Monday, October 18, 2010

BJ – “If the housing market tanks, then the financial system tanks too”

Squash house prices at your peril, Boris Johnson tells the coalition

Boris Johnson today urged the coalition to leave London's rising house prices alone or risk worsening the housing crisis. He warned the Government that proposals to deliberately "flatten" the market could lead to a sharp spike in prices as the economy improved. The Mayor said that the move would be "risky" in the short term as it would damage the confidence needed for economic recovery. And he predicted that asking the middle classes to "wean" themselves off house-price inflation was "unachievable" in the longer term.

Posted by jack c @ 05:39 PM (2423 views)
Please complete the required fields.



15 thoughts on “BJ – “If the housing market tanks, then the financial system tanks too”

  • Leave alone! Good one Boris.
    Nearly as funny as your lunging ‘tackle’ in a televised charity football match about 3 years ago

    Reply
    Please complete the required fields.



  • general congreve says:

    Fundamentally he is right. House price crash = insolvent banks (or more to the point it will expose that the emperor really has no clothes) = Economic Armageddon or more bailouts, deficits, national debt, more tax, more spending cuts, more QE and therefore ultimately Economic Armageddon.

    We are on the path either way, but an HPC will probably get us there quicker.

    Reply
    Please complete the required fields.



  • tyrellcorporation says:

    Boris is correct. Labour have left us in a perilous economic state where any house price falls will bring down banks. They also presided over record low levels of housing construction for their entire term in office. What building did occur was invariably flats and studios (aka. investment tokens) for the over 40’s to snap up with their ‘miracle’ equity pots. We are in the proverbial.

    Reply
    Please complete the required fields.



  • general congreve says:

    @5 Trust me, I’m not on his side, I don’t support his NIMBYism. I’m all for a massive HPC and the banks getting kicked squarely in the nuts, not only because it’s what they deserve…

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    He’s sort of half right.

    a) When house prices are drifting downwards, this is bad for the economy. But when they are held artificially high, this is just as bad for the economy. So they ought to let than crash in a short sharp shock and get it over with.

    b) And no, this will not make the banks bankrupt. Even if prices fell by 40%, banks would lose about 20% of their assets, and seeing as banks are financed about 30% to 40% by bank bonds, a £2 bonds for £1 equity swap would keep them solvent. And if that doesn’t work, then the govt may have to step in and bail out some depositors up to £50,000. I’d rather see the government use my taxpayers’ money to compensate individuals rather than banks themselves. The government have already lent the banks £400 billion odd, if not all of that gets repaid well so what.

    c) Banks seem to have completely hoodwinked the politicians as to how important they are – answer, they are not, they are no more important than waterworks or electricity companies, i.e. they are important, but it doesn’t matter who owns them.

    d) Further, the UK has just about the mildest bankruptcy laws going. They would be perfectly entitled to say that people who go bankrupt because of BTL or MEW blowing up in their faces get discharged after six months, or after six weeks as far as I care.

    Here endeth.

    Reply
    Please complete the required fields.



  • general congreve says:

    @7 – Surely with reserve ratios of 1:33 a 20% fall in their assets would make them insolvent again? The credit crunch pushed many to the wall, only taxpayer money stopped them going under, for the time being.

    The European Stress tests said Irish Allied Bank was solvent, but the truth, exposed only a few weeks later is they were bust and needed more taxpayer money.

    Reply
    Please complete the required fields.



  • charlie brooker says:

    The hollow deceit of high house prices has proven to be deceptively spacious.

    “If the housing Market tanks then financial system tanks too.” Bring it on!

    See, there was me thinking every Englishman’s home was his castle. Well, every castle has it’s dungeon. Welcome, Boris, to the hell of your own making.

    Reply
    Please complete the required fields.



  • 7. mark wadsworth said…”He’s sort of half right.

    a) When house prices are drifting downwards, this is bad for the economy. But when they are held artificially high, this is just as bad for the economy. So they ought to let than crash in a short sharp shock and get it over with.”

    But with people like you waiting in the wings snapping up so called bargains, will that ever happen?

    Reply
    Please complete the required fields.



  • the number cruncher says:

    Boris has to solicit campaign funds from the dodgy group who helped him to power last time, a dodgy group of property speculators and Hedge Fund Mangers.

    Reply
    Please complete the required fields.



  • To suggest that lower house prices will affect peoples ability to get mortgages suggests to me his maths is shocking.

    I’m guessing he got into Oxford witht the usual public school two Es nudge nudge, wink wink entrance exam.

    Reply
    Please complete the required fields.



  • What a counsel of despair. Keep prices up while treading on people’s lives as the descend into unemployment.

    doomwatch
    Saw 3 of a kind on the train this morning – chortling and discussing their recent visits to public schools for the benefit of their offspring. Noteworthy that they discussed their kiddies’ prowess at sports and what sports scholarships were available. Spent the rest of the time discussing rugger and cricket, what, don’t you know. So the great skills we’re all paying for via high house prices and rising unemployment is member of the 1st XI/XV at some grim alma mater.

    Reply
    Please complete the required fields.



  • Dunno whether it’s really worth its own thread (perhaps I’ll post it up onto the blog later), but the Standard also has a corresponding comment about Boris’s waffle in its editorial.

    http://www.thisislondon.co.uk/standard/article-23888839-despite-the-pain-we-can-take-these-cuts.do

    Housing crisis ahead

    The Mayor, Boris Johnson, points out today that our housing crisis is going to get worse for demographic reasons.

    Largely because of the expansion in immigration under Labour and the bigger size of some ethnic minority families, the UK population will rise by 10 million in the next 20 years. There are already huge waiting lists for social housing. The impact of increased numbers on a stagnant housing stock means there could be a drastic spike in house prices.

    Mr Johnson is right to be concerned, particularly given that immigrants understandably gravitate to London. The social impact on schools and housing is far greater than elsewhere. Part of the remedy lies in immigration controls but we need also to be more imaginative in expanding the housing available. Relatively dense but attractive housing developments, such as that in the Olympic park, will allow more people to occupy less space.

    Making use of existing measures to encourage the occupancy of empty properties is another. This problem has to be confronted.

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    General C, comment 8. as i explained and as you can look up for yourself, the “financed by” side of UK banks is (roughly) as follows:

    Share capital and reserves 5%
    Bonds 30%
    Deposits 65%

    In the absence of taxpayer bail outs, it would have been perfectly do-able to fix the banks with debt for equity swaps. Which is ultimately what happened with Northern Rock (the fact it was split into two banks is a separate issue).

    To try and explain this again, let’s assume that each 1% = £1 and so the bank’s total pre-crunch assets were £100. Post crunch, post 20% write down to total assets £80 and post debt-for equity swap, we have this

    Share capital £5 (being £5 of bonds converted to share capital, i.e. non-repayable)
    Bonds £10
    Deposits £65

    The banks would not be insolvent, there was never any danger that they would be. Our credit bubble is huge in absolute terms but not in relative terms.

    Reply
    Please complete the required fields.



  • ‘It woz nu liebor wot did it…..if we didn’t ‘av visiting entrepreneurs popping in from the Caman Islands to keep an eye on fings, we’d all be doomed – wot wiv all them scroungers an all.

    Clowns – get a frigging life.

    Reply
    Please complete the required fields.



  • I agree with BOris lets leave them alone. But lets raise interest rates on my savings though.

    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>