I understand the critics of the current government Help to buy scheme, who think more needs to be done to lower home prices. Yesterday I was seeking to explain the thinking behind the government’s policy, which is enabling more younger people to buy their first home. Sometimes it pays to understand where people are coming from when you disagree with them. The recent buyers then, of course, have an interest in prices staying up. It is a difficult cycle to break into, and all too easy from an armchair to assert you want home prices to halve without thinking about how many people would be put out of work or into bankruptcy by such a move.
One of the reasons homes are less affordable today than twenty years ago is the much costs of purchase. Successive governments have seen house buying as an easy means of collecting more tax revenue, by increasing Stamp Duties. It is another case of government taxing something they believe is a good, with perverse consequences. If government wanted to do more about affordability, a cut in Stamp Duty would help.
At the very least they could consider only charging the higher rates on the amount over each threshold. So the 3% duty would not be charged on the whole transaction of a £300,000 property, but just on the £50,000 above the threshold. The problem with the current system is it creates a series of prices just above a duty rate threshold that cannot function as market prices, because people refuse to pay so much extra tax for a modest change in the price of the property. If you move from a £250,000 to a £251,000 property you face a bill of an extra £5000 in duty, five times the price rise. If you are nearer the top end and move from a £2m property to a property just over £2m you face a total duty bill of £140,000 instead of £100,000.
Another reason is the fast rate of migration into the country, placing considerable pressure on the available housing stock. Under Labour the build rates were below the rates needed to keep up with the rapid rate of migration. The Coalition has brought net migration down by a third and plans further cuts, which should help ease the housing situation.
The build rate for new homes has been disappointing over the last decade. The government has taken action to allow more housing development. In hard pressed Lodnon, where considerably more space is required, there is a more permissive regime to allow high rise blocks of flats for private rent and purchase. There is also considerable work putting in basement and roof floors into the typical terraced housing in many a London Street, which allows more flats and maisonettes in each property. As someone who works some of the time in London and has a bedsit there, I am all in favour of more development in the popular parts of the city. Next to my flat they have just knocked down the old building of the government offices of London – a good sign in itself – and are replacing it with a taller block containing flats. That is good news.
June 8, 2013
Could large tracts of land not be made available, cheaply, for self-build on government owned land? Surely it is ultimately in everyone’s interests to bring the price of houses down, and for property to be within the reach of the largest number of people?
June 8, 2013
This will only work if the land is located somewhere people want to live. If there are no nearby schools, hospitals, jobs, or good transport links then few will want to live here.
June 8, 2013
Very commendable that “The Coalition has brought net migration down by a third and plans further cuts, which should help ease the housing situation” and I can say the Coalition has helped me decide to contribute to the net migration. Thanks 🙂
June 8, 2013
Coming or going?
If “going”, that’s a negative contribution to net immigration.
June 8, 2013
Denis–I wonder how many people, as is certainly the case with yours truly, simply couldn’t care less about “net migration”. It is fundamentally flawed and indeed meaningless in terms of what people are interested in. Exaggerating to make the (very obvious) point a huge immigration of say 100 million does not become any easier to take just because 99 million of our own decide to give up, pack up and leave, in some ways rather the opposite because it is only our best people who leave and their taxes with them. When politicians talk about immigration they should say immigration and not (fat chance) seek to dissemble and try to obfuscate the issue away.
June 8, 2013
Well, I said that more or less the day after a certain political party started to talk about its plans to reduce immigration, but slipping in that word “net”.
Which I think was probably in July 2009, having taken the trouble to delve back into my files to find this:
http://conservativehome.blogs.com/thetorydiary/2009/07/migrationwatch-warns-that-extremist-groups-will-benefit-from-lightweight-tory-immigration-policy.html
My comment started:
“I notice the references to “net” migration or immigration”
And pointed out:
“One conceptually simple way to achieve zero net immigration would be this: deport everybody who is now in the country, all 60-odd million, and replace them with an exactly equal number of people from outside the country.”
June 9, 2013
Denis–Well Done–Even our esteemed host is very sparing with his use of the word immigration–Maybe the whips have got at him (vide supra). Migration is what animals especially birds do but they at least do go back again and whilst here do not expect benefits.
