From "the House Builder's Bible" By Mark Brinkley

[Yoss]

Freaky, that tax relief on mortgage interest on "Investment properties"? sustained the said reforms. Without it the current bubble would never have got so inflated.

[Imp]

Housebuilding in Britain has always been a boom or bust activity and this is never be more clearly illustrated than in recent decades.

The early 80s saw a huge surge in private housebuilding, caused partly by post-war babyboomers entering the housing market and partly by people choosing to live in small family unit. This increased demand also led to a huge increase in house prices, which, in turn, encourage more people to jump onto the homeownership and bandwagon - encouraged by the Conservative government of Margaret Thatcher, which made the supposed benefits of property owning a key plank of its political programme.

This particular bandwagon came juddering to a halt on August 1, 1988 when Nigel Lawson, then Chancellor of the Exchequer stoped a tax perk known as double mortgage tax relief.

I remember the day well. I was property developing at the time, owed the bank about a quarter of million and had just learned that I was become a father for the first time. It was also the day my business partner and I completed on purchasing a rather large barn conversion in a village just outside Cambridge. The timing was about as bad as it can get.

Double mortgage tax relief sounds like rather an obscure tax perk, as indeed it was; these days we have no tax relief of any description mortgages, but back in 1988 of both halves of an unmarried couple could claim tax relief on a mortgage, which was worth a few Bob. It was an anomaly and Chancellor Lawson strove to eliminate anomalies.

The problem was that he announced his intention to do so in his budget speech in March, telling us that the elimination of this particular anomaly would take place at midnight on July 31. People in more normal times, who would never have considered house purchase together were suddenly bounced into it by a fear that it was now or never for the housing ladder. The housing market, already toppy, duly went and ballistic for four and 1/2 months in the rush to get sales completed before the Chancellor's cut-off point.

In Cambridge, average house prices jumped by 25% over night. many of the Lawson couples live to regret the unwarranted emotional entanglement caused by this feverish speculation. All of them lived to regret the financial chaos brought on by the price bubble bursting on August 1. For almost all of them, it would be 10 years before the houses they bought at ridiculous prices in 1988 would be worth as much again.

For us property developers, it was more painful still. But then, as a group, we have never elicited much sympathy. What happened on August 1st was distinctly eerie. The housing market just came to a standstill. Viewing stopped. Offers to buy were withdrawn. People just lost interest in buying homes altogether.

Prices didn't fall immediately. But then, with hardly any house sales happening, it was hard to know what house prices were really doing. However, during 1989 it became apparent that all the estate agents talk of the market just taking a breather was bull and, as the number of sales continued to decline, the rout set in. Things weren't helped at all by another of Nigel Lawson's foibles, the decision to peg the pound to the deutsche mark, which led to interest rates going up and up - the base rate was 15% from October 1989 to October 1990. As you can imagine, housebuilders took a bath. It wasn't until 1993 that house prices stopped falling. Even then, the recovery was painfully slow. Rather than beginning a return to the good old days before Lawson's bubble when house prices typically rose year-on-year or so it seemed, everything remained resolutely frozen. Newspapers were full of stories of families stuck in negative equity and of unhappy young homeowners just handing the keys back to the mortgage lenders and going back to live with mum and dad.

The climate change, once again with the election of new Labour in 1997. Strange to think of a supposedly left-wing government riding to the rescue of the property owning class but then life was ever full of such ironies.

The fact is that average house prices were back to roughly the same level in May 1997 as they had been on the fateful day nine years earlier when Nigel Lawson delivered his now infamous budget speech.

Since 1997, house prices have begun to behave exactly as they did from the 50s through to 1988: in the prosperous parts of the country, they have been increasing by an average of more than 10% year-on-year. The Brits love this state of affairs. Never mind that the NHS is crumbling, that schools are appalling and that the trains keep crashing, just see how much homes are worth. It contributes in no small way to the national feelgood factor. We could, as a nation, buy the whole of France and still have change from couple of Spanish Costas and the heel of Italy.

It has been a major factor in keeping Labour in power. As the Tories who have become embedded in the national psyche of the party which messed with house prices.

New Labour has returned us to the status quo ante. Whether there will be Gordon Brown bubble to rival Nigel Lawson's remains to be seen but if the past tells us anything, it's that the longer the good times roll in property, the bigger the hangover.

So all these top notch economists telling us the crash could not be predicted, and here is a builder warning us of it a year before it happened.

[buzzardo]

So all these top notch economists telling us the crash could not be predicted, and here is a builder warning us of it a year before it happened.

Indeed. And when was the last time you met a builder / developer / BeenyWannabee with an intellectual pot to piss in?

Makes you think, dunnit - as Paul Merton used to say.

B

[BandWagon]

So all these top notch economists telling us the crash could not be predicted, and here is a builder warning us of it a year before it happened.

The top notch economists were warning us about this bubble. People like Mervyn King, Robert Schiller, Paul Krugman, and other proper economists who understood what happens when a property bubble bursts.

Unfortunately there was another group of fools who liked to think they were economists, and who didn't have a clue.

[Moo]

Interesting piece, although he's kinda forgetting that during that 50s to 80s period, prices reverted to long term mean(ish) on a good number of occasions, just not as spectacularly, or by different means, than in the the late 80s \ early 90s.