The house price conundrum

 

Some people say we could solve our economic problems if the authorities engineered a house price collapse. They argue that current house prices, especially in London and the South-east, are too high for many to afford a home of their own. Those that do afford the rents and mortgages are left with too little money to sustain demand elsewhere in the economy and to enjoy a decent lifestyle.

We have just lived through a period of falling house prices in most of the UK as a result of the Credit Crunch and mortgage famine. Far from stimulating demand on other things, this just added to the lack of confidence in the economy, and removed income from the system as the housing market contracted. Whilst high home prices undoubtedly make  families struggle to afford a home of their own, they can also stimulate the income of others in the housing market. For every  new buyer suffering from the high price, there is a seller who may be trading down, taking a profit or benefitting from an inheritance, who should have more money to spend. Most especially they swell the government coffers from higher tax revenue on the transactions that do take place.

We have very high home prices in parts of the UK thanks primarily to the very easy credit conditions of the Great bubble prior to 2007. Banks lent ever higher multiples of earnings to purchasers. Banks willingly extended credit to property developers and housing companies. We also have high home  prices in the expanding parts of the country because demand from new migrants into these areas has outstripped the increase in supply of homes. This has been most pronounced in London, where the street pattern and dense existing development limits the scope for extra building. Some of the overseas demand in the centre has driven up  prices to levels UK taxpayers are unable to afford, both thanks to the devaluation of sterling and to Non Dom tax status.

I agree there is a problem of affordability for potential new homeowners. The average age of buying a first home has risen a lot in the last decade. The government is responding by making more money available to banks to on lend as mortgages at low interest rates, and by launching its Help to Buy scheme. Critics say this is stoking the bubble. I do not think deliberately engineering a further crash in home prices would be helpful. It is not just the mortgage banks it would disrupt who have lent against higher values, but also the many individuals who have bought at high pirces in recent years. Their confidence and even their solvency could be undermined by such a move.

 

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154 Comments

  1. Posted June 7, 2013 at 5:36 am | Permalink

    The old adage says “buy land, they don’t make it any more”. Which is true in one obvious sense, but not in the context of UK planning laws. Liberalise the planning regime to allow more housebuilding, without local authorities distorting the market by seeking fortunes in planning gain, and equilibrium will result.

    • Posted June 7, 2013 at 7:55 am | Permalink

      I was brought up to believe in the free market. Over the last 15 years we have not had a free market in housing, it has been interfered with to create artificially high house prices and every time a correction is about to happen they are propped up again. The end result is hard working families priced out of home ownership and the ones who do manage to buy paying far higher % of housing costs removing money which can be better spent else where in the economy.

      As a hard working Londoner with a substantial deposit and decent wage I am priced out due to all this manipulation. Help to Buy was the last straw, a real kick in the teeth for those aspiring home owners who are trying to buy the sensible way.

      As a result of this scheme and other manipulation I can’t vote Tory anymore till they return to their values of supporting a free market.

      • Posted June 7, 2013 at 9:17 am | Permalink

        Gavin – I wouldn’t be surprised if you’re paying 40% tax for the privilege of earning a non-mortgageable wage too. You’ll be charged higher rate stamp duty as well if you aspire to anything more than a shoe box.

      • Posted June 7, 2013 at 10:29 am | Permalink

        Quite right, they do not need to engineer a price collapse, simply stop engineering house price inflation

      • Posted June 7, 2013 at 7:20 pm | Permalink

        Gavin M – never a better passage written. I totally agree and will vote elsewhere.

        The other side is artificial pricing of property also affects and increases the benefit bills as well as killing the poor and tax credit required.

        I accept the government has a problem either way, as owner of bankrupt banks.
        Why do we all have to suffer, those who refrained from borrowing at overvalued prices/greed or couldn’t afford to buy eg the poor, and have to pay through penury for other foolish peoples indulgences?

    • Posted June 7, 2013 at 1:02 pm | Permalink

      Indeed in Suffolk and many other places it seems the free range pigs, trees, cows, silly rotating religious energy sculptures, sugar beet, and sheep have far more priority to land use and a home than the many people do.

    • Posted June 8, 2013 at 1:04 pm | Permalink

      You need to get on your bike like many other Londoners and stop bleating about house prices. There are lots of affordable;e houses outside London and in the North.

  2. Posted June 7, 2013 at 5:41 am | Permalink

    If house prices are too high, which is difficult to argue against, they are going to have to fall sooner or later. House prices are too high because there aren’t enough houses and because there is too much mortgage finance available.

    The answer to high house prices is not making more mortgage finance available for first time buyers. When the adjustment occurs, it will just be worse.

    There is surely a middle way between stoking the bubble and engineering a collapse. We need house prices not to rise much, if at all, for a long time.

    • Posted June 7, 2013 at 9:34 am | Permalink

      Immigration is one of the main factors in the housing shortage but we mustn’t say that.

      • Posted June 8, 2013 at 1:07 pm | Permalink

        John said this in his piece also mentioning Non Dom immigrants and the effects they have on house prices.

  3. Posted June 7, 2013 at 5:42 am | Permalink

    Thx john

    i appreciate it is likely bad politics to argue for anything but continual house price inflation – esp in leafy constituencies like your own. I personally have benefitted from the various house price inflation policies of the last two decades.

    the interesting debate to me is however whether a national economic policy based on house price inflation is a sensible one versus one where capital could be perhaps more productively applied elsewhere if your goal is ‘national prosperity.’ One of the reasons there is very little in the way of savings anymore is that all the money is tied up in ‘bricks n’ mortar’. that comes at an opportunity cost. No?

  4. Posted June 7, 2013 at 5:48 am | Permalink

    Rental income yield are driving house prices at present with buy to let landlords able to afford higher prices available from higher rents thus increasing demand for rental properties and skewing rents plus pricing new buyers out of the market.

    Housing benefit and overpopulation when compared to supply are the root causes of this. Inform buy to let landlords of rent control on HB properties, if the government deems it necessary to provide Families with houses that others can not afford it should at least fix the price (the new cap is a way of achieving this but does not go far enough, I am still having to compete with tenants who should not be able to compete with me) Using the current unemployed and part time workforce to fulfill low skilled roles rather than importing labour would address supply. An old chestnut but highly relevant. Not engineering a collapse but assisting in finding an affordable level.

    • Posted June 7, 2013 at 5:51 am | Permalink

      Also save money on future housing benefit claims and help jump start the economy by funding substantial numbers of new social housing units now. The funds can be drawn from future welfare savings

      • Posted June 7, 2013 at 2:52 pm | Permalink

        The problem with using future welfare savings to pay for something is that if it doesn’t work you will have a huge bill and no way to pay it. For example the Work Programme’s £5 billion cost was meant to be paid for by savings made by getting 2 million people into work. As this seems unlikely to occur it will cause major problems for Ian Duncan Smith between 2014 and 2015 when the first wave of people come off the Work Programme.

        • Posted June 7, 2013 at 3:52 pm | Permalink

          Building social housing will work as there is definitely the demand – and we will no longer have to pay private landlords to use their properties. We currently pay them around £15b per year

          Also, the gain of land values when provided with planning permission will be kept by the country.

          Lots more jobs, lots of building materials to be purchased.

          Or maybe just continue to subsidise the market with the publics money…

          • Posted June 8, 2013 at 12:37 pm | Permalink

            There will only be demand if the houses are built in a similar location and are of a comparable quality. If you build a lot of cheap houses, or built them too far away from the jobs and infrastructure then people won’t want to live in them.

            There’s also the difficulty in ensuring that they go to people who privately rent and claim housing benefit. If people who don’t claim housing benefit live in these new houses then there won’t be any savings.

          • Posted June 9, 2013 at 6:34 am | Permalink

            “Demand” surely means a desire with the ability to pay the market price. If you give social houses away at less than half the cost then of course there will be a demand. Just as if you gave anything else away at half price. You also kill much of the private sector rental market, by unfair, subsidised, competition to it – so it cost far more in the end.

    • Posted June 7, 2013 at 9:03 am | Permalink

      Another little noted driver of house prices is the huge increase in student housing since Blair announced that 50% of our 18-21 year olds should go to university. All those extra students now need second homes.

      By and large, students have little commercial nous. Worse than that, through the student loan system and offers of cheap loans from the major banks, they have been encouraged to embrace debt. They are a very easy target.

      (word left out)Buy to let landlords have flooded into the university districts where supply and demand means they can now charge desperate students £18,000 a year for a two up, two down terraced house in Durham, converted to cram in 5 students. House prices have gone through the roof.

      Yet again, the younger generation is taking the pain.

      Reply Would you rather no landlords came forward in University towns? Students could choose to go to their home university and stay with Mum and Dad if they wished.

      • Posted June 7, 2013 at 3:56 pm | Permalink

        Ah, but even if that’s a possibility they’re discouraged from doing it because then they wouldn’t enjoy the full university experience … they have to get away from the constraints of Mum and Dad to do that.

      • Posted June 8, 2013 at 7:48 am | Permalink

        This comment is only to make visible my comments previously submitted but not yet published.

    • Posted June 7, 2013 at 10:26 am | Permalink

      There are also good grounds for giving normal renters much better security of tenure as in Germany. The market at the moment is skewed in favour of BtL and against owner occupation. If young middle class people are being prevented from owning, at least they should not be inhibited from getting on with other aspects of their lives. Any reduction in the incentives to offer private rental accomodation will be met with an increase in more affordable properties to buy.

      The government needs to iron out the distortions in the rental market which it itself has created rather than trying to kick start owner occupation by putting the taxpayer into the deposit insurance business.

      • Posted June 7, 2013 at 6:40 pm | Permalink

        If you give tenants more security you will have fewer landlords and thus higher rents. Landlords are needed just as car rental companies are needed.

