How Do We Stop It Happening Again?

[Guest happy?]

House Price Inflation damages us all, and many of us have seen it all before. HPI damages people, the economy, and creates a massive additional tax burden for all of us (courts, divorce, social services etc.).

I'm interested in genuine ideas (e.g. economic, taxation policy, etc) about ways in which this monster can be reigned-in permanently. One way suggested elsewhere on this site was to make lenders responsible for debts when keys are handed back - there are some obvious flaws to this idea e.g. someone intentionally walking away from a debt which they could manage but it has a nugget at its core (i.e. prevent irresponsible lending)

Often, the debate polarises around lenders being stupid (by relaxing lending criteria) or borrowers being stupid (by taking out unsustainable loans) both of these miss the point that to a greater extent both parties are driven by economic circumstances.

Views please. But no cheap, partisan, political point-scoring I've heard it all before.

[JohnG]

House Price Inflation damages us all, and many of us have seen it all before. HPI damages people, the economy, and creates a massive additional tax burden for all of us (courts, divorce, social services etc.).

I'm interested in genuine ideas (e.g. economic, taxation policy, etc) about ways in which this monster can be reigned-in permanently. One way suggested elsewhere on this site was to make lenders responsible for debts when keys are handed back - there are some obvious flaws to this idea e.g. someone intentionally walking away from a debt which they could manage but it has a nugget at its core (i.e. prevent irresponsible lending)

Often, the debate polarises around lenders being stupid (by relaxing lending criteria) or borrowers being stupid (by taking out unsustainable loans) both of these miss the point that to a greater extent both parties are driven by economic circumstances.

Views please. But no cheap, partisan, political point-scoring I've heard it all before.

The tide goes out.

The tide comes in.

You are King Canute, and I claim my £5

[Guest happy?]

The tide goes out.

The tide comes in.

You are King Canute, and I claim my £5

Emoticons: punctuation for the witless.

[jonpo]

make mortgages illegal

[DaveyDave]

How about introducing mortgage payments to CPI or instruct the BoE to use RPI and not CPI.

[music man]

I would attack the problem and not the symptoms as there are so many.

I've always though it a valid argument to just give each person an amount of wealth i.e. £1K

And we can all barter for what we wish of that £1K

Although this looks and probably is childish most agree in fairness, and equality.

Or we could have a system I believe the Mayans used. Stop everything every 60 years and reset the financial clock.

OK hammer me for being a tad radical.

100% inheritance tax would also work if govt were accountable and controlled by the people. They could then share it out a bit more.

Edited June 2, 2007 by music man

[notthereyet]

House Price Inflation damages us all, and many of us have seen it all before. HPI damages people, the economy, and creates a massive additional tax burden for all of us (courts, divorce, social services etc.).

I'm interested in genuine ideas (e.g. economic, taxation policy, etc) about ways in which this monster can be reigned-in permanently. One way suggested elsewhere on this site was to make lenders responsible for debts when keys are handed back - there are some obvious flaws to this idea e.g. someone intentionally walking away from a debt which they could manage but it has a nugget at its core (i.e. prevent irresponsible lending)

Often, the debate polarises around lenders being stupid (by relaxing lending criteria) or borrowers being stupid (by taking out unsustainable loans) both of these miss the point that to a greater extent both parties are driven by economic circumstances.

Views please. But no cheap, partisan, political point-scoring I've heard it all before.

Give tax relief to FTB with a 5 year tie in, so they would have to repay tax if they moved on within first five years would help FTBers onto the ladder.

Make it compulsory that a 20% deposit saved and it is paid on any residential property purchase.Including BTL.

Make the lenders be more responceable on checking peoples ability to pay there mortgage.

Building societys should only lend to members as was the idea of Building societys. Not to BTLers. (How can that be right).

[Dr Doom]

Outlaw central banking.

[mikester]

Seems to me a much large institutional ownership of rental properties, by pension funds etc., would make a big difference as it stabilises the market. Could be arranged through the tax system (make private BTL more or less unaffordable).

[cells]

this is going to sound soooo crazy, sooooo risky, sooooo innovative that you will all prise me for weeks to come.............

make planning lax so we can build more property!

doesn’t take Einstein tbh

the Spanish build 800k homes a year, we build 200k and destroy 150k a year. the only reason the Spanish can build 4 times as many homes compared to us is because of planning limitations

don’t you all think its a bit doggy that government controls shelter, what if they controlled water or food. you can only eat red apples on a Wednesday or you can only drink a pint a week? i cant see why the government has the power to stop me building shelter for myself .

