The different origins of the housing crisis by HPCers

[Freki]

Since lurking on that forum, I really got a wealth of information and made it possible for me to create my opinion about this mess.

After seeing some recents posts by some of the people exchanging here for a long time, it appears that people are insisting on different specific points and I would like to resume them here. 

@Freki Fiscal: Transactions are costly, holding of asset is not. Replace SDLT with Land Value Tax.

@spyguy Financial market: the supply of money through IO loans is wrongly priced and distorting the housing market.

@Venger Behaviour: Emphasises a lot on accountability and how people are being driven by pure greed while trying to avoid any negative consequences or morality ambiguity about their actions.

@WaywardPolitical: tyranny of majority embracing windfall of HPI. Vested interest in creating condition for scarcity.

@goldbug9999 Fiscal and Political: Not favouring supply creation, and punishing supply withholding.

@thewig Micro Economic behaviour : GreaterFool / Ponzi Scheme, people see housing has a one way bet for sure gains, pricing out an increasing amount of people.

Anyone else would like to share what they think is at the core of the problem?

I will try to summarize people's view a simple and conceit fashion, one line, if you think I am distorting your view, let me know.

Edited October 24, 2017 by Freki

[spyguy]

Yes to mine.

 

[Maynardgravy]

Think you left out a certain Mr. Pebble.

[opt_out]

Allowing fewer rooms to be built than the population growth. 

[“Nasty Piece of work”]

What is SDLT as a % total tax take please?

[Switch625]

Having been a long time lurker on this site I have also learned a phenomenal amount from the links that others have kindly put up, some have been real eye openers, some are fact, some is the guess work of intelligent and informed people and some is fiction. It is incredible how much information is in the public domain, but its very difficult to see it through a snow storm of rubbish. Some would point to a conspiracy, that the snow storm is intentional and designed to stop you getting to the truth. I don't hold to that view, certainly this tactic is used by some, anyone remember Jo Moore "It's now a very good day to get out anything we want to bury"?

Those that which to obfuscate do so in their own narrow self interest, this prohibits them working well with other dissemblers preventing the formation of truly effective cabals, so the noise is largely just that, noise. Within that noise are some inalienable truths and you have highlighted three key areas that have allowed this mess to occur. I would add to this list; 

1. Weak and ineffective government - the current system allows for a maximum of 5 years for a party to be in control. It probably takes 6-12 months for any reasonably adept minister to understand their role, a further 6-12 months to decide on policies and get them to a stage where they could potentially be rolled out and the last 18-24 months of a parliament will need to be spent trying to pander to the masses to ensure you get in next time. That leaves a very narrow window of opportunity to actually do something useful. Add in the interests of completely legal but morally bankrupt backers for the major parties and you have a hopeless and bankrupt system

2. Vested interests - turkeys don't vote for Christmas. Anyone else amazed how many minsters their are now? Do you really need a minister for every single little aspect of government, or is this a simple way of giving them a pay rise and still being able to say that MP's salaries are low. The same is also true of MP's expenses, travel, accommodation and refitting of properties as a tax free perk, all legal, utterly amoral and guaranteeing we won't see change.

For fear of this becoming a tirade I will limit myself to just these two, but there are plenty more. 

[Mr Banks]

my opinion is it is sentiment that the system cant be allowed to fail therefore house prices are a one way bet. Therefore people buy as big as they can with no consequence for the price because prices only really go up long term. This and people don't understand the difference between real and nominal falls. This is what i hear at family BBQs ect

"House prices wont fall because we older generation vote"  - Grandma family BBQ

"Interest rates will go down next not up as they cant bring the housing market down it is the UK economy" - Father when Mark Carney was giving forward guidance in 2014 of a possible rate rise

"Renting is wasted money over 30 years house prices will continue to rise and you could have paid off a mortgage (which will inflate away) how are you going to pay rent when retired" - Current Landlord

"If they were going to let property fall it would have happened in 2008 after the recession they didn't, cant believe you still believe it will fall after being wrong all these years" - Colleague who went all in on a property (after believing in a hpc for three years) 1:30h away from work and now works only 2 day a week in the office because he can't do the commute.

