" Mirror, Mirror On The Wall, Who's To Blame Most Of All?"

[Belfast Boy]

Some people may be coming here looking for people to blame. So lets set things straight!

We have to start at the beginning...

Who is to blame for the boom? Who is to blame for the ridiculus house prices in Northern Ireland?

- Government (for not regulating the banks).

- Banks (for reckless lending).

- Property programs. (ramping)

- News papers. (ramping)

- Internet forums. (ramping)

- Specuvestors. (greed)

- Estate Agents. (ramping)

- Developers/builders. (greed)

- Sheeple. (for thinking they were wealthy and living beyond their means)

Lots of rampant greed in that list

Who is mostly to blame for the bust? Who is most responsible for house prices falling back to affordable levels?

- Banks. (for stopping reckless lending)

- Specuvestors (for leaving the market)

- Developers/builders (for realizing they cannot sell their houses to average people at todays prices)

- Estate Agents (for realizing they cannot sell houses to average people at todays prices - even though they are still trying to)

- TV documentary and business programs. (for telling us the hard truth - we were living beyond our means)

- News papers. (for stopping ramping and finally reporting some facts)

- Government (for pulling co-ownership - which was not meant to support high house prices)

- Internet forums (for discussing history, economics, business cycles, credit bubbles, housing bubbles, mortgage resets, mortgage equity withdrawl, personal debt and realizing before most 'experts' where it would all end)

- Sheeple (who are very slowly realising they have been conned)

Will be interesting to hear others thoughts on this topic. I'm sure I have left a few people out.

Who would you blame most? And in what order?

Edited June 3, 2008 by Belfast Boy

[Guest KingCharles1st]

Quite simply- the forced restriction of issued land for sale with planning permission.

[Traktion]

Some people may be coming here looking for people to blame. So lets set things straight!

We have to start at the beginning...

Who is to blame for the boom? Who is to blame for the ridiculus house prices in Northern Ireland?

- Government (for not regulating the banks).

- Banks (for reckless lending).

- Property programs. (ramping)

- News papers. (ramping)

- Internet forums. (ramping)

- Specuvestors. (greed)

- Estate Agents. (ramping)

- Developers/builders. (greed)

- Sheeple. (for thinking they were wealthy and living beyond their means)

Lots of rampant greed in that list

Who is mostly to blame for the bust? Who is most responsible for house prices falling back to affordable levels?

- Banks. (for stopping reckless lending)

- Specuvestors (for leaving the market)

- Developers/builders (for realizing they cannot sell their houses to average people at todays prices)

- Estate Agents (for realizing they cannot sell houses to average people at todays prices - even though they are still trying to)

- TV documentary and business programs. (for telling us the hard truth - we were living beyond our means)

- News papers. (for stopping ramping and finally reporting some facts)

- Government (for pulling co-ownership - which was not meant to support high house prices)

- Internet forums (for discussing history, economics, business cycles, credit bubbles, housing bubbles, mortgage resets, mortgage equity withdrawl, personal debt and realizing before most 'experts' where it would all end)

- Sheeple (who are very slowly realising they have been conned)

Will be interesting to hear others thoughts on this topic. I'm sure I have left a few people out.

Who would you blame most? And in what order?

Great post - I think you hit a whole bunch of nails on the head!

Quite simply- the forced restriction of issued land for sale with planning permission.

In a market being ramped up, relaxing planning restrictions would have just raised the ceiling of the top of the boom. The demand was false, due to people buying into property as a way to accumulate wealth, rather than for homes.

In contrast, now property values are falling there is a massive oversupply. If restrictions were an issue during the boom, I assume you would argue it is a problem during the bust? If this is the case, relaxing restrictions would devalue current housing stock further still (more supply). However, I think this bust will demonstrate there isn't a lack of supply at all - just a lot of people who bought numerous homes thinking it was a one way ticket to becoming rich.

[Jacko-79]

Great post - I think you hit a whole bunch of nails on the head!

