The different origins of the housing crisis by HPCers

[eric pebble]

5 hours ago, Maynardgravy said:

Think you left out a certain Mr. Pebble.

PREDATORY LIAR LOANS:  x 10 million

 

[nothernsoul]

I would trace it back to when thatcher tried to introduce the poll tax, if it had succeeded this would have been the most regressive taxation policy in a century, apart from stamp duty there would have been zero taxation on property wealth! As it was unworkable we got council tax, which was really poll tax light. In itself this isnt the main cause of property inflation but to me was a clear marker of direction of travel. This direction suited the boomers too, who had now started to accrue substantial property wealth. From then on you get financial deregulation and debt flowing into housing. Keeps everyone feeling wealthy and lets tony blair win all those elections. 

I also get the sense that the early nineties property crash is the boomers" never again" moment. Once they realised they didnt have to elect neil kinnock they kicked the tories in the teeth for it. Every government that followed was aware of the toxity of a market crash and acted accordingly.

Incidentally, im not bashing boomers as people, just pointed out that policy normally favours those who are electorally, financially and socially dominant within society. 

[thewig]

4 hours ago, thehowler said:

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.

 

good idea for a new thread: encapsulate your favourite HPC poster in no more than six words

 

Do it.

[Bland Unsight]

21 hours 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.

 

20 hours ago, Democorruptcy said:

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

"Willingness"? 

People may be willing to borrow but that is an odd way to look at it. Willingness is irrelevant if they are not able to borrow. I might be willing to borrow 7x my income. In 2007 I could have got myself a self-cert interest-only mortgage and done exactly that. Pulling the same stunt now would be practically impossible.

The other thing that this argument misses is that interest rates fell.

Source

Households could borrow at higher multiples of their income because interest rates had fallen. Given that mortgage lending was unregulated until the Financial Services and Markets Act 2000 (source), and only very lightly regulated until  Mortgage Market Review implementation in 2014, once households could cover higher multiples it was inevitable that lenders would cover the appetite for the lending.

The trends that we see really coming to the fore after 1997 have deeper roots. Take this from a 1990 BoE QB, 'The development of the building societies sector in the 1980s'

I'd argue that an undue focus on lending multiples is (metaphorically) paying no attention to the man behind the curtain.

How were lenders able to lend more cheaply and why once the lenders lent more cheaply did households use the cheap money to chase up asset prices?

There have been deep changes to the underlying structure of what money is and how it works in the last forty years. Higher lending multiples are a consequence of these changes. Trying to reverse the changes to money and banking (which are consequence of globalisation, technological change (i.e. computers) and some of the ideological commitments which have guided policy) by restoring the building society cartel's control of UK mortgage lending in the early 1980s would be pushing on a rope. If you restricted lending and did nothing else then given the levels of rents and the cheap money on the table UK housing would quickly become a means for the asset rich to capture the incomes of others via rents (basically imagine the 2012-2015 BTL sector growth on steriods).

The key origin of the so-called housing crisis is that it has made lots of people very wealthy (including lots of MPs), benefited powerful lobby groups (financial services, builders) and its negative consequence have been visited on a smaller number of younger people who don't have a meaningful way to push back.

One way to answer the OPs question is to say that there is no crisis, or to put it another way, one man's crisis is another man's capital gain.

[Bland Unsight]

If you wan't a TL;DR version of the previous post, this will do:

On 26/03/2012 at 8:17 PM, NEO72 said:

Too many here fixate on higher IRs and repos, whereas the focus should be (IMO) on the demand side.

 

[Freki]

I was meant to challenge the comment from @Democorruptcy since the multiples he evokes are, for me a symptom and less a cause of the problem

You focus more on the macro economic level of things if I am right.

[Houdini]

11 minutes ago, Beary McBearface said:

If you wan't a TL;DR version of the previous post, this will do:

.. Too many here fixate on higher IRs and repos, whereas the focus should be (IMO) on the demand side.

 

The supply side is however managed by the banks see:-

22 hours ago, Parkwell said:

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.