        Would you suggest someone who rents a car might not have to return it?

        • Posted June 8, 2013 at 11:00 am | Permalink

          As there will be fewer landlrds there will be more houses for owner occupation therby reducing prices and lower prices will bear down on costs for rental occupation.

        • Posted June 8, 2013 at 1:12 pm | Permalink

          A fair point, landlords need stable long term tenants and tenants need long term secure accommodation, but the reality is like employers many landlords employ a revolving door policy on their tenants.

          • Posted June 9, 2013 at 6:38 am | Permalink

            Tenants want flexibility to move at the drop of a hat. Landlords too may want to sell, as their circumstances change – flexibility is needed by both. That is one of the advantages of renting over buying.

          • Posted June 9, 2013 at 1:49 pm | Permalink

            Does not explain revolving door tenancy by some landlords.

      • Posted June 8, 2013 at 6:16 pm | Permalink

        Young middle class people are not being prevented from owning a house they can buy one like anyone else, but not in the areas or of the size they want. They could buy in a run down council estate like I did and watch the area improve as many others did the same. Should they get special treatment for being middle class?

  5. Posted June 7, 2013 at 6:19 am | Permalink

    Do you not remember a rather splendid Tory Prime Minister called John Major (now “Sir”) who allowed house prices to fall?

    There was a recession, there would have been one anyway because after a credit boom (house price bubble) there is always a bust (house price crash), but we came out of it fairly quickly and after that the economy was much more solid etc? The same goes for the USA, they’ve allowed house prices to fall in the past few years and seem to be out of the worst of the recession.

    • Posted June 7, 2013 at 9:19 am | Permalink

      “Splendid John Major (now “Sir”) who allowed house prices to fall?”

      Splendid? (etc ed).

      He did not allow it he actually “engineered it” on purpose with his idiotic and entirely predictable ERM experiment by fixing the £ against the DM. He took us in to it as chancellor and kept up in as long as he could as PM. 17%+ mortgage interest rates will indeed make the housing market fall quite dramatically. Countless jobs and businesses lost, countless homes repossessed, suicides, families destroys, the Tory party buried for 3 1/2 terms and not so much as an apology from this (adjective left out ed) man.

      Everyone sensible knew it was bonkers at the time (even his chancellor at the time it seems) and would collapse rather like the renewable religion and EURO now.

      • Posted June 8, 2013 at 2:47 am | Permalink

        So the ‘logic’ is that sterling should always take the hit rather than nominal house prices?

        The credit/land price cycles is an 18 year or so cycle. Heath took the hit from the ’73/74 crash, Major took the hit in 90/91 crash, Brown copped it in ’07/08.

        There is always an external dimension (the Yom Kippur War/oil crisis, Black Monday/the Savings and Loans Crisis, Subprime mortgages etc) and the US usually goes into reverse a year or two before we do. But it is a cycle, and a predictable one.

        • Posted June 9, 2013 at 6:44 am | Permalink

          There is indeed a cycle, but do you think having interest rates at 17%+ Major style, due to the absurd ERM and a religious belief in 2.95(?) DM to the £ was a good way to get growth going?

          Perhaps we should try 17% plus interest rates now do you think and see how may homes and jobs are destroyed?

    • Posted June 7, 2013 at 11:47 am | Permalink

      I agree 100% but it did kill off his Government. All politicians want house price corrections to happen when they are in opposition, which is why we are in the current mess.

      I have a horrible suspicion that the solution will be very high inflation to make house prices cheap but without owners losing money.

      • Posted June 7, 2013 at 6:43 pm | Permalink

        That is what I expect and it would suit my financial position rather well.

  6. Posted June 7, 2013 at 6:34 am | Permalink

    What is really unhelpful is that the government continues to meddle in the housing market. The tax breaks, incentives and interest rate fiddling have caused the price bubble and will cause the next crash. Central planning by inept and greedy politicians never, ever works for anything. Give us a free market and let the real need for housing and available supply determine the prices. I can’t believe I have to argue for a free market to a Conservative MP, just shows how standards have slipped I suppose.

    • Posted June 7, 2013 at 1:18 pm | Permalink

      Thanks Andy

      I agree totally I was beginning to think it was just me that could see this.

  7. Posted June 7, 2013 at 6:35 am | Permalink

    I don’t want the authorities to engineer a house price collapse, which has the potential to seriously damage millions of lives; static or mildly declining nominal prices plus general inflation is the safest way to deflate that bubble in real terms, and in fact that is what has happening until recently.

    What I do want is for the Chancellor to refine the inflation target he gives to the Bank of England, for example so we don’t have a repeat of the ludicrous situation of house prices being pushed up as an indirect consequence of increased imports of cheap Chinese goods depressing consumer price inflation.

    • Posted June 7, 2013 at 10:22 am | Permalink

      Dennis Cooper ,

      Sky high house prices also damage millions of lives . It’s too late to spare the pain which is an inevitable and unavoidable consequence of a credit boom .

      The only question is whether policy favours lenders , landlords and overstretched house owners or whether it favours renters , people who aspire to owning a house and the young .

      General inflation would only help if wages are going up and for everyone I know they continue to go down .

      Would you be in favour of a mass house building program as a way to make housing more affordable ?

      • Posted June 7, 2013 at 3:47 pm | Permalink

        I certainly don’t disagree that house prices are too high; the question is how to resolve the problem with minimum damage, and in my view a price crash is not the best way to do it.

        You ask whether I favour a mass house building programme; my answer is that I have always favoured building enough new homes to meet the needs of the established population of this country, but not the needs of the entire world population.

        I know it is true for south east England, and I believe it is also true for the rest of the country, that for many years we were actually building more than enough new homes to meet the needs of the established population, the natural growth of which was dropping close to zero, but not enough to also cope with the effects the mass immigration allowed and encouraged by the government.

    • Posted June 7, 2013 at 10:31 am | Permalink

      And what are the current young generation supposed to do? Pay high rents to pay some buy to let landlord’s mortgage? Or take on a massive mortgage, assuming they can find a deposit, at the lowest interest rates in living memory? Or live at home with Mum and Dad – which is what my sons are having to do.

      You’d have to be nuts to take on a 200k mortgage at 4% with the likelihood that at some point in the next 25 years the interest you pay will double.

      A 50k deposit with a 200k mortgage will buy you a small house in Wokingham. A 200k repayment mortgage at 4% will cost 1,055.67 a month. At 8% it will cost 1,543.63.

      Allowing for food, clothes, utilities, council tax, car costs etc. – for anyone hoping to settle down and have a wife and 2 children – they would need to be earning at least 60k a year.

      Reply: You are right to warn people that interest rates can go up. I remember having to buy my first home in Didcot, the nearest I could afford to London when I had my first job in the City. The mortgage at high interest rates took from memory more than half my income, but it turned out to be a good financial decision to own my own home.

      • Posted June 7, 2013 at 4:04 pm | Permalink

        … ‘but it turned out to be a good financial decision to own my own home.’

        The only reason it was a good financial decision was inflation and the banks endless willingness to create money out of thin air and lend succeeding generations more and more money to keep the whole thing afloat.

        I think any rational person can see we are at the end game of that particular scenario. Sooner or later the cash sustaining the market at the moment must run out and then house prices must fall. We may well be in a new paradigm where house prices in 25 years time are the same, or lower, (in real terms) than they are now.

        People then will not be celebrating their ‘good financial decision’ to buy a home. It wasn’t a ‘good financial decision’ – it was just the luck of being born at the right time and the banks willingness to enslave subsequent generations.

        The outcome of all this is, of course, high unemployment. Demand would be so much higher if house prices were lower.

      • Posted June 7, 2013 at 4:16 pm | Permalink

        But some among that “current young generation” already decided that they really couldn’t wait any longer for the long-predicted price crash to happen and are now in a vulnerable position; it would be illogical to have a lot of sympathy for those young people who have not yet bought but no sympathy for those have.

      • Posted June 7, 2013 at 11:30 pm | Permalink

        Mike Wilson .

        You have failed to mention making provision for old age which means that £60,000 would not be enough .

        You would have to get a £50,000 public sector job i.e. a £75,000 package or a £75,000 private sector job requiring you to make your own provision for old age to get anywhere near balancing the figures .

      • Posted June 9, 2013 at 9:24 am | Permalink

        Mike Wilson: “At 8% it will cost 1,543.63.”

        This is chicken feed for people who not only command a £64,000 salary plus £100K expenses, but can (hire ed) themselves to the highest bidder at £7000.00 per day.

        Is it any wonder such people have no conception of what it is to live in the economy their (word left out ed) practices have brought about?

        Reply Some MPs do claim more than £100,000 expenses. Most of the cost is staff salaries to help them deal with constituency cases. It is not money into their pockets.

    • Posted June 8, 2013 at 2:53 am | Permalink

      They are talking about going going the other way, to nominal GDP targeting, which is akin to saying ‘Never mind growth, let’s just make sure debtors don’t have to deleverage against a deflationary backdrop’.

  8. Posted June 7, 2013 at 6:37 am | Permalink

    Deliberately provoking a crash is no more sensible than deliberately provoking a bubble. But ensuring that house prices remain reasonably flat like they did in the 50’s- 60’s ie not letting house price inflation completely outdistance wage inflation is not really something that you can argue against. (Grant Shapps said it once).The solutions lie in the field of taxation: pre Bubble Era there was a confusing but effective tax on the imputed rent of housing (schedule A) which came straight out of Income!; but simpler would be the tax on increases in Land Values only proposed way back by JS Mill’s father.

  9. Posted June 7, 2013 at 6:44 am | Permalink

    First stop inmigration to reduce the demand !!!

    Second build more homes.

    • Posted June 7, 2013 at 1:36 pm | Permalink

      Build more houses and stop the rip off housing associations. I have a friend in one such house, every year the rent goes up by 5% but his income doesn’t? Very bad.

