Wednesday, February 24, 2010

Where do I start trying to pick apart this fools theories?

How increased tax and regulation hurts young homebuyers

'One of the best financial decisions I ever took was a 100pc mortgage for about five times my salary 25 years ago. No such loans are available today. Without such ‘irresponsible lending’, I might still be renting a bedsit in Kilburn rather than owning a home in Highgate.'

Posted by tyrellcorporation @ 09:25 AM (1263 views)
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21 thoughts on “Where do I start trying to pick apart this fools theories?

  • mark wadsworth says:

    I’d start with the lies about Stamp Duty Land Tax – although it is a bad tax, it does not really affect the purchaser, as it comes off the price.

    Then look at this: “…another example of how Britain is leaping backwards into a re-run of the dreary 1950s with social mobility falling towards zero.”

    Yup. The dreary 1950s when the major parties vied with each other for who would build more homes, rather than competing to be the one who will restrict new construction To Protect The Hallowed Greenbelt. A time when houses cost two or three times income and young mothers could afford to say at home. A time when we still had Schedule A taxation and Domestic Rates to keep a lid on prices (they are not a million miles from a property value tax and hence vaguely similar to Land Value Tax), when we had low unemployment etc etc.

    I got as far as this particularly f—witted commment before I had to give up: “… people … fail to understand the importance of credit – and, dare I say it, house price inflation – in the creation of wealth…”

    Nope. If we just keep selling each other the same old houses for ever increasing prices with ever larger mortgages, then we are actually making ourselves poorer. He might have bought his house in the mid 1980s (when they were already bubbling), and be sitting on a tax free gain, but

    (a) it is only tax free because of Home-Owner-Ist pressure (why shouldn’t wages be tax free, that’d encourage wealth creation)

    (b) it’s the same old houses, not one single penny of wealth is created – one generation’s “wealth” is just the next generation’s mortgage debt burden.

    OK. Somebody else can take over now…

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  • Thecountofnowhere says:

    I thought it was high house prices that hurt young homebuyers…silly me.

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  • Comments posted in the Telegraph do seem to be particularly stupid in my experience.

    I don’t think greenbelt protection is really the issue. There is not a housing shortage in that there are insufficient dwellings to house the population (falling rents), or if there is, not great enough to justify prices now. Personally I think the countryside should be protected from developers who put up those ugly little houses so many are forced to live in. The trouble is, the degree of protection afforded depends on how rich the locals are. Nimbys tend to be loaded.

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  • mark wadsworth says:

    LTF: “I think the countryside should be protected from developers who put up those ugly little houses so many are forced to live in.”

    I’m afraid you’ve fallen for Home-Owner-Ist propaganda there. Young buyers have a fixed overall budget, so the more expensive the land, the less money there is to spend on the bricks and mortar. If more planning permission was granted, land prices would drop, so people would be able to afford to spend more on the bricks and mortar. The developers are not entirely innocent in the house price bubble, but there’s no point bashing developers for doing their best to squeeze as many small houses onto a plot as possible.

    So it’s the Home-Owner-Ists who “force” people to live in small, expensive houses, not the developers.

    Land Value Tax would do the job as well, of course.

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  • “””
    Will today’s bedsit tenants thank the regulators for freezing them out of home ownership and condemning them to years of throwing cash away on rent? I doubt it.
    “””
    I don’t. They may well feel bad for a while, but at some point it is likely that they will thank their lucky stars they didn’t have the chance to take out a 100% mortgage on an asset that went on to fall in value by >30% in real terms. Ian, maybe they’ll even buy your house, with the profits from their business investments, when you are forced to sell it as you can no longer afford to heat it, insure it and maintain it.

    I am against taxation and regulation but this guy is either confused or is writing in an attempt to blind-side readers:
    There was a system malfunction when the game of pass the parcel got out of hand due to regulation chasing capital into less regulated areas (mortgage securitisation). A sensible lender would not be involved very much right now (they’d probably be dipping their toe in to test if the cycle has peaked) and certainly would not be offering 100% mortgages – so he is actually asking for more regulation to encourage lending under the guise of getting rid of stamp duty for FTBs – taxing one class & not another is really a form of regulation IMO.