21 hours ago, eric pebble said:

PREDATORY LIAR LOANS:  x 10 million

 

 

Hence my argument would be:

Banks - as they seek profits by lending as much as possible to people using any means necessary to maximise the amount they can lend to those people

I would also add interest rates as most house prices are being priced based on rental income against insanely loan interest only loans. And once again its Banks / regulators who have allowed some loan types to be seriously mispriced. 

[Democorruptcy]

1 hour ago, Freki said:

I was meant to challenge the comment from @Democorruptcy since the multiples he evokes are, for me a symptom and less a cause of the problem

 

In 1998 we were offered 3x Main plus 1x Second income. Now it's no more than 15% of mortgages at 4.5x or more at joint income. We will never know where house prices would be now, if since 1998 nobody had been willing to borrow no more than 3x Main plus 1 x Second Income. I think the extra borrowing helped fuel such as BTL via capital appreciation, one thing fed off the other, so I'm having willingness to borrow as one of the causes (not the only). 

If starting tomorrow and lasting forever, everybody taking out a mortgage insisted on a maximum of 3x Main plus 1x Second income, for 100% of a house over a maximum 25 year term, I think people would get cheaper houses. Though if the BoE brought that in as a new rule, there could be rioting in the streets by people wanting to borrow more, savers getting rates less than inflation are conspicuous by their absence.

[zugzwang]

On 24/10/2017 at 11:49 AM, Switch625 said:

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. 

I think if anything you're being much too optimistic! Economic policy is decided by Treasury civil servants and their counterparts in the Bank of England, all govt ministers do is make choices from a menu of options. Do you really think George Osborne had the necessary numerical and analytical skills to master economic papers full of set theoretical conjectures and projective hyperplane geometries?

[Venger]

On 24/10/2017 at 11:08 AM, Freki said:

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. 

............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.

..............

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.

You've got me right Freki. 

Learned helplessness pays.  Has paid.  Always casting oneself the victim.   And then also have to push back against mad-gainz owners who mock rent-forever-losers, and hide behind human shields of more recent buyers, asking us to put owners before ourselves.  

Also some of the BTLers I have tracked in recent years (S24) twisting reality to extremes to justify their 'providing homes magnificence'. 

Quote

I do realise you have spent 18 months looking at this from a particular angle and so you my find me saying that you need to look at the wider picture annoying. You are free to ignore my advice. One penultimate piece of advice that you are also welcome to ignore: Comparing the plight of black people suffering racism and private landlords being disliked for how they have behaved might not be a sensible road to go down.

And then into justifying their positions in similar disgusting ways, including usurping genuine feminist causes/issues, and damaging it in the process, to justify their BTLism ("it's about bringing down business-women." etc etc.. "Would have given me more of a response if I were a man.")

 

Quote

 

BU: People want to own their decisions when they go well and sell on the responsibility when things go badly.

Oatbake:  The bottom line is that nobody thinks they should be responsible for their poor decisions and everything is somebody else's fault. Is it any wonder that everybody has piled into BTL/taking out eye wateringly big mortgages?

 

 

Quote

Where there is consciously held opinion coupled with false equivalence - i.e. where competing opinions are regarded as equally valid regardless of the relative weight of facts, standards of logic, etc - then I would tend to abandon any hope of a reasonable discourse.

In my experience such conversations often deteriorate into assertions of the moral superiority of respecting all opinions and beliefs, normally presented as a reason why the asserter does not respect my opinions and beliefs.   I would hazard that this lack of intellectual rigour is because the emotive appeal to false equivalence

So many market participants selling a world-view.... including Bosher.  It's not a system-paradigm (imo), but because they have deep vested/self-interest in twisting reality to their own view, to extremes at times, and even in their replies you can see intelligent minds at work, for it's evident in the well-worked disinformation/misinformation to get to the conclusions they want to sell to you to accept.   

Costs have been passed off for other people to wear.  And it's everywhere, including with Carney and his view about the main problem (fewer homeowners/prices) being lack of building houses vs Canada / supply.

