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frugalista

Will The U K Become A Rentier Society?

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Brainclamp has often suggested that the endgame of the house price boom will not be a house price crash, but that the UK will become a "rentier" society in which the majority of households rent their homes from a much smaller class of investor landlords.

I have been thinking about the possibility of a rentier society evolving in the UK, but I don't see how it is sustainable. This is my argument:

Suppose you have some dwelling of average value and average occupancy. The occupants have a steady income and want to stay in the property long term.

(1) They can buy the property with a mortgage. Effectively due to our deregulated and agile lending environment, their repayments (including capital repayment) are going to be roughly BoE base rate +2% or so.

(2) They can rent the property from a landlord. To simplify things, suppose the landlord owns the property outright. The landlord can't charge more than the repayments in situation (1), since this would make renting unattractive, and the rentier society would dissolve back into a homeowning society again. And the landlord has the costs of voids and the costs of maintenance. So the landlord's return is going to be around BoE base rate, or base rate + 1%. What's in it for the landlord?

In fact, due to debt securitization (another efficient mechanism in our financial system) why doesn't the landlord put his money in a mortgage-backed security and get the base rate +2 % or so with less risk?

The landlords that exist today are either

- renting out high-occupancy dwellings profitably

- housing unsteady-income or short-term occupants profitably

- non-income-driven capital speculators (which is ultimately a zero-sum and therefore unsustainable game)

My point is that efficient markets eliminate intermediaries. Landlords who rent average-occupancy dwellings to steady-income long-term occupants are intermediaries. Such dwellings and occupants form the bulk of the housing stock and population, so doesn't economic theory predict in fact that most households will remain owner-occupied?

frugalista

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Brainclamp has often suggested that the endgame of the house price boom will not be a house price crash, but that the UK will become a "rentier" society in which the majority of households rent their homes from a much smaller class of investor landlords.

A rentier society/state is a society that lives off it's own natural resources and doesn't need to rely on taxation. The term 'rentier' is usually applied to oil rich states such as Kuwait.

If Brainclamp is suggesting this-

"A rentier society is one in which people are forced into a subsistance existance of renting, paying an investor out of his labour with no real possibility of owning property himself. His existance is to provide income for his landlord (plus his own megre subsistance)."

then he/she is living in la la land.

What brainclamp is describing is not a 'rentier society' (see above) but a pre industrial, land owning, class drive society.

As this society was sustained not on encomics but on a number of other social, poltical and legal factors that no longer exist then I think it is highly unlikely that Brainclamp will see the society he describes.

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A rentier society/state is a society that lives off it's own natural resources and doesn't need to rely on taxation. The term 'rentier' is usually applied to oil rich states such as Kuwait.

Hmm... okay, interesting. I never knew that.

I found this at the moscow times:

"More broadly defined, a rentier society is the one that uses revenues from a wasting asset to finance consumption."

What brainclamp is describing is not a 'rentier society' (see above) but a pre industrial, land owning, class drive society.

i.e. feudalism?

frugalista

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i.e. feudalism?

frugalista

Yes ...that's what he seems to be describing to me. If he is suggesting, as I think he is, that somehow a small number of investors will own most of the property and the rest of us will have to rent - and will only work to pay the rent and support the landlords then this is clearly ridiculous.

We do not have a civil, legal, poltical or social structure that would support this type of society.

This society would require 1) no democratic voting system 2) an illiterate/uneducated society 3)mass land (not property) owning 4) a regid labour market 5) a docile and immobile population 6) for the Uk to seperate itself from European social policy etc etc etc

I don't think that is going to happen

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Yes ...that's what he seems to be describing to me. If he is suggesting, as I think he is, that somehow a small number of investors will own most of the property and the rest of us will have to rent - and will only work to pay the rent and support the landlords then this is clearly ridiculous.

We do not have a civil, legal, poltical or social structure that would support this type of society.

This society would require 1) no democratic voting system 2) an illiterate/uneducated society 3)mass land (not property) owning 4) a regid labour market 5) a docile and immobile population 6) for the Uk to seperate itself from European social policy etc etc etc

I don't think that is going to happen

Gentlemen

Certain times I do agree with Brainclamp.

