Monday, July 20, 2009

Getting to grips?

Plan for sound banking

This is not intended as a political post, but as the Conservatives will almost certainly win the next election, it makes interesting reading. They are clearly intent on returning to RPIX for inflation targetting, thereby including housing costs in the inflation index. If you can't stomach all 50 odd pages, have a look at page 42 (pdf sheet 44) - seems to make it clear that they understand the core problems of the housing market. (I still don't like George Osborne though - I doubt he drafted this document personally)

Posted by uncle tom @ 12:14 PM (1860 views)
Please complete the required fields.



13 thoughts on “Getting to grips?

  • mark wadsworth says:

    UT, fair point, but let’s look at the bit from page 42 to which I think you are referring:

    Moreover, we should not lose sight of the fact that this crisis was fuelled in part by poor lending practices. The rise of ‘sub-prime’ lending in the UK allowed individuals to take on far more debt than they could afford. Practices such as 125 per cent mortgages and inappropriate self-certification have had consumer as well as prudential implications. Sub-prime lending contributed to the failure of banks like Northern Rock and Bradford & Bingley, but it has also left many households struggling to manage problem debt.

    The failures on consumer protection have stemmed in part from a dysfunctional regulatory framework and in part from the FSA’s emphasis on compliance rather than acting as a genuine guardian of the consumer’s interest.

    The “crisis” was not fuelled by poor lending, that is a symptom and not a cause.

    The real cause was the fact that whichever politicians happen to be in power can bribe the electorate with the Fool’s Gold of ever rising house prices. Although taking society as a whole, we are better off with low house prices and a correspondingly low debt burden (it’s the same houses, for crying out loud, it’s not like “we” were any richer), the Brits fall for this time and time again.

    And all the government needs to do to get house prices to rise is to restrict supply most savagely (thus winning the NIMBY vote) and have easy credit. OK, the Chinese had a big hand in easy credit, which to be fair is not Gordon Brown’s personal fault, but now the Chinese tap has been turned off, he is just robbing savers to subsidise reckless borrowers, which is very much his fault.

    To cut a long story, the gullible public and the government wanted a house price bubble and by implication welcomed the credit/debt bubble (you can’t have one without the other).

    I see no evidence to suggest that the house price bubble wouldn’t have been just as big if the Tories had been in power for the last twelve years. They are, frankly, total hypocrites – while they whine and moan (quite rightly) about the government running up huge debts “which will be a burden on future generations” they are very quite about the fact that high house prices and high household borrowing are also “a burden on future generations”.

    You have to understand all this first before you begin to appreciate the benefits of taxes on land or property values (which, unlike higher interest rates, keep prices down without choking off the economy!).

    Reply
    Please complete the required fields.



  • Mark,

    You make the assumption that ultra high house prices can be sustained by maintaining a shortage.

    I’ve tried crunching some numbers on this, and came to the conclusion that while the effect of housing demand on housing price can be acute in small, desirable locations; the overall effect is much less than might be imagined.

    A shortage of property does not make it more affordable; it merely results in the average number of people living under one roof to increase a little.

    The UK’s housing shortage is, at most, about 5%. If you increased the supply much beyond that, you would see commensurate abandonment.

    That 5% shortage does not explain why houses are still trading at four times their construction cost.

    We became accustomed to rising house prices, and began to expect it. It may be that the fighting over property in desirable areas resulted in some trickle down to more ordinary neighbourhoods, but I don’t think you can use the slight undersupply to explain the rapid increase in prices.

    As it is, we have a lot of idle space in our homes – on any given night, more than half of all bedrooms have no-one sleeping in them; so it is hard to attribute much price pressure to the supply factors.

    Fear that a delay would make it impossible to ever afford a home, was a much more potent force; but despite the attempts of some to breathe new life into that dragon, I believe that it is well and truly dead now.

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    UT (notwithstanding that you may have a point on the exact % impact of supply on prices …)

    “As it is, we have a lot of idle space in our homes – on any given night, more than half of all bedrooms have no-one sleeping in them; so it is hard to attribute much price pressure to the supply factors.”

    This is probably true, but is of little help to those people living in houses with two-plus people per bedroom (i.e. young couple with baby, two-parents, two-kids in two bedroom flat or small house) if you average them out with all the vacant properties, holiday homes, second homes, widowed OAPs living in three-bed family home (one million of whom are living below the poverty line, i.e. entitled to Pensions Credit, paid for by working-age families through their taxes – because housing wealth is excluded from definition of assets for means-testing, natch) etc.

    Which is where we need Land-Value-Tax-Man, who would encourage people to “right-size”. Home-ownership is not a free market, it is a series of state-protected monopolies (notwithstanding that there is a free-ish market in shares in those monopolies – but while young families are under enormous practical pressure to trade up, those on the ladder are under no pressure to trade down).

    As a rabid right winger, I think that the best form of rationing is price-rationing rather than first-come-first-served and damn the rest.

    And if Land-Value-Tax-Man isn’t welcome on these shores, then how about enlisting the help of Death-To-NIMBYs-Man?

    As you say, house sell for three or four times what they cost to build. If little old ladies don’t want to trade down and refuse to pay LVT, then we ought to seriously consider giving every FTB the right to buy up a few hundred square yards of land at the periphery of towns and cities for its agricultural value (£500 or so) and being able to slap a three-bed semi on it at a cost of £75,000 (or whatever).

    Reply
    Please complete the required fields.



  • Mark,

    I don’t buy your land value tax idea, but I do believe in taxing under-utilised (i.e. empty) property at a punitive rate – perhaps council tax + 100%.

