Wednesday, May 11, 2011

The Hare and the Tortoise

Osborne Must Move Fast on Housing .

George Osborne may not care for the comparison, but there is one aspect in which the U.K. Chancellor's economic strategy resembles that of his Labour predecessor Gordon Brown: the extent to which it hinges on the vagaries of the U.K. housing market. Where Mr. Brown needed to keep inflating the housing bubble to ensure the booming economy generated enough tax revenues to fund his public spending splurge, Mr. Osborne needs to find ways to stop the housing market imploding to ensure that the U.K. doesn't sink into an economic slump that would see its sovereign debt position rapidly head in the direction of Ireland and Portugal.

Posted by dill @ 08:14 AM (2778 views)
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45 thoughts on “The Hare and the Tortoise

  • We all know the housing market is in a mess, and needs to correct.

    Personally I see no virtue in trying to prolong the agony; better to have the bust and get it over with quickly.

    Worries about existing market participants going into NE does not justify sucking new entrants into excessive borrowing, only to see their purchase de-value.

    If I had the ear of Mr Osborne, I would advocate a major home building program; to reduce unemployment, and thereby the benefit bill; and also the outrageous amount spent on housing benefit.

    The savings made could then be used to offer a small measure of temporary relief and protection, for those then caught in NE as the market corrects (token gestures, not megabucks hand-outs)

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  • George Osborne may not care for the comparison, but there is one aspect in which the U.K. Chancellor’s economic strategy resembles that of his Labour predecessor Gordon Brown: the extent to which it hinges on the vagaries of the U.K. housing market. Where Mr. Brown needed to keep inflating the housing bubble to ensure the booming economy generated enough tax revenues to fund his public spending splurge, Mr. Osborne needs to find ways to stop the housing market imploding to ensure that the U.K. doesn’t sink into an economic slump that would see its sovereign debt position rapidly head in the direction of Ireland and Portugal.

    Yeah right. (phase two)

    You had the choice between Pepsi and Coke. lol

    I voted for some naughty UKIP moonshine Scruppy, but the masses may get it right next time.

    When will you learn? Never vote for an insider mainstream party, it’s not rocket science. (Bangs head against wall)

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  • why not have a scheme to convert the reposseses properties to council houses?…..perhaps on a separate balance sheet….housing benefit would then effectively be paid to itself?

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  • taffee,

    If a homeowner feels compelled to throw in the towel, that could be an option..

    However the taxpayer would then have to pay off the mortgage company, and the house would often be substantially better than the occupant might otherwise be entitled to under social housing provision.

    Better to build new social housing than try to convert existing stock, I think..

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  • “If so, it may take more than ultra-loose monetary policy to prevent a destabilizing slide in the housing market. The question is what, if anything, Mr. Osborne can do about it?”

    How about a tax on renters? After all, they’re a selfish minority that aren’t doing their bit to keep the main source of household wealth rising.

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  • 3. uncle tom

    If some of these properties were earmarked at least the taxpayer would be getting something for their money.

    Agreed more housing should be built also or we reduce our population. Nudge, nudge, wink, wink!

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  • Economic illiteracy by the WSJ. There is no chance of the UK going the way of Ireland or Portugal because the UK is sovereign and monopoly issuer of the pound. Thank God we did not join the Eurozone. It’s more likely we go the way of Japan, which for decades has had higher levels of government debt than we have now and has not exactly imploded. Rather it has stagnated.
    N

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  • uncle tom

    If we built 5 million council houses on council owned land the cost may be around £200-£250 billion which we could probably borrow.

    the saving on housing benefit would be massive…over £20 billion a year then after 10-15 years that we would be quids in as debt is paid,control restored and we own the value of the houses for our balance sheet

    in 70’s 1/3 people lived in council houses….we had 6 million in 1979 and now just 1 million biggest single error of thinking in the last 200 years imo

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  • nickb,

    I think you’re missing the WSJ’s logic. They seem to be drawing the conclusion that falling house prices would dent consumer confidence and reduce consumer spending, thereby causing economic contraction.

    Personally, I don’t think consumer confidence can fall much lower than it has already, and that their subjective assessment of the UK from across the pond is erroneous.

    However, I don’t think our monetary independance is particularly relevant to their argument.

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  • The insurance policy to protect against default is flawed. It would raise the price of the house which could not be recouped when the house is sold, therefore this would contribute to the negative equity problem the banks are stress testing against. The only solution for the housing market is more reckless lending on an ever increasing scale, with ever increasing negative interest rates. The more you borrow the more your lender pays off your mortgage from savers accounts, printing money etc. Or we could let the market crash and then strickly monitor house price inflation as if a house was a pint of milk. We could build a lot of council houses right now and pay for it by cutting some stupid services. The British people on the whole don’t want to see sense yet, but this doesn’t actually matter as you can’t stop a dam bursting by not looking at it, you have to let it burst and then rebuild it.