    Currently the protection of nature is one of the few regulations I will support (e.g. the rainforest & species protection), however not because I agree we should regulate it, but that at present we need to since there are externalities that need to be forcibly internalised – but in the long term it is the Wrong Way: the cost of the other land around may well be distorted due to over protection, hence the “ugly houses” mentioned by LTF. If everyone had a claim to plant life (which, after all, supports us all) then those developers would have to pay a cost that truly reflected the cost of the resource. If a rare species was valued by a market then their habitat would also increase in price. However, instead we don’t yet price these things [openly] and we have to step in and regulate to protect ourselves.

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  • “Even if – as I expect – house prices fall further when interest rates rise after the General Election”

    A 1% interest rate on a mortgage with 1% per annum pay rises over the lifetime of a mortgage will consume a much higher percentage of your income over 25 years than the same initial mortgage/salary with a 10% interest rate and with a 10% per annum pay rise every year. Wage inflation is more important than interest rates in determining affordability of repayment mortgages. How’s wage inflation doing at the moment? How does it compare to the interest rates being offered on new mortgages? What about the change in the cost of everything else compared to wage inflation? Hard to imagine a more disastrous time to buy a house than at present, unless wage inflation kicks off, in which case buy as many as you can get your hands on.

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  • MW
    Better than falling for UKIP propaganda though!

    I think it’s fair to say that “architecture” of much modern housing is pretty grim. Developers build on postage stamps because land is expensive and charge accordingly. But that has nothing to do with money spent on the bricks. That the quality of housing is poor has much to do with bad developers doing a bad job – which is as good a reason for bashing them as any. You see the protection of greenbelt as a form of economic protectionism. Indirectly it may be, but environmental loss has a different, and in my view a much greater cost.

    Price distortions are only partly down to cost of land, and far more to do with economic inequalities. As 51ck says, the proper value is never assigned to the environment; big business has a habit of trampling over anything it can get away with in pursuit of profit. A current example is the use of cheap palm oil, the biggest cost of which is the destruction of rain forest and quite probably the orangutan. And this is called private sector efficiency.

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  • “And this is called private sector efficiency.”

    Or government failure. Who sets the rules?

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  • Rumble, how astute; if the rules were set by individuals within a market rather than a government acting in the interest of groups of individuals maybe the system would work better? A holistic approach if you will.

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  • mark wadsworth says:

    LTF: “environmental loss has a different, and in my view a much greater cost.”

    How on earth does liberalising planning laws in England threaten orangutans?

    Try telling a young couple who have to pay £200,000 for a shoebox that their sacrifice is worthwhile, because otherwise we’d lose a couple of hundred of square yards of farmland. If the Home-Owner-Ists are so concerned about the lost farmland, would they be prepared to shoulder their share of the cost in hard cash terms, instead of fobbing it off on twenty and thirty somethings?

    Nope, I thought not.

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  • There are laws against pollution and destruction, at least in some countries. Problem is the freeloaders who do what the hell they like, contemptuous of the consequences. Then there are the companies that “outsource” their pollution. Individuals do respond to this when they know about it (not buying dodgy wares) but companies do a very good job of hiding their amorality (eg. Primark and sweatshops; Mars and palm oil, and one of the most egregious examples, Union Carbide and Bopal, not to mention that criminal bunch who dumped a load of chemicals from a tanker).

    The rules are in place. The economic go-for-growth culture undermines them.

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  • MW
    I’m making a more general point, as you well know. Substitute butterflies and songbirds if you prefer.

    You really should be a politician mark, you have the rhetoric for it. But I agree with you about the fundamental inequality. But it is not automatically 20s and 30s who suffer: it’s everyone who does not own a house. And inequality is not just about who owns houses, even if that has a lot to do with it. Anyway, I think we also agree that there is no housing shortage, so building on farmland would not achieve much. I’d vote for LVT before loosening planning laws, especially for 2nd homes. Double for bankers. Make that triple.

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  • mark wadsworth says:

    LTF, agreed, LVT would be a much better place to start, but I’d settle for liberalised planning laws or even just more social housing. But best of all, all three together.

    I still fail to see how that brackets me in the industrial scale polluters, where’s the connection?

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  • Mark, doesn’t LVT require loosening planning as a prerequisite so as to be able to value land which may or may not get permission?