To the above points

1. We are watching new labour change our democratic system. Remember only 36% of the

poulation voted new labour and they won with a large majority.

2. The bulk of the UK population is uneducated - all short term thinkers. If you go to most

UK academic institutions the bulk of students are foreign.

3 Bulk of the land remains with a few individuals.

4.The labour market is tightening - unskilled labour from the EU, IT workers from India etc

5. Nobody can move to expensive which has lead to a immobile population.

6. The UK is distancing itself from the EU.

This system is just a carbon copy of what is happening in the USA.

Edited by E Powell

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Gentlemen

Certain times I do agree with Brainclamp.

To the above points

1. We are watching new labour change our democratic system. Remember only 36% of the

poulation voted new labour and they won with a large majority.

2. The bulk of the UK population is uneducated - all short term thinkers. If you go to most

UK academic institutions the bulk of students are foreign.

3 Bulk of the land remains with a few individuals.

4.The labour market is tightening - unskilled labour from the EU, IT workers from India etc

5. Nobody can move to expensive which has lead to a immobile population.

6. The UK is distancing itself from the UK.

This system is just a carbon copy of what is happening in the USA.

I agree with this. I think that many of the factors are aleady in place to create a rentier society. However I don't think we'll get one and here's why:

DEBT. Most of this 'new class of landlord' are in a huge amount of debt. They are not property 'owners' like they were in Dickensien (sp?) times. The only reason they are able to rent their properties at such low yields is because of historically low interest rates. They rely on the present economic climate to keep their heads above water.

This fine balance of high employment, low interest rates and (ahem) low inflation allows them to continue for now. However, there are just more things than you can list waiting to upset this balance and here's a few:

Rising US rates, falling consumer spending, rising energy prices, rising council tax, rising inflation, falling disposable incomes.

We can all argue about which way the economy is heading, but one thing that we can all agree on is that it is forever changing, those in too much debt are not going to be able to deal with that change.

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Gentlemen

Certain times I do agree with Brainclamp.

To the above points

1. We are watching new labour change our democratic system. Remember only 36% of the

poulation voted new labour and they won with a large majority.

2. The bulk of the UK population is uneducated - all short term thinkers. If you go to most

UK academic institutions the bulk of students are foreign.

3 Bulk of the land remains with a few individuals.

4.The labour market is tightening - unskilled labour from the EU, IT workers from India etc

5. Nobody can move to expensive which has lead to a immobile population.

6. The UK is distancing itself from the UK.

This system is just a carbon copy of what is happening in the USA.

It would have to be a lot worse than this to produce a feudal system.

36% of the population choose to vote - that doesn't mean they don't have a vote. If things got really bad then they would vote. For a feudal system you would have to remove the vote from the mass population. Low voting is not a 'change in our democratic system' it is a symptom that people are either happy or apathetic.

The bulk of the UK is uneducated! We have a highly educated population. You don't need a PhD in quantum physics to form a poltical opinion. You would need an illiterate society with no access to information to produce a feudal society.

The bulk of UK academic instituions are full of foreign students. I don't think so. Have you got any figures to support this?

The labour market is tightening. Labour markets ebb and flow all the time. They adapt to new challenges.

Nobody can move because it is too expensive. Of course they can move and a society with more rented property creates a more not a less mobile society. Have a look at the expat forum and see how many people are 'voting with their feet'. To enslave people as brainclamp had describe you would have to own them.

The UK is distancing itself from the UK - do you mean USA or EU?

Feudal system - you would have revolution first.

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2005

As a retired lecturer from a redbrick university in the Midlands I have watched the growth

of foreign students. In 1977 there were 45 students from the UK studying the course I

was lecturing (Materials Science/Metallurgy). Most were from white middle class backgrounds

42 and the remainder were from Nigeria, India and Trinidad. I retired in 2001 form lecturing

my class was made up of 15 Chinese, 5 Indians, 8 UK students. Does that not tell you something ?

If we have a highly educated population why do we have the NHS full of Indian Doctors ? IT

workers from India. A shortage of engineers on the railways.