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  • UT
    I agree that HPC = credit contraction and economic contraction. Our monetary independence is not relevant to THAT argument, but the credit contraction doesn’t imply we are going the way of Portugal or Greece. That bit is just scaremongering for austerity measures.
    N

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  • taffee,

    We don’t need five million houses to square the supply/demand deficit. 1.5m + incentives and penalties to reduce the number of empty homes by 250k would do the trick (remember, the waiting lists for social housing include a high proportion of people who simply need somewhere larger, and would liberate a smaller home if re-housed)

    But yes, less than half the money currently expended on housing benefit would pay off a loan to fund the construction of new homes instead; and there is ample state-owned land (especially that owned by the MoD) that could be developed.

    The holy cow that needs to be slain is the notion that people have a ‘right’ not to be housed in less expensive parts of the country.
    If you ask the taxpayer for help, it is not unreasonable for the taxpayer to ask you to reduce the cost of that help to the lowest possible level.

    It seems outrageous that taxpayers living in the less prosperous parts of these isles are having to pay the immense HB bills of people living in Kensington & Chelsea

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  • I think most would support strong government which offers housing on a take it or leave it basis.

    council estates from 50s,60s and 70s tend to be well serviced with shops schools and council support

    people make new lives for themselves and many would welcome it.

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  • mark wadsworth says:

    The Tories did move fast on housing.

    They made it quite clear from their manifesto and other utterances long before the general election that they intended to get new construction down below the magic 100,000 figure and preferably reduce it to zero.

    Re what UT says, I agree. It is infinitely cheaper to build social housing (which from there on in more or less pays for itself) than to pay Housing Benefit to private landlords; and if they can rent out social housing in central London for £500 a wekk, then they should do so as this will generate the cash needed to build more social housing a bit further out where its cheaper.

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  • “They made it quite clear from their manifesto and other utterances long before the general election that they intended to get new construction down below the magic 100,000 figure and preferably reduce it to zero.”

    MW – would you care to copy and paste the relevant sections of the manifesto to jusitify that claim?

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  • tories were also actively tough on immigration….look at where we are now…though we are not allowed to say so as its apparently bordering racism…which of course is rubbish

    there seems little point having new people come to the country…any country without a housing plan and services plan

    when you actually look at the country as a whole,the only reason were are not bankrupt is because others are in worse positions around the world!propping up doesn’t work forever

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  • mark wadsworth says:

    UT, they called it “The New Localism”, it was clear what it was intended to achieve and the relevant section from the Coalition Agreement makes it equally clear, and hey presto, let the facts speak for themselves, new construction is indeed down to about 100,000 a year.

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  • MW – The term ‘New Localism’ does not appear anywhere in the Conservative manifesto.

    What they did pledge to do was to re-design the planning system – which they are doing, and personally I’d like to see them move a lot faster on that front.

    You say: “let the facts speak for themselves, new construction is indeed down to about 100,000 a year”

    I say: You know full well that the time lag from a new government taking office, and any meaningful change to the construction stats is going to be well in excess of two years.

    – So blaming them for the current figures is just blind prejudice…

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  • gone-to-colombia says:

    I too am a HPC idiot!
    Nail me up, nail em up centurion, sorry mixing my films here.

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  • mark wadsworth says:

    It’s not blind prejudice, it is facts.

    At one stage you had convinced me, on the basis of historical evidence, that there was more new construction under Tory governments, but things are different now – Home-Owner-Ism and NIMBYism are the order of the day, not ensuring that the bulk of the population can afford to house themselves.

    OK, let’s give it another year then, let’s give it two years, sooner or later one of us (probably you) will have to accept that the other one (probably me) was right all along, and if I’m wrong then I’m GLAD TO BE WRONG and will apologise most graciously

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  • MW – You are clearly terribly prejudiced against this government, to the extent that you make posts containing blatent porkies..

    Will this government deliver on house building? I certainy hope so. My concern is that either due to the coalition, or the ‘Sir Humphreys’; progress on just about everything seems to be at a snail’s pace.

    Someone should dust down Churchill’s old rubber stamp that read: ‘Action this day’ – and give it to our Dave…

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  • mark wadsworth says:

    UT, I am not telling porkies and I am not prejudiuced (which would imply that I make my forecasts on the basis of little or no information). I just observe what they say and what happens.

    It is my factual prediction that new home construction will fall to about 100,000 per year during the term of this government. Either I’m right or I’m wrong.