"House prices wont fall for nice older properties why can't you get a 400k mortgage like your sister as you are just making it harder for yourself the longer you leave it." - Mother

"lol that housepricecrash website again is that about the 1893 house price crash. property doesn't do down you know not here in nice parts of the country" - In-laws in Surrey after their older daughter sold their house for double what they paid.

So for me in my immediate circle (albeit very much southern based) it is all about sentiment the idea of a meaningful house price crash which doesn't recover relatively soon nominally just cant be fathomed as such the talk of BTL and getting a bigger mortgage and buying the most expensive house a bank will lend on doesn't cross their mind that this could fall.

[wasbuckers]

Lack of pension choices and outright theft (Maxwell & Gordomoron) definitely lead people to get into BTL. 

[Fromage Frais]

I have two experiences

A)  The UK which has the plausible reasons of 

Lack of supply

easy credit/low rates

money printing etc

Inflation

Money laundering

Planning restrictions

North Africa

Loads of houses 20% empty flats in Tunis for example

Tunisia for example is the same size as the UK (ish) with only 10-15 million people

You can build what you like for a backhander

Hard to get mortgages

money printing etc

inflation

Money laundering

 

When you compare the two locations they are so different you just cannot get a 90% mortgage in Tunisia its often 30/70 etc the rules are prudent.  There are loads of empty properties also and you can build any shit hole you like.....but the land will cost you loads.  It is literally cheaper to buy a house knock it down and build a new one than buy empty land.

IMHO all the reasons given for the UK bubble are side shows and I concentrate on those that are common in both markets I have seen with my own eyes.

money printing and government stimulus this money is like water flowing through the economy it does not stick to poor/ordinary people as the supply of them is massive thanks to unemployment in Tunisia and EU migration here.  It does however stick to land and both Tunisia and the UK have stimulated the economy and ran inflation higher than required to avoid discipline.

As soon as rates reach a level that reduces the money supply in either economy its game over instantly.

but that is some time away I even noticed that the Tunisian government faced with 100k houses and £600 monthly wages have introduced an amazing new scheme where they guarantee the first part of the loan...........thats right HTB !

http://www.huffpostmaghreb.com/2017/02/03/logement-tunisie-_n_14594908.html

Edited October 24, 2017 by Fromage Frais

[goldbug9999]

Restrictive planning.

Land / house hoarding by builders (they should be made to pay a very high ground rent for all plots not sold)

Assured short term tenancies (allows BTL style mortgages)

Favorable tax and benefits treatment of main home vs other assets: No GCT on main home, benefits means tests exclude equity in home.

[Wayward]

I am a bit surprised by your list..?  In simple terms...

Conditions of scarcity created by inadequate supply and increased population leads to competitive bidding for available stock......absurdly low cost credit results in the competitive bidding going to the moon as we fight like rats in a sack.  The 'tyranny of the majority' political system supports this (restricted supply and demand side stimulous) together with powerful wealthy elites that hold their wealth in property and want HPI and wealth to shift to them.

Result - HPI and 'crisis' although it is not really a 'crisis' - a 'crisis' is usually unexpected...this is all by design, be in no doubt about that.

Other dynamics are at work but the above covers it in essence as far as I am concerned...

[Monkey]

The core problem is Greed

Greed of the bankers, politicians, boomers, Elites, traders, central bankers etc... it all boils down to Greed

 

[goldbug9999]

9 minutes ago, Monkey said:

The core problem is Greed

Greed of the bankers, politicians, boomers, Elites, traders, central bankers etc... it all boils down to Greed

 

You cant do anything about that though, you have to design social and economic structures so that greed and competition is beneficial in net terms.

