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http://www.telegraph.co.uk/finance/comment/jeremy-warner/10809445/Jeremy-Warner-House-prices-are-as-big-a-challenge-as-inflation-in-the-Seventies-and-Eighties.html

House prices are as big a challenge as inflation in the Seventies and Eighties The best and most obvious solution to house price inflation is to improve supply, and it is a myth that Britain is overdeveloped
0505houses_2901756b.jpg
The best and most obvious solution to house price inflation is to improve supply, and it is a myth that Britain is overdeveloped Photo: Simon Dawson/Bloomberg

8:29PM BST 05 May 2014

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Oh for a world of stable or falling house prices. Outside estate agents, property developers, second-home owners and buy-to-let landlords, it is hard to find anyone who unambiguously welcomes double-digit house-price inflation, the return of which was confirmed last week by the latest Nationwide survey.

If it makes you feel a bit wealthier, good for you, but it’s largely illusion, for only by cashing in and moving somewhere cheaper will you enjoy any tangible difference to spending power.

Otherwise, it brings only the pervasive grind of ever higher levels of debt to pay for the next step up on the housing ladder, and the troublesome worry about the welfare of one’s children, and how on earth they are ever going to be able to afford a roof over their heads. Politicians may be making a mistake if they think stoking house prices is the way to electoral victory.

With the Bank of England’s Financial Policy Committee belatedly showing signs of alarm over the latest boom, what can or, more particularly, should be done about it?

Before answering this, let’s first ponder why house prices are rising so fast and dispel one or two myths about the nature of the UK housing market. The causes are easily distilled down to just two — low interest rates and shortage of supply.

Neither of these are tackled by Ed Miliband’s naively inappropriate proposals for rent controls, as indeed is the case with all the other ideas he has put forward for market intervention to ease the cost of living.

These only target the symptoms, and by doing so, tend to make the underlying causes even worse. There is nothing more guaranteed to create a shortage than attempting to control prices.

To see this principle at its most extreme, go to Venezuela where price controls are de rigueur. If official prices ruled, things might not be so bad, but of course they don’t. To get the products at all, you have to pay way over the odds.

Besides, today’s housing “crisis” is largely one of the last government’s own making. To run an open doors immigration policy while failing to solve supply in the housing market was bound to create trouble. It ill becomes Mr Miliband and much of his shadow cabinet to complain. They could have done something about it, but didn’t.

In any case, the best and most obvious solution to house price inflation is to improve supply, as urged by the likes of Simon, Lord Wolfson, chief executive of Next.

The Government has chipped away at planning reform, leading to a significant rise in planned housebuilding. Slowly but surely, it is becoming easier to build. Even so, the reforms so far do no more than scratch the surface. What’s needed is something very much more radical.

As Lord Wolfson points out, it is a myth that Britain is already an overdeveloped country; giving over just an extra 1pc of all land to development — raising its coverage from 8pc to 9pc — would release 808 square miles for housing and non-agricultural endeavour, more than enough to cure the housing shortage once and for all.

Yet we have to be politically realistic about this. Planning reform is a protracted and difficult process, involving a myriad local sensitivities which cannot lightly be trampled on. Any big bang approach to housing supply is extremely unlikely, whichever political party is in power.

Policy is therefore left unduly reliant on demand-side solutions, which is always going to be problematic when attempting to maximize economic growth. Crack down on demand for housing, and inevitably you will end up restricting growth.

If one of the myths about UK housing is that we have run out of space, the other is that the UK housing market was the major cause of the banking crisis. It was not. Indeed, throughout the crisis, UK mortgage lending remained strikingly immune to default.

This might not have been the case were it not for record low interest rates, but then an awful lot of things would have looked much worse but for rock bottom rates. Whatever; the fact is that UK banks lost far more on overseas mortgage lending, particularly American, than they ever did on home loans back here.

Historically, UK mortgages have proved an extremely low risk form of lending, which is why banks tend to be so keen on them. Even Northern Rock, which engaged more enthusiastically than most in higher risk mortgage lending and used a very unsafe business model to sustain it, will not overall lose money once runoff has been completed. Small wonder that much of the increase in UK credit over recent decades — indeed, on some accounts the overwhelming bulk of it — has been focused on the housing market.