    • Posted June 7, 2013 at 1:51 pm | Permalink

      “First stop inmigration to reduce the demand !!!
      Second build more homes.”

      Then scrap the penal cliff edge stamp duty rates and replace with a flat 1%.

      The government should not be involved in propping up the market with cheap taxpayer funded loans to get us all deeper into debt, it just exacerbates the problem.

      Don’t forget the Treasury are having to pay interest on the money they borrow to provide interest free loans. Let the market work as it should.

  10. Posted June 7, 2013 at 6:51 am | Permalink

    House price bubbles, are just one symptom among many of misallocation of investment caused by mispricing of rates , in turn caused by central bank and govt intervention in the market. It is a symptom of the classic Austrian School business cycle.

    Investment is guided by price and in a free market price is given by demand and supply. Including the price of money, the interest rate. When the price of money is distorted by central banks printing money beyond the normal market demand for money, then all prices in the economy are distorted, and the true demand and supply equilibrium price is hidden and proper economic investment cannot occur. You get apparent shortages and investment capital is misdirected into these areas, and you get asset bubbles forming.

    Uneconomic zombie companies stay alive and otherwise sound productive companies are starved and whither and die. The only solution is to get the govt out of the market and abolish the central bank, let prices once again find their demand and supply equilibrium and the asset bubbles and zombies will be eliminated.

    It is for these same reasons that floating currencies are a cancer, and why the euro, albeit flawed, is still better for those within it than multiple floating currencies in a race to the bottom, distorting prices and causing investment misallocation. Not one eurosceptic seems to realise this.

    The inevitable conclusion, if you accept the Austrian cycle premise, is a libertarian style shrinking of govt to an insignificant size, and immediately cease all taxpayer underwriting of rate rigging by the central banks. The easiest way to achieve that is to get rid of central banks and then all other banks will be exposed to the market and they will fail if they over reach with risk before they get too big to fail.

    • Posted June 7, 2013 at 9:24 am | Permalink

      The misallocation of investment and capital, due to daft government policies and poor regulation is what caused the bank crash, the ERM fiasco, the barm wind agenda ……………….. and so much pointless damage will they never learn?

    • Posted June 7, 2013 at 9:36 am | Permalink

      “Not one eurosceptic seems to realise this.”

      Maybe that’s because they’re aware that with the euro comes the ECB, itself a central bank and an amalgam of those central banks you say must be abolished as a sine qua non for a proper economic system; but one which in theory, under the EU treaties, is entirely beyond any democratic control.

      It seems that you want anarchy, but would be prepared to settle for tyranny.

      • Posted June 7, 2013 at 3:30 pm | Permalink

        I would settle for a gold standard, of the type that existed in the 100 year period up until 1913 that saw the strongest inflation-free growth ever. .That did not mean that banks failed, they failed all the time, as it should be in a capitalist free market. A gold standard is a common currency. Second choice would be a modified Bretton Woods. The Euro is deeply flawed, and yes it does have a central bank ,but it is one step better than floating currencies. It is the least worst choice under abysmal circumstances.

        • Posted June 7, 2013 at 4:25 pm | Permalink

          The gold standard is not on offer, so you would settle instead for the euro, despite the economic destruction it has wrought across some countries which would not have suffered in the same way if they’d had the sense to keep their floating national currencies.

          It seems that you and the ECB agree that the only thing that really matters is consumer price stability, even if it is accompanied by mass unemployment and destitution; but the difference is that the ECB is bound to that view by the EU treaty on which it is founded, whereas you are free to adopt a more sensible position.

  11. Posted June 7, 2013 at 6:55 am | Permalink

    The effects of immigration on house prices is not restricted to the places where people first arrive from abroad. The South East Plan took into account not only immigration directly into that region from abroad, but also the net migration into the region from London, largely driven by net immigration into London from abroad, partially offset by the net migration out the region, mainly westwards.

    The process can be visualised as (first channeling people into London-ed); at first (migrants stay in London ed) , but as (migration increases people -ed) would start to flow outwards, (eventually with migrants moving to many parts of the country-ed)

    • Posted June 7, 2013 at 9:03 am | Permalink

      In any case anyone concludes from JR’s editing that I must have said something derogatory about immigrants, that was not the case; I merely offered an analogy drawn from physics to describe the population flows.

    • Posted June 7, 2013 at 2:05 pm | Permalink

      @Denis Cooper
      “The process can be visualised as (first channeling people into London-ed); at first (migrants stay in London ed) , but as (migration increases people -ed) would start to flow outwards, (eventually with migrants moving to many parts of the country-ed)”

      I think I’ve got it; they move into London, stay in London, and then move out of London – is that right?

      I was born in London, and still live in London but I don’t really like it much. I don’t blame the foreigners from moving out of London, if indeed that is what they are doing (I see no evidence of it – quite the contrary).

      • Posted June 7, 2013 at 3:30 pm | Permalink

        No, that wasn’t what I intended to convey through my forbidden analogy.

        • Posted June 8, 2013 at 2:27 pm | Permalink

          @Denis Cooper
          “that wasn’t what I intended to convey through my forbidden analogy”

          See if this one gets through the censor.
          The more likely scenario is that they arrive in London, get a mortgage with a “Help to Buy” loan, and then rent the property to their housing benefit funded buddies.
          Then repeat process until they own the whole street.

          • Posted June 8, 2013 at 5:35 pm | Permalink

            Well, it has got through the censor, but it wasn’t the point of my forbidden analogy which I thought reflected the words of my first paragraph. As you can see, that says nothing about who moves out from London to the south east region, or vice versa, or who moves out from the south east region to other parts of the country, mainly westwards, or vice versa; it merely notes the existence of net internal population flows set in motion by the continuous arrival in London of significant numbers of people from abroad.

  12. Posted June 7, 2013 at 6:59 am | Permalink

    JR: “Some people say we could solve our economic problems if the authorities engineered a house price collapse.”

    The don’t have to ‘engineer’ a house price collapse. They simply need to stop propping the market up with QE, all the stupid schemes – not least the most recent where the government goes directly into the real estate business.

    If we are to take at face value the claim that the government want’s to help first time buyers onto the property market, what better way than to remove the artificial support of the market price of a property, and allow the free market to find its natural level.

    Successive governments have engineered the situation where the British population sell bricks and mortar to each other and think themselves wealthy.

    • Posted June 7, 2013 at 7:10 am | Permalink

      Agreed. A house is something in which one lives. Its role as an investment should be secondary. In many ways, the price of fuel is more important to everyone.

    • Posted June 7, 2013 at 12:02 pm | Permalink

      Spot on! It’s engineering by the authorities that has led to the bubble.. the free market will find the true price point the moment the authorities get out of the way. An important point to remember in all of this is that most people aren’t buying houses.. the banks are.

      True housing ‘demand’ is [desire] + [ability to pay]

      In a proper free market, irrespective of the size of the population, the availability of housing, the degree of pent-up desire among would be home “owners”.. the price is set by what banks can sustainably afford to lend. Which is a topic for a whole new discussion in itself.

      • Posted June 7, 2013 at 2:53 pm | Permalink

        Gary Holland: “An important point to remember in all of this is that most people aren’t buying houses.. the banks are.”

        Yes, Banks bailed out – leaving the government with extra liabilities – government QEs to finance it’s spending , devaluing the currency in the process. Borrowing goes up, and taxes too – interest rates are artificially low, because the government wishes to borrow cheaply – forcing the elderly into poverty and destroying capital formation in the country.

        Our enemies couldn’t have put together a worse economic policy if we’d asked them.

        • Posted June 8, 2013 at 2:57 am | Permalink

          It’s bad for our enemy’s (the mercantile, less financialised economies) too. In the up phase we buy more of their stuff but their surplus gets recycled into buying our paper (or debt and foreign assets listed on our exchanges). Then, when we go into reverse they suffer sharp recession as demand dries up and capital tries to flood out of their economies back to our ‘safehavens’ such as US T Bonds and Prime London houses.

  13. Posted June 7, 2013 at 7:06 am | Permalink

    It is mad for the government to intervene, pushing up prices up further with this half baked scheme, putting tax payers funds at risk and stoking up future problems. It is supply and demand that set prices. People paying the absurdly high UK taxes clearly cannot hope to compete with nondoms (who do not and are often not liable for IHT either). If you are elderly and rich you have to logically give you assets away or better still leave the UK.

    The solution is to tax UK residents far more lightly cut out the huge government waste, increase the supply by relaxing planning rules and by getting rid of the excessive building regulations. Also to get the banking sector working again, get some real competition going in the sector and the utility supply sector (who charge rather excessively for new property connections).

    Building a house is however expensive even those new rabbit hutches they build all over, we need new ones and they have to be paid for.

    Clearly many would like a large house (or more) in Chelsea perhaps overlooking the river, but they have to be rationed in some way, price is the best way to do it.

    Anyway the government has a way to reduce house prices, it is the strategy of killing jobs and growth by over taxing, vast waste in the state sector, expensive energy and over regulation of almost everything. Outside the nondom areas like Chelsea and in the north this is working very well.

  14. Posted June 7, 2013 at 7:36 am | Permalink

    Oh dear; the classic false dichotomy argument.
    A house price collapse or the dreadful Help to Buy scheme.
    No, the best way to bear down on house prices (and you agree they are unaffordable) is to increase supply. Astonishingly, it seems to be Labour who are currently the only party who have heard of the supply curve.