Quote

 

Britain becomes a nation of renters as buy to let prices out new buyers
January 1 2015, 12:01am, The Times

.....Departmental figures show that the vast majority of new housing in the UK since the turn of the millennium has been bought by landlords. Between 2000 and 2012, the private rented sector has accounted for some 2.5 million of the extra homes. Only 400,000 have been bought by occupiers.

https://www.thetimes.co.uk/article/britain-becomes-a-nation-of-renters-as-buy-to-let-prices-out-new-buyers-qcjr63mnkg8

 

Of 2.9m new homes built since 2000, 2.5m (i.e.86%) bought by landlords, 400k by owner-occupiers as home ownership plunges to lowest since 1988.
Or if there are stories in market where some owners fear spilling a few drops of their mad-gainz, some come onto HPC to tell renter-savers about their 'selfishness' for wanting lower prices.

Then there are many long-wave HPIers who haven't even had to put their minds into gear for such a long time.  Hardships of life (eg HPI++++ vs renter-savers Gen Rents) just passed them by.  Don't even pause to think about it (some of them).  And some active to exploit it, including £100K-£650K apartment owners (bought in 90s) who bought 1 bed flat to rent out in 2015 at £500,000.

Quote

I think there are a fair proportion of boomers in the professional classes who have have been shielded from the vicissitudes of the world for two generations or more They are about to find out how the world works.

Quote

Daily Mail

Average UK house price to hit £780,000 by 2040, says leading think tank

Kilo Charlie, My World, 9 hours ago

We purchased a property in 1983 for £72,000.........today it's worth £650,000 plus. It's certainly possible and quite likely.

Sam, Bucks, 3 hours ago

Bought house in ,74 for 16k added extention about £8k now valued at £480k you do the maths?

 

 

[mathschoc]

Boomers 

[PopGun]

People still peddling the supply/lack of building myth I see. 

Although a variable it’s just one of many, and way down the causation list under deregulated/lax lending, credit expansion and multi home ownership, which in turn channels capital into unproductive avenues. 

Sentiment also deserves a mention. People love jumping on band wagons and doing what they’re told.

 

Edited October 26, 2017 by PopGun

[PopGun]

On 24/10/2017 at 4:54 PM, Freezer? Best place for it said:

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

 

This is a very important point.

[Millaise]

On 10/24/2017 at 12:06 PM, wasbuckers said:

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

Some people blame Gordon Brown for removing dividend tax credits from pension schemes in the late 1990s and/or low annuity rates for pushing people into alternative pension provision i.e BTL, but given HPC is a worldwide phenomenon, there has to be a limit to what disasters can be attributed to G.B. although he did claim to have saved the world.

[Millaise]

On 10/24/2017 at 4:43 PM, Errol said:

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.

Yes, debt started rising back in the 1970s, and was rising during the golden years of Reagan and Thatcher.

http://zfacts.com/p/318.html

[Venger]

19 hours ago, Beary McBearface said:

"Willingness"? 

People may be willing to borrow but that is an odd way to look at it. Willingness is irrelevant if they are not able to borrow. I might be willing to borrow 7x my income. In 2007 I could have got myself a self-cert interest-only mortgage and done exactly that. Pulling the same stunt now would be practically impossible.

The other thing that this argument misses is that interest rates fell.

Source

Households could borrow at higher multiples of their income because interest rates had fallen. Given that mortgage lending was unregulated until the Financial Services and Markets Act 2000 (source), and only very lightly regulated until  Mortgage Market Review implementation in 2014, once households could cover higher multiples it was inevitable that lenders would cover the appetite for the lending.

The trends that we see really coming to the fore after 1997 have deeper roots. Take this from a 1990 BoE QB, 'The development of the building societies sector in the 1980s'

I'd argue that an undue focus on lending multiples is (metaphorically) paying no attention to the man behind the curtain.

How were lenders able to lend more cheaply and why once the lenders lent more cheaply did households use the cheap money to chase up asset prices?

There have been deep changes to the underlying structure of what money is and how it works in the last forty years. Higher lending multiples are a consequence of these changes. Trying to reverse the changes to money and banking (which are consequence of globalisation, technological change (i.e. computers) and some of the ideological commitments which have guided policy) by restoring the building society cartel's control of UK mortgage lending in the early 1980s would be pushing on a rope. If you restricted lending and did nothing else then given the levels of rents and the cheap money on the table UK housing would quickly become a means for the asset rich to capture the incomes of others via rents (basically imagine the 2012-2015 BTL sector growth on steriods).

