Today's Observer

[Fancypants]

(from the article):

his 12-year-old son butts in: 'With all the new developments going on around here, and with the Tube coming, prices aren't going to go down.'

I'll say that again. He's 12.

= =

Can you get any closer to a "tip from the shoeshine boy" than that?

When he's 17, and talking about how it is dangerous to buy property because it puts people into slavery to debt. When he spouts that - it may be the time to buy

yes, it was this anecdote that finally crystallised things in my g/fs mind too. For all my proselytising, I've never really felt that she has been wholly convinced by the logic of the HPC view. But she was not only stunned by the above anecdote, but also shown just how tragically "brainwashed" our society has become.

So, 12 year old boy, thank you very much, for helping the scales to finally fall from my girlfriend's eyes.

[Fancypants]

So, back to Victorian times from the here and now and still have any semblance of a vibrant economy? Not a chance.

Indeed. It wouldn't just be the "serfs" that suffered immensely in such a scenario. There are many here who can actually conceive of such an outcome - but property owners would have little reason to be smug if reverse gear got selected while the car was still motoring at 100mph.

[snap_crackle_and_pop]

"It is, Robin Murray tells me, a story that has echoes of the 19th century when the great political story of the day, and therefore the economic one, was the ownership of land. The very few who had it controlled the nation's fortunes; everyone else was a peasant, a serf."

It's still about the land, HPI is simply land price inflation, it's even worse than the 19th century in many respects, at least you could do something with land back then, now government has a monopoly on the right to develop.

Its all about the greedy nature of people in this country.

Wanting not one house but 27 so they have one for all their kids, grandchildren and great grandchildren to be...

[ex-MEWer]

Good article, but appallingly London-centric. No examples from anywhere other than London, no mention that prices have been essentially flat (except for the odd hot spot) outside the M25 for the last couple of years. Is the UK now London or nothing?

Edited May 14, 2007 by ex-MEWer

[Fancypants]

Good article, but appallingly London-centric. No examples from anywhere other than London, no mention that prices have been essentially flat (except for the odd hot spot) outside the M25 for the last couple of years. Is the UK now London or nothing?

to be fair, the author does address this point

But back to Albion Drive. If you're reading this in Middlesbrough or Merthyr Tydfil or Lincoln, or anywhere other than London, you will, perhaps, yawn, make a disparaging remark about the national media being so up itself that it thinks Britain is London and decide maybe that none of this has anything to do with you. Think again. It's true that Albion Drive is not an average British street, but, then, it's not even an average London street. It's a random street. But the forces at work here, and the stories of the people who live in it, are more universal than you might think.

Because it is London, the numbers are bigger, and therefore the social consequences, arguably, more damaging, but the superinflation of property prices is not confined to London, its impact is being felt in every town in Britain and, in this sense, the stories of the people of Albion Drive are both completely average and entirely revealing. In crucial ways, it is Everystreet.

[Bear Goggles]

That's what I have believed for the past couple of years now. Return to Victorian society. It's the only way we can survive globalisation unfortunately. A property-less debt-enslaved serf population controlled by a property-owing elite.

There will be no HPC to save you all I fear.

PS: not to say I think this is a good thing. I just think it's gonna happen

There are however quite a few differences between Victorian times and now. Here's some:

1. Poor people (and women) can now vote

2. Many of the 'landlord class' are hugely in debt and in many cases subsidising their tenants.

3. We have a fiat currency, double digit money supply growth and an inflation target of 2%

4. The expectation of social mobility (see 1)

5. The ability and means to emigrate.

Society is completely different to how it was 150 odd years ago.

[eric pebble]

Very good article - well worth a read - here

I won't quote it in full as it is very long. But I can assure you, it is worth 15 minutes of your time. OK, it might not go as far as we would like, but the tenor of it is far closer than similar pieces only 12months ago. I reckon the journo has been spending time here... the HPC influence continues apace!

case studies here

message to Carole: you are now forgiven for this silly bit of braying bourgeois frippery - running away from lickle youts? Rahhlly.

"I can't help thinking, that young people don't riot any more. They should be setting fire to cars and looting supermarkets. They're being robbed blind, and what have they got to lose? A 30-year-mortgage on an ex-council flat they bought with a friend on a mortgage of five times their salary? A lifetime of lining the pocket of a property investor or funding the round-the-world cruises of a pensioner? Why, young folk, do you not simply go on a first-time buyer's strike?

You are the money supply: without you, and with a helpful interest rate rise that'll see off the buy-to-letters, prices will simply collapse. You are the bank for the whole of England, Scotland, Wales and Ireland too, the cash-machine that's keeping the whole rackety affair afloat."