    • Posted June 7, 2013 at 9:46 am | Permalink

      This illustrates the insidious effect of asset price bubbles. It APPEARS that there is a shortage of houses, but how can you be sure ? In the Dutch tulip mania you could easily make the case(and many did) that there was a shortage of tulips. This incorrect conclusion is due to the investor not being able to discern what is a true shortage and what was apparent shortage due to interest rates that were held artificially low resulted in distorted prices. The mispricing of rates feeds into pricing distortions throughout the economy. Under these conditions it becomes practically impossible to make accurate investment choices.

      There are over 800,000 houses outside of London standing empty, there cannot be a shortage of houses. What there is , is a dearth of jobs outside of London because the same price distortions that caused the housing bubble, also caused the financial industry based in London to become a bubble which smothered all other industries in the rest of the country.

      The solution to all of this is not to build more houses, but to allow price signals to accurately reflect TRUE demand and supply, throughout the economy. The market will then allocate resources equitably, throughout the economy.

      • Posted June 7, 2013 at 9:14 pm | Permalink

        Houses are not like tulips. People can live without tulips. People cannot live (well, easily live) without houses. (Perhaps you are an exception.)

        “There are N houses in area 1 so there cannot be a shortage of houses in area 2 hundreds of miles away” is a ridiculous argument. That is even more daft an argument than some people claiming there is no food shortage in the world, since we should be able to somehow magically move all the excess food around to where they are starving (and have no money to pay for it). At least food can be easily moved, unlike houses.

        Yes, it would be great if there were more jobs in the nether regions. It would also be great if we were all given free ponies (the “pony principle”).

      • Posted June 8, 2013 at 3:01 am | Permalink

        Taxation is also a major distortion. VAT, payroll taxes, duties etc affect some industries a lot more than others. Then there’s subsidies …

  15. Posted June 7, 2013 at 7:36 am | Permalink

    In areas of the country where prices went up massively under New Labour – primarily the North and Wales – prices have fallen. A 2 bed terrace in Newcastle in 1997 would have cost you 14k. By 2007 they were over 100k. With an average local wage of 14k – a bog standard, back-street terrace was over 7 times a single salary.

    The fact that they have now fallen by about 25% means they are still completely unaffordable for new entrants to the market.

    Elsewhere (the more affluent parts of the Midlands, East Anglia, the South East and South West) – prices have largely stagnated – at between 2 and 3 times more than they were in 1997 – but transaction volumes have halved.

    Here, in Berkshire, the next generation is priced out of the market. Full stop. Unless they get help from Mum and Dad – or earn 100k a year – they have no chance. Why must the government interfere now? They were quite happy not to interfere while the boom was taking place. You can’t buck the market – as Margaret herself said. The government needs to get out of the housing market and let prices fall to an affordable level. If people lose their homes in the process – well, sorry, but a lesson has to be learned. It wasn’t learnt after the Tory house price boom and bust in the 1980s but it HAS to be learnt now. You can’t just buy a house, live in it for 40 years, pay off the mortgage, sell it, downsize and live off the proceeds in your retirement. At least you can’t do that without hanging massive debts around the necks of the next generation.

    Enticing young people into the housing market now – with prices at a historical high and interest rates at a historical low is IMMORAL. Youngsters know no better – they buy the pap their parents feed them … ‘you’ve got to get on the ladder’, ‘house prices always go up’ etc. With house prices at a historical high and interest rates at a historical low … two things are certain.

    1) In real terms house prices must fall
    2) At some point interest rates will go up

    At which point there will be mass mortgage defaults, repossessions etc.

    Two wrongs do not make a right. The house price boom Gordon (‘I will not allow a house price boom to put at risk the sustainability of the recovery’ Brown allowed has been a disaster for young people faced, as they are, with high rents or massive mortgages.

    Trying to get the next generation to buy in at these prices and interest rates is scandalous. I do hope someone gets them to wake up and realise what is happening to them. I’d like to see the next generation completely withdraw from the housing market. All move home to live with Mum and Dad and let the buy to let landlords go to the wall. Then prices would come down and they could buy and get on with their lives.

    • Posted June 7, 2013 at 9:21 am | Permalink

      “You can’t just buy a house, live in it for 40 years, pay off the mortgage, sell it, downsize and live off the proceeds in your retirement. At least you can’t do that without hanging massive debts around the necks of the next generation.”

      It doesn’t usually work like that; when people have got to the stage of downsizing the home they are selling will not be the first home that they bought and it will be larger than required by a first time buyer. In itself, people progressing up from smaller to larger properties over decades and gradually accumulating equity does not mean that the next generation will have to start with increased debts.

      • Posted June 7, 2013 at 4:10 pm | Permalink

        You do not appear to understand the process. The ONLY way house prices go up is for succeeding generations to take on more debt. If I buy a house for 100k and sell it 5 years later for 200k – my ‘equity’ is invariably provided by someone else taking on more debt.

        Houses don’t just magically go up in value. They go up because the banks lend more and more money against them.

        If you have no house price inflation, the ONLY way you will ‘progress’ from a smaller to a larger property is to take on a BIGGER mortgage.

        THERE IS NO WAY YOU CAN ‘ACCUMULATE EQUITY’ WITHOUT THE NEXT GENERATION TAKING ON MORE DEBT. That is a simple fact. It is how the housing market works. Houses are too expensive for 99% of the population to buy outright. So they must be bought with borrowed money. All other things being equal, the only way they can go up is for the person after you to borrow more money. The fact that it all gets hidden and confused by inflation just serves to make people like you think that your equity has someone appeared like magic.

        • Posted June 8, 2013 at 5:13 pm | Permalink

          On the contrary, it’s you who doesn’t appear to understand the typical pattern that a young couple will start with a small property. and then as their family grows and their finances permit they will move on to a larger property or succession of properties, and then when their children have flown the nest they will move back down to a small property; and because the price of houses depends on their size they would have some spare cash from that downsizing even if house prices had not risen at all over the intervening years.

          If instead they did as you portray in your illogical proposition, “buy a house, live in it for 40 years, pay off the mortgage”, in most cases they would not be downsizing because they had stayed in the same small property they started out with; on the other hand because they had been willing to endure cramped conditions while their children were growing up they would have paid out less on their mortgage(s) and so might have built up other savings and investments.

    • Posted June 7, 2013 at 9:27 am | Permalink

      A 2 bed terrace in Newcastle in 1997 would have cost you 14k. By 2007 they were over 100k. With an average local wage of 14k – a bog standard, back-street terrace was over 7 times a single salary.

      Why do houses have to be affordable on a single salary? If a couple were trying to buy your example house (married or otherwise) the price would be three and a half times their combined salary. This was considered the norm for a mortgage application when I bought a house (in1996, when interest rates were much higher than now), so I don’t agree with your assertion that this example is necessarily too expensive.

      My parents could only afford to buy a flat with combined incomes when they married in 1965. Neither would have dreamed of buying a house each while they were single, nor could they have afforded to. Sharing also means that fewer houses are required, helping towards the presumed supply problem.

      I concur that lots of areas are too expensive for people starting out, but they should look in those areas that they can afford. There is no “right” to be able to afford houses near their parents, and many have already effectively moved away for higher education before they look to buy a house. Surely that should broaden their horizons….

    • Posted June 7, 2013 at 1:06 pm | Permalink

      Just find a nice divorcee who’s ex husband paid for the house after she ditched him.

  16. Posted June 7, 2013 at 7:40 am | Permalink

    I passionately believe the government should get out of manipulating house prices. Problem is at the moment they are manipulating them to crazy high unsustainable levels. In so many ways. From penalising anyone who keeps their equity in cash, eg no benefits if you have cash in the bank but plenty if you have a house paid for etc. To manipulating interest rates down and robbing savers to subsidise overborrowed mortgage holders. To freeing up the mortgage tap again. We are heading for a crash one way or another and frankly its only for the best. The US had a big correction after the sub prime crisis and it has only done them good.

  17. Posted June 7, 2013 at 7:46 am | Permalink

    Where are these people calling for the Government to engineer a crash? I haven’t seen any. Oh you mean calling on the Government to stop interfering/ propping up the housing market and allow it to go where it will, two entirely different things I would have thought.

  18. Posted June 7, 2013 at 7:52 am | Permalink

    I agree with what others have said about the continual slow depreciation being the least worst policy to make prices more affordable, along worth some more building/liberalisation of planning laws……

    However…..John, I am concerned at you saying……’Most especially they swell the government coffers from higher tax revenue on the transactions that do take place.’……That is not what houses are for!…….Anyway, if you want to swell the coffers, you need to make flats a minimum of £2m and houses £5m and then you can pay off the deficit/debt with your taxation……Oh wait, there might be a problem there.

    zorro

    • Posted June 7, 2013 at 10:23 am | Permalink

      Continual slow depreciation will mean a generation priced out of home ownership all their lives.

      So, great, I buy a house and I’m okay jack.

      My sons cannot afford property so they live with me all their lives.

      Eventually, one way or another, they have children (I have visions of us building extensions and outbuildings to fit an extended family in) and then, house prices having fallen to affordable levels over 40 years, their children will be able to afford to buy.

      All so we baby boomers can enjoy our unearned equity.

      Remember, every penny of your equity – when you come to sell – is provided by someone else taking on debt.

      • Posted June 7, 2013 at 4:22 pm | Permalink

        Mike, well a bit quicker depreciation than that….(I did say the least worst). I would have prepared a sharper shock in 2007-8 allied with other measures…..

        My reason for going with depreciation now is basically the weakness of our governments and their inability to grasp the economic nettle. I suspect that they couldn’t deal with the economy after a sharp fall in prices and what might (initially) happen at a macro economic level……I just have no confidence in Labour/Conservative administrations based on their performance over the last 20+ years….

        zorro

  19. Posted June 7, 2013 at 7:57 am | Permalink

    The only thing preventing a normalization of house price is government policy of not building enough rail, and supplying enough land with planning permission.