The key origin of the so-called housing crisis is that it has made lots of people very wealthy (including lots of MPs), benefited powerful lobby groups (financial services, builders) and its negative consequence have been visited on a smaller number of younger people who don't have a meaningful way to push back.

One way to answer the OPs question is to say that there is no crisis, or to put it another way, one man's crisis is another man's capital gain.

Who is the man behind the curtain?

I can't accept any 'big bad banks' to blame, MP, financial services.....  

It's wider than that. 

Millions of people been complicit in it, and selling it on (foreverHPI) - there's your answer (imo) for the changes (years back) and the continuation of willingness to borrow.

Millions of people fully complicit in wanting higher prices.   

Same type of minds who are on mad-gainz older ownership, were/are also execs in banks and other key posts in the system.   There has been willingness to borrow - same owners are also bankers/financial services/MPs... belief in HPI+++ greatness, and welcomed by many others in the market too.

"lack of intellectual rigour"..... many market participants never taken a knock.   Excess upon excess.   

When you've taken knocks, I think you're more likely to be involved in objective honest reality, and seeking intellectual rigour, so you don't get hurt in future.   Or when others imposed hurt on you (by BTL/willing to borrow/pay extreme prices to ever higher extreme prices), you see matters very differently to how they do - despite them being false equivalence, and offering up answers that deliberately seek muddle objective reality, in the attempt to keep things their way (including Mad-Gainz).

You once made a post about Busta, and how he starts with the answer he wants to have, and then positions a lot of warped nonsense points that lead to that answer.  (Great post).

You once made a post about a mirror, and reflective of society with dirty face.   I can't blame society either, just individuals directly involved.   It doesn't reflect long-term rent-forever-losers who have tried, in their own small way, to push back.   I'm so encouraged to read of university graduates who are appalled at their parents 100 BTL house choices, and identify with their friends who are so badly priced out.   They offer hope.   A rejection of greed/excess.  
 

Quote

 

SSC:  I think my point is that if you want cheap house prices the rational choice at the moment is for everyone not to buy - a buyers strike - regardless of whether the bank will lend you the money. As Venger regularly reminds us - no-one is forced into taking the bank's shilling.

If no-one's buying, prices will fall. In the absence of sensible government policy and bank lending - collection action by striking and protest is the only rational choice - and one which could have been exercised at any point in the last decade and a half. But people don't take that route so ergo they actually want high prices. ...............That's because individual's need to treat a house as an investment vehicle and a source of prestige seems to take priority over the collective need for cheap shelter.

Its batshit insane in my view - and is essentially eating our young. But successive governments are giving voters what they apparently want - which is high house prices.

If 99% of us wanted cheap housing, we would have it. We regularly see that a few whingers is plenty enough to get the government to do a policy u-turn.

 

Quote

 

drbuytoleech:  A lot of bankers did benefit, it's just that plenty of other people also benefited and benefited more in many cases.

There are plenty of people who have made more through the housing bubble than they have ever earned in their lives. For landlords and London homeowners or anyone with an inheritance the amounts are similar to lottery wins - hundreds of thousands or millions - largely untaxed.

Those people wanted the banks to inflate the bubble, and they wanted the bailout. They may even be the reason there was a bailout, but none ever holds them responsible.

People love to blame banks for what happened, but millions of people were complicit. Most obviously the banks didn't get any criticism when the damage was actually happening. They only get blamed for stopping it.

Even now the British middle aged middle classes are clamouring to go back to the days when the crisis was still looming, so they can play at being property developers.
--

The idea that older people don't see their homes as investments is a ridiculous self-serving platitude.

If that were true, the age demographics of landlords wouldn't be what they are, the daily mail wouldn't print the house price of every serial killer and murder victim, and house prices probably wouldn't be an issue.

 

 

[Freki]

I can't edit my main post at the moment. But I'm aiming to maintain  it up to date.

[nickb1]

The core explanation in my view has to do with financial "liberalisation". Abandonment of capital controls in the UK in the late 1970s, in a context of global financial liberalisation measures (yes, inter alia Nixon abandoning the link to gold). Unconstrained credit creation leads inexorably to asset price bubbles and crashes. Particularly in the context of a deindustrialising economy perhaps.

