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Leading Economist Warns Of '30% Fall' In Uk House Prices

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http://www.24dash.com/news/housing/2011-03-11-Leading-economist-warns-of-30-fall-in-UK-house-prices

Rising interest rates will see house prices fall sharply by between 25 and 30 per cent, Chief Economics Leader writer for The Times, Oliver Kamm, told a major housing event in Brighton this week.

He warned housing leaders at the Chartered Institute of Housing (CIH) South East annual conference in Brighton that there was "little prospect of an escape from the squeeze on living standards".

He attributed the doubling in house prices during 1990s to monetary policy that was too loose and interest rates that were too low. While the prospect of falling house prices would make homes more affordable, he warned that many people would be saddled by negative equity and unable to move to take up work. This would be "damaging to human wellbeing and to the wider economy".

Oliver Kamm described the UK obsession with home ownership and the competitive bidding for houses as "destructive" and called for greater stress on a healthier rental sector. He added: "It is long past the time when we should tax capital gains in the sales of property".

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To me the article reads as just another VI 'warning' that raising interest rates will make the sky fall, so don't do it.

According to a blog on Moneyweek today MSW reckons he is a bear when it comes to house prices.

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Rising interest rates will see house prices fall sharply by between 25 and 30 per cent, Chief Economics Leader writer for The Times, Oliver Kamm, told a major housing event in Brighton this week.

Heh, I nearly posted on the 'lack of supply this week' thread that it was probably down to EAs being at a property conference somewhere...

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http://www.24dash.com/news/housing/2011-03-11-Leading-economist-warns-of-30-fall-in-UK-house-prices

Rising interest rates will see house prices fall sharply by between 25 and 30 per cent, Chief Economics Leader writer for The Times, Oliver Kamm, told a major housing event in Brighton this week.

He warned housing leaders at the Chartered Institute of Housing (CIH) South East annual conference in Brighton that there was "little prospect of an escape from the squeeze on living standards".

He attributed the doubling in house prices during 1990s to monetary policy that was too loose and interest rates that were too low. While the prospect of falling house prices would make homes more affordable, he warned that many people would be saddled by negative equity and unable to move to take up work. This would be "damaging to human wellbeing and to the wider economy".

Oliver Kamm described the UK obsession with home ownership and the competitive bidding for houses as "destructive" and called for greater stress on a healthier rental sector. He added: "It is long past the time when we should tax capital gains in the sales of property".

Lower prices are damaging to human well being? People having more disposable income as they spend less of it on housing costs is damaging to the wider economy?

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Lower prices are damaging to human well being? People having more disposable income as they spend less of it on housing costs is damaging to the wider economy?

Surely it is the huge rise in prices that has caused the socially immobility and unavoidable damage to the economy.

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You misunderstand. Highlighted. Its the unable to move to work that he says is a problem.

He attributed the doubling in house prices during 1990s to monetary policy that was too loose and interest rates that were too low. While the prospect of falling house prices would make homes more affordable, he warned that many people would be saddled by negative equity and unable to move to take up work. This would be "damaging to human wellbeing and to the wider economy".

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Surely it is the huge rise in prices that has caused the socially immobility and unavoidable damage to the economy.

Did you just reply to your own post?

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"How was Damascus?" is what we should be asking Kamm, who was a long time New Labour apologist. Has he complained about fiscal policy at any time in the last 13 years? And why are the 90s being singled out for opprobrium rather than the period under his third way chum's watch?

Oh and btw, he isn't an economist in the sense of being a practicing academic, he was a hedgie and a PPE policy wonk.

Edited by kenzdawg

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Warns? Sounds like he is encouring 30% falls in house prices and capital gains tax on property sales. Fantastic idea.

No. No, no, no, no, bl00dy no!