This link will tell you more.

http://news.bbc.co.uk/1/hi/education/3640141.stm

The Uk is become more like the USA isolated it has its own social policies.

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2005

As a retired lecturer from a redbrick university in the Midlands I have watched the growth

of foreign students. In 1977 there were 45 students from the UK studying the course I

was lecturing (Materials Science/Metallurgy). Most were from white middle class backgrounds

42 and the remainder were from Nigeria, India and Trinidad. I retired in 2001 form lecturing

my class was made up of 15 Chinese, 5 Indians, 8 UK students. Does that not tell you something ?

If we have a highly educated population why do we have the NHS full of Indian Doctors ? IT

workers from India. A shortage of engineers on the railways.

This link will tell you more.

http://news.bbc.co.uk/1/hi/education/3640141.stm

The Uk is become more like the USA isolated it has its own social policies.

With respect the observation of one university department in one university doesn't constitute 'the bulk of academic institutions'. Foreign students will always be attracted to certain disciplines - especially the sciences or international politics/development. Mostly at postgraduate level.

We have an NHS full of Indian doctors because IMHO the medical profession restricts the amount of university places available for students in its never ending bid to increase it's social status and wage bargaining power by keeping a lid on the number of available doctors (limited resources are worth more). But we don't produce enough UK doctors so the NHS has to employ foreign doctors. The BMA is one of the biggest and most powerful trade unions. Have you ever noticed how they reject any attempt to 'open up' more places and faster training to UK doctors? Every year lots of excellent students get turned down for medical degrees because there aren't enough places.

IT workers from India - they work for less money

A shortage of engineers - a result of a ridiculous education system that puts too much emphasis on getting a degree - any degree - instead of giving equal emphasis to engineering. I suspect there a very many excellent students who would be very good engineers but because of the social status they are pushed into 'proper' degrees at 'proper' universities. A sad state of afairs but a reflection of middle class snobery rather than poor education.

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seems to me that the contries in this hubris of democracy are

USA, UK, Aus, NZ and a couple more.

all driven by the post 911 attack with low IRs.

all going through housing booms with distance most of its residents.

is something sinister going on ?

if so, id like to go european please.

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2005

You point to my comment lecturing at one university department -

I have been a visting lecturer at Oxford, Cambridge, Imperial and UCL,

these are proper redbrick universities. Over the last couple of years

the number of foreign students has increased at the expense of the local

students. Now £1.5k is a drop in the ocean compared to £5k paid by

an overseas student in tution fees. Medical degrees like MBBS, MBChS

and BDS command a higher fee.

As for the BMA they have effectively made a closed shop. It is better

to recruit a qualified Dr upto SHO level from aboard.

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2005

You point to my comment lecturing at one university department -

I have been a visting lecturer at Oxford, Cambridge, Imperial and UCL,

these are proper redbrick universities. Over the last couple of years

the number of foreign students has increased at the expense of the local

students. Now £1.5k is a drop in the ocean compared to £5k paid by

an overseas student in tution fees. Medical degrees like MBBS, MBChS

and BDS command a higher fee.

As for the BMA they have effectively made a closed shop. It is better

to recruit a qualified Dr upto SHO level from aboard.

I take it we agree on the medical profession/BMA then?

I am not disputing that there are a lot of foreign students - just that it doesn't justify the conclusion that we are an under educated country.

Yes foreign students are 'hot property' they bring with them higher fees than home students. But we also have a lot of home students and the numbers are going up.

You may have seen an imbalance because you visted red brick universities. Foreign students will always flock to these - If I was going abroad to study and paying a lot of money for it I would chose the best too.

I also think there is an imbalance between subjects. I too work in a red brick university and the number of foreign students seem to be more concentrated in certain disciplines. I also find a lot more foreign students at post graduate level - this is where we are failing our own students but I think that is to do with funding rather than them being crowded out by foreign students.

How do you think top up fees will impact on the home/overseas balance?

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Here's why I don't think the UK will be a rentier society again:

It is a democracy. A majority of people are obsessed with owning their own house, whether they actually own one or not. A situation where a tiny percentage of the population lorded it over the majority who were practically enslaved to the property owning minority would be completely unacceptable. The government would be changed, and the party that got into power would be the one which broke that stranglehold, and allowed the majority to go back to doing what they love i.e. owning houses.