[Ah-so]

Nearly all the ideas above are in the same direction - removing individuals' freedom and increasing the power of the state, except for one. Relaxing planning laws reduces the power of the state and increases the supply of housing. As the supply of housing can be increased to meet demand, prices will not increase so far.

Planning restrictions are the estate agent's best friend - they artificially restrict the supply of housing and so force up prices.

[alex228]

call me a commie but what about nationalization of all the property, I bet there would be more than enough houses /flats for everyone!

[Ah-so]

call me a commie but what about nationalization of all the property, I bet there would be more than enough houses /flats for everyone!

You commie!

[South Lorne]

House Price Inflation damages us all, and many of us have seen it all before. HPI damages people, the economy, and creates a massive additional tax burden for all of us (courts, divorce, social services etc.).

I'm interested in genuine ideas (e.g. economic, taxation policy, etc) about ways in which this monster can be reigned-in permanently. One way suggested elsewhere on this site was to make lenders responsible for debts when keys are handed back - there are some obvious flaws to this idea e.g. someone intentionally walking away from a debt which they could manage but it has a nugget at its core (i.e. prevent irresponsible lending)

Often, the debate polarises around lenders being stupid (by relaxing lending criteria) or borrowers being stupid (by taking out unsustainable loans) both of these miss the point that to a greater extent both parties are driven by economic circumstances.

Views please. But no cheap, partisan, political point-scoring I've heard it all before.

This is not a new idea but I feel it is a positive and fair way forward.

While the current younger generation are unable to afford a house as owner occupiers, discourage the aspect of housing as a BTL investment and holiday homes, where city folk colonise the country and coasts for ‘weekends away’.

Method?

- Remove mortgage interest paid as a tax set off against rental income on BTLs.

- Tax second homes to allow a fairer disbursement of OO’s in the country and coastal areas.

The current scenario encourages hoarders who are taking a position, good or bad in housing.

[dnd]

Outlaw central banking.

yep, the families that control the private central banks are the ones running the planet atm

you want change? - start with these people....

btw it's interesting that, iirc, in recent statements from boe and the fed that money supply as the root cause of inflation is being dismissed

it's vital to keep these families hidden from the masses

Edited June 2, 2007 by dnd

[lewissheridan]

I think the simple answer is to stop multiple home ownership, and that houses don't become 'investment' class assets. Greed has gotten us here, it's as simple as that, and that's the side-effect of a capitalist society. The government should put in social measures and constraints to profiteering from 'houses' and let them simply be homes. If a hard a fast policy can't be done, then at the very least taxes on multiple homes.

[dnd]

politicians won't stand in the way of the 'markets'

...and 'markets' are manipulated by....

yep, the central banks

Mayer Amschel Bauer, founder of the Rothschild dynasty, has been reported to have said

"Give me control of the nation's money and I care not who makes its laws."

the politicans are not in control and never will be...

Edited June 3, 2007 by dnd

[kagiso]

this is going to sound soooo crazy, sooooo risky, sooooo innovative that you will all prise me for weeks to come.............

make planning lax so we can build more property!

doesn’t take Einstein tbh

the Spanish build 800k homes a year, we build 200k and destroy 150k a year. the only reason the Spanish can build 4 times as many homes compared to us is because of planning limitations

don’t you all think its a bit doggy that government controls shelter, what if they controlled water or food. you can only eat red apples on a Wednesday or you can only drink a pint a week? i cant see why the government has the power to stop me building shelter for myself .

Spain and the US have oodles of land. In huge areas of the US you can build pretty much where you want to. And in Valencia planning restrictions are so weak you are allowed to knock other peoples houses down to build your own flats.

And did it stop them having booms - No.

And is it stopping them having busts - No.

And despite the planning laws, there were more housing starts in the UK last year than any year since (you guessed it) 1989. There is no property shortage in the UK, as people in Nottingham have already discovered, and people in London are going to discover within the next 12 months.

Planning laws are completely irrelevant to housing booms and crashes.

The best way to stop future booms is to move the risks from the housebuyers, who are mostly not sufficiently educated to understand the risk. And move it to the lenders, who are educated enough to understand it.

Firstly, outlaw variable interest rate mortgages. As somebody pointed out on this site recently, if variable rate loans didn't exist and were suggested as a new vehicle, the FSA would probably not allow them. Fixed rate mortgages would keep the interest rate risk with the lender, so the lenders would think harder before making the loans. It is noteworthy that the US had a fairly smooth housing market for decades, until they decided to copy the UK and introduced variable rate mortgages a few years ago. As soon as the lenders thought they had transferred the interest rate risk to the borrowers, the lenders went crazy. And note that in the US variable rate mortgages are automatically assumed to be sub-prime. Variable rates were introduced in the UK as a response to high inflation times, there is little justification for them now inflation is low.