[Fence]

1 hour ago, goldbug9999 said:

You cant do anything about that though, you have to design social and economic structures so that greed and competition is beneficial in net terms.

That is the role of government.  Governance.  And that is their greatest failure.

[thewig]

Good thread. Although you misspelled policy in the title...

 

Whilst granted it’s a crisis for the plebs, the state of the housing market is entirely by design IMO 

 

It’s not a market. It’s a ponzi scheme, early entrants ie the landowning establishment will do fine whilst later entrants will be destroyed. Other giveaway characteristics of it being a ponzi include the fact new entrants, aka the greatest fools in history, shortly after joining the ponzi, try to recruit newer entrants. “Best thing I ever did, taking on a shtload of DEBT to feed the earlier entrants gains, now I need some gains of my own, you should totally take on a bit more DEBT than I did, that’d be totally awesome for me I mean you, then I, I mean you can sleep at night”

 

also im thinking more and more recently that our entire construct of money is tied up in house prices, ie creating new DEBTslaves is the only way to get “money” into the “economy” which itself is now just pretty much house prices. 

 

Its pretty much going to tear the fabric of reality for a lot of people when the market does what the policy makers cannot 

 

 

[Freki]

4 hours ago, Maynardgravy said:

Think you left out a certain Mr. Pebble.

I'll be happy to know more about his views. But so far I have not been able to summarize his thoughts on it.

[thewig]

You have distorted my view.

 

 

 

...into something understandable, thank you.

[Democorruptcy]

Willingness to borrow more at higher income multiples. Going from 3x Main plus 1x Second, to 4.5x or more Joint Incomes, triples borrowing and so prices.

[Errol]

Ultimately, tracing it all back, the true origins of the crisis can be found in the closure of the gold window by Nixon in 1971, and the later final end of the Bretton Woods system (1971 - 1973).

If you look at a lot of charts, you see that the beginning of the financial insanity has a convenient habit of coinciding directly with these dates.

Edited October 24, 2017 by Errol

[thewig]

18 minutes ago, Democorruptcy said:

Willingness to borrow more at higher income multiples. Going from 3x Main plus 1x Second, to 4.5x or more Joint Incomes, triples borrowing and so prices.

its not willingness though is it? its enforced DEBTpushing: house prices are set by the bank's levels of DEBTpushing, I could walk into Halifax tomorrow and say I'm only willing to borrow 2x my salary and 1x my wifes and they'd point me in the direction of the nearest garden centre "sheds are out the back mate"

when the banks only pushed 3x average salary for housing DEBT, guess how much average house asking prices were? 

 

[“Nasty Piece of work”]

The general acceptance of two wage earners necessary - putting up prices, breaking the family unit, creating feral children and breaking up society.

 

[thehowler]

If you can distill the essence of each poster's view into an epithet you'd have the blinding-flash formula for this forum...reminds me of a Ray Bradbury story.

Money's too cheap and people want to believe in the magic trick of endless, effortless HPI.

 

[Parkwell]

1 hour ago, Freki said:

I'll be happy to know more about his views. But so far I have not been able to summarize his thoughts on it.

Can't tell if serious or not. 

 

[Democorruptcy]

11 minutes ago, thewig said:

its not willingness though is it? its enforced DEBTpushing: house prices are set by the bank's levels of DEBTpushing, I could walk into Halifax tomorrow and say I'm only willing to borrow 2x my salary and 1x my wifes and they'd point me in the direction of the nearest garden centre "sheds are out the back mate"

when the banks only pushed 3x average salary for housing DEBT, guess how much average house asking prices were? 

 

Uh-oh... you've gone and done it now. Naughty corner for you soon.

[Parkwell]

Core cause = Easy debt in extra large portions.

Secondary cause = Lack of good quality housing. Creates competition for the scarcer good or well located properties and that drags up all prices due to our wooly thinking market.

The banks like this as it makes them more money and people give in to it - often out of desperation.