Further, the earning and saving habits of the UK rely on a lot of the population being able to avoid having to pay for their dwelling in retirement. (I know it is different in Europe, but so are pensions and savings). If the majority had to go on renting until death through a couple of decades of retirement, then there would be economic meltdown, by a variety of mechanisms. In fact the current model assumes a lot of retired people actually borrow against a dwelling, never mind just not have to pay for one. All of that does not just affect the retired population, it feeds down into the larger economy (because pensioners buy a lot of stuff), inheritance in the middle classes, and financial support for children through university etc. If you pull that rug away, the whole economy falls on its back.

And lastly, it is just a fantasy, dreamt up by lazy landlords who think they will magically assume the position of Lords of all creation for doing very little. There is more chance of the sun not coming up tomorrow morning than that ever happening while the UK is a democracy.

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Here's why I don't think the UK will be a rentier society again:

It is a democracy. A majority of people are obsessed with owning their own house, whether they actually own one or not. A situation where a tiny percentage of the population lorded it over the majority who were practically enslaved to the property owning minority would be completely unacceptable. The government would be changed, and the party that got into power would be the one which broke that stranglehold, and allowed the majority to go back to doing what they love i.e. owning houses.

Further, the earning and saving habits of the UK rely on a lot of the population being able to avoid having to pay for their dwelling in retirement. (I know it is different in Europe, but so are pensions and savings). If the majority had to go on renting until death through a couple of decades of retirement, then there would be economic meltdown, by a variety of mechanisms. In fact the current model assumes a lot of retired people actually borrow against a dwelling, never mind just not have to pay for one. All of that does not just affect the retired population, it feeds down into the larger economy (because pensioners buy a lot of stuff), inheritance in the middle classes, and financial support for children through university etc. If you pull that rug away, the whole economy falls on its back.

And lastly, it is just a fantasy, dreamt up by lazy landlords who think they will magically assume the position of Lords of all creation for doing very little. There is more chance of the sun not coming up tomorrow morning than that ever happening while the UK is a democracy.

Agree - the prospect of a small number of BTL landlords taking over the country and enslaving the population is ridiculous - pure fantasy.

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I would not get too caught up in the definition of renter. (Keynes was caught up in attacking this economic class - idle monopolistic ownership of capital or land accruing 'rents/profit' from labour - thats the definiton of the term.)

Both myself and Warren Buffett who argues the US will turn into a sharecropper society are arguing the same thing.

I have illustrated how buying as an investor, because of many years of favorable tax breaks and removal of tax breaks for ordinary buyers means a landlord can offer rent substantially cheaper than mortgages.

Property can always be outbid by the investor over the ordinary buyer.

The BBC/University of Bristol study has shown that the UK population has exploded by at least 8% in a few years since Labour came to power.

Not just Buffett and myself, but the Skipton building society also predicts a society of people unable to buy and plunged into a grim existance of subsistance.

Instead of a houseprice crash there are signs of a credit crash. There are signs that credit for property, which is only currently offered to ordinary buyers at extreme multiples will cease and instead of a price crash, credit will polarise, with credit withdrawn from risky ordinary buyers with no tax breaks and extended to investors with existing huge equity and political policy in thier favour - tax breaks, tenant law etc.. in thier favour. What is more likely is not a price crash (as investors are waiting for price drops) but a credit crash.

(The reason ordinary people rented from the landowning class in the UK pre-1915 was because of inability to obtain credit. In my opinion only the current low interest rates are supporting the Asset backed mortgage market at persent - and it is this which is offering credit to ordinary buyers at insane prices)

So it is is not only possible, but very probable, that the UK becomes 'a sharecropper society'.

'To enslave people as brainclamp had describe you would have to own them'

The ID cards, like tax breaks on property investment for the rich, offer exactly that possibility.

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As this society was sustained not on encomics but on a number of other social, poltical and legal factors that no longer exist then I think it is highly unlikely that Brainclamp will see the society he describes.

frug has already used th eterm "feudalism". Would it be going too far to suggest that feudalism itself was predicated upon the concept of the divine right of the monarch?

