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Frank Hovis

Not All Lefties Want Astronomical House Prices

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Good piece. So dogdirt like joeschmo are not the everyman labour representative they think they are.

It uses the HPC definition of demand and strongly flags that high House Prices are, for non-speculators, bad news.

Return to housing madness? Don’t bet the house on it says Rob Williams

Friday, August 14 2009

You need some context to see how bonkers UK house prices really are. In 1995 the average price was £50,930. By the end of 2007 they had more than trebled to more than £170,000, an increase of more than 200%. And remember. during this period, average wages failed to keep pace, rising only 54%. House prices remain as unaffordable as they have ever been.

Despite the falls over the last year, house prices are still at historic highs and now, here we go again. According to the Nationwide Building Society house prices are rising again. Their survey shows average house prices climbing for the third consecutive month. One month of rises could be a blip, even two, but three. This is starting to sound like a trend, isn't it? In confirmation, the Halifax reports that prices jumped by over 1% in July and many analysts suggest that prices may end 2009 higher than where they started.

How depressing. Only in Britain could commentators believe that house price rises over the last few weeks are a sign of economic recovery. Where else would politicians actually want house prices to start rising again at an unsustainable rate? And in what other country would the government create tax regimes where the lucky and the already rich can enjoy an unearned windfall for doing absolutely nothing?

As the Compass report "Don't bet the house on it" says, "To a large extent, the housing economy is the UK economy: the value of private housing assets topped £4 trillion in 2007, equivalent to almost three times GDP. Mortgage finance is the main source of both the money supply and the rising debt mountain, which reached £1.44 trillion in 2008.3 All of us, including non owners, now spend more on our homes than ever before - having risen steadily for 30 years - housing costs are now the single biggest item of weekly household expenditure for the first time."

There are certainly groups of people - the vested interests - who would be delighted to see house prices start climbing again. This includes estate agents, builders, lenders, bankers, surveyors, buy to letters and the government. These groups made (earn is not the appropriate word) a lot of easy money in the last boom and want to see the whole thing start up again, as soon as possible.

For most of us, however, rapidly rising house prices have been shown to be a disaster. People were encouraged to take on crippling amounts of debt just to have the security of their own home. Social housing is in short supply and there is little security of tenure in the private rental sector. Moving home has become an expensive gamble; and house price inflation has been the major cause of rapidly declining social mobility.

Most people just want an affordable, decent house to live in. They have finally realised that the property game is nothing but smoke and mirrors and leaves few winners. Anybody under 30, anyone who is not already a home owner, and anyone who would like to trade up - be it from a studio to a one bed flat, or from a terraced house to a semi detached - now understand that you can indeed lose with property, and will be profoundly depressed by the notion that house prices are rising again.

If you're a rich Russian or a cash rich member of the Eurozone, then prime property in London may look a little cheaper. If you are an employee, public or private sector, run a small business, in fact, if you don't work for an investment bank, then buying a new home will be even more unaffordable if prices rise. You will have to continue living in the home that's now too small for you and your children, or you will have to continue renting, with few rights as landlords squeal about new regulations.

There are solutions to help us escape from our unhealthy relationship with property. Rather than helping first-time buyers join a sinking ship, with dubious schemes for "affordable" housing, the government should be making second (and third) home ownership more expensive. Tax relief of up to 40% on mortgage interest paid for buy to let business should be scrapped. Property owners who leave their homes empty (and there are over three quarters of a million of these according to the Empty Homes Agency) should pay punitive taxes. Property speculation should no longer be seen as productive or benefical to the economy.

We must start building more social housing, homes that people actually want to live in, rather than "luxury" apartments built for speculators. As Jon Cruddas says in Don't bet the house on it, "It is an economic and social imperative that this is done as a matter of urgency."

Another priority should be to make the rental market fairer. In some European countries, rent control limits the amount of returns a landlord can receive. In France, for example, rent can only be increased once a year and, an unfurnished property contract has, as a minimum, a three-year term, though furnished-property contracts may be for one year. In both cases, even when the contract ends, the owner can only recover the property if he or a family member intends to live there, or he intends to sell.

Most importantly, we must reduce speculation and really prevent a return to boom and bust. In Luxembourg, a country, like Britain, with high demand and a limited supply of housing, capital gains from selling a property within two years of acquisition are considered speculative gains and are taxed as "miscellaneous income" at the full marginal rates. We need to implement a similar rule here.

Finally, its still not too late to regulate the financial services industry. We are bailing the banks out, sorry, providing liquidity to the market. In return, the least the government can do is insist on probity and prudence backed up by tough and enforcable regulations.

But back to the recent property figures. What should we make of them? Is this the start of a new house price boom, Or is this a "dead cat bounce", a brief respite on the long, inexorable slope downwards?

Sadly for the housing industry, and luckily for the country as a whole, the evidence for a new house price boom is painfully thin on the ground. Recent prices rises are calculated on the back of extremely low levels of activity.