This explains increasing financialisation of all developed economies since the 1970s and why we have had house price volatility since then. Other explanations fail to explain cyclicity of prices (e.g. population statistics bear no correlation to the cycle), and lack of housebuilding jars as an explanation against the fact that dwellings per head of population are higher than ever before according to available stats. (this used to be published in 'social trends' but they stopped publishing that when all the trends turned sour; the core information has still been collected since then by DCLG.) Greed: people could be as greedy as ever, but how could they pump up house prices without the credit being supplied to fund higher purchasing prices?

 

 

[Venger]

20 hours ago, Beary McBearface said:

...I'd argue that an undue focus on lending multiples is (metaphorically) paying no attention to the man behind the curtain.

How were lenders able to lend more cheaply and why once the lenders lent more cheaply did households use the cheap money to chase up asset prices?

There have been deep changes to the underlying structure of what money is and how it works in the last forty years. Higher lending multiples are a consequence of these changes. Trying to reverse the changes to money and banking (which are consequence of globalisation, technological change (i.e. computers) and some of the ideological commitments which have guided policy) by restoring the building society cartel's control of UK mortgage lending in the early 1980s would be pushing on a rope. If you restricted lending and did nothing else then given the levels of rents and the cheap money on the table UK housing would quickly become a means for the asset rich to capture the incomes of others via rents (basically imagine the 2012-2015 BTL sector growth on steriods).

The key origin of the so-called housing crisis is that it has made lots of people very wealthy (including lots of MPs), benefited powerful lobby groups (financial services, builders) and its negative consequence have been visited on a smaller number of younger people who don't have a meaningful way to push back.

One way to answer the OPs question is to say that there is no crisis, or to put it another way, one man's crisis is another man's capital gain.

Where are we now.. what's on offer?

Carney; not building enough homes / supply (building twice as much in Canada) - with little to nothing said about landlords with 1 in 5 homes, or that house prices run on money.

HTB/Shared-Ownership/more HTB.....

Bankers/MPs/Older Owners.   The power dynamic.

The man behind the curtain....?

Anything but lower prices.  Protect mad-gainz.  Millions of owners are 'stronger' (HPI richer) with situation as it is (priced out renter-savers/Gen Rent Forever & offering HTB).

Game Of Thrones - 2x10 - House Of the Undying - Dragons - HD

https://www.youtube.com/watch?v=7p_j4gCYmPU

And they are quite happy for the situation to persist.   Will there be pushback?  It's difficult to push back.  My view is only a market event, something on the outside, or maybe rising powers (young / economic necessity) in HMRC can bring about change.

Quote

 

We should be cynical, very cynical indeed. There is a great deal to be cynical about. But we also need to fight. We need to educate ourselves. We need to write to our MPs we need to challenge diplomatically and forcefully the nonsense, every time we get a chance to get it cornered. We are right. A sustained BTL sector financed on an interest-only basis is a disaster for median households and their children.

I hope I am right about these late entrant BTLers, then they are about to get burned in an imminent correction, and they will subsequently go looking to give Rob Thomas and pals what for, but if I am wrong, that is not the end of it.

We cannot allow a cartel of lenders to arrange matters so that we can be compelled to rent from them forever simply because they have a banking licence. The banking licence allows them to create new credit money by making loans. Presently, they can find willing quislings to pony up deposits and take out the loans, we call them BLTers. The granting of the loans bestows upon the the lenders de facto economic control of 20% and counting of the 

link for more (source)

 

There is, and we do (need to pushback) but it goes far beyond the banks imo.

It's everywhere.

Quote

“The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which.”

Edited October 26, 2017 by Venger

[Kosmin]

On ‎24‎/‎10‎/‎2017 at 11:08 AM, Freki said:

 

@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.

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

This isn't the origin of the housing crisis. People are greedy in other countries where prices have hardly moved. I don't think Venger would argue that greed is the cause of the crisis. He just says people are greedy and know what they are getting into. They are hoping for profits if prices move in their favour, so there should be no sympathy if prices move against them.

