Thursday, September 15, 2011

Common sense

The Government must build its way out of this slump

".....The Government should look at how building hundreds of thousands of new houses saved this country from the worst impacts of the 1930s depression. It should seek to repeat the trick....." Anthony Hilton.

Posted by dill @ 02:24 PM (2348 views)
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14 thoughts on “Common sense

  • Thecountofnowhere says:

    Wasn’t the start of WWII the thing that really cured the depression ?

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  • I just hope they are built to the same size as then. I noticed Aylesbury is a good example of 1930 housing stock.

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  • This is a fantastic idea, the housing would be an asset, it could also generate a fair profit to reinvest in more housing or something equally credible like health.

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  • So if we build hundreds of thousands of houses, prices will come down as supply grows. The problem I struggle with is this…
    Land is over-priced because houses are over-priced, so the developers have to borrow to buy land. If prices fall because the development leads to more supply, how will the developer pay back the money they borrowed? And if they keep prices high in order to pay off the loan, the banks won’t lend to people to buy the houses, because the price correction caused by over-supply will take them into negative equity.

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  • Timmy, much of the land is owned by the councils. A friend who works in a council says the have enough to sell off slowly for 30 years to fill the shortfall in their budget. Government could change the law so that council land could not be sold, but only leased for 100 year leases to the developer with an annual rent. Barratt/Wimpey could develop the land without advancing the up front freehold amount. When each property is sold to a private individual, they would have the right to buy the freehold from the council, or pay the rent for the land.

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  • Thecountofnowhere @ 1,

    Actually that’s a popular misconception. Figures show that the global economy was recovering well by 1938. Interestingly, Britain’s economy didn’t recover immediately after the war – it wasn’t until the house-building splurge kicked off that the economy really began to recover.

    New homes provide not only jobs for builders, plumbers, electricians, telecoms installers, but also in filling the house with goods such as floor tiles, carpets, furniture, kitchen cupboards and appliances, bedding, TVs, etc. It really is win-win.

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  • But housing doesn’t create wealth as it is all purchased with long-term debt by the end user. It’s not a win-win solution even though there is currently a perceived shortage. This may well be the case but most aspiring ‘homeowners’ are living in perfectly functional housing even if it is rented, it is this imbalance created by speculators that needs correcting in part. Money tied up in BTL is investment money diverted away from the productive part of the econonomy.

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  • Can’t see too many building companies willing to build homes on land they paid over-the-top for if, when construction and infrastructure costs are added, they then make a loss because insufficient people have the income or desire to borrow the money to pay the sorts of prices the builders are going to want.
    The trick that needs repeating, similar to the surge council housing building in the 1950s, is for the Government to hand out billions in grants, low-cost loans or a combination of both to housing associations for them to build homes to rent. Will that happen? Probably not, as it would increase downward pressure on house prices in the private sector where the VIs have the Government’s ear.

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  • enuii,

    I respectfully disagree. Tenants generally live in smaller homes than they would do if they bought a place. They don’t buy nice carpets or fancy new furniture. You could argue that landlords buy those things instead, but generally they just buy the cheapest low-margin furnishings available. Tenants can’t invest in long-term fixtures and fittings: often they put up with an outdated kitchen or a mouldy bathroom because of the risk that their tenancy will end or their rent will rise if they make improvements. Also a lot of tenants live in flat-shares or house-shares; if every four-person house-share broke up into two households, that would mean twice as many new kitchens.

    More building is win-win in that it creates jobs and it lets people buy affordable houses. I’m not fussed whether it creates wealth – I just want to create housing!

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  • The only reason new houses get the economy moving is because people borrow the money to buy them. Trouble is, we’re maxed-out on debt already.

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  • Fair enough Drewster but it still does not address long term sustainability, what use is owing the bank a huge sum of money for a house when the sheer burden of housing debt in general is sucking the life out of the economy. Fair enough if building a shed load of houses forces prices down to affordable levels i.e. approximately half what they are now in some areas. But it still won’t solve the core problem which is not housing which is a symptom of bad politics, lax lending, speculative parasites and cheap credit.

    Yes we all need somewhere to live but it’s not an employment panacea, it helps but it is all purchased with very long term debt.

    Anyway, if I had the choice and a plot I would love something like a modern version of the larger homes in this brochure from 1935.

    http://www.archive.org/stream/NewLibertyHomes/NewLibertyHomesN.dC.1935.

    If McDonalds can throw up a restaurant in a couple of days we should be doing the same with houses.

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  • As to whether building housing ‘creates’ wealth, let’s imagine the converse situation, that a hurricane or earthquake hit the UK and five million homes were damaged beyond repaid (but very few people were actually killed).

    Would it be a sensible decision to build five million new houses? Probably yes. Would that make us happier (i.e. wealthier) as a nation? Almost certainly.

    So why is the decision any different when we are deciding whether to build more? The simple fact is, houses can be sold for a lot more than they cost to build, ergo a profit is realised, ergo we become wealthier (however marginal the calculation is, and even if the entire profit goes into the hands of land owners).

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  • Excellent idea. Although, unfortunately, it’s very unlikely to happen. It would require the repeal of the Town and Country Planning Acts (NB: The Daily Telegraph’s current campaign); the creation of a balanced economy (the original purchasers of those 1930s semi-detached houses we see around us had proper jobs in electrical and mechanical engineering, chemicals, and the electronics industry); and a government aware of the possible consequences of inaction. No-one is around today who witnessed the events of 1919 and the near social revolution of that year as thousands returned from The Front to Dickensian housing.

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  • Again, not a good argument because wealth needs to be created via the business sector to repay the money borrowed (or printed) to fund the reconstruction. If 5 million homes were trashed huge swathes on industrial and commercial buildings would be also and these would also require rebuilding to generate the ‘wealth’ to pay the interest on the debt, these costs would be passed directly back to the consumer who would become poorer on 3 or 4 fronts in the process i.e. insurance costs, goods & services costs, interest repayments and taxation (same thing).

    Building creates wealth for the builders funded by long term debt from the purchaser.

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