The true state of the economy is still very poor. Look at the High Street, any High Street. Shops are closing and premises remain empty. The latest unemployment figures are horrendous and unemployment may reach three million next year. With record levels of debt, how are consumers going to spend their way out of recession? And, even if they do spend, they will be buying consumer goods made overseas.

Northern Rock have admitted that one in twenty five mortgage holders are three months or more behind with their mortgage payments. Wages are down (except for the bonus boys in the City), and a final salary pension is a thing of the past. Where is the demand going to come from for more expensive house prices to be "sustainable"? Alistair Darling and Mervyn King can only throw so much money into the economy without having to raise interest rates or watch inflation rise.

The banks and building societies will no longer lend dangerous multiples to fund irresponsible mortgages but are still being exhorted to lend to house hunters. As demand is defined as the desire to purchase something, and the ability to do so, then unless the banks lend irresponsibly, demand for higher house prices is effectively dead, or at least in a deep coma.

Something has to give. Either we can look forward to a new housing boom with no visible means of support, or prices will come down to sustainable levels. We are at a cross roads, and none of the choices of how to get out of the mess we're in are pretty.

For short term electoral reasons, the government would like the former to happen. For the sakes of the millions priced out of a decent home and for the sake of a balanced economy based on sustainable investment, we must hope we'll get the latter.

Rob Williams

http://www.compassonline.org.uk/news/item.asp?n=5259

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I'd love to see the return of the 1940's and 1950's left one day. Which dreamed of things like cheap housing(and the government was building something like 200k homes a year), ultra cheap even free electricity, free health care, cheap public water for all.

A lot was using state capital and the scale of national projects to deliver neccessities of life at mind blowing cheap prices. And flooding the supply side to drive down prices.

The new left seems to me like elitists who actually want to create shortages everywhere and have as stated goals to drive up the prices of neccessities. In many ways I view the 'new left' as reactionaries trying to maintain a class society.

Perfect example of the differences in the 40's the left wanted to use state capital to develop major electrical power plants to provide cheap electricity. Today the left wants to tear those down, and make people do with less.. naturally determined by price, so the rich don't have to cut back at all.

Edited by aa3

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I'd love to see the return of the 1940's and 1950's left one day. Which dreamed of things like cheap housing(and the government was building something like 200k homes a year), ultra cheap even free electricity, free health care, cheap public water for all.

A lot was using state capital and the scale of national projects to deliver neccessities of life at mind blowing cheap prices. And flooding the supply side to drive down prices.

The new left seems to me like elitists who actually want to create shortages everywhere and have as stated goals to drive up the prices of neccessities. In many ways I view the 'new left' as reactionaries trying to maintain a class society.

Perfect example of the differences in the 40's the left wanted to use state capital to develop major electrical power plants to provide cheap electricity. Today the left wants to tear those down, and make people do with less.. naturally determined by price, so the rich don't have to cut back at all.

Top post that. Completely agree.

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I'd love to see the return of the 1940's and 1950's left one day. Which dreamed of things like cheap housing(and the government was building something like 200k homes a year), ultra cheap even free electricity, free health care, cheap public water for all.

A lot was using state capital and the scale of national projects to deliver neccessities of life at mind blowing cheap prices. And flooding the supply side to drive down prices.

The new left seems to me like elitists who actually want to create shortages everywhere and have as stated goals to drive up the prices of neccessities. In many ways I view the 'new left' as reactionaries trying to maintain a class society.

Perfect example of the differences in the 40's the left wanted to use state capital to develop major electrical power plants to provide cheap electricity. Today the left wants to tear those down, and make people do with less.. naturally determined by price, so the rich don't have to cut back at all.

Yes, what we need is a new workers party to represent the millions - not the millionaires.

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I'd love to see the return of the 1940's and 1950's left one day. Which dreamed of things like cheap housing(and the government was building something like 200k homes a year)

I was saying this to my colleagues - that the gov should build lots of affordable family homes and he was totally aghast - and said if that happened he would be in financial ruin as no one would buy his 2 bed London flat when we was ready to trade up and he'd be in negative equity for the rest of his life!!!!!!! People want to pay a lot of money for houses!

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I'd love to see the return of the 1940's and 1950's left one day. Which dreamed of things like cheap housing(and the government was building something like 200k homes a year), ultra cheap even free electricity, free health care, cheap public water for all.

A lot was using state capital and the scale of national projects to deliver neccessities of life at mind blowing cheap prices. And flooding the supply side to drive down prices.

The new left seems to me like elitists who actually want to create shortages everywhere and have as stated goals to drive up the prices of neccessities. In many ways I view the 'new left' as reactionaries trying to maintain a class society.

Perfect example of the differences in the 40's the left wanted to use state capital to develop major electrical power plants to provide cheap electricity. Today the left wants to tear those down, and make people do with less.. naturally determined by price, so the rich don't have to cut back at all.