Other causes: Some people would emphasise selling council flats. Also very important was the 1988 Tenancy Act. I think this basically made it a lot easier for landlords to have shorter tenancies, which was very important for the growth of BTL.

[nickb1]

21 hours ago, Beary McBearface said:

If you restricted lending and did nothing else then given the levels of rents and the cheap money on the table UK housing would quickly become a means for the asset rich to capture the incomes of others via rents (basically imagine the 2012-2015 BTL sector growth on steriods).

I disagree with the logic here. If you restricted lending, e.g. by reintroducing credit controls, house prices would fall, since there would be no way for borrowers to pay the current values. This makes property a bad investment. Rents would also fall, since house prices and rents are related (in mainstream economics, the house price is the capitalised value of the rental income).

[PopGun]

6 minutes ago, nickb1 said:

I disagree with the logic here. If you restricted lending, e.g. by reintroducing credit controls, house prices would fall, since there would be no way for borrowers to pay the current values. This makes property a bad investment. Rents would also fall, since house prices and rents are related (in mainstream economics, the house price is the capitalised value of the rental income).

Agreed only the foolish rich would invest in depreciating assets.

[Kosmin]

14 hours ago, zugzwang said:

Do you really think George Osborne had the necessary numerical and analytical skills to master economic papers full of set theoretical conjectures and projective hyperplane geometries?

That's probably not relevant to a correct understanding of economic theory. It's even less likely to be relevant to setting good economic policy.

[Bland Unsight]

1 hour ago, nickb1 said:

I disagree with the logic here. If you restricted lending, e.g. by reintroducing credit controls, house prices would fall, since there would be no way for borrowers to pay the current values. 

[snip]

I think that the response of the market to the re-introduction of credit controls post-2008 shows that this is not true. The reintroduction had two dimensions;  the FCA implementation of the Mortgage Market Review (MMR) recommendations and FPC intervention on Loan To Income ratios.

MMR was implemented in April 2014 (IIRC) but the major elements (which were the end of self-cert and naked interest-only lending to median households at high LTVs) has already happened in the market by about 2012. The FPC soft cap was announced in June 2014 and implemented in October 2014.

Democorruptcy has repeatedly asserted that the absence of cap on mortgage term makes the MMR rules toothless. That argument is clearly wrong. The post-MMR lending environment is ridiculously tighter than the boom years lending environment. Likewise Democorruptcy argued that the soft cap on LTI was implemented as a "a call for more lending" (link).

Crucially, and I feel it is evident from the context, I was responding to Democorruptcy's post (regarding lending to dual income households); that is lending to owner-occupiers. I was reflectimg on the consequence of restricting lending to owner-occupiers and doing " nothing else" - and, for the avoidance of doubt, "nothing else" includes no Section 24 and no PRA SS13/16.

The case of London since 2012 has shown clearly that restricting lending to owner-occupiers is not enough to cap house price inflation. If you have investors active in the market then they can drive prices. Likewise if you restrict owner-occupiers' access to one form of finance (mortgage borrowing) then if they face a rising market they'll just tap other forms of finance (the so-called Bank of Mum and Dad, for example) more aggressively.

Since about 2013, I've been massively dubious about the idea that it's people borrowing against their incomes driving prices. Whilst owner-occupiers were clearly a big part of the story pre-2008 a lot has changed since then. You can lend like an idiot to idiots if you are going to sell the mortgage on. The securitisation chain is basically dead.

Source (also DYOR, not the best sourcing)

Where UK banks are lending to UK households they know that there is a considerable chance that they will be holding those loans on their balance sheet all they way to maturity. That affects their conduct. There has been a total restructuring of UK mortgage lending between the boom years and today and anyone who wants to pretend otherwise is either blind to the facts of the matter or wilfully misrepresenting the situation.

 

Edited October 26, 2017 by Beary McBearface

[iamnumerate]

On 10/24/2017 at 11:38 AM, opt_out said:

Allowing fewer rooms to be built than the population growth. 

It is even worse than that we de facto pay people to come here (if a single Mum from Spain knows that she has got a good chance of free housing in the UK we are as good as paying her to come here.  If I were unemployed and thought that I had a good chance of free housing in Spain I would be on a plane ASAP).