Sales of second homes are already taxed. There is no logic behind hitting people's primary place of residence with capital gains tax. It completely destroys workforce mobility, and means people would have no place to preserve wealth from inflationary policies. CGT on primary residences would be a way for the government to steal the last remnants of private property, cause a pooling of property in investor's hands and it would hit the middle classes worst. It is probably the stupidest idea I have ever heard...ever. Why not just hand everything over to the government and wait for them to dole out the portion allotted to you by your local kommissar?

Seriously, do you really think it would be a good idea for the economy and for people to have to pay/re-earn 28% of any change in the value of their house every time they move town for a new job?

There are a million ways the insane house price inflation of the past decade could have been prevented/stopped which don't involve exacerbating the theft of private wealth by inflation.

Of course, CGT on primary residences would be fair if we did not live in a world where inflation is government policy, (i.e. it was a tax on windfalls) but we do live in such a world and that just means CGT on primary residences is a way for the government to close the last loophole that allows normal people to escape the stealth tax of inflation on their wealth.

Edited by Tiger Woods?

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No. No, no, no, no, bl00dy no!

Sales of second homes are already taxed. There is no logic behind hitting people's primary place of residence with capital gains tax. It completely destroys workforce mobility, and means people would have no place to preserve wealth from inflationary policies. CGT on primary residences would be a way for the government to steal the last remnants of private property, cause a pooling of property in investor's hands and it would hit the middle classes worst. It is probably the stupidest idea I have ever heard...ever. Why not just hand everything over to the government and wait for them to dole out the portion allotted to you by your local kommissar?

Seriously, do you really think it would be a good idea for the economy and for people to have to pay/re-earn 28% of any change in the value of their house every time they move town for a new job?

There are a million ways the insane house price inflation of the past decade could have been prevented/stopped which don't involve exacerbating the theft of private wealth by inflation.

Of course, CGT on primary residences would be fair if we did not live in a world where inflation is government policy, (i.e. it was a tax on windfalls) but we do live in such a world and that just means CGT on primary residences is a way for the government to close the last loophole that allows normal people to escape the stealth tax of inflation on their wealth.

This is exactly how housing is allocated now. The permits are doled out to a few special people, and everyone else has to trade for them. The fact that the allocation happened a hundred years before I was born only makes it worse, not better.

Houses are for living in, not for preserving wealth. Land can be occupied by common consent or by force. I believe force is immoral (and ultimately unprofitable), and consent requires either a quid-pro-quo or compensation.

This is the basic argument for taxing land - the homeowner pays for the privileges they have been granted by the state, on our behalf (if you believe in democratic government of course).

In contrast I do not believe that any good argument for taxing incomes has ever been proposed.

Of course you are right that a capital gains tax isn't the right thing at all, tax should be paid annually on the land-value.

Changing the subject, I don't see why negative equity has to affect workforce mobility.

It is the policy of the banks, and therefore the government, that loans cannot be transferred from one house to another if the household is in negative equity, but there is no real reason for this economically.

After all if you owe $100,000 secured on a house worth $50,000, why does it matter which house?

Edited by (Blizzard)

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No. No, no, no, no, bl00dy no!

Sales of second homes are already taxed. There is no logic behind hitting people's primary place of residence with capital gains tax. It completely destroys workforce mobility, and means people would have no place to preserve wealth from inflationary policies. CGT on primary residences would be a way for the government to steal the last remnants of private property, cause a pooling of property in investor's hands and it would hit the middle classes worst. It is probably the stupidest idea I have ever heard...ever. Why not just hand everything over to the government and wait for them to dole out the portion allotted to you by your local kommissar?

Seriously, do you really think it would be a good idea for the economy and for people to have to pay/re-earn 28% of any change in the value of their house every time they move town for a new job?

There are a million ways the insane house price inflation of the past decade could have been prevented/stopped which don't involve exacerbating the theft of private wealth by inflation.

Of course, CGT on primary residences would be fair if we did not live in a world where inflation is government policy, (i.e. it was a tax on windfalls) but we do live in such a world and that just means CGT on primary residences is a way for the government to close the last loophole that allows normal people to escape the stealth tax of inflation on their wealth.