Both myself and Warren Buffett who argues the US will turn into a sharecropper society are arguing the same thing.

Hardly: Buffett believes property is in a bubble that will fail. Seeing as three quarters of BTLers have joined since 2000, that could mean that three quarters of your "elite" find themselves in the bankruptcy courts. I suppose the argument then goes that the real LLs pick these props up b4 normal people can.... I suppose that is an interesting concept....

....

predicated on what? A few SIPP breaks I guess, max portfolio 1.2m ... like you say , real pottential for a handful of Duke's of Norfolk to own the majority of props @ a discount to ordinary Joes.... I don't think.

Edited by Sledgehead

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'To enslave people as brainclamp had describe you would have to own them'

The ID cards, like tax breaks on property investment for the rich, offer exactly that possibility.

ID cards, and tax breaks for a super rich minority are not going to be tolerated in a democracy where the masses toil to survive. If that's what is required for your vision of doom to become reality, then it can and will be stopped by people simply voting such things away.

These sort of "underclass" systems can only exist if the size of the underclass is something like 5 or 10% of the total, so that the majority go about their business and ignore it. If 90% of people are slaves to the other 10%, you would surely require an actual police state to keep it going, would you not? Now I know ID cards are Orwellian, but frankly I think people will just post them down the drain if they were all that stood between them and freedom from servitude.

If the UK remains a democracy, and does not allow the governing powers to simply call out the army at the first sign of protest, there is no way in my opinion that the majority can be enslaved or kept in relative destitution.

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Guest Guy_Montag

Here's my take on the University issue.

I went to Glasgow, before fees were introduced, to study Electronics & Electrical Engineering, the entry requirements were virtually non-existent, they took anyone. They nurtured us through the first two years, then cleared out about 1/3 of the class (most of whom should never have been there in the first place) & filled it up with students from Singapore. Of course the Singaporian students were excellent (only the top few percent would be funded for a British degree) & kept the pass results at a good level, despite, what I now realise was, an appaling level of teaching.

In the end Universities are starved for cash, and something has to give, either the govt. funds them better, asks them to teach few students, they will fill up with foreign students, or they will become another glorified nanny service, with unqualified classroom assisstants teaching kids.

I have long thought that the medical profession has kept a lid on the number of graduates to make deliberate shortage. I suspect that lawyers do the same.

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I would not get too caught up in the definition of renter. (Keynes was caught up in attacking this economic class - idle monopolistic ownership of capital or land accruing 'rents/profit' from labour - thats the definiton of the term.)

Both myself and Warren Buffett who argues the US will turn into a sharecropper society are arguing the same thing.

I have illustrated how buying as an investor, because of many years of favorable tax breaks and removal of tax breaks for ordinary buyers means a landlord can offer rent substantially cheaper than mortgages.

Property can always be outbid by the investor over the ordinary buyer.

The BBC/University of Bristol study has shown that the UK population has exploded by at least 8% in a few years since Labour came to power.

Not just Buffett and myself, but the Skipton building society also predicts a society of people unable to buy and plunged into a grim existance of subsistance.

Instead of a houseprice crash there are signs of a credit crash. There are signs that credit for property, which is only currently offered to ordinary buyers at extreme multiples will cease and instead of a price crash, credit will polarise, with credit withdrawn from risky ordinary buyers with no tax breaks and extended to investors with existing huge equity and political policy in thier favour - tax breaks, tenant law etc.. in thier favour. What is more likely is not a price crash (as investors are waiting for price drops) but a credit crash.

(The reason ordinary people rented from the landowning class in the UK pre-1915 was because of inability to obtain credit. In my opinion only the current low interest rates are supporting the Asset backed mortgage market at persent - and it is this which is offering credit to ordinary buyers at insane prices)

So it is is not only possible, but very probable, that the UK becomes 'a sharecropper society'.

'To enslave people as brainclamp had describe you would have to own them'

The ID cards, like tax breaks on property investment for the rich, offer exactly that possibility.

Jeeez - some reality please.