    The idea that the government can maintain a bubble indefinitely or manage there way out of in a nice way is a fallacy. The longer we wait the worse it gets. The US had the right idea; you need to have a proper crash in a short time and then the recovery can come back to a sensible level (before too much damage is done). The government may only govern for 5 years; The consequences will govern our life for decades.

  20. Posted June 7, 2013 at 8:07 am | Permalink

    All intervention in the market only forces prices into bubbles;

    – planning law
    – reduces the amount of home build
    – prevents infrastructure required to support homes
    – homes prevented by lack of infrastructure.
    – affordable homes policy
    – reduce quality and quantity homes
    – make building more expensive, so no building happens
    – Supplying additional credit ( Mortgage Guarantees)
    – forces up prices due to mismatch between supply and demand.

    What is required it the government to stop interfering and reduce planning law. The problem is that with local planning law it is dominated by retired people have unlimited time to prevent building, where the people paying the price for the rules are too busying working to pay the consequences for poor planning.

    • Posted June 7, 2013 at 12:13 pm | Permalink

      Absolutely – our local paper seems to have a piece every week with a smug-looking older/retired couple going on about how they are opposing absolutely every development going, with the assumption that everyone will agree with them. Me, I’m wondering if my kids will ever be able to afford to leave home.

      This country is short of perhaps a million homes. There is plenty of space (don’t believe me, try google maps satellite view). And an average house costs perhaps £30k to build – the building plot with planning permission makes up most of the cost.

      Imagine the government spent £30 billion building these million houses. It would take a lot of people off the dole queue and lower rents, thus paying for itself. It would bring house prices down, allowing people to spend money on things other than debt service. And without huge, burdensome mortgages to service, prople might feel more free to start their own businesses, change jobs and generaly engage in more genuinely productive economic activity.

      • Posted June 7, 2013 at 4:47 pm | Permalink

        “This country is short of perhaps a million homes”

        Which may bear some correlation to the government’s deliberate expansion of the population through mass immigration, it being a simple but often disregarded truth that anyone who comes to this country will need a roof over their head, and whatever else they may bring with them they won’t be bringing that.

        Apart from the small numbers whose homes are on wheels.

        • Posted June 9, 2013 at 9:32 am | Permalink

          Denis Cooper: “deliberate expansion of the population through mass immigration, ”

          Yes. But it is not only housing, it is all the other infrastructure that is creaking under the strain, whether it is water shortages, queues on the roads during peak traffic or congestion on the rail services.

          The population is too high. The idea that our population should increase is insane.

          • Posted June 9, 2013 at 12:36 pm | Permalink

            I prefer the word “wicked” to the word “insane”, because I can see that those who favoured, and still favour, a policy of mass immigration were, and still are, behaving quite rationally in the selfish and unpatriotic and anti-democratic and “wicked” pursuit of their own narrow interests.

            And that is true of those supposedly on the right of politics, some of whom will always welcome fresh supplies of cheap and biddable foreign labour, while others will look to profit from the opportunities to turn part of their land holdings over from farming to housing, and others will look to profit from building the houses and the necessary infrastructure; and it is also true of those supposedly on the left of politics who actually loathe and despise those Britons they claim to represent, and who seek to tear apart the national fabric to further their warped ideology.

  21. Posted June 7, 2013 at 8:11 am | Permalink

    “Whilst high home prices undoubtedly make families struggle to afford a home of their own, they can also stimulate the income of others in the housing market. For every new buyer suffering from the high price, there is a seller who may be trading down, taking a profit or benefitting from an inheritance, who should have more money to spend.”

    Great, so while young would-be middle-class people put off having children, or never have a family, some equity-rich pensioners can go on a saga cruise. No worries, though, because there are plenty of immigrants coming in to keep the population numbers up.

    • Posted June 7, 2013 at 11:31 am | Permalink

      The only people going on Saga cruises in a decades time will be ex-public servants .

      What the heck is going to happen to the other 5 out of 6 members of the work force who will retire , voluntarily or otherwise , with no savings ?

      People will end up liquidating everything they own or begging to be put on Liverpool care pathway .

      The economy has been run like a massive underwriting scam where the front loaded premiums have been treated as profits and the culprits have disappeared before the claims start coming in .

      Yet the politicians and civil servants still have defined benefits pensions to insulate them from this mess which they have caused .

  22. Posted June 7, 2013 at 8:12 am | Permalink

    Another factor is peoples expectations When I started for the second time on my own with 100% mortgage, I had to budget for every last penny , did not have a holiday for 20 years , did not smoke or drink alcohol, did not have a television , bought second hand clothes, did not have mobile phones and i pads. Everyone cannot have everything. If you have a mortgage as a low to middle income family then the basics like fuel are important and other things are luxuries.

    • Posted June 7, 2013 at 9:33 am | Permalink

      Average house prices are now almost 10x average income. Deposits are near impossible – so the young can risk sacrificing their youth without any guarantee that they will buy a home.

      If you RENT as a low to middle income family then basics become luxuries too – rent often being higher than mortgage repayments. Landlords knowing that they have a captive market.

      • Posted June 7, 2013 at 8:58 pm | Permalink

        no..£ 500/ mnth rent with support of the Councils paying £450 / mnth leaves families able to rent and have luxuries. I am speaking from north of the Watford gap

    • Posted June 7, 2013 at 10:19 am | Permalink

      Fact is – you could afford to buy a home.

      If my sons earn average wages of 25k – they have NO CHANCE. Not a cat in hell’s chance of buying a property. If they leave home and rent they cannot save and, instead of paying off their own mortgage, simply pay some buy-to-let landlord’s mortgage for them.

      House prices in the South of this country need to halve to give the next generation any chance of settling down and having families.

      The UTTERLY IDIOTIC short hold tenancy legislation brought in by the LAST CONSERVATIVE government – removing security from tenants by allowing landlords to kick them out after 6 months – means that no young family can feel secure in rented accommodation. Given that young people cannot afford to buy a property, the short hold tenancy legislation must be amended to include secure ‘for life’ tenancies.

      Idiots who defend the status quo often argue ‘what’s wrong with renting? They rent on the continent’. They do indeed. People rent with secure tenancies. They can decorate their HOMEs as they wish and do not have to put up with some twerp from an estate agent ‘inspecting’ them every 3 months.

      • Posted June 7, 2013 at 4:29 pm | Permalink

        Do you your sons have any option to part purchase any properties under government schemes?

        zorro

        • Posted June 7, 2013 at 8:25 pm | Permalink

          No they don’t – for the simple reason that even with help with a deposit – any sort of sane salary multiple for my eldest lad (youngest is too young) – would give him the means to buy a shed on an allotment – if he was lucky.

      • Posted June 7, 2013 at 4:30 pm | Permalink

        Mike Wilson,

        Yes Yes Yes Oh to see some common sense like this as the policy of major party…

        Cheers

      • Posted June 7, 2013 at 9:00 pm | Permalink

        so Your party does not believe in social housing then?

      • Posted June 8, 2013 at 1:27 pm | Permalink

        They must have strong laws on the side of the landlord as well as these secure tenancy agreements. It is theoretically impossible to evict family in this country from a rented home. In the end they would have to be removed by force and this is not a real prospect.

    • Posted June 8, 2013 at 8:12 am | Permalink

      Margaret ,

      Like you I was lucky enough to be able to buy my own house and yes it stretched me .

      The next challenge is to somehow create a pot of money in excess of £300,000 which is necessary to generate a £10,000 p.a. pension .

      There are no contingencies in any of this . If my health deteriorates further I’m in stuck .

      The economy needs people to spend on other than the essentials to keep going . Fish and chip shops , pubs , cinema’s everything – use it or lose it .

      Now I’m one of the lucky ones but my parents generation (born during the war) had it easier with vocational pensions and reasonably priced housing .

      I’m not that bothered for myself but it really upsets me that there is now a generation of children who will grow up without having the opportunity of spending a few days at the seaside climbing in rockpools and building sand castles because their parents can’t afford it .

      All this just to line some landlords pockets , spare a landowner the indignity of having to work for a living , generate bigger profits for mortgage lenders .

  23. Posted June 7, 2013 at 8:41 am | Permalink

    It look like the Tories have a vested interest in keeping house prices out of reach of working people. There has been no house price falls in the UK in comparison to virtually everywhere else. It is high time houses should be treated as homes for working people rather than investments to enable some live of the hard work of others. Prices should be allowed to fall dramatically to allow this

    • Posted June 8, 2013 at 8:19 am | Permalink

      Housing has been the favoured “investment” asset class of MP’s of all political parties .

      How many houses does Clegg own or even Michael Meacher ?

      Even UKIP who are right about so many things have got it wrong on house prices and housing .

      They have a vested interest alright , all of them .

  24. Posted June 7, 2013 at 8:44 am | Permalink

    House price inflation will make it more difficult for people to afford to buy their own homes. A crash in prices will place many into negative equity which may lead to them losing their homes. The case for stability seems quite appealing.

    • Posted June 7, 2013 at 4:13 pm | Permalink

      The case for stability is only appealing if you are happy with your adult children living with you until you die and with them being unable to have children unless you all live on top of each other.

      I was hoping to be a grandparent one day. Not much chance of it happening and, if it does, my kids will be in Canada, Australia or the States (if they can get in).

  25. Posted June 7, 2013 at 8:46 am | Permalink

    Most people in London face the dilemma of having to trade off buying in the city vs buying out of the city and then having to pay huge travel costs on the trains (at one point my train costs were increasing 10% YoY). Trying to buy at the moment for the first time is astonishing: once all the costs are added up, the deposit, stamp duty, it is beyond most of my friends, all of whom have “good jobs”, whether publishing or teaching or retail.

    I have rented for 8 years (excluding student years), and each year in London the rents have increased at c. 5-8% YoY, whereas salaries in the private sector have “increased” c. 0.5% each year.