Past performance is no guarantee of future performance: Property was only a hedge against inflation when wages went up faster than inflation, (as I am sure you know). If that doesn't happen, property becomes cheaper in nominal as well as real terms, as disposable incomes become squeezed by the rising costs of essentials..

But look on the bright side: In order to pay the T, you have to have a CG.

For most people, that won't be happening any time soon.

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This is exactly how housing is allocated now. The permits are doled out to a few special people, and everyone else has to trade for them. The fact that the allocation happened a hundred years before I was born only makes it worse, not better.

Houses are for living in, not for preserving wealth. Land can be occupied by common consent or by force. I believe force is immoral (and ultimately unprofitable), and consent requires either a quid-pro-quo or compensation.

This is the basic argument for taxing land - the homeowner pays for the privileges they have been granted by the state, on our behalf (if you believe in democratic government of course).

In contrast I do not believe that any good argument for taxing incomes has ever been proposed.

Of course you are right that a capital gains tax isn't the right thing at all, tax should be paid annually on the land-value.

Changing the subject, I don't see why negative equity has to affect workforce mobility.

It is the policy of the banks, and therefore the government, that loans cannot be transferred from one house to another if the household is in negative equity, but there is no real reason for this economically.

After all if you owe $100,000 secured on a house worth $50,000, why does it matter which house?

I have no problem with a land value tax, but that is not happening any time soon, and it is not the same thing as CGT. We are talking about CGT on transactions here which will just be tacked onto our current structure. It is just the wrong tax for the job, even if tax is the solution.

I agree regarding income tax. Income tax and similar cause inefficiences in the transactions between people, often destroying the operation of comparative advantage. They are a really, really stupid form of taxation.

The issue of planning is a real problem and is one of the (many) reasons we have had house price inflation. If people were free to build where they chose, then land price inflation would be muffled even in a regieme of easy credit. Instead we would probably have larger, better built, and more suitable for people to live in, houses.

The sad fact of the matter is that your primary residence is just about the only place you can place your wealth to escape taxation by inflation. In a world of stable credit, and stable planning permission (unlike the one we have experinced for the past 15 years) the gain in the price of a house should be, more or less, equal to inflaiton, i.e. it is not a real gain. Charging CGT would mean that there is no escape from theft by inflation, as would become obvious to you when you decided to move house and dicovered that you could only afford 72% of the property you just sold in the new location.

Of course one could devise a different taxation system from the ground up, but that will not happen anytime soon.

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I have no problem with a land value tax, but that is not happening any time soon, and it is not the same thing as CGT. We are talking about CGT on transactions here which will just be tacked onto our current structure. It is just the wrong tax for the job, even if tax is the solution.

I agree regarding income tax. Income tax and similar cause inefficiences in the transactions between people, often destroying the operation of comparative advantage. They are a really, really stupid form of taxation.

The issue of planning is a real problem and is one of the (many) reasons we have had house price inflation. If people were free to build where they chose, then land price inflation would be muffled even in a regieme of easy credit. Instead we would probably have larger, better built, and more suitable for people to live in, houses.

The sad fact of the matter is that your primary residence is just about the only place you can place your wealth to escape taxation by inflation. In a world of stable credit, and stable planning permission (unlike the one we have experinced for the past 15 years) the gain in the price of a house should be, more or less, equal to inflaiton, i.e. it is not a real gain. Charging CGT would mean that there is no escape from theft by inflation, as would become obvious to you when you decided to move house and dicovered that you could only afford 72% of the property you just sold in the new location.

Of course one could devise a different taxation system from the ground up, but that will not happen anytime soon.

In that case we basically agree, except that I would support any tax on unearned income - even this bad one - over taxes on earned income.

Incentives and all that.

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Warns? Sounds like he is encouring 30% falls in house prices and capital gains tax on property sales. Fantastic idea.

A capital gains tax is not such a good idea as the seller would just pass it on to the buyer when the property is sold.