In a market being ramped up, relaxing planning restrictions would have just raised the ceiling of the top of the boom. The demand was false, due to people buying into property as a way to accumulate wealth, rather than for homes.

In contrast, now property values are falling there is a massive oversupply. If restrictions were an issue during the boom, I assume you would argue it is a problem during the bust? If this is the case, relaxing restrictions would devalue current housing stock further still (more supply). However, I think this bust will demonstrate there isn't a lack of supply at all - just a lot of people who bought numerous homes thinking it was a one way ticket to becoming rich.

Now now, lets be honest - its us awful doommeisters who are to blame!! If we would only shut up and allow the vested interests to spew their spin in local newspapers and magazines unchallenged we could all live in blissful ignorance and things would be OK!!! What the housing market really needs is some censorship - this website should be banned, the publishing of any article, or airing of any TV programme, contrary to the thinkings of VIs should be made illegal, and those found guilty should be sent to work in the mines of Siberia never to be seen again!! Supress free speech, comrades, and we can make the rich investors richer - for that is surely the role of the ordinary poor peasant!

[woohoo2]

1. Gordon Brown

He promised - "I will not let house prices get out of control", "There will be no return to boom and bust"

His actions -

a) Removed mortgage costs from inflation calculations

Failed to regulate lending, but instead encouraged growth in credit

c) Failed to regulate or tax buy-to-let in any fair way

His intentions - to keep middle England happy because of the perception that they love rising house prices.

The explanation -

Milton Friedman (late economist) said, "Inflation is always and everywhere a function of money". The fact is that Gordon Brown presided over an explosion in the overall money supply which of course caused house price inflation but not other sorts of inflation (at the time). He pretended that this was OK because HPI is 'good' inflation and as long as we didn't have 'bad' inflation then all hunky dory. In that sense he deserves the most blame in the UK. If you want to trace it back further then the same sort of thing happened in the US on an even bigger scale and Gordon was just following their ideas.

To the extent that all the other people on the list are to blame, I'm not so sure. Yes of course they jumped on the bandwagon and made money out of the madness, but then that's just human nature. When they were given the nod by the government and BoE that house prices were a one way bet, then their behaviour was in some way rational, at least in the short term.

[Ride_on]

It is a difficult one, but I think you have listed all the contributors. My first reaction is to blame the banks for irresponsible lending, they created the current extent of this situation using bad business practice. They should have independently have recognised the forth-coming problems, as most of us did.

However it is not their fault they are stupid and also not their responsibility to ensure people pay the correct amount for housing (although it is in their interests). Perhaps the FSA has a bigger responsibility to the people when they were obviously sleeping on the job.

Thinking back, what where the other booms caused by? The cycle is 'normal' with the current system (although made worse this time by banks) that people think it is sustainable for houses to increase higher than wages indefinitely. In Engineering terms the system is unstable and needs negative feedback (such as land tax or limits on borrowing), for that we need regulation in which case it falls with the govt/FSA.

The cost/availability of land is another issue, which I agree may be a contributory factor we mostly ignore. Again gov't need to plan the population increases with land availability for building, as well as sustainable/health living environment. However this cannot go on indefinitely, they (govt) seem to assume the increase population is good but don't want to make the same amount of land available to newer generations to live on as older ones (no wonder they are bored and developing gang culture). Currently there is a problem where 20% of the population own 80% of the land. They should release more land or limit or discourage births (what is child benefit for?), again Gov't responsibility.

It is too easy to blame the gov't, but it seems they bear the main responsibility and are reaping years of bad decisions intended to please voters and provide funding for their vote pleasing schemes or just general funding. So that brings me to party political funding, its a bit like IFAs, you can't really donate £m to parties and not expect to get a little policy in your favour, hence businesses are favoured and the people not. Eliminating donations to parties might help some way correct the balance, but also there is just the plain old problem that most people including politicians are either stupid or not properly motivated and noone knows who is the one (predicters and analysts) to listen to. Its the old problem of VIs. Anyway I could go on but I going to stop now.

