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The Guardian: "mervin King's Housing Warning Is Too Little Too Late"

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http://www.guardian.co.uk/commentisfree/2013/may/21/mervyn-king-housing-warning-fannie-mae

The French call it l'esprit de l'escalier, that brilliant thought on the way out, too late for some brilliant aperçu. Alas, that is Sir Mervyn King's parting contribution as he warns that the Help to Buy scheme risks setting off a housing bubble. In his long years at the Bank of England he presided nonchalantly over one housing boom after another, declaring it was none of the bank's business when setting low interest rates that helped prices triple in the decade before the crash. Remember Shelter's startling comparisons: a basic loaf of bread would cost £4.36 if its price had risen at the same rate as housing in the past 40 years; a chicken would cost £51.18.

The result of the bank's blind eye and successive government policies has been an economy addicted to property inflation. What's not to like when soaring house prices create apparent growth? Property values fill the gap in good pensions, pay for nursing home care of the old, let parents borrow to subsidise university fees or for a deposit to get the next generation on the ladder to the magic kingdom of ever-rising prices. It's a bit late now for Sir Mervyn to talk of taking away the punch bowl, just as perky ministers boast of green shoots, turning corners and Danny Alexander's "increasing momentum".

What growth do they spy? Not Osborne's "march of the makers" or Cameron's "Tory housing revolution" – but asset bubbles. See how share prices skyrocket, underpinned by no more than tulips. But above all, take the racing pulse of average house prices, which have shot past £250,000 – past £500,000 in insane London, where they rose by £16,000 in a month – earning £530 a day.

Can this be stopped? Economically, of course, with land value tax or capital gains tax on rises above inflation. Chill the market by warning that a house will no longer be a wealth creator, just a stable home at a stable price, secure, comforting but not a money tree. The problem is political: though home ownership is falling for the first time since 1918 and is expected to keep falling, the 64% who do own vastly outvote the rest – and they want never-ending rises to pay off frighteningly high mortgages and provide everything else a family needs. Escaping the nation's psychological and financial addiction is harder than tearing a gambler from a one-armed bandit.

What gave the governor such a sudden jolt? The government's colossal Help to Buy scheme offers £130bn of mortgage guarantee to anyone – young or old, speculator or second-home owner – who buys a house worth up to £600,000, offering 95% mortgages. The risk in previous schemes was shared 50:50 with developers, but this time the taxpayer pays it all. Former schemes were tiny but this one is mammoth, the debt kept cunningly off the public borrowing books (which the Office for National Statistics allowed; it's said the Treasury was amazed). As many as one in four mortgages may become permanently government-backed after next January, with this price-inflator already "boosting confidence" and mortgage availability in lock-step with house prices. King warns this is "too close for comfort" to US state-backed Fannie Mae mortgages, whose collapse helped trigger the financial crisis.

The National Housing Federation says previous much smaller schemes artificially supported higher prices, so buyers who were helped ended up paying more than if the market had been left to itself. King warns the scheme should not become a long-standing feature, out of fear that abolishing it would cause prices to fall – and that's too politically dangerous for any government. Buyers who were tempted in by a scheme that had kept prices artificially high would find themselves in negative equity.

Ministers see a mirage of growth in house prices. Yet wages are falling, rents, prices and unemployment are rising, energy bills are up by 8.5% a year and the pound is down by 25% since 2007. Homelessness rose by a third last year, rogue landlords multiplying. The Guardian's home borough, Camden, tells a two-nation story: 40% of children are under the poverty line, but average house prices have just hit £1m.

The only long-term answer to bubble pricing is to build, build, build. But even if Labour won the next election and delivered a million homes in five years, that's still not keeping up with annual growth in demand of 240,000. Kate Barker's celebrated 2004 housing review showed that building your way to lower prices would take many years with demand so strong. Dysfunctional developers are part of the problem. In the US when demand rises by 10%, supply leaps up by 20%, but in the UK developers barely respond: a 10% demand increase causes just 5% extra supply. British builders hoard land to keep prices high, according to the IPPR. Taylor Wimpey has called it a strategy of promoting margin over volume.

Worse, banks conspire with developers not to build for fear that it might reveal that property on their books is still over-valued from the height of the boom. Labour needs a "force to sell" policy, instead of "help to buy", obliging all land with planning permission to be built on or sold off to get construction moving, although it risks exposing more zombie debt than banks admit to carrying.

Labour is now ashamed of how little was built in its 13 years, neither in boom nor bust. But every aspect of this government's housing policy is a disaster that began with its 63% cut in capital spending. Social home building stopped while right to buy from councils got a boost. Despite lower building standards allowing not rabbit hutch but hamster cage homes, 8% fewer have been built in the last year.