    Sadly, the only way to escape this trap has been to change jobs, and jump into the Public Sector, where “the increment” is not counted as a payrise, and the pension contribution is tiny vs how much the taxpayer puts in. In the private sector, I had to contribute relatively large sums into my pension to make up for the small % my company paid in.

    It is worrying to me that I was effectively priced out of the private sector because of a) low pension b) negligible payrises. It was a hard-headed decision based on wanting to buy: I need a higher salary without having to sacrifice it to higher pension contributions.

    It seems obvious to me that the abolition of Stamp Duty would be the biggest thing to help people in London. If you’re rich, then I guess their attitude is, “what’s another 10K?”, but that amount means the difference between having to save for much longer, but having income squeezed with rent/travel increases.

    • Posted June 8, 2013 at 12:24 pm | Permalink

      Alex ,

      House prices depend on borrowing capacity .

      If stamp duty was scrapped all that would happen is prices would increase and you would be back where you started .

      Other countries have laws which reserve ownership of run of the mill houses to nationals .

      Land value “tax” i.e. a “charge for exclusive use of the commons” is worth considering .

  26. Posted June 7, 2013 at 8:55 am | Permalink

    In the best case, the Help to Buy scheme will be withdrawn without actually being used but will have boosted confidence in a difficult period.

    In the worst case, the Help to Buy scheme will stoke another housing bubble and leave the government holding bad loans when it inevitably bursts.

    • Posted June 8, 2013 at 8:16 am | Permalink

      David Williams ,

      The “Help to Buy” scheme is a miss-selling scandal waiting to happen .

      The NEST pensions scheme is another miss-selling scandal waiting to happen .

      I wonder whether a future govt will be forced to compensate the victims with taxpayer money ?

  27. Posted June 7, 2013 at 8:56 am | Permalink

    “Some people say we could solve our economic problems if the authorities engineered a house price collapse.” Are you serious?

    Current government policies are deliberately engineering a continuation of a bubble at great cost (directly and indirectly) to the British tax payer. This is an absolute scandal representing the enforced transfer of wealth from renters to home owners (or mortgage holders), it is a shocking misappropriation of resoources and should be stopped immediately.

  28. Posted June 7, 2013 at 8:57 am | Permalink

    ‘Deliberately engineering a crash’

    A semantic point to make again:

    Deliberately *engineering* a way to avert a crash is what the policy seems to have been. There has been much engineering in the housing market in the form of low interest, QE, banker forbearance and now Help to Buy.

    There is no need to *engineer* a crash – all that would need to be done is take away all the *engineered* props that have been put in place to avert one happening.

    As for the influx of Non-Doms and non-Sterling buyers pricing locals out of the market ? They are only reacting to the favourable position created by government policy.

    As Zorro says – making profit is not what houses are for. I don’t agree with this in some sentimental wishy-washy way but because this pyramid scheme relies entirely upon some poor sucker in the chain taking on a hell of a lot of debt. Too much of it is fake money.

    If high house prices are good for the economy then is it really a good idea to build more of them ?

    How can people work cheaply if we don’t ? (Are our young to be impoverished ?)

    • Posted June 7, 2013 at 9:04 am | Permalink

      PS, Regional disparities in house prices has everything to do with the availability of well paid work. Either those prices were pushed up by businesses which have since closed down or by rental speculators who are probably keeping them higher than they should be.

  29. Posted June 7, 2013 at 9:09 am | Permalink

    Who would have though it – John Redwood – a socialist who believes in manipulating markets to favour those he defines as moral and deserving.

  30. Posted June 7, 2013 at 9:35 am | Permalink

    The current policy of supporting house prices at all apparent cost is not only economic stupidity but also electoral suicide in the long term. On going high taxes on the productive economy to support house prices and land values will make an increasing smaller part of the population increasingly wealthy by transfer of economic rent from those who are productively to those who seek rents. This will create rapid rise in those who see all their income taxed with falling standards of living to support those who have land. As this happens party’s who have wantonly supported house prices will become unelectable, this will happen as soon as any party steps forward with an alternative policy, such as LVT. UKIP have demonstrated this with europe, however the scale of change when the arguments reach the public domain will be swift and brutal once the general electorate realises the 99% have been massively subsidising the 1%.

  31. Posted June 7, 2013 at 9:44 am | Permalink

    Those who find house prices in London and the sourth-East too expensive for their taste should look to where they are cheaper.

    Unwelcome house price rises fuelled by demand exceeding availability can be corrected by reducing demand.

    • Posted June 7, 2013 at 3:04 pm | Permalink

      If you work in London or the South East then you’ll need to live in this area.

      As long as most of the jobs are in London or the South East demand will remain in these areas.

    • Posted June 7, 2013 at 4:15 pm | Permalink

      Yes, that is what many of the next generation will do. But they will not be looking in Wales or the North – where prices are affordable – because the jobs there pay buttons (unless you work in the lovely public sector, of course).

      They’ll be looking in Australia, Canada, New Zealand etc.

      We face a future of being looked after in old people’s homes by immigrants while our kids make their way on the other side of the world. Still, as long our house prices don’t go down … that is all that matters eh?

  32. Posted June 7, 2013 at 9:58 am | Permalink

    Using the IFS website I am estimated to be in the top 1% for income in the UK.
    I am in my mid thirties
    I was born and raised in London, all my life
    I CANNOT afford to buy a reasonable property in London with mroe than 2 bedrooms without spending more than 50% of my takehome pay on Mortgage Interest
    Thats with base rates at 0.5% and a 20% deposit

    I ask you, how is THIS a sensible situation when people in my situation with a very high income are STILl priced out of a decent abode? Being able to afford a rabbit hutch in London when you are in the top 1% is an indicator ther is somethign VERY wrong with this market.

    If the UK wants to be competitive in the labour market and attact inward investmnt, it has to make average wages workable for your average man on the street.
    It needs to reduce the cost of living to German levels so we can bring back manufacturing jobs to this country.

    You cant do that when the average house price is 6.5x Earnings.

    SIMPLE

    • Posted June 7, 2013 at 4:18 pm | Permalink

      Yes, it is simple. And there are lot of very simple people about, many on this web site, who seem to have no actual idea of the problems facing your generation.

      Still, as long as our house prices don’t go down.

      Someone I know sold a small 3 bed semi in Hampton, Middlesex a few months ago in what I would describe as a very average area – sort of place you could feel mildly uncomfortable after dark – for 475 thousand pounds.

      I bet you, in the top 1% of earners, could not afford that 3 bed semi that, 40 years ago, could be afforded by a carpenter or a carpet fitter or a baggage handler at Heathrow.

    • Posted June 8, 2013 at 8:31 am | Permalink

      Quicksilver ,

      6.5X salary in 2013 terms actually equates to about 9X salary in 1973 terms .

      – in 1973 the multiple was based on gross pay that is left AFTER employers (and I suspect employees) pensions contributions have been deducted .

      – in 2013 the multiple is based on gross pay out of which the employee/self employed person has to make provision for their own old age .

  33. Posted June 7, 2013 at 10:11 am | Permalink

    Personally I believe that trying to solve a problem of affordabilty by lending more is the most stupidly dangerous policy I’ve seen for a long time. Haven’t you learnt anything from the post 2008 period. I’m in a swing seat and this policy has lost your party my vote.

  34. Posted June 7, 2013 at 10:20 am | Permalink

    John Redwood defending government rigging of the market – marvellous!

    Tories often say they are supporters of the free market model, but JR has just bunked this. They want socialism and protection for themselves and their supporters, but the free market for the poor.

    Help to Buy (Votes) is using tax-payers’ money to subsidise the people in the housing transaction (sellers), who are mostly likely to vote Tory.

    Redwood and the rest of the Conservative party are hypocrites and thieves. And plain old Socialists.

    Reply The idea behind Help to buy is that people buy their own homes and pay back the loan which has been assisted by the government, not that they enjoy a subsidy.

    • Posted June 7, 2013 at 4:22 pm | Permalink

      The loan has not been ‘assisted by the government.’ It has been ‘assisted’ and ‘underwritten’ by US. Was this use of MY money in your MANIFESTO? I don’t recall it.

      I have to say I am bloody angry about this. Who the hell do politicians think they are? They use our money any way they want without so much as an ‘by your leave’.

      I pay taxes for the police, the NHS, schools, roads, the army etc.

      I don’t pay taxes to rig the housing market to make sure MY KIDS CAN NEVER BUY A HOUSE!!!

    • Posted June 7, 2013 at 4:32 pm | Permalink

      John,

      I would seriously reconsider what you are saying and defending here. You are going to look rather silly in a year or two if you keep this up…

      Free advice meant with friendly intent

    • Posted June 7, 2013 at 4:44 pm | Permalink
    • Posted June 7, 2013 at 5:15 pm | Permalink

      JR: “The idea behind Help to buy is that people buy their own homes and pay back the loan which has been assisted by the government, ”

      The similar organizations in the USA, Freddie Mac and Fannie Mae, are bankrupt. Why are we going along that path here in the UK?

    • Posted June 7, 2013 at 6:26 pm | Permalink

      Q If people are just paying back loans, why don’t the banks accommodate this lending?
      A Because it is too risky i.e. sub-prime lending, and if the banks partook it would be at a higher interest rate
      QED it is subsidised lending

  35. Posted June 7, 2013 at 10:20 am | Permalink

    John, Bring back (an up-to-date version of) cheap and cheerful prefabs and burn all building regulations at least on them. Not everybody wants an expensive sophisticated modern house for investment purposes–many just want a roof over their heads and in any event cannot afford more. You are setting up a straw man talking about engineering a price “crash”–nobody wants that. It should be an object of Government policy to keep the price of something as fundamental as houses, most people’s biggest investment by far, constant. That alone would bear down, big time, on inflation. The theory of “getting on to the bottom rung of the ladder” could never work for long and hopefully never will again because it is ridiculous to hope for something for nothing in such a way.