June 8, 2013
If we are to believe the Coalition’s propaganda, then a ‘contribution’ would be formula57 leaving the UK, and in effect bringing down net migration……I guess that’s why he’s smiling…..
zorro
June 8, 2013
Building cost are pushed up by taxes, silly OTT building regulations, OTT Health and Safety, daft employment laws, restrictive and expensive planning and utility suppliers over charging for connections. There should be a fiscal level playing field between renting and buying it used to encourage buying with mortgage relief but now tends to encourage renting with excessive stamp duty on each transfer and less help with mortgages than rent. We are not short of land, we can build tall block of flats in Cities and have fewer pigs, sugar beet and the likes in the country. The UK has 260 people per KM2 some places in the world have 20,000 per KM2 even London only have about 5,000 per KM2.
June 8, 2013
Given how many people die on construction sites each year it seems that they have too little health and safety, not too much.
June 8, 2013
Much of it is misguided paperwork rather than anything that is really going to reduce accidents.
June 8, 2013
Which employment laws are daft? How many time do you need to be asked?
June 8, 2013
How many time do you need to be told? Nearly all of them, and all that interfere in a free contract between the two parties.
June 9, 2013
Umbrella companies, self employment, short term contracts, agencies. Does not seem to many if any that interfere with the contract between the two two parties. Hire and fire at will with no rights or rights to complain about health and safety, racial or gender discrimination without fear of the sack is what you want and this is what you mean by’ daft employment laws’ isn’t it?
June 9, 2013
I take it by that you mean they protect employees from unscrupulous employers.
June 8, 2013
More or less each one since 1965.
June 9, 2013
Specifically name one and why instead of a sweeping generalisation pretending to be a fact. Equal pay for the same work one of them?
June 8, 2013
We can build tall block of flats in cities? I think this has been tried. I could be wrong.
June 8, 2013
But you’re right there.
June 8, 2013
I see that the Queen was opening yet another vast waste of (£200M?) tax payers money by the BBC yesterday. Just how many buildings and people does it take to drip the nation in pro EU, fake green, lefty, big state, Guardian think, arty drivel and put a few repeats of Dad’s Army and similar in the video machine?
I tend to agree with James Delingpole when he says that the BBC probably bears a greater responsibility than any other institution for Britain’s cultural, moral, intellectual and economic decline. They are, almost without fail, on the wrong side of any political argument.
June 8, 2013
The Coalition has brought net migration down by a third and plans further cuts, which should help ease the housing situation.
This claim is made so often it is difficult to know what is meant by it. Can you please be specific about
1) whether this figure includes EU nationalities or not
2) how migration figures are practically measured when there are such inadequate border controls
3) what the positive and negative components are and how these have changed, rather than speaking only about the net figure.
Thanks.
June 8, 2013
The Coalition’s figure includes all migration (EU and Non-EU)……of course, there is no control per se on EU migration. The statistics are not practically measured…..They are based on a minuscule percentage of travellers who voluntarily choose to answer questions about their status and travel intentions…..I will leave you to judge how ‘practical’ that methodology is.
zorro
June 8, 2013
Sorry for the link John, but MigrationWatch have recently released a useful graph on historical net migration over the last forty years….
http://migrationwatchuk.com/latest-immigration-statistics
zorro
June 8, 2013
Any organisation with the word ‘watch’ in it tells you they have some some sort of axe to grind and this applies to this organisation as much of what they say lacks evidence.
June 9, 2013
Oh absolutely it stands to reason…….I think that I will set up a group called BazmanWatch to try and find any evidence of coherence in you replies…….By the way, the graph is from data supplied by the Office of National Statistics (ONS)……Oh, and by the way, before you start, I’m not ramming it today.
Cheers
zorro
June 9, 2013
Have you any evidence Baz for your slur on this fine pressure group
June 8, 2013
Those who have been successful in life and are appalled at the degeneration of the UK and it’s desirability as a place to retire often move out for a better quality of life.
Those with talent of any age look overseas for countries appreciative of their ability and a much better quality of life, where success is lauded not derided.
Many of those moving to the UK are also talented but have to settle for jobs that relative to their origins pay well, allow them to learn English and become more marketable in time. Many of them come for the money and any sort of job that is not available in their country of origin, jobs which the on benefit Brit population are not prepared to do. It seems ironic to me that a Pole will move all the way to the fields of Peterborough to earn money but the out of work in the north east for instance are not prepared to move to undertake.
The final figure suggests a large number of limited ability enter the UK while an increasing number with talent and wealth leave.
June 8, 2013
With the exception of some rich, largely London based nondoms I think you are right.
June 9, 2013
The problem is that a Pole will have a much better quality of life after working in a minimum wage job and retiring in Poland than a Brit will have if they work in a minimum wage job and retiring in England. So the unemployed Brits are less motivated because the reward is much less.