But although excessive UK mortgage lending may not of itself have been a cause of the banking crisis, it does seem to pose a threat to wider macro-economic stability.

What the crisis demonstrated was that countries with very high levels of household indebtedness tend to be particularly vulnerable to any collapse in economic confidence. High debt may explain why Britain had a much deeper recession than, say, France.

It also makes weaning the country off very low interest rates much more difficult, since any significant rise in rates is going to eat deep into disposable incomes, and therefore harm demand in the wider economy. Cheap money in turn only encourages more mortgage borrowing, further adding to household debt and wider economic vulnerabilities.

Personally, I think the situation is already serious enough to justify urgent interest rate action. As a pedant on such matters, I don’t much like use of so-called “macro-prudential tools”, because this is just credit rationing by another name and I can’t see how limiting demand for something is ever going to be a good solution.

We may have come to dislike ever rising house prices, but the return of mortgage queues would be even less welcome. All the same, the Bank of England is plainly preparing to give such tools a go, and in the absence of any credible supply side fix, I’m at least prepared to reserve judgment.

Experience from abroad is mixed. Cooling measures such as higher capital requirements on mortgage lending, tougher loan-to-value criteria, and the imposition of loan-to-income rules, have achieved some success in both Sweden and Singapore.

Again, much higher minimum deposits for second mortgages are said to have had a significant impact on speculative buying in Singapore, even if it has only pushed many Singaporeans into buying in London instead. Indeed, the policy has been so successful that local developers complain of a growing overhang of vacant property.

A hard landing in the housing market may not matter so much in a fast-growing surplus economy such as Singapore; it matters a lot for an economy as dependent on house prices for confidence as the UK.

Something has to be done to free the British economy of its addiction to rising house prices. To me, this now seems as big a structural challenge for the UK economy as high levels of ordinary price inflation were in the Sevemties and Eighties. There is ultimately only one solution, but we seem too cowardly to grasp it.

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Oh for a world of stable or falling house prices. Outside estate agents, property developers, second-home owners and buy-to-let landlords, it is hard to find anyone who unambiguously welcomes double-digit house-price inflation, the return of which was confirmed last week by the latest Nationwide survey.

If it makes you feel a bit wealthier, good for you, but it’s largely illusion, for only by cashing in and moving somewhere cheaper will you enjoy any tangible difference to spending power.

Yes, but thats logic. The average senile/drooling NIMBY doesnt see things that way. To most people £1000 is a lot of money. That they have something 'worth' a quarter, or even half a million pounds has an almost aphrodisiac effect on them, and they'll do anything they think will protect it.

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There is a fault at the Telegraph. Normal service will be resumed as soon as possible. In the meantime here is the test card and some music.

tcc.jpg

Edited by aSecureTenant

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What a great article. And he's absolutely right, ultimately there is only one solution...build more houses.

But as that's not going to happen any time soon the only rational conclusion is that any meaningful fall in house prices is probably a generation away.

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The public's lack of enthusiasm for this latest housing bubble gives me the feeling me that the economic orthodoxy of the past 35 years is coming to an end. Everything seems to be coming to a head at once. The reality of flat wages, high debt and high living costs is finally filtering through. Although those the current system benefits have so much invested in it and have so much money to influence policy that they won't go down without a fight. They'll find out eventually that you can only keep conning the people for so long (even in these times). I've no idea what will replace it. Somewhat bizarrely I think Ed Miliband is the leader most in touch with the public mood.

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The public's lack of enthusiasm for this latest housing bubble gives me the feeling me that the economic orthodoxy of the past 35 years is coming to an end. Everything seems to be coming to a head at once. The reality of flat wages, high debt and high living costs is finally filtering through. Although those the current system benefits have so much invested in it and have so much money to influence policy that they won't go down without a fight. They'll find out eventually that you can only keep conning the people for so long (even in these times). I've no idea what will replace it. Somewhat bizarrely I think Ed Miliband is the leader most in touch with the public mood.

It seems to me that Labour are prodding and poking to test the political water on this issue. Their language is becoming bolder with the number of houses needing building. Of course no one dare mention house prices coming down too much but this is one of the main battle issues and the lines are starting to be drawn.