Better is an annual tax levied during the ownership that cannot be passed on to the buyer thus avoiding instant massive HPI. Land Value Tax works pretty much this way.

CGT on the sale of property would just mean borrowers would need bigger mortgages just to pay the tax.

Edited by Dave Spart

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Warns? Sounds like he is encouring 30% falls in house prices and capital gains tax on property sales. Fantastic idea.

We don't need CGT just properly controlled lending. CGT would cause more problems when moving than they would cure in the market. Australias land tax is also stupid and has not stopped their amazing bubble now at the top and wobbling like a massive jelly. Loose lending is the cause of the prices!!

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There is no logic behind hitting people's primary place of residence with capital gains tax.

Yes there is ...

It completely destroys workforce mobility,

No it doesnt because it suppresses the increases that would make the tax due.

and means people would have no place to preserve wealth from inflationary policies.

Housing should ideally be a commodity, not and investment or inflation hedge. It would be a good thing if house continue to fall in the long term.

CGT on primary residences would be a way for the government to steal the last remnants of private property, cause a pooling of property in investor's hands.

Investors wont be interested in something that has long term gradual depreciation so CGT on main residence will have the exact opposite effect. As a HPCer we cant have it both ways - sustainable cheaper prices for us to buy but then it also becoming our little "nest egg", the two are fundamentally incompatible.

Seriously, do you really think it would be a good idea for the economy and for people to have to pay/re-earn 28% of any change in the value of their house every time they move town for a new job?

Yes because the change would be small, zero or even negative in which case CGT would provide people with a tax offset for sunk housing costs (and it should be seen as a cost, not an investment).

CGT on primary residences is a way for the government to close the last loophole that allows normal people to escape the stealth tax of inflation on their wealth.

Housing should be a commoditised cost of living - not a store of wealth. Housing as a wealth preserver is incompatible with sustained low costs (as I pointed out above).

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To me the article reads as just another VI 'warning' that raising interest rates will make the sky fall, so don't do it.

A VI that recommends main residence CGT ?? - I dont think so.

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We don't need CGT just properly controlled lending. CGT would cause more problems when moving than they would cure in the market. Australias land tax is also stupid and has not stopped their amazing bubble now at the top and wobbling like a massive jelly. Loose lending is the cause of the prices!!

In the absence of lending, prices probably wouldn't have risen as much, but we'd still all be paying rent to jobless parasites. This was the situation in the 19th century.

Land value-tax doesn't stop all house prices rises any more than cigarette taxes stop all smoking, or income taxes stop all employment.

Given the choice - stopping some house price rises, stopping some smoking, or stopping some employment - I know which I would choose.

Ultimately, if the Australian government is taxing land values, then some of their bubble will pay for schools and hospitals. Ours paid for this:

Too good to work

Still out of work and claiming entitlements

Some other scroungers

And remember folks, this is money confiscated from your economy that you built by working and they took without bothering to contribute a single thing.

Thank God we had a decade long socialist government to stand up for the working man.

Edited by (Blizzard)

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Yes there is ...

Housing gains should be taxed, but not as a one-off capital gain. That would simply cause people to sit on their land, and collect the gains as rent.

A better idea is to stop private individuals collecting a fee simply for blocking other peoples productive use of a shared resource.

There are two ways of doing that.

The first is simply to change the law so that they can't block peoples productive use of a shared resource - abolish land ownership as we know it. This would be the free market solution.

The statist solution is to let the state collect the fee as a land-value tax and use it to provide shared services such as the NHS.

Either would be a massive improvement on what we have now.

As I have pointed out before, we already pay land-value tax. We pay it to our landlords, or we pay the NPV of it when we buy a house.

The question is only who should collect that tax and what should they spend it on.

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Lower prices are damaging to human well being? People having more disposable income as they spend less of it on housing costs is damaging to the wider economy?

He referred to negative equity which would be an inevitable transitional effect, and what he said is true.

However as a true Brit, I consider the benefits WELL worth somebody else's pain.

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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