Do you really think that no ordinary person will be able to get a mortgage? Who is going to buy the houses then when people die or have to sell. Are you suggesting that there are enough BTL to purchased every house in the UK - I don't think so. There are only two ways this could happen - 1) a major business monopoly could start buying up - it would take them about 50-60 years to own all the property and if this happened all the other BTL landlords would be knocked out of the market too. 2) The bank only gives money to BTL - are there enough BTLlandlords - no - they would have to increase the BTL landlords to errr...nearly everyone.

Are rents cheaper than buying? - they are in some cases but I looked at three houses to rent yesterday. They were also up for sale. I didn't rent any of them because it was actually cheaper to buy them then rent them but I don't want to buy just yet. Prices are falling in my area so I will wait.

Of course the other point is that if the banks don't lend to the public and there are not enough BTL landlords then house prices will crash so much we will be able to buy them for cash.

Don't see it happening some how.

ID cards will enslave us will they? Lots of countries already have ID cards. We also have a sort of ID card. Have you got one of the new machine readable passports? Look at the back - that's your ID card.

I would be more concerned about owning a supermarket club card than an ID card.

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As this society was sustained not on encomics but on a number of other social, poltical and legal factors that no longer exist then I think it is highly unlikely that Brainclamp will see the society he describes.

Have you ever heard the phrase 'POLTICAL ECONOMY'?

That is what economics is all about. Political policy.

There is no 'law of economics' which will bring houseprices down.

If Labour plan on constantly giving tax breaks and incentives to landlords/investors over ordinary workers, and have a society of mass immigration, and get voted in for doing so, then we have a whole set of social, poltical and legal factors to sustain this landlord based economy.

If interest rates are raised then credit gets pulled from ordinary workers, and extended to those who have the huge tax breaks of 40% to buy.

Of course if suddenly a law was passed so you could buy say, a patch of pastureland, and build 150m2 on it most of the excess value of housing demand would collapse totally overnight, leaving immense debts with banks and much unearned wealth would evaporate overnight. It is the constraint of supply which makes housing the exception to normal free market rules.

So it all comes down to political policy.

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So it all comes down to political policy.

Glad you think so. Now please tell me. How are NL going to manufacture a society in which only the chosen few can buy homes, everyone else is there debt slave and works merely to subsidise the landlords ownership who in turn are given massive tax breaks in order to enslave the population?

I think we are back to the previous points I raised that in a democratic society, in which people are educated and mobile the population will either 1) vote out the present government or 2) s@d off to australia/canada or 3) a mixture of both.

BTW who will buy all the houses off the current BTL landlords when they retire/die?

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Here's my take on the University issue.

I went to Glasgow, before fees were introduced, to study Electronics & Electrical Engineering, the entry requirements were virtually non-existent, they took anyone. They nurtured us through the first two years, then cleared out about 1/3 of the class (most of whom should never have been there in the first place) & filled it up with students from Singapore. Of course the Singaporian students were excellent (only the top few percent would be funded for a British degree) & kept the pass results at a good level, despite, what I now realise was, an appaling level of teaching.

I also went to Glasgow, but studied Aeronautical Engineering. I concur 100% with you GM. Especially the appalling standard of teaching. It would appear to be a VI conspiracy to deter people from studying engineering. I tolerated the course and got out to industry where I enjoyed the research and development in gas turbine design, but ultimately would not tolerate being treated - and paid - as "working class unskilled" when my work was the bedrock of wealth creation. So I escaped to b-school and thence to a proper engineering company in Switzerland, with proper rewards.

And they wonder why Britain is a 2nd rate industrial power...

It's funny how this issue is so glaringly at the root of our economic problems yet governments and industry do little to change the situation.

On a different point, I tend to agree with E Powell that Britain is a badly-educated population. The best of British education is first class, but only a small percentage have access to it. I noticed that the Swiss are consistently very well educated, as is the custom in all germanic cultures. The education extends to their behaviour as consumers. The Swiss will pay through the nose for Swiss-crafted furniture and ornaments because they know if they don't buy it the crafting tradition will vanish and be replaced by chinese plastic. When I lived there, they actually voted for an increase in petrol tax "for their own good". Obviously the Swiss don't spend beyond their means. By comparison the behaviour of British consumers would be complimented to be called adolescent. It's peculiar that the credit/HP bubble is so clearly an "Anglo-American" phenomenon. Why should consumers in these countries be so immature relative to the northern European, non-Roman Empire culture?