Secondly, introduce a 'right to walk'. If the homeowner is in financial difficulty, they should be allowed to hand back the keys, and walk away debt free. The BS should be responsible for any shortfall if the auction price does not meet the value of the mortgage. The ex-homeowner should only be liable if they have either fraudulently entered into the mortgage, or they have damaged the property. Again this transfers the risk of foolish lending from the owner to the BS, which will make the BS think a lot harder before they throw money at Joe Public.

In such circumstances, BS's will still lend 110% mortgages when properties are undervalued at the bottom of the slump. But as the booms start, and the blue line on the Nationwide graph wanders above the red trend line, BS's will then start insisting on bigger and bigger deposits, and more stringent mortgage indemnity. So slowly strangling the boom.

Note, this doesn't infringe anybody's freedom, other than building societies will no longer lend to people more money than the real value of their assets. This is no more an infringement of freedom than a bank refusing to give me an unsecured loan.

Even better, actually give the homeowner some rights to actually own their property. Why not state that the person whose name is actually on the deeds shall have the right to the first 20% of the proceeds of the auction if the BS decides to reposses. This is a subtle way of ensuring that BS's will in fact insist on 20% deposits, but again, without infringing anybody's freedom. If the BS wants to lend 110% on an over valued property, where they will only get 80% of its auction price back, they should be free to do so. They should also be free to live with the consequences.

Also note, that if all this transfer of risk back to the lender seems a bit unfair, actually they never really gave the risk away at all. In many cases borrowers do default and walk away. And in reality getting the money back is very difficult. In the last crash the banks and BS's had to write off billions of unrecoverable debt. They only thought, and behaved, as if they were giving the risk away. The same is happening now in the US, all those mortgage companies are going bankrupt because they thought they had transferred their risk away. But actually, they hadn't.

There has been a lot of critisicm of IVA's on this site. Actually the ease with which people can get IVA's is turning in to a good thing. Some major credit card companies are already scaling down their UK operations. Because they realise they can't get their credit back. If IVA's are allowed to continue as they are, then uncreditworthy people simply won't be able to get credit. This is a very good thing, especially for the uncreditworthy people.

IVA's have transferred credit card risk back to credit card issuers.

Now we need to do the same for mortgages.

[laurejon]

The only way to stop this happening again would be to regulate and restrict mortgage lending.

However this was done in the past, and although it did stop HPI, it also brought the nation to its knees, nearly bankrupt.

The whole problem is supply and demand, and there are several factors at play here, so of which many here do not like to hear.

1. Immigration (You cannot bring over several million people to compete on housing, when housing is scarce)

2. Central Government and Councils are in cahoots with regard to new house building, they restrict it with the intention of pushing up prices, Governments and Councils are operating the same strategy as De Beers do with restriction on diamond sales.

3. Again immigration has a double whammy affect, it deflates wages, whilst headline inflation rises.

[South Lorne]

1. And move it to the lenders, who are educated enough to understand it.

2. If IVA's are allowed to continue as they are, then uncreditworthy people simply won't be able to get credit. This is a very good thing, especially for the uncreditworthy people.

You have some very good ideas here. Although I am not a Gordon Brown fan I know he has been looking at the long term fixed rate mortgages, which were the backbone of the quality element of mortgage lending in the States. I would not be surprised to see this encouraged as soon as he 'sits on seat'.

Just to comment on 1 & 2 above:

1. They may be educated but the problem is they are greedy.

2. This is good logic. However they would need to be educated in simple personal financial planning such as budgeting to ensure they do not fall into the hands of the backstreet lenders, who should of course be shut down anyway. Education in PFP should be introduced into schools as a compulsory subject for all and every teacher should be educated to a level that they can deliver the teaching of the basics.

[kagiso]

this is going to sound soooo crazy, sooooo risky, sooooo innovative that you will all prise me for weeks to come.............

make planning lax so we can build more property!

doesn’t take Einstein tbh

the Spanish build 800k homes a year, we build 200k and destroy 150k a year. the only reason the Spanish can build 4 times as many homes compared to us is because of planning limitations

don’t you all think its a bit doggy that government controls shelter, what if they controlled water or food. you can only eat red apples on a Wednesday or you can only drink a pint a week? i cant see why the government has the power to stop me building shelter for myself .

Well Einstein,

I am not sure what 'prise' means, I assume it's short for 'take the p1ss out of'.

As somebody who works in the water industry, I can assure you that the government has a surfeit of regulations controlling the supply of water in this country.

There is one whole government body, Her Majesty's Drinking Water Inspectorate, no less, that requires me to justify the safety to health of every single washer that goes into a water works. A pain for me that I could quite happily dispense with. The DWI exists to prevent people like me poisoning people like you.