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  • The rules are in place, they just don’t work. Great. They don’t work because they’re enforced according to the personal desires of corrupt governments manipulating whatever they like at will. Greece had rules to follow too. “a government acting in the interest of groups of individuals” — instant bias – a controlling entity is going to favour one group over another, whether they are right or wrong, for various reasons, maybe as innocent as personal opinion with good intention – easily harmful. A market is non-deliberate and just. Reckless banks fail, just as other businesses fail; the orangutans will be saved be people like the anti-whalers getting their boats rammed in the Antarctic, because they know there is no government pretending/failing to protect them. People rally, when there is no moral hazard. A bit of fear and uncertainty puts a cracker in people’s asses, gets them motivated. Business considers risk, when their is no moral hazard, and those that don’t, die out. Anarchy is underrated. Pick an ecosystem – that’s anarchy, and frankly it looks ok, better than we’re doing. Nature is not the bush and the birds – the natural laws of systems encompass us (hello, yoda?!), there is nature we are not aware of, just as termites are not aware of their hill building – a market of anonymous participants getting on with their own little transactions, placing a little blob of mud next to the next fella’s little blob of mud a structure emerges (which the termites are oblivious to) – no design, no deliberation, no planning, no central authority. The whole is the sum of its parts (and more). Anarchy works because individuals play their part or perish for not paying more attention to the market – they don’t like perishing. As I’ve said about the term “NWO”, the word “anarchy” is still being used in its old way, dismissively with ignorant, fearful connotations. To dismiss them out of hand reveals a stagnated mind that hasn’t kept up, or couldn’t be bothered. For the record, I never visit the sites of Alex Jones, Icke, Watts, Leary, and whoever else. Nor am I a new age hippie. Nor Jedi. Public capital or private capital, government management of that capital, or managed by people with a personal stake subject to succeed-or-fail accountability that can’t be manipulated by a central authority. Government doesn’t exist to lead, that’s just an unfortunate requirement for being in control. Surrender to chaos, balances emerges.

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  • mark wadsworth says:

    Rumble, I don’t see why it does. Some land clearly has planning (or a house already on it), some doesn’t and never will, and some is “maybe”.

    The market value of “maybe” land is of course slightly higher than “doesn’t and never will” and so that’s the value for LVT. That might seem a tad harsh, but so what? If you buy some farmland that is “maybe” land, part of what you are paying for is the hope value, and that hope might be dashed – tough – it’s like buying a lottery ticket. Whether the existing owner receives ALL that hope value or whether the government creams some off as LVT makes no difference to the purchaser, who is under no obligation to pay more than it is worth to him.

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  • MW
    Didn’t mean to link you with industrial polluters – in fact, I think you may well enjoy a bit of tree-hugging on the quiet.

    But I think dispensing with planning laws in the countryside would result in developers charging in regardless of anything other than financial considerations. There are just so many examples of this, ranging from the really bad stuff I mentioned above, to a bit of bish-bash-bosh, bury the rubble under the hastily lain turf, curling up at the edges; chopping down the 200-year old oak (quick – before the council gets wind); and sticking on a couple of extra dormers without permission (can always apply for posthoc permission – rarely gets turned down and if it does we’ll appeal – never fails).

    I really think this is the way most developers and other businesses work. Some do care about impact on society and the environment, but for the majority it’s the bottom line that overrides all else.

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  • mark wadsworth says:

    LTF, I never said “scrap” plannings laws, I said “liberalise” them.

    And nowhere did I say that we should abandon sensible building reg’s, like fire and heat insulation, sound proofing, proper foundations, don’t build in flood plains etc etc. Buyers of new builds ought to be able to rely on a certain minimum standard of quality.

    What people merrily overlook is that we didn’t always have planning restrictions and some countries or some areas still don’t, and nothing terrible happens. The lovely old Victorian terraces were built without any laws or regulations whatsoever and have lasted well.

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  • “What people merrily overlook is that we didn’t always have planning restrictions and some countries or some areas still don’t, and nothing terrible happens”

    Ah, music. People are terrified of relinquishing their precious control. The sky will fall.

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  • MW
    Depends what you mean by “liberalise” – sounds like a euphemism. Before planning laws I suppose there were fewer people and much less pressure on land. And, yes, they did build better houses then. I wouldn’t mind betting the SE would be covered in tarmac and gravel drives if there were enough liberalisation. Whether the nimbys would be emasculated I don’t know; they’d probably buy up all the land around their pads, hang on to it till they kick the cement-mixing bucket, pass it on to their kids (inheritance tax abolished by the Tories, LVT proposals laughed out of the House as a tax on aspiration and perspiration) who’ll flog it to Tescos for a mint, buy third and fourth homes with the proceeds, etc etc.

    In 100 years time Surrey will be called Tescoshire.

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  • If the people living in Surrey want to live in Tescoshire, so what? If they don’t they won’t buy from Tesco, and those branches will have to close.

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