    I also believe that when it comes to finding a way out of this economic mess, home building (especially self-build) should be one of the cornerstones.

    I have mentioned before the notion of a 1% campaign – to permit residential development on 1% of all UK land that is neither residentially developed nor has exisiting permission for resdiential development.

    The purpose being:

    a) Provide so much available development land (much more than is needed) so that it’s value becomes nominal.

    and

    b) Blow the NIMBY argument out of the water, by highlighting just how little of our green and pleasant is actually needed to sort the problem.

    – Are you with us brother? 🙂

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    UT, I in turn don’t believe in trying to tax “under-utilised” property (I work in tax and once you start inventing little rules and wrinkles you need ten times as many rules to block loopholes and you get all sorts of unintended consequences), you get into all sorts of problems with definitions.

    LVT is going a bit far, but at least we could go for progressive property tax of 1% of current value every year to replace Council Tax, Stamp Duty Land Tax, Inheritance Tax, TV licence fee, insurance premium tax, VAT on domestic fuel etc etc (which would be approx. fiscally neutral) with roll-up option for pensioners. This just sends a little nudge to property owners that maybe they ought to think about trading down if they don’t really need the space. Rising house prices would not longer be a one-way-bet etc.

    But your “1% campaign” has a lot of merit as well.

    The back of the magic fag packet says in England 25 million acres undeveloped x 1% = 250,000 acres x 12 homes per acre = 3 million homes. So “0.1% per year” would cover it actually (= 300,000 new homes, which is roughly the number of couples who reach FTB age every year, I’m not too fussed if single people rent, it’s young families I feel desperately sorry for).

    So I am with you on that one. Do you have a ‘blog or website for it yet?

    Reply
    Please complete the required fields.



  • “So I am with you on that one. Do you have a ‘blog or website for it yet?”

    No – I’ve never got my head round the technology of creating websites – am getting too old perhaps!

    Reply
    Please complete the required fields.



  • Incidentally, I don’t think under utilisation charges would be that difficult to administer. People generally don’t like having houses in their street lying empty, so they could be relied upon to notify the local council. They in turn could serve an under-utilisation notice to the address concerned, and it would then be up to the freeholder to either challenge the notice, or cough up.

    To challenge the notice, the freeholder would have to prove that the house was someone’s principal residence, who was not principally resident elsewhere, or working an unrealistic distance away. Any freeholder making false statements to avoid liability should be subject to a substantial fine.

    Reply
    Please complete the required fields.



  • “Blow the NIMBY argument out of the water, by highlighting just how little of our green and pleasant is actually needed to sort the problem.”

    Have to disagree – this is a salami slicer. It’s the developer’s favourite argument – this won’t take much greenbelt, that won;t take much greenbelt … oops, what happend to the greenbelt? Britain stands out in europe for having resisted this more than others, many countries are envious we’ve managed to protect it. It’s of strategic importance too. When peak oil kicks in, surely we are going to have to produce more food locally. So that extra slice of agricultural land – we need it.

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    “To challenge the notice, the freeholder would have to prove that the house was someone’s principal residence, who was not principally resident elsewhere, or working an unrealistic distance away. Any freeholder making false statements to avoid liability should be subject to a substantial fine.”

    A bit like with MPs and their second homes? That worked well, didn’t it?

    Reply
    Please complete the required fields.



  • tenyearstogetmymoneyback says:

    I don’t really understand the concept of Land Value tax (the example I keep wondering about is the Baltic Exchange / Gerkhin in London);
    did the IRA increase the value of the land by blowing up the Baltic Exchange thus freeing up the site for the Gerkhin which must have a
    much higher value.

    However, what I would like to see is punative taxation of empty sites created by demolishing an existing building. I can currently think of
    about five large sites where perfectly good buildings and businesses have been demolished to create space for lie to bet properties and the sites have now been empty for over a year.

    Reply
    Please complete the required fields.



  • Mark re Land Value tax.

    Before you get too excited you might wish to do some research, in particular the Harold Wilson 1960’s Development tax and the outrageous ways it was applied. Would you trust a government like this to manage such a tax? It would just be a new way to fleece us all. If I recall one person was taxed for potential development which he wasn’t doing, for which planners wouldn’t have given permission anyway – still taxed though.

    Reply
    Please complete the required fields.



  • The bubble is getting inflated so it will blow up in the Conservatives face and so again they will be associated with unemployment and high taxes. They must ignore the interests of some members ‘s property wealth and try to deflate the bubble before getting to power.

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    @ NickB, after thousands of years of civilisation in this country, barely ten per cent by area is developed – twice as much counts as Hallowed Greenbelt and seventy per cent is just farmland with the occasional AONM. I don’t worry about doomsday scenarios like peak oil and food shortages, worst case, we could easily be self-sufficient in food if we all went nearly vegetarian.

    @ Ben Doon, the development tax (under various guises, now known as ‘roof tax’) is doomed to failure as it discourages development and always gets scrapped after a few years. OTOH, a flat tax on up to date values, whether a site is developed and occupied, derelict, vacant or under construction tends, at the margin, to encourage development or to encourage owners of vacant properties to do them up and sell them or let them out.

    Would I trust either Blulabour or Nulabour to do this? Nope, because of the Home-owners Lobby. Before anything happens, people have to learn that high house prices are a bad thing, not a good thing.

    Reply
    Please complete the required fields.



Add a comment

  • Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
  • Please note that any viewpoints published here as comments are user´s views and not the views of HousePriceCrash.co.uk.
  • Please adhere to the Guidelines

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>