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A refreshing article. The Telegraph has been using the word "bubble" quite a lot recently. I wonder if they are positioning themselves ahead of the next catastrophe and claim they called it.

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Can no one else see the embedded photo of newbuilds in post #1 ? This is what you want built in volume, to fulfil demand, around the UK?

Such houses are practically illegal in Germany aren't they? Well maybe in Germany there are some limited build number comparisons, but reflected in different price, towards real affordability, with more overall appeal in design.

I'm not asking for a new Edwardian style building boom, where the developers seeing opportunity in semis, pioneering architecture, each pair of semis charmingly different in its own way on a road, and new mass-build techniques to cheaply do some ornate designs with an arts and crafts gentle and appealing theme. Builders turned good profits but were not greedy.

Nor the building boom of the 1920s, with still many decent homes built, with too many independent developers in that speculative building boom only interested in profit and too many substandard houses being built with Parliament tightening things up partly because of that, with Building Society Act 1930 (independent surveyor assess value before building society agrees to lend), to the secondary building boom of the 30s, to developers gradually building post-war homes semis of the 1950s, often spacious.. malaise with money still tight... at the time the designs attracting criticism themselves - to the 70s, 80s.... it seems to me you had much more opportunity to get something for your money/mortgage (not always). Then in the mid 90s the beginning of these boxes it seems to me. Those houses in the pic, and at what asking price.. really?

Have you not looked at the profits builders are announcing recently? How some builders shares have doubled in 2009 (possibly reasonably after panic in crunch overdone to value vs their debt-landbanks), but doubled again in 2012, and more than doubled again in 2013 (as of February 2014). We're not going to get things right without a crash - to open opportunity up to new entrants at lower prices. Keep protecting the VI.

Edited by Venger

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I look at the Torygraph quite often.

After a period of ramping the economy and hailing the return of growth, the "Finance" section of the home page has been replaced with a "Recommended" section full of diversionary nonsense. Took me a few days to notice the subtle change of heading wondering what the items had to do with finance.

Half of the main articles towards the top are given over to gossip about the Royal family and there's a general thrust towards articles about good parents, bad children and how Christians are being "persecuted" around the world while simultaneously giving stories about the Muslims taking over the country plenty of prominence.

I think the connection Warner fails to explicitly make in his article is that what happened in the 1970s and what's happening now are both due to the debauchery of the currency. But then, to do so might imply that the model of the City does not serve the country's best interests as well as it might, and that would be straying from the brief and a stretch too far for the editors.

Edited by DTMark

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I wonder if Warner had any choice in the accompanying pic with his article?

Really, those houses are an affront to my eyes. It's the manifestation of the contempt older VIs in the system have for younger people. Helping them, sure. QE yourselves some more, to totally protect your VI and disparity and malstructuring in the system.

Remember, stop whingeing young professionals, and behold in wonder of the decades of HPI, with the boomers owning trillions in equity the better housing stock, that can never fall in value.

One day your high-priced newbuild identi-box with HTB mortgage may also so impress future generations and be a source of wealth and prosperity for you.

Stop whingeing. The young have never had it so good
By Jeremy Warner Economics Last updated: January 7th, 2014

http://blogs.telegraph.co.uk/finance/jeremywarner/100026342/stop-whingeing-the-young-have-never-had-it-so-good/

Warner's conclusion:

***Yes, it's tough to get a decent, well-paid job, and a university education no longer comes free. Yet if Daddy is relatively well off and well connected then these apparent disadvantages cease to become obstacles. Less than 10pc of baby boomers enjoyed a university education, and very few of them indeed were brought up in centrally heated houses. So please, let's not blow a minor complaint out of proportion. I kind of buy the intergeneration unfairness thing, but then again, as a late baby boomer myself, not really. There are more important things to worry about.***


What a fanny.

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There is a fault at the Telegraph. Normal service will be resumed as soon as possible. In the meantime here is the test card and some music.

tcc.jpg

The children of the Telegraph and Daily Mail staff have now probably been priced out of Knightsbridge, Kensington and Chelsea by the children of Russian and Chinese money?

The sloanes now face a future of their wine bars being taken over by the foreigners and, at best, their future is one of waiting drinks on Johnny Foreigner?