[Belfast Boy]

*** bump ***

Just thought I would bump this thread for drm1. It seems to me that he is looking for someone to blame for the mess he may be in.

[Malthus]

Quite simply- the forced restriction of issued land for sale with planning permission.

totally disagree with this , if we had unrestricted planning permission the whole country would now be covered in concrete and nasty flats

missed BB's original post , excellent analysis

Edited October 23, 2008 by Malthus

[yadayada]

totally disagree with this , if we had unrestricted planning permission the whole country would now be covered in concrete and nasty flats

You mean it's not?

Quite a bit of this country is pretty much trashed as it is, compared to even southern England, where the countryside is for farming. A fair bit of arable land has been built over - top grain growing land in the Roe valley for example, never to be used again, even when there's another famine. Although walking down the street this morning I realised a lot of people would still be here long after I'm gone if there's another sudden loss of food supply.

[Malthus]

You mean it's not?

Quite a bit of this country is pretty much trashed as it is, compared to even southern England, where the countryside is for farming. A fair bit of arable land has been built over - top grain growing land in the Roe valley for example, never to be used again, even when there's another famine. Although walking down the street this morning I realised a lot of people would still be here long after I'm gone if there's another sudden loss of food supply.

don't worry a few weeks work with a spade ,digging over a golf course will sort both problems

[Traktion]

You mean it's not?

Quite a bit of this country is pretty much trashed as it is, compared to even southern England, where the countryside is for farming. A fair bit of arable land has been built over - top grain growing land in the Roe valley for example, never to be used again, even when there's another famine. Although walking down the street this morning I realised a lot of people would still be here long after I'm gone if there's another sudden loss of food supply.

Having lived in Southampton for the previous 4 years, I can vouch that over here is nowhere near as crowded as the south of England.

For an example of how horrific the traffic is, it took us over two and a half hours to drive back 30 miles from Sandbanks to Southampton, one sunny Sunday. This is despite about 10 miles of the journey being motorway and dual carriageways! Even when you visit areas of the new forest, you're often surrounded by cars and people doing the same.

Even compared to my home city of Leicester, in the midlands, over here is far less crowded. IIRC, Leicester actually has a bigger population than Belfast. Considering Leicester is pretty much one of many "average cities" in England, it shows how many more people are crammed in there.

I just thought I'd add some perspective!

[BelfastVI]

I'm sure there are acres of rain forest been cleared as we speak, to discuss this topic in the future. Who do we blame? The answer is everyone who participated in it.

The person who bought his house at a reasonable price and sold it on to the highest bidder at the top of the market. (This is not a go at Belfast Boy) Did he do anything wrong - no. Is that any different to a share dealer, a car dealer or a land dealer?

He gained by buying and selling, probably unknown to himself, during an unprecedented boom in housing. But how did that leave the purchaser of the property.

There are three parties that I blame

1 The government who allowed this to get out of control

2 The government (planning) for withholding the supply of land for development that affected the laws of demand and supply. i.e BMAP should have been published in 2005, we are still in draft. With most markets if the demand rises the supply rises to meet this and brings the price back to equilibrium. Also when the price rises demand will usually fall, as we all know the exact opposite happens with houses so an even greater demand was placed on land forcing it up further. In the future when they ask the question ' why did house prices get so out of control? they will have to look at the whole aspect of release of land. I am not talking about the concreting of the country side but the actual release of that land proposed in the draft plans years ago.

3 The Banks, both in their lending to developers (epically FT Developers) and the mortgages they released. I have been amazed over the last few years, walking into auctions and walking out 10mins later with the prices opening well over my max price. Usually bought by someone who never developed before and a 90 to 100% loan.

I haven’t mentioned developers. With long term developers you have to place yourself in their shoes and ask yourself when do you stop buying land, employing your people and selling houses into a welcoming market?

