An Englishman Doesn't Have To Own His Castle (telegraph Article)

[stuckmojo]

Telegraph article - about bloody time

Strangely the comments are nearly all in tone with the article. Good read.

We should all learn our lesson from the house-price bubble, writes Edmund Conway.

By Edmund Conway

Published: 7:18PM BST 24 Jun 2009

Comments 41 | Comment on this article

Most of us have a vague notion that home ownership is a peculiarly British thing. We entertain Arcadian fantasies about our houses and gardens, assuming that having your own slice of this green and pleasant land is part and parcel of grown-up life.

I am all for fairytales. I have a deep affection for Father Christmas. I adore the Easter Bunny. I even have a little crush on the Tooth Fairy. But it is high time we put an end to the bunk that surrounds the British property market. There is nothing unique about the relationship between Britons and their homes: levels of ownership in Spain and Norway are comfortably higher than they are here.

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Eurovision - is it really a fix?Owning a house is not a prerequisite for economic maturity: many Germans never buy a property. And the idea that an Englishman's home is his castle has everything to do with his legal rights and nothing to do with owning the blasted place.

It's rather surprising that I have to labour this point, with the housing crash now approaching its second year. We ought to have learnt the hard way that home ownership is not a one-way bet – yet I feel keenly that we have not. Once the property market reacquainted itself with the law of gravity, after more than a decade of ever more improbable increases, house prices fell faster than in any post-war property slump. Your home is now worth around a quarter less than in the summer of 2007; as a result, negative equity is fast approaching the heights seen in the early 1990s.

Thanks largely to the unprecedented dose of economic adrenaline pumped into the system in the form of near-zero interest rates, quantitative easing and a stamp duty holiday, the worst of the crash now seems to be over. Prices rose unexpectedly in May, according to Nationwide; and the Royal Institution of Chartered Surveyors claims that buyers are returning to the market in droves.

This recovery is probably something of a mirage: prices are likely to fall further in the coming months, though perhaps not as consistently or as rapidly. The recession itself may be coming to an end, at least in the technical sense, but the long saga of rising unemployment and a sickly housing market has some years left to run.

But that's not really the point. The problem is that, however chimerical the recovery, we have not yet absorbed the more fundamental message. Housing bubbles are bad news – yes, even when prices rise rather than fall. In bad times, there are families that suffer the pain and indignity of losing their homes, and households that see their finances crippled, perhaps permanently, by the whims of the market.

But an overheated property market is also a ferociously disruptive force in most families' lives: it prompts them to buy homes that are bigger than they really need, and buy them sooner than they probably should, and leaves them vulnerable to a fall in prices. Also, bubbles distribute wealth (or at least perceived wealth) at random. Someone buying their first home in 2002 would have seen its value leap by more than 40 per cent over the next two years; anyone doing so in 2007 would have seen the price drop by around 25 per cent in the same period.

For much of the boom, prices were higher than could have been justified by the simple fundamentals: the value of the bricks, mortar and land, and the supply and demand for housing. As many of us warned, prices were higher not because houses were worth more, but because of the proliferation of debt – the phenomenon that eventually put paid to the financial system.

The solution is twofold: first, to ensure that banks never allow their customers to take on debt that could cripple them. This is where the Bank of England comes in. In the past, it has had a single target – to control inflation.

In the future, it must at the very least have a second power alongside this: the ability to control the loan-to-value levels at which banks lend to customers. When it is worried that banks and consumers are overextending themselves, it can tighten the criteria, preventing excessive lending without punishing the rest of the economy with higher interest rates.

Second, the Government must reshape the tax system so that it does not favour home ownership. This may mean experimenting with a land tax, whereby families pay annual taxes based on the value of their home and land; it may mean imposing capital gains tax on first homes. Both steps would help prevent another bubble, although they would have unpredictable side effects.

Most of all, however, it is time to remove the stigma associated with not owning a home. A century ago, barely a tenth of households owned their place of residence. Owner occupation was artificially pushed higher by a series of lucrative tax breaks in the post-war era. It could just as easily have been different. The idea that home ownership should be enshrined as a human right – alongside free health care and education – is plain wrong. It is about time that sunk in.