Hence the wake up from such publications about a housing bubble IMPO.

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Well this is certainly a positive, the eternal HPI propaganda and NIMBY campaigns like " hands off our countryside" at the DT were a bit silly.

I can only imagine the hate for Jeremy Warner coming from the NIMBY brigades in his articles comment section.

And nice to see the myth of an overdeveloped concrete England being challenged.

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I wonder if Warner had any choice in the accompanying pic with his article?

Really, those houses are an affront to my eyes. It's the manifestation of the contempt older VIs in the system have for younger people. Helping them, sure. QE yourselves some more, to totally protect your VI and disparity and malstructuring in the system.

Remember, stop whingeing young professionals, and behold in wonder of the decades of HPI, with the boomers owning trillions in equity the better housing stock, that can never fall in value.

One day your high-priced newbuild identi-box with HTB mortgage may also so impress future generations and be a source of wealth and prosperity for you.

Jeremy "You've never had it so good" Warner was my first thought too.

Come on Jez, which is it? Copy that sells or copy you believe?

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Can no one else see the embedded photo of newbuilds in post #1 ? This is what you want built in volume, to fulfil demand, around the UK?

Such houses are practically illegal in Germany aren't they? Well maybe in Germany there are some limited build number comparisons, but reflected in different price, towards real affordability, with more overall appeal in design.

I'm not asking for a new Edwardian style building boom, where the developers seeing opportunity in semis, pioneering architecture, each pair of semis charmingly different in its own way on a road, and new mass-build techniques to cheaply do some ornate designs with an arts and crafts gentle and appealing theme. Builders turned good profits but were not greedy.

Nor the building boom of the 1920s, with still many decent homes built, with too many independent developers in that speculative building boom only interested in profit and too many substandard houses being built with Parliament tightening things up partly because of that, with Building Society Act 1930 (independent surveyor assess value before building society agrees to lend), to the secondary building boom of the 30s, to developers gradually building post-war homes semis of the 1950s, often spacious.. malaise with money still tight... at the time the designs attracting criticism themselves - to the 70s, 80s.... it seems to me you had much more opportunity to get something for your money/mortgage (not always). Then in the mid 90s the beginning of these boxes it seems to me. Those houses in the pic, and at what asking price.. really?

Have you not looked at the profits builders are announcing recently? How some builders shares have doubled in 2009 (possibly reasonably after panic in crunch overdone to value vs their debt-landbanks), but doubled again in 2012, and more than doubled again in 2013 (as of February 2014). We're not going to get things right without a crash - to open opportunity up to new entrants at lower prices. Keep protecting the VI.

That is exactly my viewpoint too.

In my opinion, I am as agrieved about the houses being built as I am by house prices.

The current new builds are patronising and condescending - "they're good enough for them - the bingo players"

Not only am I priced out emotionally, but I would never want to own what is now being built.

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That is exactly my viewpoint too.

In my opinion, I am as agrieved about the houses being built as I am by house prices.

The current new builds are patronising and condescending - "they're good enough for them - the bingo players"

Not only am I priced out emotionally, but I would never want to own what is now being built.

Hmm. Current newbuilds are often very poorly served with gardens, the density is far too high to allow for anything other than a nominal strip of grass. However, eg near me a small group of 8 semis have been put into a plot which should have half that number to be inkeeping with others nearby built in the 1930s. They were offered for sale at typically £240k, a significant premium to the existing stock.

But people piled in regardless, so from my point of view it leaves better, cheaper places free, and they take up much less room.

I'll promote lower density housing but if some are happy to take what is being built today at what appears to be a top price, they are more than welcome. I think they'll rue the day at some point but hey ho.

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Hmm. Current newbuilds are often very poorly served with gardens, the density is far too high to allow for anything other than a nominal strip of grass. However, eg near me a small group of 8 semis have been put into a plot which should have half that number to be inkeeping with others nearby built in the 1930s. They were offered for sale at typically £240k, a significant premium to the existing stock.

But people piled in regardless, so from my point of view it leaves better, cheaper places free, and they take up much less room.

I'll promote lower density housing but if some are happy to take what is being built today at what appears to be a top price, they are more than welcome. I think they'll rue the day at some point but hey ho.