YouGov finds that 35% of households are so near the edge they only have savings to cover housing costs for one month, so 8 million are just one pay check from homelessness. Why worsen the housing crisis with a bedroom tax? The fraud is that promised housing benefit savings of £465m are only realised if tenants don't move out but take the £700 a year hit to their meagre living standards. If they do move, they go into the private sector where a smaller home costs the housing benefit budget more than the social housing just vacated. A survey by Lord Bassam suggests the number affected will be closer to a million than the 660,000 announced. The fallout has hardly begun.

Here is another shocking fact about Help to Buy. The sum used to pump up prices artificially could have built 175,000 new affordable homes.

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Remind me. Was Merv one of those who warned of a house price bubble when it was in full mania mode ten years ago?

(There were some Cassandras out there. Not just HPC-loons, but also the occasional mainstream journo and politician).

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http://www.guardian....ning-fannie-mae

The French call it l'esprit de l'escalier, that brilliant thought on the way out, too late for some brilliant aperçu. Alas, that is Sir Mervyn King's parting contribution as he warns that the Help to Buy scheme risks setting off a housing bubble. In his long years at the Bank of England he presided nonchalantly over one housing boom after another, declaring it was none of the bank's business when setting low interest rates that helped prices triple in the decade before the crash. Remember Shelter's startling comparisons: a basic loaf of bread would cost £4.36 if its price had risen at the same rate as housing in the past 40 years; a chicken would cost £51.18.

The result of the bank's blind eye and successive government policies has been an economy addicted to property inflation. What's not to like when soaring house prices create apparent growth? Property values fill the gap in good pensions, pay for nursing home care of the old, let parents borrow to subsidise university fees or for a deposit to get the next generation on the ladder to the magic kingdom of ever-rising prices. It's a bit late now for Sir Mervyn to talk of taking away the punch bowl, just as perky ministers boast of green shoots, turning corners and Danny Alexander's "increasing momentum".

What growth do they spy? Not Osborne's "march of the makers" or Cameron's "Tory housing revolution" – but asset bubbles. See how share prices skyrocket, underpinned by no more than tulips. But above all, take the racing pulse of average house prices, which have shot past £250,000 – past £500,000 in insane London, where they rose by £16,000 in a month – earning £530 a day.

Can this be stopped? Economically, of course, with land value tax or capital gains tax on rises above inflation. Chill the market by warning that a house will no longer be a wealth creator, just a stable home at a stable price, secure, comforting but not a money tree. The problem is political: though home ownership is falling for the first time since 1918 and is expected to keep falling, the 64% who do own vastly outvote the rest – and they want never-ending rises to pay off frighteningly high mortgages and provide everything else a family needs. Escaping the nation's psychological and financial addiction is harder than tearing a gambler from a one-armed bandit.

What gave the governor such a sudden jolt? The government's colossal Help to Buy scheme offers £130bn of mortgage guarantee to anyone – young or old, speculator or second-home owner – who buys a house worth up to £600,000, offering 95% mortgages. The risk in previous schemes was shared 50:50 with developers, but this time the taxpayer pays it all. Former schemes were tiny but this one is mammoth, the debt kept cunningly off the public borrowing books (which the Office for National Statistics allowed; it's said the Treasury was amazed). As many as one in four mortgages may become permanently government-backed after next January, with this price-inflator already "boosting confidence" and mortgage availability in lock-step with house prices. King warns this is "too close for comfort" to US state-backed Fannie Mae mortgages, whose collapse helped trigger the financial crisis.

The National Housing Federation says previous much smaller schemes artificially supported higher prices, so buyers who were helped ended up paying more than if the market had been left to itself. King warns the scheme should not become a long-standing feature, out of fear that abolishing it would cause prices to fall – and that's too politically dangerous for any government. Buyers who were tempted in by a scheme that had kept prices artificially high would find themselves in negative equity.

Ministers see a mirage of growth in house prices. Yet wages are falling, rents, prices and unemployment are rising, energy bills are up by 8.5% a year and the pound is down by 25% since 2007. Homelessness rose by a third last year, rogue landlords multiplying. The Guardian's home borough, Camden, tells a two-nation story: 40% of children are under the poverty line, but average house prices have just hit £1m.