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  • orcusmaximus says:

    MW – I think UT is right on this one.

    Besides, the major reason for reduced construction is because property developers don’t want to be building in a falling market. There’s a town centre regeneration project in my area which came to a grinding halt when the bust happened as the developers don’t want to buy up the area until prices have hit rock bottom. We have the odd situation of a Compulsory Purchase Order issued, but the developers refusing the purchase the properties they’ve CPO’ed! Lunacy.

    As a more general case, why would developers build houses (and tie up capital), which they then cannot (or will not) sell?

    The only government policy to blame here, is that of deferring the crash.

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  • What supply demand deficit?

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  • the number cruncher says:

    I have a very nice bottle of red + postage (My brother used to be an importer so have some good stuff in the pantry) that house builds will be less than 120,000 in the next 12 months, obviously I am open to spread as well. Any takers

    UT you are a bit of a Tory apologists, as I am a Labor apologist, Its time to move on from tribalism and see the rot in all parties in our political system. The Tory manifesto was a veritable orchestra on NIMBY ‘Dog Whistling’ and MW’s interpretation is very justifiable.

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  • “What supply demand deficit?”

    Nearly five million people are on social housing waiting lists – average FTB age supposedly 38 now – ex. uni students now habitually returning to live with their parents, whereas ten years ago it was almost unknown – and the acronym KIPPERS now resonates…

    Yep, there is a shortage; and even if was possible to get every empty house brought back into use (which it isn’t) we would still have a shortfall.

    One acre in four hundred (preferably the bits already trashed) – and with a little attention to the issue of needlessly empty property; the problem is more or less sorted..

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  • ontheotherhand says:

    The insurance policy idea will not work because it is shuffling bits of paper/liabilities. The idea of insurance is to spread risk in an efficient way. So there are some 85% mortgagees who would default and most who won’t, but nobody knows who. If you force everyone to have insurance (it doesn’t matter who pays in theory – homebuilder, bank – the cost must be passed to the buyer), then you make mortgages more expensive for everyone and supply/demand says less demand. Whoever issues the insurance will be no fool, and they will want the total premiums to be more than the expected pay outs to cover defaulters. If housebuilders are forced to pay for the insurance premiums, then they will just have to (try) raise prices to cover it, meaning customers need bigger mortgages.

    The Americans nationalised the liability in the forms of Fannie and Freddie, but all this ended up doing was landing a timebomb liability on a future generation of taxpayers.

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  • tnc,

    Building numbers over the next 12 months will still be the last government’s legacy, rather than the present government’s achievement; but I’m happy to wager a bottle that when this government leaves office, build rates will be substantially greater than when they took over.

    – What’s your poison BTW? I have several thousand nice bottles of red downstairs 😉

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  • the number cruncher says:

    Thats put my collection (of about 90) into perspective, do you trade?

    I am no connoisseur by a long shot, neither is my brother, he manages a bonded warehouse. I have a couple of cases of Mount Konocti Lake County 93 cab sav that is my particular favorite at the moment. I prefer the more rustic flavorers, with a bit of bite.

    I am very doubtful this administration will do anything to increase housing supply, even by the end of its term.

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  • I still don’t buy this shortage of property story. Aren’t most of those on social housing waiting lists currently in private rented accomodation paid for by housing benefit? There are very few (certainly not 5 million) living on the streets. So are you suggesting we build social housing for 5 million people, move them out of the private sector and end up with vacant housing for 5 million? That would certainly secure the HPC.

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  • tnc,

    I’m not a huge fan of American juice – port is my big interest. I don’t trade to make money – I’ll match your bottle with a Warre ’83..

    tt,

    No, we don’t need 5 million new homes, but we do need to move from slight shortage to slight surplus – 1.5m new builds + whatever is needed for any further population growth, is my best reckoning.

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  • @25 otoh

    PPI comes to mind!

    @26 ut

    I agree that the general form for change Governments in Britain is to be constrained by the spending plans of the previous incumbent for broadly two years. But mw has a point which can be demonstrated by two bellweather Interim Management Reports released today. One from Barratt, and one from Bovis. Draw your own conclusions.

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  • UT – I said “housing for 5 million” not “5 million homes”. So I guess that probably is about 1.5 million houses. Anyway, isn’t the argument still valid?

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  • letthemfall says:

    UT: “- What’s your poison BTW? I have several thousand nice bottles of red downstairs ;-)”

    We really should organise a tasting round your place. A meeting of palates, if not political views.

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  • [email protected] – I’ve just checked my diary and I’m free that day too 🙂

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  • tt,

    The shortage mainly takes two forms – those with a home, but in need of a larger one, and those still living with their parents when they should be making their own way in life. By building family houses (not flats) you can re-house the overcrowded and at the same time liberate property suitable for use as first homes.