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Have you ever heard the phrase 'POLTICAL ECONOMY'?

That is what economics is all about. Political policy.

If Labour plan on constantly giving tax breaks and incentives to landlords/investors over ordinary workers, and have a society of mass immigration, and get voted in for doing so, then we have a whole set of social, poltical and legal factors to sustain this landlord based economy.

And why would ANY government favour such a group if they were a tiny minority (which they are) if favouring that minority also meant making things intolerable for the majority? Do that, and you get kicked out of power. Yes, they may favour them now when most people imagine that they might get lucky and join in the fun. But that's not what you're talking about; you're talking about some mysterious future where most of the population is enslaved to a minority - that CAN'T HAPPEN unless you have a police state and an army prepared to put down protests amongst it's own people.

There is no 'law of economics' which will bring houseprices down.

You keep trotting that out. It seems pretty inane to me. Of course there are laws of economics which could bring house prices down. You can argue that you think they won't come into play, but just to say they can't is idiotic. There's a lot of reasons to believe that they will come down, and house prices coming down is economics in action.

Edited by Levy process

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Have you ever heard the phrase 'POLTICAL ECONOMY'?

That is what economics is all about. Political policy.

There is no 'law of economics' which will bring houseprices down.

If Labour plan on constantly giving tax breaks and incentives to landlords/investors over ordinary workers, and have a society of mass immigration, and get voted in for doing so, then we have a whole set of social, poltical and legal factors to sustain this landlord based economy.

If interest rates are raised then credit gets pulled from ordinary workers, and extended to those who have the huge tax breaks of 40% to buy.

Of course if suddenly a law was passed so you could buy say, a patch of pastureland, and build 150m2 on it most of the excess value of housing demand would collapse totally overnight, leaving immense debts with banks and much unearned wealth would evaporate overnight. It is the constraint of supply which makes housing the exception to normal free market rules.

So it all comes down to political policy.

I dont think you understand what is meant by political economy. I'd say its down to whether the economy can sustain it. Ok, let follow your scenario to its conclusion. Nobody except landlords can afford to buy. There is an acknowledged pensions/crash problem. So, pensioners dont have any money and cannot afford to pay rent. The govt cannot afford to bail them out and pay their rent. Either the idea of retirement is gone, literally work til you drop or homes go empty and elderly people are homeless.

Do you think this is sustainable?

I predict a riot.

Edited by murpaul

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I have illustrated how buying as an investor, because of many years of favorable tax breaks and removal of tax breaks for ordinary buyers means a landlord can offer rent substantially cheaper than mortgages.

Property can always be outbid by the investor over the ordinary buyer.

Okay, you are claiming that investors can always outbid owner occupiers, because housing represents a better investment for the landlord than it does for the owner occupier. Let's analyse the benefits which landlord/investors have and those which ordinary people/prospective owner-occupiers have.

Both sides have to pay maintenance, insurance etc. so no difference there.

Both sides have to pay purchasing/selling costs and taxes so no difference there.

Anyone with a high enough income / pension savings can put the property in a SIPP so no difference there.

Owner occupier pays no capital gains tax if outside a SIPP.

Owner occupier does not have to cover voids.

Owner occupier can borrow 95 - 100% for the purchase if necessary.

Owner occupier mortgages have lower interest rates.

Owner occupier tends to be favourably treated in the case of mortgage arrears.

Landlord/investor must pay capital gains tax if outside a SIPP.

Landlord/investor must cover voids.

Landlord/investor can borrow only 85% for the purchase.

Landlord/investor mortgages have a higher interest rate.

Landlord/investor must meet the cost of regulations e.g. annual gas inspections etc.

Landlord/investor gets no favourable treatment in the case of mortgage arrears.

Landlord/investor must cover cost of finding tenants, drawing up lease etc.

Landlord/investor must cover cost of tenants in arrears, risk of eviction, risk of major damage by tenants etc.

Not looking too favourable for landlord to me.

frugalista

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  • 301 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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