The only long-term answer to bubble pricing is to build, build, build. But even if Labour won the next election and delivered a million homes in five years, that's still not keeping up with annual growth in demand of 240,000. Kate Barker's celebrated 2004 housing review showed that building your way to lower prices would take many years with demand so strong. Dysfunctional developers are part of the problem. In the US when demand rises by 10%, supply leaps up by 20%, but in the UK developers barely respond: a 10% demand increase causes just 5% extra supply. British builders hoard land to keep prices high, according to the IPPR. Taylor Wimpey has called it a strategy of promoting margin over volume.

Worse, banks conspire with developers not to build for fear that it might reveal that property on their books is still over-valued from the height of the boom. Labour needs a "force to sell" policy, instead of "help to buy", obliging all land with planning permission to be built on or sold off to get construction moving, although it risks exposing more zombie debt than banks admit to carrying.

Labour is now ashamed of how little was built in its 13 years, neither in boom nor bust. But every aspect of this government's housing policy is a disaster that began with its 63% cut in capital spending. Social home building stopped while right to buy from councils got a boost. Despite lower building standards allowing not rabbit hutch but hamster cage homes, 8% fewer have been built in the last year.

YouGov finds that 35% of households are so near the edge they only have savings to cover housing costs for one month, so 8 million are just one pay check from homelessness. Why worsen the housing crisis with a bedroom tax? The fraud is that promised housing benefit savings of £465m are only realised if tenants don't move out but take the £700 a year hit to their meagre living standards. If they do move, they go into the private sector where a smaller home costs the housing benefit budget more than the social housing just vacated. A survey by Lord Bassam suggests the number affected will be closer to a million than the 660,000 announced. The fallout has hardly begun.

Here is another shocking fact about Help to Buy. The sum used to pump up prices artificially could have built 175,000 new affordable homes.

Article seems to confuse actual demand for housing with demand for a bite of the credit fuelled HPI cherry? A look at this http://www.lettingweb.com/results.aspx shows you that many took a bite :lol:

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Remind me. Was Merv one of those who warned of a house price bubble when it was in full mania mode ten years ago?

(There were some Cassandras out there. Not just HPC-loons, but also the occasional mainstream journo and politician).

Lukewarm warnings, yes.

BBC 2004: House prices may fall, says King

House prices may start to fall, the governor of the Bank of England has warned, saying people should be wary of taking the plunge into buying property.

Mervyn King said prices were now "well above what most people would regard as sustainable in the longer term".

He also gave a clear indication that there may be further interest rate rises on the horizon.

EDIT:

From the Guardian itself: Mervyn King delivers some home truths

The governor of the Bank of England, Mervyn King, warned on Monday that the rapid rise in UK property prices was unsustainable. Although Mr King stressed he was not predicting a crash, he told business leaders at a Confederation of British Industry dinner in Glasgow that prices may start to fall and that further interest rate rises were on the horizon. Mr King was speaking days after the bank's monetary policy committee increased interest rates by a quarter of a point for the second month in succession, bringing the base rate to 4.5%.

Ed Balls, Gordon Brown's chief economic adviser, moved on Tuesday to allay fears of a crash in the housing market, saying mortgage payments remained low and the economy was fundamentally sound.

The average property price has risen "85% in three-and-a-half years, compared with less than 20% for [other] retail prices", said the Wall Street Journal Europe. Commentators agreed Mr King was not just reiterating what the market already knew, but was warning of a problem. "If house prices don't cool down soon, the sector's boom will start to create economic distortions," said the paper's Breaking Views column.

Edited by jareth

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All this desperation to keep prices high to keep voters happy makes me wonder whether the Tories have already admitted defeat at the next election and are putting in place conditions for a housing bubble of such massive proportions that no government in power can prevent it bursting. It's a game of pass the bubble, they don't want the music to stop but know that when it does pop, it's vital not to get wet.

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All this desperation to keep prices high to keep voters happy makes me wonder whether the Tories have already admitted defeat at the next election and are putting in place conditions for a housing bubble of such massive proportions that no government in power can prevent it bursting. It's a game of pass the bubble, they don't want the music to stop but know that when it does pop, it's vital not to get wet.

I honestly believe that cutting HB and putting in place schemes to "help" potential buyers is designed to shake BTL off the branch, there would be a retail uptick if sales volumes moved up a bit? These types of "owners" http://www.lettingweb.com/results.aspx are now just cannon fodder?

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All this desperation to keep prices high to keep voters happy makes me wonder whether the Tories have already admitted defeat at the next election and are putting in place conditions for a housing bubble of such massive proportions that no government in power can prevent it bursting. It's a game of pass the bubble, they don't want the music to stop but know that when it does pop, it's vital not to get wet.