Yes, I am also angry about the legacy. But it was probably 'ever thus' when you consider the highrise estates of the 60s

Like you, I see people piling into overpriced and overcrowded new build Taylor Wimpey homes with HTB as if it is the 'last chance', which in some respect it may be :ph34r:

Edited by LiveinHope

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Like you, I see people piling into overpriced and overcrowded new build Taylor Wimpey homes with HTB as if it is the 'last chance', which in some respect it may be :ph34r:

Last chance for whom ?

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I wonder if Warner had any choice in the accompanying pic with his article?

Really, those houses are an affront to my eyes. It's the manifestation of the contempt older VIs in the system have for younger people. Helping them, sure. QE yourselves some more, to totally protect your VI and disparity and malstructuring in the system.

Remember, stop whingeing young professionals, and behold in wonder of the decades of HPI, with the boomers owning trillions in equity the better housing stock, that can never fall in value.

One day your high-priced newbuild identi-box with HTB mortgage may also so impress future generations and be a source of wealth and prosperity for you.

poor living conditions are the breeding ground for crime.

Mr V is quite right, much of modern housing is an affront to dignity, specially when out in the suburbs we have high density crap infesting everything.

My first house was small, but it was well designed and had a fracking garden....it was built in around 1976...a wimpy home yes, but it had three bedrooms, all big enough.

That cost me 4 times salary ( single earner).

looked a couple of years ago at something supposedly bigger...it wasnt...it was 8 times average salary, the garden was a joke, no garage and no parking.

and it is 30 miles further away from London than my first house.

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Ever wondered if this could all be part of 'the plan'?

Push prices up, keep interest rates down. Banks become a bit more shock-proof over time. Get the press crying out for housebuilding so you can quieten the NIMBYs whose vote you depend upon. Get GDP growth & employment 'on track' with the aid of funny money, which most don't understand anyway, so you can claim to be prudent. Edge up the base rate & quieten down savers and pensioners, whose vote you depend upon. Withdraw a few props, build a few houses, let the market start to drop before the GE but close enough to prevent the effects rippling too far out. Labour can't complain - they want cheaper houses. Trumpet the benefits of cheaper housing. Win election, job done.

Edited by disenfranchised

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Ever wondered if this could all be part of 'the plan'?

Push prices up, keep interest rates down. Banks become a bit more shock-proof over time. Get the press crying out for housebuilding so you can quieten the NIMBYs whose vote you depend upon. Get GDP growth & employment 'on track' with the aid of funny money, which most don't understand anyway, so you can claim to be prudent. Edge up the base rate & quieten down savers and pensioners, whose vote you depend upon. Withdraw a few props, build a few houses, let the market start to drop before the GE but close enough to prevent the effects rippling too far out. Labour can't complain - they want cheaper houses. Trumpet the benefits of cheaper housing. Win election, job done.

I think you possibly overestimate the abilities of our politicians!

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Last chance to buy overpriceced tat

Last chance to SELL over-priced tat more like. Please refer to my last chance to buy thread from yesterday.

Edited by TheCountOfNowhere

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Ever wondered if this could all be part of 'the plan'?

Push prices up, keep interest rates down. Banks become a bit more shock-proof over time. Get the press crying out for housebuilding so you can quieten the NIMBYs whose vote you depend upon. Get GDP growth & employment 'on track' with the aid of funny money, which most don't understand anyway, so you can claim to be prudent. Edge up the base rate & quieten down savers and pensioners, whose vote you depend upon. Withdraw a few props, build a few houses, let the market start to drop before the GE but close enough to prevent the effects rippling too far out. Labour can't complain - they want cheaper houses. Trumpet the benefits of cheaper housing. Win election, job done.

That is how I read it when I like to believe it is managed. Of course, everyone has a vested interest in some sector and so feels aggrieved that they are being hit or that the pace of change is too slow.

It is all about recapitalisation and everyone is taking a bit of the pain - this includes encouraging people to purchase overpriced new build houses with HTB to get the banks and builders off the hook.

I am just trying to stay on the sidelines while minimising my exposure to the hair cut.

It is also why I have alwasy thought personally that there will be a botton around 2016-2018 ish (that and if the cycle of the front page graph repeats itself)

Edited by LiveinHope

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