Exactly what I said 3 years ago -FTBs- DO NOT BUY ANYTHING AT ALL...... It is that simple.

Oh I like this guy ......... EVERYTHING I have said since being a poster on HPC.....

[BuyingBear]

5. The ability and means to emigrate.

Yup, but transport to Australia was free back then.

[homeless]

Yup, but transport to Australia was free back then.

as a few of my relatives found out

[ex-MEWer]

to be fair, the author does address this point

Ah, yes. Missed that bit amidst all the extreme London examples.

[Fancypants]

Ah, yes. Missed that bit amidst all the extreme London examples.

Interesting racial homogeneity ion the examples though (one exception so far as I could tell). Nothing like the Hackney I know and sometimes love. I guess that area really has changed in the last few years.

[Bear Goggles]

Yup, but transport to Australia was free back then.

Yeah, you don't get owt for now't these days.

Still, I reckon you could get a free holiday in Guantanamo Bay if you tried hard enough

[Oscar_Goldman]

I thought this was a great article, but yet again she fails to point out that things can change. People in their 30s (like myself) who can't buy are still better off saving money for the future than trying to get on the ladder at the moment. Over £1million to live in Hackney? Housing earning more than a working couple in a year? This is pure insanity.

The 90s crash showed us just how much things can change and how much hardship you can get into if you're overstretched. At the moment the BOE and the government are doing everything they can to keep the market going but the more ludicrous article I read the more I'm sure this is going to burst in a big way. I'm not sure what will be the trigger though.

Edited May 14, 2007 by Oscar_Goldman

[BuyingBear]

The 90s crash showed us just how much things can change and how much hardship you can get into if you're overstretched. At the moment the BOE and the government are doing everything they can to keep the market going but the more ludicrous article I read the more I'm sure this is going to burst in a big way. I'm not sure what will be the trigger though.

It's going to be really painful, the longer it goes on and the more extreme it gets the greater the eventual pain, that rate cut in August 2005 sent entirely the wrong signals, how many more have been sucked in?

[stillill]

Fantastic and depressing all at the same time.

[Wad]

That's what I have believed for the past couple of years now. Return to Victorian society. It's the only way we can survive globalisation unfortunately. A property-less debt-enslaved serf population controlled by a property-owing elite.

There will be no HPC to save you all I fear.

PS: not to say I think this is a good thing. I just think it's gonna happen

What a totally brilliant and thoughtful article.

Cletus I agree with your point too. Been saying it for a while - when I look out into the economy and society all I see is modern version of Victorian Britain. Essentially, an upper class of property owners who habve unearned wealth only beciase they bought a house at the right time. The rest of the population who do not own property are stuck in jobs that are essentially on temporary contracts with no wage or pension or healthcare security. A dog eat dog society and not a civilised place to live at all.

My fear is that society is tearing itself apart over this (or will be torn apart by a property crash) and none of us will be better off - whether we own property or not!

Edited May 14, 2007 by Wad

[Fancypants]

What a totally brilliant and thoughtful article.

Cletus I agree with your point too. Been saying it for a while - when I look out into the economy and society all I see is modern version of Victorian Britain. Essentially, an upper class of property owners who habve unearned wealth only beciase they bought a house at the right time. The rest of the population who do not own property are stuck in jobs that are essentially on temporary contracts with no wage or pension or healthcare security. A dog eat dog society and not a civilised place to live at all.

My fear is that society is tearing itself apart over this (or will be torn apart by a property crash) and none of us will be better off - whether we own property or not!

as has been pointed out previously - the principle difference between now and then is - DEBT. Instead of a small number of property owners and a large number of landless proles, we have a third group, making up the majority and drawn entirely from the latter - the mortgagors. Not all of those are destined to end up as outright property owners, I'm afraid... only those who have relatively small mortgages and are currently concentrating on ridding themselves of them - rather than increasing their exposure.

It is not ownership of property that will dictate status (that is a residual Victorian idea that obviously resonates still among the wannabe bourgeois) but whether you are working for your own benefit, or for the financiers.

[EmpiricalBear]

I'm afraid that the state realises what is happening. No, it won't be Victorian society.

The 'policeman inside' is dead. The surveillance state is an insurance policy. And just maybe we will come to have to accept it as the price of freedom from crime and social disorder.

[Smell the Fear]

as a few of my relatives found out

Now why do I not find that hard to believe?