It's about the banks. It's always about the banks. Saving them, dressing the up, providing them with profit-making opportunities. As a country our enslavement to financial services means we can't do without the gigantic profits that come from mortgage origination and securitisation.

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It's about the banks. It's always about the banks. Saving them, dressing the up, providing them with profit-making opportunities. As a country our enslavement to financial services means we can't do without the gigantic profits that come from mortgage origination and securitisation.

Thought we had been doing without them for a few years now?

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http://www.guardian.co.uk/commentisfree/2013/may/21/mervyn-king-housing-warning-fannie-mae

Labour is now ashamed of how little was built in its 13 years, neither in boom nor bust. But every aspect of this government's housing policy is a disaster that began with its 63% cut in capital spending. Social home building stopped while right to buy from councils got a boost. Despite lower building standards allowing not rabbit hutch but hamster cage homes, 8% fewer have been built in the last year.

Usual politicising from the Guardian. Labour is now ashamed (are they?) of how little they built. Yeah lets just brush over the fact that they presided over the biggest HPI in history.

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All this desperation to keep prices high to keep voters happy makes me wonder whether the Tories have already admitted defeat at the next election and are putting in place conditions for a housing bubble of such massive proportions that no government in power can prevent it bursting. It's a game of pass the bubble, they don't want the music to stop but know that when it does pop, it's vital not to get wet.

If they were clever, yes. But don't forget that many expected John Major to lose, and if you look at some of the policies then they seem designed to screw the incoming gvt which was expected to be Labour. Then he won, and many Tories privately cursed!

I would not be surprised to see a shock Tory victory - and then Osbourne realises that the kick the HPC can down the road has hit the kerb - ON HIS WATCH.....mwaahahahhahah I will laugh.

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Usual politicising from the Guardian. Labour is now ashamed (are they?) of how little they built. Yeah lets just brush over the fact that they presided over the biggest HPI in history.

I could take Polly Toyboy a little more seriously if she wrote a nice big mea culpa, but it's one of her better articles...

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The only long-term answer to bubble pricing is to build, build, build. But even if Labour won the next election and delivered a million homes in five years, that's still not keeping up with annual growth in demand of 240,000. Kate Barker's celebrated 2004 housing review showed that building your way to lower prices would take many years with demand so strong. Dysfunctional developers are part of the problem. In the US when demand rises by 10%, supply leaps up by 20%, but in the UK developers barely respond: a 10% demand increase causes just 5% extra supply. British builders hoard land to keep prices high, according to the IPPR. Taylor Wimpey has called it a strategy of promoting margin over volume.

The dysfunction in the housing market is due in no small part to the effective monopoly that the big developers have in the market for new houses. The planners only want to work with the big developers, and the big developers are perfectly happy with that situation. It's the worst sort of corporatism, something straight out of Hitler's Germany, but it's also the bedrock of Labour's economic philosophy. When people aren't allowed to build their own houses, it's hardly surprising that market supply doesn't respond to market demand.

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The dysfunction in the housing market is due in no small part to the effective monopoly that the big developers have in the market for new houses. The planners only want to work with the big developers, and the big developers are perfectly happy with that situation. It's the worst sort of corporatism, something straight out of Hitler's Germany, but it's also the bedrock of Labour's economic philosophy. When people aren't allowed to build their own houses, it's hardly surprising that market supply doesn't respond to market demand.

+ 1

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So while you are saving to buy your house the government is using the taxes you pay to inflate the price of that house- but if ask nicely you will be allowed to borrow some of that money back to improve your chances of entering a lifetime of debt.

Who voted for these people? :lol:

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If they were clever, yes. But don't forget that many expected John Major to lose, and if you look at some of the policies then they seem designed to screw the incoming gvt which was expected to be Labour. Then he won, and many Tories privately cursed!

I would not be surprised to see a shock Tory victory - and then Osbourne realises that the kick the HPC can down the road has hit the kerb - ON HIS WATCH.....mwaahahahhahah I will laugh.

And of course there was very little in policy or substance between Major and Blair. Major was more of a Christian Democrat (European style conservatism) than a Thatcherite.

The problem for the Tories in 2015 is the same problem Labour had in 1983 and 1987 - a split vote. UKIP are tearing the right-wing down the middle, and our electoral system punishes that severely. Whereas Labour are benefitting from the defection of left-leaning Liberal Democrats, so for the first time since the 1960's the left wing vote is relatively united. This is a big problem for the Tories, and one I can't see them overcoming.

The good news from a house price correction perspective is that Labour do actually want to build a lot more houses, and seem uninterested in further propping up the bubble. Their proposed mansion tax will also help deter foreign investment in prime London.