It seems to me that the government is in the business of creating shortages, so that sheeple see a need for government to exist to fix all these problems.

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I'd love to see the return of the 1940's and 1950's left one day. Which dreamed of things like cheap housing(and the government was building something like 200k homes a year), ultra cheap even free electricity, free health care, cheap public water for all.

A lot was using state capital and the scale of national projects to deliver neccessities of life at mind blowing cheap prices. And flooding the supply side to drive down prices.

The new left seems to me like elitists who actually want to create shortages everywhere and have as stated goals to drive up the prices of neccessities. In many ways I view the 'new left' as reactionaries trying to maintain a class society.

Perfect example of the differences in the 40's the left wanted to use state capital to develop major electrical power plants to provide cheap electricity. Today the left wants to tear those down, and make people do with less.. naturally determined by price, so the rich don't have to cut back at all.

+100

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I was saying this to my colleagues - that the gov should build lots of affordable family homes and he was totally aghast - and said if that happened he would be in financial ruin as no one would buy his 2 bed London flat when we was ready to trade up and he'd be in negative equity for the rest of his life!!!!!!! ....

There you have it. That is the majority view I'm sure and the political party that goes against it (left or right) will not be in power.

I fail to believe anyone with genuine centre left views wants high house prices. The current government are Tory Lite and hold few, if any, leftish views about anything much. Brown may genuinely wish to alleviate child poverty (a fairly "decent" leftish view) but his path to that laudable aim is through questionable economic policies.

I think its a fairly safe bet the UK will have a different government post election. The banker's Eton chums will be back in power. Low house prices will not be on their agenda.

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I'd love to see the return of the 1940's and 1950's left one day. Which dreamed of things like cheap housing(and the government was building something like 200k homes a year), ultra cheap even free electricity, free health care, cheap public water for all.

A lot was using state capital and the scale of national projects to deliver neccessities of life at mind blowing cheap prices. And flooding the supply side to drive down prices.

The new left seems to me like elitists who actually want to create shortages everywhere and have as stated goals to drive up the prices of neccessities. In many ways I view the 'new left' as reactionaries trying to maintain a class society.

Perfect example of the differences in the 40's the left wanted to use state capital to develop major electrical power plants to provide cheap electricity. Today the left wants to tear those down, and make people do with less.. naturally determined by price, so the rich don't have to cut back at all.

Reminds me of going from a relatively working class background to Cambridge in the early 1990s.. there were more than a few of the 'middle class lefty' types who would look right down their noses at people who were actually working class with mild revulsion. The same people a few decades on are, I suspect, the ones who are quite happy with smoking bans (they gave up long ago), high transport costs (keep the plebs off the road and it's good for them), CCTV everywhere.. and, of course, the idea of restricting economic growth for environmental reasons. Not that the energy basis of the economy doesn't need to change, not least to make it cheaper, but the whole 'everyone should make do with less' attitude is ultimately very right wing.

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Yes, what we need is a new workers party to represent the millions - not the millionaires.

I agree, but I would like to see a new party like this discard any idiosyncratic attacks on the capitalists and instead focus on the major economic barrier to increased living standards today: the housing market.

Every penny that people make through the housing market through speculation, capital gains and landlordism is money that is made through the increased indebtedness and restriction of others. The article used the example of Luxembourg treating capital gains on homeowners as taxable income, well I think that all money that is gained passively and represents a financial burdens on others should be taxed away. This could leave workers' private income via the beneficial activity of work untouched.

Edited by chefdave

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and, of course, the idea of restricting economic growth for environmental reasons. Not that the energy basis of the economy doesn't need to change, not least to make it cheaper, but the whole 'everyone should make do with less' attitude is ultimately very right wing.

Few people realize that the make do with less is an old right wing position. Quite a few thinkers in the late 1800's were worried that the class society of Europe would breakdown with the plenty made possible by machine production. Some far right thinkers even went as far as to embracing the government taking control of everything in order to preserve the class society by force.

It is basically allocating enforced shortages. And in the name of environmentalism is quite a convincing mask to do it with.

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It seems to me that the government is in the business of creating shortages, so that sheeple see a need for government to exist to fix all these problems.

I think that is a significant part of the problem as well. We have whole agencies full of well paid people whose job it is to try to mitigate the effects of the shortages.. the same shortages caused by other parts of the state. But get rid of the shortages and the need for those countless agency jobs largely disappears too.

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I was saying this to my colleagues - that the gov should build lots of affordable family homes and he was totally aghast - and said if that happened he would be in financial ruin as no one would buy his 2 bed London flat when we was ready to trade up and he'd be in negative equity for the rest of his life!!!!!!! People want to pay a lot of money for houses!

Great example, exactly what I'm talking about. Now that is a reactionary position and then some!

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