    If we have a slight surplus of housing, the need to progressively clear and re-develop sub-standard stock is made very much easier. At present, the Uk’s demolition rate is so low, the nominal life expectancy of houses is running into several centuries.

    The post-war new towns are already turning into ghettos due to lack of refreshment – only with a surplus of supply will this become feasible.

    ltf

    I attend tasting events almost every week – I know a tame restaurant in Covent Garden if anyone fancies an HPC offline…

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  • UT – I guess you could debate it for hours – like most things on here. I know you have no faith in LVT, but there are also lots of old couples who live in 8 bedroom houses, so why not have a system which incentivises them to move to a more appropriate sized house freeing up big places for those with families. And if said system also reduced the capital gain carrot of BTL and second home-ownership, then we’d have plenty of mid-sized and starter homes to go around. I genuinely genuinely genuinely believe that if you counted up the number of flats, houses, mansions or whatever we, as a country ACTUALLY NEED, then I really don’t think we are that far away. I bet I personally know more people with 2 houses than you know homeless people!

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  • orcusmaximus says:

    @dill

    . But mw has a point which can be demonstrated by two bellweather Interim Management Reports released today. One from Barratt, and one from Bovis.

    The barratt report contains the following on the recent budget:

    The Budget also included proposals to increase the supply of new housing through the accelerated release of public land, the reduction of regulatory costs, and improvements in planning.

    The bovis report contains:

    The Group welcomes the Government’s recent initiative with FirstBuy and anticipates applying for an allocation in the scheme. However, such initiatives do not overcome the fundamental issue of mortgage finance availability for homebuyers holding modest deposits.

    Seems to me that these reports contradict MW’s statement that the Tories are trying to reduce construction to zero. How do you construe that they demonstrate his point?

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  • tt,

    Older people already have quite a big incentive to downsize, in that maintenance tends to become a worry. Those who are rich enough not to be bothered by that are not going to be unduly bothered about LVT either. You also have to remember that it is electoral suicide to do anything that upsets pensioners!

    Yes, you can do some interesting sums; counting the number of bedrooms in the country and then counting the number of inhabitants; but trying to boss people around to try to optimise usage would also serve to excavate an electoral grave.

    Only on the issue of property left wantonly empty is there serious scope for better utilisation; but there I reckon 250k is probably the limit to the number of homes that might realistically returned to use.

    Building more homes is much the easiest way!

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  • UT – I get all that so back to my original questions…
    1. Are most of those on waiting lists currently in private rented accomodation, much of which is paid for by housing benefit?
    2. If they built enough new homes to accomodate these folk, would we not be left with a whole heap of empty houses?
    3. What is the point of that?

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  • @UT
    what supply demand deficit?
    The fact that there are long waiting lists for social housing only proves that rental prices are too high in the private sector and that there is a shortage of social housing. It’s quite a few miles from there to showing that more need to be built. I imagine people in Ireland were saying until quite recently that there was an overall shortage of supply… you won’t find people saying that now.
    Nick

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  • @38 orcusmaximus

    Take a look at Barratt’s tables, and their forecast volume for H2. I’m not in the business of entertaining hyperbole, but merely pointing out that volume is declining (potentially significantly) in the face of cost driven margin squeeze. So the builder’s are focusing on less is more to return profit. Fair enough. Agreed that the social side appears to have picked up. But is it enough – and what are the terms? If I’m still haunting this site come year end, we’ll have a divvy up on the numbers. I’m quite prepared to be wrong on this, but I tend to agree with mw’s premise that the Tory wing of the coalition wants to stifle supply, for obvious reasons, regardless of how they play the politic.

    Oh, and while I’m at it. Get a password manager, Crunchy!

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  • [email protected] “council estates from 50s,60s and 70s tend to be well serviced with shops schools and council support”

    And usually well endowed with a myriad of social problems.

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  • Further to my comment “And usually well endowed with a myriad of social problems.”

    Most of the contributors to HPC, being middle class, would not be seen dead anywhere near a council estate, that’s strictly for the proles and chavs, not the likes of us.

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  • @44 mr g

    If you’d read any of my previous, if infrequent, posts, you’ll have noted that I’ve done council. I’m apolitical and rabidly anti-class structure. I agree with you that the majority of people here don’t really understand what hardship really is – but many (and they don’t even know it yet) are soon to find out. Don’t get hung up on the injustice. I know how you feel, but each must adapt to the environment they find themselves in. The fact that that environment is more rancid than the estates they take so much objection to (incorrectly), is neither here nor there. Things are set to change. It can be done peacefully or…..

    Rest easy.

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