When land goes to:

£100k per acre?

£250k per acre?

£500k per acre?

£750k per acre?

£1m per acre?

£1.5m per acre?

£2m per acre?

for your interest we stopped very close to the top of this list. Many didn’t, as you know.

I have no love of EA, never had. In my view they are one grade below second hand car dealers. But to say they duped people into this is a little naive. They get paid commission to sell houses. What do you expect them to do. Plus I don’t think they were dishonest as most of the ones I know bought a few houses themselves, ‘before they missed out’. The property programmes were a bit strange. Although on the few I did watch the inexperienced ‘developers’ seemed to give up their jobs and seemed to go completely over budget and were lucky to break even.

I think Belfast Boy hit the nail on the head with the last on his list, ‘the sheeple’, which was pretty much everybody who lived on expected future income rather than actual. Somewhere along the line we lost the ‘fear of debt’ that our parents had. I have a feeling I will become my grandfather warning the youngsters to shy away from debt.

I know people in their early 20’s who have £15k to £20k of credit card debt, spent on useless things. Up until recently this didn’t worry them. There was no stigma or sense of being stupid attached to it.

But at the end of it nobody could have done this without the easy supply of credit. Not the developers, not the BTL’ers , the FTB’s nor the sheeple. If the credit hadn’t of been available the rush of new developers (sheeple with designer suits) wouldn’t have pumped up the demand and price of land. Which is where the problem started. So something happened with the supply of credit. There was a cause which resulted in the free supply. Somewhere along the line there was a relaxation which, one day will be pinpointed as the cause.

Who’s to blame

The government for relaxing the flow of credit, whilst tightening the supply of land

The banks for issuing this credit

The Sheeple, including developers for taking this credit.

But it basically comes down to two things releasing credit and restricting land.

[Rock-n-Roll]

Having lived in Southampton for the previous 4 years, I can vouch that over here is nowhere near as crowded as the south of England.

For an example of how horrific the traffic is, it took us over two and a half hours to drive back 30 miles from Sandbanks to Southampton, one sunny Sunday. This is despite about 10 miles of the journey being motorway and dual carriageways! Even when you visit areas of the new forest, you're often surrounded by cars and people doing the same.

Even compared to my home city of Leicester, in the midlands, over here is far less crowded. IIRC, Leicester actually has a bigger population than Belfast. Considering Leicester is pretty much one of many "average cities" in England, it shows how many more people are crammed in there.

I just thought I'd add some perspective!

yes Trak totally agree

we is far from crowded here

although the roads are certainly busier than they used to be

i blame that wee fecker Rooker and his pps14

the records will show that sites and house prices went insane after his little intervention!

rock on!

[BelfastVI]

Having lived in Southampton for the previous 4 years, I can vouch that over here is nowhere near as crowded as the south of England.

For an example of how horrific the traffic is, it took us over two and a half hours to drive back 30 miles from Sandbanks to Southampton, one sunny Sunday. This is despite about 10 miles of the journey being motorway and dual carriageways! Even when you visit areas of the new forest, you're often surrounded by cars and people doing the same.

Even compared to my home city of Leicester, in the midlands, over here is far less crowded. IIRC, Leicester actually has a bigger population than Belfast. Considering Leicester is pretty much one of many "average cities" in England, it shows how many more people are crammed in there.

I just thought I'd add some perspective!

Overcroulding is a problem. There are between 6bn and 7bn people on this earth now. By 2050 there will be over 9bn (WHO figures). So in 40 years, bar the tinfoil hat brigade are correct, we will have 50% more people to share this place with. So if we don't build up(more skyscrapers anyone) we must build out. If we don't allow expansion into the greenbelt then they will have to be crammed into existing brownfield sites. Belfast has not got that vast wasteland of industrial buildings to rebuild.

[BelfastVI]

yes Trak totally agree

we is far from crowded here

although the roads are certainly busier than they used to be

i blame that wee fecker Rooker and his pps14

the records will show that sites and house prices went insane after his little intervention!

rock on!