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Clearly designed to shift any blame away from govt (Labour, Libs or Tory) and squarely onto the shoulders of the departing guv'nor.

She seems to have forgotten Merv warned about house prices in '05.

She also fails completely to mention that this is Gidiot's scheme to force taxpayers into subsidising housebuilders and landowners.

Very odd article indeed.

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faisal-islam-hundreds-of-new-homes-from-help-to-buy-at-what-cost/18168

The Fairclough’s new home looks like an ordinary home, the start of a new life for the couple from St Helens.

The remarkable feature of the development has long since disappeared: it used to be the Knowsley Road, ground of the mighty.

But this property is in fact an experiment vital for the entire British economy, upon which George Osborne’s hopes for recovery rest.

Mark and Lindsey’s pad is the second in Britain in an experiment in which you the taxpayer are invested for the next half decade.

etc

Edited by Live Peasant

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faisal-islam-hundreds-of-new-homes-from-help-to-buy-at-what-cost/18168

The Fairclough’s new home looks like an ordinary home, the start of a new life for the couple from St Helens.

The remarkable feature of the development has long since disappeared: it used to be the Knowsley Road, ground of the mighty.

But this property is in fact an experiment vital for the entire British economy, upon which George Osborne’s hopes for recovery rest.

Mark and Lindsey’s pad is the second in Britain in an experiment in which you the taxpayer are invested for the next half decade.

etc

Good article.

Is there a thread about it already? If not, IMHO, it deserves one.

Is there not a simpler solution to jump start the market? Why not let the market clear, and prices fall to reflect falling real incomes, weak economic growth? Indeed why doesn’t Taylor Wimpey just cut the prices of its homes?

“Life’s not that simple,” Redfearn tells me. He mentions the impact on local existing homes if new home prices were cut. “I don’t think it’s very desirable for people who have already bought from us, and people in the surrounding village. Everybody wants a certain stability in housing”.

Right... stability at these dizzy levels ... :rolleyes: Though I can see these builders convincing governments (any / all) with this type of arguments. Again, the root cause is the property owners voting majority.

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Good article.

Is there a thread about it already? If not, IMHO, it deserves one.

Right... stability at these dizzy levels ... :rolleyes: Though I can see these builders convincing governments (any / all) with this type of arguments. Again, the root cause is the property owners voting majority.

If anyone is in any doubt whatsoever about the extent to which monopoloist lobbying is the modus operandi of big developers in the UK, just take a look at the CEO of a listed company defending taxpayer handouts in preference to market forces in the video linked above.

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The dysfunction in the housing market is due in no small part to the effective monopoly that the big developers have in the market for new houses. The planners only want to work with the big developers, and the big developers are perfectly happy with that situation. It's the worst sort of corporatism, something straight out of Hitler's Germany, but it's also the bedrock of Labour's economic philosophy. When people aren't allowed to build their own houses, it's hardly surprising that market supply doesn't respond to market demand.

Exactly. The Tory party defends the big builders, and the Labour party wants the state to build for us... We have no effing party able to see that "we the people" could have our own effing homes built for ourselves, hiring our own architects and builders, like in the rest of the effing world! - if only we were allowed! Alas, even effing Polly Toynbee is also effing blind about it! :angry: (Sorry. P-off here)

.

Edited by Tired of Waiting

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Exactly. The Tory party defends the big builders, and the Labour party wants the state to build for us... We have no effing party able to see that "we the people" could have our own effing homes built for ourselves, hiring our own architects and builders, like in the rest of the effing world! - if only we were allowed! Alas, even effing Polly Toynbee is also effing blind about it! :angry: (Sorry. P-off here)

.

Toynbee the apogee of champagne socialism in human form. where the ****** were you toynbee the 13 years of labour rule? clapping loudly while they built an insatiable state out of HPI receipts.

labour housing boom good

Tory housing boom bad

etc.

what a prat she is.

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The dysfunction in the housing market is due in no small part to the effective monopoly that the big developers have in the market for new houses. The planners only want to work with the big developers, and the big developers are perfectly happy with that situation. It's the worst sort of corporatism, something straight out of Hitler's Germany, but it's also the bedrock of Labour's economic philosophy. When people aren't allowed to build their own houses, it's hardly surprising that market supply doesn't respond to market demand.

This really needs to be addressed. I guess the worry is that people would just build ramshackle monstrosities that didn't fit in with the surrounding architecture, but this need not be the case. Perhaps if you gave local planners a say in what type of houses could be built it may pacify them. Just like what happens in the Cotswolds, each town could have its own style modelled on what it already has.

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  • 238 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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