pension. Just a thought."
12. 51ck-6-51x said...
shippy ( only just saw your reply sorry )
- (1) Sure the "advantage" disappears, but that's not the point. The point is the dependant variable should be affordability not income.
- (2) You are right about job stability to some degree. However this is already scored ( a contractor is not as stable as a perm... )
- (3) You are distorting both wages and house prices by locking these things into a direct relationship. At some points in time disposable income is a bigger percentage of income than at others - historically there have been huge differences in this relationship. One does not have to fix a price directly to distort a market.
- (4) Simplicity is no rules IMO. And NO simple is not best. Good Enough is Best, as per programming - this tends toward simplicity, but does not necessarily minimise it. The real world is a complex place and attempting to fit simple rules is asking for trouble. Catering to the masses would appear to be preferable, but without a complex evolutionary model the rule would almost certainly drift away from this ideal ( this ties in with the market distortion ).