Rock-n-Roll, not often we agree. You are correct Rooker was in Belfast around April/May 2006 and announced the complete ban on houses in the countryside. (As I had just finished mine-quite right he was too). The day he announced that every speculator in the country decided to buy up every available townhouse and semi in every village in N Ireland. Almost everybody else though they had to buy now, 'before it was too late. Fathers were buying for children and lovers (I know, I was selling to them) The price growth, which had been strong to that point, at double figures was probably due a correction at that stage (VI lingo). However it completely took off. I remember telling people it would have to stop in September. The back to school period is normally a time for the market to re-assess its self. However the chuckle brothers decided to make up and the press was full of it. The peace dividend was coming our way, whatever that was. It should have stopped at Christmas but, unbelievably it didn't. I have no logic for why it went into 2007 but it didn't stop until March/April that year. Whilst people here might believe we experienced years of boom in my view we had 12 months of madness starting with Rookers ban. A ban that was later overturned in true NI fashion.

[HPCwhen?]

Check out he planning service housing land availability report. There is ample land zoned for housing - much more generous than mainland UK (though not as generous as ROI). Its available here:

http://www.planningni.gov.uk/Corporate_Ser...Report/2007.htm

In fact, to debunk the supply arguemnt just lookas ROI, or Spain -massive house building accompanied by massive house price booms.

This was the fault of government and the banks in the first instance.

[HPCwhen?]

yes Trak totally agree

we is far from crowded here

although the roads are certainly busier than they used to be

i blame that wee fecker Rooker and his pps14

the records will show that sites and house prices went insane after his little intervention!

rock on!

PPS 14 has nothing to do with this.

[Rock-n-Roll]

PPS 14 has nothing to do with this.

like to state some rational for the above statment?

perhaps you would like to explain why sites jumped 20% within a couple of days of pps14?

and had increased by 100% odd within the next year coincidence ?

perhaps you might like to explain why most major players in the game within days of pps14

suddenly had teams of architects pouring over the developement plans of every village hamlet etc in the north

looking for any possible site ?

suddenly anybody with a large garden or yard in the zone even though it was the ***hole of nowhere

was sitting on a goldmine!

another coincidence?

rock on!

[Ballyk]

I think the interesting thing happening now is that panic is setting in.

This makes what should have been a simple housing price correction quite different from the previous asset price corrections in the last 20 years (tech stocks, etc).

Recession is fairly inevitable when there's a big reduction in the money supply (as banks reduce lending) but the knock on effects and general feeling of 'doom' is going to spread through the whole economy, and I think this recession is going to be big, and have a real effect on output and jobs. 'Animal spirits' is I think how Keynes described the unpredictable actions of consumers, which economists find very difficult to model. Spirits are down, and going to sink lower.

The fall in the pound would have given us a break, had the same thing not been happening the world over.

But back to the question, who's to blame. I do think things wouldn't have got so out of kilter in NI if there had been more housing supply around 2004. I think it's easy to dismiss supply arguments - and lack of supply is clearly not such an issue now - but the initial imbalance of supply and demand in NI was a factor in the problems in NI being so much worse than elsewhere in the UK. The fact that the Fraser houses sold off so quickly at lower prices, despite the difficulty in finding any finance for loans these days, shows there is still pent up demand.

I hope the Taggart land bank can be sold off and quickly built on, and there is real downward pressure from the added supply. Having said that, other factors such as unemployment, emigration and rates on empty / second homes may mean this isn't necessary to push down prices though! House price crash - bring it on!!

[Traktion]

like to state some rational for the above statment?

perhaps you would like to explain why sites jumped 20% within a couple of days of pps14?

and had increased by 100% odd within the next year coincidence ?

perhaps you might like to explain why most major players in the game within days of pps14

suddenly had teams of architects pouring over the developement plans of every village hamlet etc in the north

looking for any possible site ?

suddenly anybody with a large garden or yard in the zone even though it was the ***hole of nowhere

was sitting on a goldmine!

another coincidence?

rock on!