[Scunnered]

For much of the boom, prices were higher than could have been justified by the simple fundamentals: the value of the bricks, mortar and land, and the supply and demand for housing. As many of us warned, prices were higher not because houses were worth more, but because of the proliferation of debt – the phenomenon that eventually put paid to the financial system.

Don't remember that, Ed.

[Si1]

Don't remember that, Ed.

I remember in 2003 (can't rermember if this particular chap was one of them) a couple of articles in the Telegraph business section warning that property looked toppy. At the same time I remember noticing in the Homes section different journos ramping it, in the same newspaper on the same day!

[Guest sillybear2]

They've also realised an average worker on an average home cannot afford a home anyway :-

http://www.telegraph.co.uk/comment/telegra...gn-workers.html

[Dave Spart]

We ought to have learnt the hard way that home ownership is not a one-way bet – yet I feel keenly that we have not.

Link

Ring!Ring!

Fubra : What do I have to do to wake you up?

[tomandlu]

Second, the Government must reshape the tax system so that it does not favour home ownership. This may mean experimenting with a land tax, whereby families pay annual taxes based on the value of their home and land; it may mean imposing capital gains tax on first homes. Both steps would help prevent another bubble, although they would have unpredictable side effects.

Question - how will they stop landlords simply passing this on to tenants? I honestly don't think we need to penalise owner-occupiers with single houses. It's BTL and 2nd homes that need to be targeted IMHO.

[Guest sillybear2]

Question - how will they stop landlords simply passing this on to tenants? I honestly don't think we need to penalise owner-occupiers with single houses. It's BTL and 2nd homes that need to be targeted IMHO.

Land tax should fall upon the unproductive ownership of land and hoarding through land banking, not the 5% of the land that is allocated to housing.

[#1 on West side]

deleted.

Edited June 25, 2009 by #1 on West side

[Timm]

House prices are kept high because it's an easy way for banks to create debt, that they profit from. If they create too much debt, then the taxpayer will bail them out. For this reason, banks have no incentive not to create huge amounts of debt, thus pushing up house prices.

Fix the banks, and you fix the house price problem. But as Government has been captured by the banking elite, this seems unlikely.

[richc]

Question - how will they stop landlords simply passing this on to tenants? I honestly don't think we need to penalise owner-occupiers with single houses. It's BTL and 2nd homes that need to be targeted IMHO.

Saying "landlords will just pass on the costs to tenants" doesn't fit with reality. Why haven't landlords just passed on the costs of higher property prices? 15 years ago it cost significantly more to rent than to buy, and now this relationship has reversed. Clearly, landlord costs don't translate directly into prices charged to tenants. The rental market is much more driven by supply and demand (where demand is a function of salaries) than the market for buying houses (where demand is driven by access to debt financing).

A land value tax would increase the costs for landlords, and this could translate into higher rents, but it would most likely also bring more supply into the market as it raises the costs of keeping a property empty and this could actually lower rents. The house next to mine has sat empty for the past year. If this were the US, where property taxes run at 1%-2%, the owners would have been been paying about 10,000 pounds on the place. Instead, they get a council tax discount for taking it out of the market, and the taxes are just shifted to income taxes or VAT.

[smiffy1967]

Question - how will they stop landlords simply passing this on to tenants? I honestly don't think we need to penalise owner-occupiers with single houses. It's BTL and 2nd homes that need to be targeted IMHO.

In my wifes country, if you sell your home before you have lived in it for 5 years, you are subject to a 15% capital gains tax

THis stops flipping

You also have a convenue which stops guzumping

all works very well

[The Ayatollah Buggeri]

In my wifes country, if you sell your home before you have lived in it for 5 years, you are subject to a 15% capital gains tax

THis stops flipping

But it could also make life very tough for someone who has to move for genuine and unforeseen reasons, e.g. relocated by employer.