  36. Posted June 7, 2013 at 10:54 am | Permalink

    Too many people chasing too few properties. Its quite simple, leave the EU, control your population, control the house prices. You know you can buy a house in Bulgaria for £500? Why? because nobody wants to live there! You can’t keep building on greenbelt and destroying OUR LAND to accommodate foreigners. The government doesn’t actually “own” any land, it’s either private or public, so you’ve never actually had the right to invite anyone without our permission.

    Reply If it is your land you do not have to sell it for housing.

    • Posted June 7, 2013 at 4:25 pm | Permalink

      What building on greenbelt might that be? Have you seen any building on green belt. YOU CANNOT BUILD ON GREEN BELT.

      The country is 93% undeveloped. That is a FACT. Go on Google Earth and take a flight over the country. It is GREEN almost everywhere. We could easily build some more houses but no-one wants them next door. How do you think your house ever got built? Before it was built it was a field! Okay for you – but you don’t want the same for anyone else.

      That said there are a million houses standing empty in this country and this stupid government decided to rig the new housing market with MY money rather than doing anything about bringing these million houses into the housing stock.

      Start by TRIPLING council tax on any property left empty for more than 6 months.

    • Posted June 7, 2013 at 4:45 pm | Permalink

      Reply to reply…….Compulsory purchase order?

      zorro

  37. Posted June 7, 2013 at 11:15 am | Permalink

    House prices are too expensive. The government cannot support the housing market indefinitely. But how to take steam off the market without invoking a price crash which will cause havoc and misery? Let’s think outside the box for a moment. Why does QE have to go through to banks first? Why can it not be made available to the public directly? Here is how it could be done. Give every legal person in the UK a choice: Either half your UK residential mortgage debt or double your UK cash deposit savings. Funding for this comes from QE underwritten not by government/public debt but by bank/corporate debt to be repaid through a temporary levy on financial institutions in form of a new financial services ‘reparations’ tax on shareholder dividends, employees bonus & salaries. Crucially, a property sales tariff of 50%, payable by the seller to the buyer, is introduced without exception. This fund will be credited to the buyer’s account as long as he’s the owner occupier and a UK resident. Otherwise the fund goes to the BoE to be taken out of circulation (debt paid back). Stamp duty remains payable by the buyer on the entire purchase price. Interest rates are increased back to levels required to meet inflation and to take off the pressure on residential property as an investment vehicle. Strict lending criteria will put a cap on price inflation. To take steam off the rental market similar measures should be introduced there too. It may take a while to work out the details by way of modelling but this could fix our problem without causing havoc. Here is why: investors (BTL owners) will feel reluctant to switch asset investments as they would lose 50%. This will prevent a sales rush. Instead they will accept a cut on their investment yield and hold on. Sure, some people will feel less rich but this was paper wealth anyway. The majority of people will be better off.

    • Posted June 8, 2013 at 4:41 pm | Permalink

      I’m afraid that despite reading through it twice I can’t really understand your proposed scheme.

      But I would point out that the QE money does not go to the banks, instead it goes from the Bank of England to the Treasury via the gilts market and is then used to help fund the government’s spending.

      Which means that it gets widely spread around the economy, but according to the pattern of public spending rather than on any other basis such as so much being handed out per head.

      This would probably have been clearer if the Bank had been literally printing new banknotes on a massive scale because the government was still making many of its payments in banknotes and coins rather than electronically; then for example when state pensioners picked up their pensions from the post office they might well have noticed the increased proportion of crisp new banknotes.

      • Posted June 10, 2013 at 2:07 pm | Permalink

        Not sure what is there not to understand. It’s a concept to reduce the cost of housing without correcting current (inflated) property book values as this would cause all sorts of problems to bank balance sheets.
        As to your point on QE. It is to not to help fund government spending. The BoE buys existing guilds through the asset purchasing programme from banks. So the main beneficiaries of Quantitative Easing have been banks and financial bodies who have seen a rise in their liquidity. The problem is that banks don’t lend the money on so it does not get spread around the economy.
        My point is that QE in this form would not be necessary if the risk of a property crash was taken out of the equation via a carefully constructed property debt jubilee financed through QE and paid back via sales tariffs, together with a reparations levy imposed on financial institutions.

  38. Posted June 7, 2013 at 12:43 pm | Permalink

    As in many areas, the government should keep out of meddling in the housing market. You cnnot buck the markets and sooner or later house prices will concur, with different results in different parts of the country. Here today and gone tomorrow politicians spinning fairy tales are no help.

    In the USA house prices fell much mor dramatically and are recovering now , as is the US economy, compared to the UK.

    • Posted June 7, 2013 at 4:31 pm | Permalink

      The house price crash of the late 80s and the repossessions and stagnant economy that dragged on through the first half of the 90s cost the Tories any chance of winning the 1997 election.

      Gordon ‘I will not allow a house price boom to put at risk the sustainability of the recovery’ Brown decided instead to allow a house price boom which put at risk the sustainability of the whole economy. He ‘went large’ on house price booms. The Tories are TERRIFIED that if house prices go down and repossessions increase on their watch, their already non-existent chance of winning the 2015 election will completely vanish.

      In 2010 we should have had some straight talking (anathema to politicians but, there you go, they will be hoisted by their own petards). Cameron should have addressed the nation and explained the banking crisis was caused by too much lending into the housing market, that house prices were unaffordable, rents were too high, mortgages too big …. that the housing market was sucking the life out of the economy … if we all spend a fortune on rent and mortgages we don’t have money for anything else … and so on.

      He should have taken the opportunity to blame Brown and New Labour and hand the mess around their necks once and for all. We could have been 3 years into a correction now – like the USA – with the worst behind us and with some hope for the next generation.

      Instead we have another crisis on the way.

  39. Posted June 7, 2013 at 12:51 pm | Permalink

    Oh dear John, everybody above seems to agree you are putting a straw man argument up with ‘engineer a house price collapse’. And everybody above wants to see housing float naturally (down) to the correct market value with a lot less government intervention. Crikey if even YOU on the libertarian right of your party can’t face a blast of economic liberalism into the crony capitalist home-ownerist pact in Westminster what hope do we have?

    Oh no, its not that you have a buy-to-let portfolio is it John?

    Reply No I do not have any BLT properties. I am putting forward the conundrum that faces current policy makers, and explaining why the government is doing as it is doing. Others are entitled to disagree.

  40. Posted June 7, 2013 at 12:58 pm | Permalink

    I think the pension effect is very underestimated when discussing house price inflation:
    From 1995-2005 house prices rose steeply – at the same time as investment in pensions fell steeply!

    • Posted June 7, 2013 at 4:56 pm | Permalink

      Maybe too many people read those newspaper articles about BTL being the best investment. So much so, that it was worth borrowing money to invest …

    • Posted June 8, 2013 at 8:46 am | Permalink

      Julian ,

      People are being forced to buy their houses/pay the rent with money which should have been set aside for old age .

      Essentially their pensions have already been spent and that consumption will not be available when they retire .

      What might make sense is for social housing stock to be built and owned by a state pension fund .

  41. Posted June 7, 2013 at 2:24 pm | Permalink

    I cannot understand why our taxes are being used to prop up the housing market. This is a gross waste of money and will only result in a distortion which will result in misery when prices fall. The ridiculous ‘Help to Buy’ scheme is simply putting off what inevitably is going to happen.

  42. Posted June 7, 2013 at 2:38 pm | Permalink

    I have just been to a couple of banks today John and I was asked if I was in financial services ,me? I am a complete idiot as far as money matters are concerned ;all I understand is don’t spend more than you earn, so I think these blogs are at least allowing me to bluff a little even if the understanding isn’t there.

  43. Posted June 7, 2013 at 3:08 pm | Permalink

    The government is responding by making more money available to banks to on lend as mortgages at low interest rates, and by launching its Help to Buy scheme.

    So in addition to tax credits to supplement low wages and housing benefit to counteract high rents the Government is now providing additional money to help people afford to buy a house. It’s no wonder the benefit bill is high when the Government seems to be maintaining the high cost of living rather trying to reduce it.

    • Posted June 7, 2013 at 4:48 pm | Permalink

      Quite right uanime5….

      zorro

  44. Posted June 7, 2013 at 3:12 pm | Permalink

    The housing mess is exceptionally bad. As well as pushing up prices for buyers it also has pushed up the cost of renting and the housing benefit bill.

    • Posted June 7, 2013 at 4:34 pm | Permalink

      Never mind eh? Your coalition government is determined to use OUR money to keep things just as they are and ensure the next generation is also enslaved in to house price debt.

  45. Posted June 7, 2013 at 3:36 pm | Permalink

    This blog is true as far as it goes, but does somewhat miss the fundemental problem. We have an obsession with property “wealth” in this country, which is slowly strangling the entire economy. Money being pumped into property is not serving any productive purpose, and the cost of housing is making our economy less competitive as a whole as people require higher wages just to put a roof over their heads.

    The market ran out of ways of suppprting a flawed system in 2007, and that’s why the credit crunch happened. At that point, it’s not a question of “engineering” a decline in house prices, simply a case of not intervening to prevent it (as a Tory,aren’t you supposed to believe in the free market?). However, instead, we now have taxpayer supported banks, “funding for lending” and now “help to buy”. All of these things artificially prop up prices that are fundementally too high for the market.

    Simply stepping aside and let the market take its course will address much of the problem. The rest of the issue will be solved by making it clear that residential property should not be seen as a “legitimate investment”. Whether we’re talking about holiday homes, foreign money being parked in London property, or buy to let, the tax system should reflect the fact that the purpose of a residential property is for living in it. Any property not being used as a main residence should be heavily taxed, and this approach combined with rent controls and better protection for private tenants to ensure that the tax isn’t simply passed on in the form of higher rents.