I think this was a timing issue. If PPS14 had been brought in at any other time except for during the latter stages of the boom, it wouldn't have made such a big difference. Huge demand and growing scarcity (through PPS14) fed into higher prices. If PPS14 was introduced now, do you think it would push prices up markedly?

[trebor21]

I think the interesting thing happening now is that panic is setting in.

This makes what should have been a simple housing price correction quite different from the previous asset price corrections in the last 20 years (tech stocks, etc).

Recession is fairly inevitable when there's a big reduction in the money supply (as banks reduce lending) but the knock on effects and general feeling of 'doom' is going to spread through the whole economy, and I think this recession is going to be big, and have a real effect on output and jobs. 'Animal spirits' is I think how Keynes described the unpredictable actions of consumers, which economists find very difficult to model. Spirits are down, and going to sink lower.

The fall in the pound would have given us a break, had the same thing not been happening the world over.

But back to the question, who's to blame. I do think things wouldn't have got so out of kilter in NI if there had been more housing supply around 2004. I think it's easy to dismiss supply arguments - and lack of supply is clearly not such an issue now - but the initial imbalance of supply and demand in NI was a factor in the problems in NI being so much worse than elsewhere in the UK. The fact that the Fraser houses sold off so quickly at lower prices, despite the difficulty in finding any finance for loans these days, shows there is still pent up demand.

I hope the Taggart land bank can be sold off and quickly built on, and there is real downward pressure from the added supply. Having said that, other factors such as unemployment, emigration and rates on empty / second homes may mean this isn't necessary to push down prices though! House price crash - bring it on!!

Any cash rich developer will buy and hold this land until better times. You would be insane to build on it in the next 2- 3 years!

[Ride_on]

The old planning argument assumes we have a shortage of houses, despite Gordon's build 3M plan, I don't think this is true. There are huge numbers of empty houses. Yes there was a temporary increase in demand for investment, a temporary influx of migrant workers and demand for more expensive house as the banks lent out more money but still the number of people who need houses hasn't exceeded the supply. Although being honest I don't have any figures to back it up apart from the 600K houses empty in the UK, just that there are no reports on people saying they have nowhere to live.

Interesting to hear about the planning changes lengthening the boom, still, we have been in a slow bubble since 1995.

I still think planning could be a problem eventually, but I now more think that planning needs to be more on the family planning side rather than allocating more land to housing.

[BelfastVI]

I think this was a timing issue. If PPS14 had been brought in at any other time except for during the latter stages of the boom, it wouldn't have made such a big difference. Huge demand and growing scarcity (through PPS14) fed into higher prices. If PPS14 was introduced now, do you think it would push prices up markedly?

Yes, that is what Roak an Roll and myself were saying. Prices had peaked, more than peaked at that stage and was due a correction, as they say. However the announcement of PPS14 caused another mad panic. It did cause another massive jump.

[talksalot81]

The main problem is that it has been possible to borrow money without ever having done the sums. There has been no need to justify the amount you are borrowing. If you have to meet the bank manager, demonstrate that you know your outgoings and that you have enough extra to pay a mortgage and that you have considered possible loss of employment or similar.... then this whole mess would simply never have happened.

Debt has become totally dissociated from assets. People just cannot handle it.

If I recall (I am an athiest for reference), there is a story about some biblical chap who also demonstrated his distasted for usury...

[Belfast Boy]

What do people hope to achieve by saying, on a website called house price crash, that property is going to rebound soon?

They are targeting the wrong people. If the vested interests want to stop house prices falling they need to look at the list on the original post. Then go and convince the people on top of that list that house prices are not going to fall anymore.

I think that some of the vested interests have become convinced that this is about public confidence and that is why they are here. They are wrong as usual

Edited November 22, 2008 by Belfast Boy