Another government body, OFWAT, tells the water companies exactly how much money they can spend, and what they can spend it on. I could really and truly do with out this, as it has a direct impact on my wages. OFWAT exists to stop people like me ripping off people like you.

Another government body, the Environment Agency, tells the water companies exactly how much of every pollutant is allowed to come out of each and every water works, sewage works and pumping station in the country. Never mind that the limits are so strict that a farmer can cause more pollution in an afternoon's fertilising or muck spreading than most sewage works are allowed to pollute in a decade. Never mind that the Trent is now so unpolluted that the anglers are complaining because the coarse fish stock has collapsed. We shall obey. The EA exists because in this democracy, most people want clean and living rivers for the enjoyment of themselves and future generations.

And a different bit of the EA regulates abstraction licences. And another bit of the EA regulates construction next to water courses. And did you ever try to build a discharge pipe from the land into the sea? Did you know there are a couple of dozen different legal definitions of where the boundary between the land and the sea is. Varying from 100s of metres in land at the top of flood plains, to miles out to sea for 'territorial limits'. And each different body uses a different definition.

And then there are the Land Drainage Boards, and the different Local Authorities, and of course we also have to obey the planning laws too, down to the colour of the buildings, and the number of vehicle movements, and the visual amenity, and destruction of habitat, and environmental imapct assessments...........

Once upon a time we just used to send the bulldozers in and build a new works. No longer.

But if planning laws didn't exist, in twenty years time the whole of England would look like Slough, or Milton Keynes, or the continuous strip mall suburbia of North Carolina, or, god forbid, Torremolinos.

And no doubt, once you had built your bungalow where you wanted to in the middle of the country, you would want me to find a suitable new water resource, install pumps and pipes to your door, fit sewers to your drains, and build a new sewage works somewhere to treat your cr@p, presumably at some other taxpayers expense.

Planning laws exist because in this democracy, most people want open and beautiful countryside for the enjoyment of themselves and future generations. Your freedom to build your bungalow where you want would interfere with their freedom to enjoy leisure and happiness. This is a democracy, why don't you start a 'Society for the Destruction of Rural England', see how far you get.

[b0rk]

Never mind that the Trent is now so unpolluted that the anglers are complaining because the coarse fish stock has collapsed.

Couldn't they bribe/bung a local farmer into accidentally discharging a bit sewage into the Trent once in while to dirty it up for them.

I do in all honesty agree that there does need to be proper planning system in this country the question IMHO is how to reduce the unnecessary bureaucracy bunging up the system for everybody and how to reduce developers land banking sites with outline planning for years and even on occasion decades.

[kagiso]

I do in all honesty agree that there does need to be proper planning system in this country the question IMHO is how to reduce the unnecessary bureaucracy bunging up the system for everybody and how to reduce developers land banking sites with outline planning for years and even on occasion decades.

The system is not bunged up.

The system has been eating bucket loads of prunes, and washing it down with barrel loads of Guiness.

There is no property shortage. Their is a property glut. And it will take 18 months building time to turn the tap off.

The last time there were this many properties being built was 1989.

Hands up who can remember what happened in 1989? Somebody? Anybody?

The only thing holding this boom up is city bonus fuelled hysteria in a minority of London suburbs.

We are building too many houses, far, far, too many houses:

http://www.easier.com/view/UK_Property_New...icle-98787.html

UK house-building hits highest levels since 1980s

9 February 2007

Fashion isn't the only trend seeing an eighties revival, house-building is enjoying a popular resurgence too. According to NHBC, whose warranty covers more than 80% of new homes in the UK, 185,000 new homes were built during 2006, a figure reminiscent of the housing boom of the late 1980s.

The last time house building reached such high levels was in 1989 when over 191,800 new homes were built. During the nineties house building declined, with builders and developers producing on average 158,900 new homes per year. In 1992 the output of new homes fell to a low of 146,200.

[rnicoll]

How about introducing mortgage payments to CPI or instruct the BoE to use RPI and not CPI.

I'd say use rent payments in CPI; house prices going insane is bad, but not the end of the world. The fact that I'm paying 50% more rent than I was in 2001, for 50% less space in a worse area of town, is bad. That I'm 27, earning a good wage, and can only afford to share with friends, is insane.

Edited to remove double negative.

Edited June 3, 2007 by rnicoll

[expatowner]

The answers got to be to get away from mortgages.

People just dont think the implications of mortgages through.

I've been to countries where the banks will only lend 70% of the value.

That seems to create some stability.

The more people pay with their "own" money and less with a mortgage encourages prices to stay at a healthy level.