    Do that, and you will eventually get a housing market that is stable and fit for purpose (something which is clearly not the case at present). Prices may well fall significantly in the short term, and there may well be a case for government support to ensure that homeowners who experience negative equity can still move home if they need to (certainly, this is a better use of Government funds than the current schemes to prop up the market).

    But at the very least, Government should stop all active intervention to prop up an over-inflated housing market that is at the very core of many of Britain’s economic issues.

  46. Posted June 7, 2013 at 4:35 pm | Permalink

    The way to create a house price collapse is first to create a house price bubble. If you want a bigger and faster collapse, make the bubble bigger. Gravity will win out in the end, and the damage done will be greater the higher the peak in prices and the longer the correction is delayed, as more people overborrow on mortgages they cannot afford at normal market interest rates, and can barely afford at artificially rigged rates.

    Those still paying a mortgage who bought a while ago at sensible prices and did not subsequently overextend themselves have seen an increase in their disposable income as mortgage rates have been depressed. The other beneficiaries have been landlords, whose rental incomes have risen while their mortgage costs have fallen. Those who are depending on savings income or pension annuities have seen it slashed by negative real interest rates. Their house pays them no income. Anyone who rents privately or who bought more recently sees their disposable income squeezed – the more so as taxes are raised to fund higher housing benefit payments. The overall result is squeezed household budgets for the majority that are quite independent of recent house price trends at the margin.

    Only in Northern Ireland are prices actually lower than the pre-election, post credit crunch lows. In London and the SE they’re 15-26% higher – which has not resulted in some massive economic resurgence. It has instead depended on an influx of money into London property from rich foreigners seeking refuge from banks accounts that might be raided as in Cyprus. That is not a sustainable model. SDLT revenues are becoming highly dependent on sales in Chelsington and Westminster garnering 7% tax while turning them into foreign ghettoes of the rich.

    In the rest of the country a downsizer or emigrant may benefit from a high price, but only on the back of a borrower taking on a crippling mortgage. Such debt, once taken on remains a millstone on spending until it is repaid – and it reduces funds available for saving towards retirement. It is a lifetime commitment to a reduced standard of living. For the nation as a whole, such borrowing has increased our debts abroad, as there are insufficient pools of domestic saving to fund it: they are already committed to earlier lending and investment, and fresh savings are being squeezed out of existence. That means we are paying interest and capital abroad, instead of recirculating it within the domestic economy.

    It is not correct to think that inheritors generally benefit either. Higher prices mean government takes more IHT. A family home sold and divided between siblings gives them half or a third or less of the price of the house. The remaining half or two thirds or more is a bigger sum that has to be financed if they are to buy their own property. They would be better off with lower house prices, and less need to borrow.

    Osborne’s attempts to further inflate the property bubble by tipping low start highly geared funding into the market are akin to deciding that if part of the population is suffering from a dangerous (and infectious) disease the best treatment is to encourage more of them to contract it. I trust that isn’t the recommendation of the Bilderberg meeting in Watford.

    The banking figures are quite clear: mortgage funding is crowding out lending to the productive economy, which has been falling as banks try to reduce their gearing. Banks should instead be encouraged to reduce their gearing by reducing the stock of mortgage lending. We have had an ideal opportunity to do this via low interest rates making early capital repayment a possibility – yet government has done nothing to encourage repayments that would provide banks with a greater cushion against falling house prices.

    It really seems strange that government seeks to insulate the over-borrowed from their folly. Would they be doing this if instead we had a bubble in tulip prices, or a stock market bubble on the scale of the Souk al Manakh? Shouldn’t government encourage people to borrow responsibly, and limit borrowing to what they can afford to pay back, rather than indulge in profligate orgies of spending and bankruptcy?

    Perhaps the irresponsible example of government (which you so often criticize) is exactly why they cower from treating the disease of the property bubble, preferring one more shot of morphine et cocaine as the economy steers towards its deathbed.

    You have the intelligence to grasp the issues. It would be good to see you deploy it.

  47. Posted June 7, 2013 at 4:38 pm | Permalink

    Oh dear, this is one subject on which you talk rubbish!
    The authorities are “engineering” house price stability at the expense of much else, including affordability, economic success through greater competitivity through the lower costs and wages which would be needed in a lower market price scenario. They don’t have to engineer lower prices, they just have to let the market happen!
    As to the net gainers and net losers:

    Net gainers = 1 over sixties with property portfolios instead of money actually working in the economy 2 banks whose asset values are propped up by QE and 3 those with ludicrously high borrowings to afford a lifestyle at the expense of cautious savers

    Net losers = 1 the young in rented property, wanting to get a foot on the so-called ladder

    OF THESE TWO GROUPS, WHICH REPRESENTS OUR FUTURE?

  48. Posted June 7, 2013 at 5:32 pm | Permalink

    As other commentators suggest, the word engineering here is not quite right. Sure if homes were taxed to death (or other active action) that would be bad. But all we are really talking about is not propping up a bubble, rather than deliberately damaging the market. There is no free market capitalism to be seen here!

    Population has increased massively but house building has hit record lows, whilst the BoE has created a gigantic bubble.

    Yes increasing rates, building more homes will be messy, but sometimes you have to take the short term pain There is no benefit in having people invest in bricks and mortar rather than enterprise – no economy can grow sustainably like that. If prices fell it could benefit London in particular and reduce rich foreigners using housing as an alternative to stocks and shares, allowing many a higher quality of life.

    Many tory voters are currently home owners. But if the conservatives are happy to keep prices so high that no one under 30 can afford their own home and hard working ambitious people in London are commuting in for 1 hour 30 or sharing with friends till mid 30s then frankly they will get what they deserve and lose a generation of voters.

  49. Posted June 7, 2013 at 7:03 pm | Permalink

    The house market, subject only to forced cheap mortgages, is a relatively free market. It is therefore subject to normal forces of demand and supply but it is also subject to these false funding rates. When those low mortgage rates align with normal – i.e post QE rate sthen prices will fall so that the asset price reflects the yield on other assets. It then all depends whether, and how many, houses fall in to negative equity and the banks start foreclosing. The housing market is currently a bubble but it could burst. It might just be possible to deflate it slowly through a gradual rise in interest rates.

  50. Posted June 7, 2013 at 7:38 pm | Permalink

    Sorry, I couldn’t read beyond the first sentence because it is just laudable. Nobody is wanting an engineered house price collapse. We just want the goverment to stop propping up the housing market with tax-payers’ money.

    Cheers!

  51. Posted June 7, 2013 at 7:41 pm | Permalink

    Whoops! I meant illaudable, but I think you would gather that from the context …

  52. Posted June 7, 2013 at 8:58 pm | Permalink

    How about the government and the Bank stop meddling with the market?
    We are losing all contact with a properly functioning market economy.

    This meddling is not deisgned to help buyers at all. It is to prop house prices up until the election to protect Tory seats, and to protect the banks from having to acknowledge the true value of their loan books.

    Eventually there will have to be a phase of creative destruction before the economy can recover. There will come a time when the markets lose faith in government’s and central bank’s abilities to continue fixing the markets and the resulting mess will dwarf anything we have seen in our life times.

    Albert Edward’s recent research note for SocGen puts it very well:

    “What makes me genuinely really angry is that burdening our children with more debt (on top of their student loans) to buy ridiculously expensive houses is seen as a solution to the problem of excessively expensive housing. I would have thought the lack of purchasing power should contribute to house prices declining or stagnating (relative to incomes), hence becoming affordable once again.

    You would have thought that George Osborne would be ideologically predisposed to a market solution, wouldn’t you? But apparently not. Why are houses too expensive in the UK? Too much debt. So what is George Osborne’s solution for first time buyers unable to afford housing? Why, arrange for a government guaranteed scheme to burden our young people with even more debt! Why don’t we call this policy by the name it really is, namely the indentured servitude of our young people.

  53. Posted June 8, 2013 at 1:22 am | Permalink

    Driving down house prices is not a major objective in itself. It’s just a probable consequence of pursuing a sensible fiscal and monetary policy. It would be a beneficial side effect as far as countless young people wanting to get onto the property ladder are concerned.

    We really don’t want another round of people preening themselves at dinner parties on how clever they are just because their house prices are rising, then withdrawing equity and going on a spending binge.

    We need to end all forms of government driven easy money now. It’s debt – State debt and household debt – that has been the ruin of this country.

  54. Posted June 8, 2013 at 1:51 pm | Permalink

    I bought a house for 51k fifty miles outside London in 1999 which is 45 minutes from Kings Cross and by 2007 had paid of the mortgage. This high house prices and shortage is like the food shortages in Britain. A myth. I visited the town centre this afternoon and was easily able to fulfil all my food and drink shopping needs for less than £150 using Tesco, Waitrose and the local specialist food shops. If you lower the cost of the property or the cost or renting the house or the money to buy the house, then like free food, people will just turn up and take it. How many homeless do you see on the streets compared to the population of this country? Exactly. The same amount as you see starving. What some need to do is follow the excellent example of hard working East Europeans and live as they do. Not complaining or having 1000k a year jobs, but just getting on with things and providing goods and services for the population and wages for themselves and not whining that they cannot afford to buy a house each. Where would the country be if everyone had their own house paid for? Wages would be sky high and thus prices and taxes leading to economic decline. Ram it.

  55. Posted June 9, 2013 at 8:10 pm | Permalink

    George Osborne’s attempts to help support even raise house prices has been adversely criticized by various economists who know what they are talking about (from the UK and abroad). His latest policy has been described as ‘MORONIC’. I will refrain from commenting on the article of this blog.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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