[Smell the Fear]

as has been pointed out previously - the principle difference between now and then is - DEBT. Instead of a small number of property owners and a large number of landless proles, we have a third group, making up the majority and drawn entirely from the latter - the mortgagors. Not all of those are destined to end up as outright property owners, I'm afraid... only those who have relatively small mortgages and are currently concentrating on ridding themselves of them - rather than increasing their exposure.

It is not ownership of property that will dictate status (that is a residual Victorian idea that obviously resonates still among the wannabe bourgeois) but whether you are working for your own benefit, or for the financiers.

Yes, this return to Victorian society stuff sounds like a dark fantasy of the BTL crew. Given that it costs a landlord MORE to finance a property than a homeowner (when everything is taken into account) how can this possibly come about?

If landlords want to continue owning their properties they have to accept negative cashflows and sub-optimal rates of return. Capital appreciation can't continue forever, as this simply makes the returns even poorer for landlords buying new property. They are happy to do this at the moment as the dream of capital appreciation still lives. As soon as this starts to wither why would stick around throwing their money down the toilet?

[BuyingBear]

Yes, this return to Victorian society stuff sounds like a dark fantasy of the BTL crew. Given that it costs a landlord MORE to finance a property than a homeowner (when everything is taken into account) how can this possibly come about?

Inflation! Expect a whole load of rent inflation sooner or later.

[Smell the Fear]

Inflation! Expect a whole load of rent inflation sooner or later.

I don't see that it matters. Rent inflation has to be accompanied by wage inflation, in which case property is still more affordable to the individual than the landlord. Did high inflation in the 70s lead to a victorian society? Quite the opposite I think.

The only thing that could bring this about is a withdrawal of credit from the masses which isn't in the banks' interest (they make more money from individuals who move and give them profits on the churn, rather than landed gentry who would buy and hold forever).

[Nationalist]

AJ, an accountant at the meet yesterday reminded me of something I knew but wasn't really factoring in to my mental model of the housing market: owner-occupiers make their mortgage payments from taxed-income; landlords can reclaim ALL the mortgage interest payments against their tax (at the highest rate they are paying tax!) because it's a business expense for them.

AJ even suggested that if two people wanted to buy adjacent houses they would be better off buying each other's house and renting it to the other one. That way they'd be claiming back oodles of cash.

This inequity used to be corrected by MIRAS, which was allowed to wither on the vine, and then was cancelled by New Labour. In the USA and Ireland and probably other countries mortgage interest payments are 100% claimable against tax.

[Bosco]

'Could it really be true? Property Ladder queen Sarah Beeny, no less, says the same. 'It's completely bananas. And it can't carry on. I'm not saying there'll be a crash but something's got to give.'

Sarah Beeny tells me that the people 'who are really stuffed are the thirtysomethings who for one reason or another, and not through any fault of their own, didn't buy. They're absolutely stuffed.'

Sarah Beeney is putting it about quite a bit isn't she? So the thirtysomethings without property are bucked, as for the generation below....so who are all these ftb's keepin the market propped up at the minute? Are they BTL's in disguise?

[Smell the Fear]

AJ, an accountant at the meet yesterday reminded me of something I knew but wasn't really factoring in to my mental model of the housing market: owner-occupiers make their mortgage payments from taxed-income; landlords can reclaim ALL the mortgage interest payments against their tax (at the highest rate they are paying tax!) because it's a business expense for them.

AJ even suggested that if two people wanted to buy adjacent houses they would be better off buying each other's house and renting it to the other one. That way they'd be claiming back oodles of cash.

This inequity used to be corrected by MIRAS, which was allowed to wither on the vine, and then was cancelled by New Labour. In the USA and Ireland and probably other countries mortgage interest payments are 100% claimable against tax.

This is one of the great fallacies that pops up here occasionally. As a homeowner, you effectively rent the house to yourself (in tax speak this is known as an imputed rent). You pay yourself out of post tax income to rent your house and use this money to make your mortgage payment. You do not pay any additional tax on the difference between what would be a market rent for the house and what you pay on the mortgage. If you sell, you do not pay any capital gains tax.

The BTLer gets paid rent out of the tenant's post tax income. He pays his mortgage and then pays income tax on any surplus (so the money is double taxed effectively). If he sells he has to pay a huge chunk of capital gains tax on any increase in the property's value.

Sorry, but being a landlord is never going to be a cheaper way to buy a house. The homeowner has an advantage over the BTLer, and this extends to financing where IR are often lower and required deposits are lower, and the terms and conditions attached are less onerous.

The difference is that in recent years BTLers have been utterly, foolishly reckless in their purchases to such an extent that many recent entrants are in a negative cashflow situation and capital gains are petering out.