If Conway is serious about removing the stigma of long-term renting, then he needs to realilse that the issue isn't just one of stigma, but of insecurity. The introduction of the AST in 1988 was a lurch too far in the other direction from the 1965 Rent Act, which in turn was a kneejerk reaction promoted by the activities of Peter Rachman. The 'sitting tenant' status created by the 1965 act made it virtually impossible for a LL to terminate a tenancy, even for entirely legitimate reason, e.g. he wanted to live in the house again. Very occasionally you still get a house up for sale on Shitemove or wherever at around 50-60% of the price you'd expect to see. The reason is that it has a sitting tenant who has been there since before 1988 and therefore is still protected by the 1965 act. Furthermore, that tenant can leave the tenancy to his or her children after their death and the rent is kept well below the market value of an AST on a similar property, meaning that anyone who buys such a place will (a) possibly never be able to occupy it, and ( can't raise the rent to reflect rising costs.

What we need is a halfway house between the 1965 system and the AST, which provides tenants with a lot more security, and also outlaws the provisions of the AST which means you can't really make the home your own, e.g. you can't paint the walls a different colour, have a pet, etc. etc.; but which also enables the LL to terminate the tenancy under reasonable circumstances, e.g. wanting to live in the place themselves, or sell up. Personally I would increase the notice period required in proportion to the length of time a tenant has lived there.

[grizzly bear]

"it prompts them to buy homes that are bigger than they really need, and buy them sooner than they probably should"

Well a capital gains tax on your first house would do the same! Higher levels of stamp duty also persuade you to borrow more so that you will not need to move again in a few years time.

[eric pebble]

"Thanks largely to the unprecedented dose of economic adrenaline pumped into the system in the form of near-zero interest rates, quantitative easing and a stamp duty holiday..." .../

Is he embarrassed to just name it...? i.e.

LIAR LOANS

[Sybil13]

Most of all, however, it is time to remove the stigma associated with not owning a home. A century ago, barely a tenth of households owned their place of residence. Owner occupation was artificially pushed higher by a series of lucrative tax breaks in the post-war era. It could just as easily have been different. The idea that home ownership should be enshrined as a human right – alongside free health care and education – is plain wrong. It is about time that sunk in

Now come on let's be honest, this could have been written by McTavish couldn't it?

Every time someone says about people on average wages should rent huge question marks jump into my head and bells start ringing. Now don't ALL jump on me, remember I am a bear of little brain but my thoughts are these.

If you buy a house, yes you have interest payments on your mortgage, but in normal conditions the property goes up in value, your wages go up making your mortgage payments less and by the time you are about 50 you don't have to pay anything out any more , well for mortgage at least.

If you can't afford to buy you have to rent, rents go up, we are now all supposed to be working until we are 70 and I assume those that rent will have to work forever.

So how much sense does that actually make when I assume a large % of those that rent end up getting the rent paid by housing benefit , and surely ALL state pensioners get their rent paid . Would it not therefore make better financial sense to make sure housing is affordable and encourage people to pay their own mortgage so that the state does not have to pay high rents for 20 + years of a pensioners life?

Now I can hear loads of people jumping in saying that is what got us in this mess, but it wasn't was it, it was the RMBS market , low interest rates / BTL etc that made properties less and less affordable.

I am all for social housing but not in favour of a huge % of the population on average wages and little pension being forced to rent and a % of that rent or the whole of that rent being paid by the government (taxes) . It has to be better doesn't it for property to be affordable for as many as possible?

I know Hamish would put anyone considered "average" in tents with soup kitches but I am not sure that is the answer either is it.

[Agentimmo]

If you buy a house, yes you have interest payments on your mortgage, but in normal conditions the property goes up in value, your wages go up making your mortgage payments less and by the time you are about 50 you don't have to pay anything out any more , well for mortgage at least.

Not neccesarily. My father in law bought a 2 bed house in Normandy in 1987 for £30K. Lived in it as it was near his workplace. Sold it 10 yrs later for the same price (give or take a grand). Was told he could get £35K if he held out for a few months more. He laughed and said he could be killed under a bus whilst waiting.

In all the time he had it, the idea he was going to make big bucks at the end or that he would MEW some cash out of it never entered his head.

That's how it used to be. Some time after 1997, the bubble started to inflate. Views re. housing have changed.

I don't think this bubble will be truly burst until we get back to the point where people think again like my father in law.