June 8, 2013
Progressive taxation in relation of stamp duty would be much fairer, this affects Londoners and the South more as many flats are over £250,000, up North you can buy a much larger property for that sort of money, then again wage rates are typically much lower unless you’re in the public sector where the rates are the same all over (other than Central London weighting), There are area in the North of course that are very desirable and the prices of the property are comparible with London so the wage rates need to be higher to live locally to where you work. However, at least you can still buy property for £100,000.
June 8, 2013
Also social and council housing should charge market rates and not offer unfair competition to the private renting sector by undercutting them using tax payers money. Tenants needing help with rents get it anyway. Why should one person pay £70 per week and some one next door in a similar house have to pay £300PA from their taxed income and often for life and even passed on to children sometimes?
June 8, 2013
Also social and council housing should charge market rates and not offer unfair competition to the private renting sector by undercutting them using tax payers money.
But undercutting the private renting sector will force this sector to lower their prices to remain competitive. This will reduce the amount of welfare spent on housing benefit.
While it might be beneficial to you if house prices continue to be high ever increasing rents, which result in ever increasing housing benefit costs, aren’t as beneficial for everyone else.
June 8, 2013
Not forgetting the Protected Tenancies imposed on the private sector by the socialists many years ago and which still apply in many long-term lets.
This outrageous piece of legislation effectively forces the owner of a property to privately subsidise another citizen directly by means of a ‘fair’ rent. This has historically always been lower than ‘market’ rents and is calculated by a rent officer using a complicated and illogical formula. Furthermore, the capital value of the property is eroded by as much as 50% with a sitting tenant. Note the word ‘fair’.
June 8, 2013
The landlords must have been happy when the contract was signed in.. When Max? pre 1989, That when. Now the market has changed they want out to make some quick money. Tough. They will have to buy their way out like any other business contract.
June 8, 2013
Indeed just a 50% theft of your property for political reasons and highly damaging to the rental sector. Doubtless we will get it again after 2015 thanks to Cameron’s understandable unpopularity.
June 8, 2013
Why should private landlords get massive subsidies from the taxpayer in the form of corporate welfare housing benefit allowing private rents to be so high in the first place?
June 8, 2013
The subsidy of for the tenant, to enable them to afford a home – not the landlord.
June 9, 2013
The market rate would not be so high without the addition of housing benefits. This makes it a subsidy and an absurd and pointless interference of the free market does it not?
June 8, 2013
I am not sure many here were calling for an overnight halving of prices. Putting millions into negative equity overnight would not be wise. But a significant reduction over say ten years would be welcome.
Those who have homes to live in will be ok as when they sell their new home will be cheaper. Those who have homes as an investment will take a hit. But that is just how it has to be, as with all investments there are risks,
Just keeping London prices static or in slow decline would be very valuable as it would stop homes being bought up as a global investment. Working people might have a chance.
I think that we need significant green belt building as much as it pains me to say it. You can’t up the population by 10m but not build on new areas. The solution is to stop the rapid population increase which I appreciate the conservative are trying.
Interest rates must also rise, but very slowly and with a clear plan made public. No new homes will be built if builders are holding out for the next stimulus so what is going to happen must be transparent and make it clear none will come
June 8, 2013
As long as they begin with London’s vast green spaces, which no other major city in the World possesses. Build first on Hampstead Heath, Primrose Hill, Regents Park, Hyde Park, Victoria Park, Wanstead Flats, hackney Marshes, Wimbledon Common, Richmond Park, etc. But, oh no, we can’t have (more people -ed) living near us, better push them out to the Green belt.
Reply Most of us wish to keep London’s wonderful green spaces, but some of us are happy to see more space built within the exisiting developed area.
June 8, 2013
Some people in your constituency want to prserve the green spaces in and around Wokingham. Can we expect to see you supporting those who want to stop the destruction of Elms field and the other areas bout obe buried under housing.
Reply I do support retention of greenfields and important green gaps between settlements, and regularly support the Council on appeal where they have turned down development. Wokingham’s future is largely determined by the Local Plan, which was proposed by the Council, widely consulted on, subject to Pubic Enquiry and is now established. I made representations at the time on that Plan on behalf of constituents.
June 9, 2013
Reply to reply – Please review spelling on your reply John……
zorro
June 9, 2013
I’m not splitting hairs……
June 8, 2013
Actually if you had the jobs spread throughout the UK, rather than in London and the South East, you wouldn’t need so many house all in one area.
June 8, 2013
Thank goodness we have you on here Uni, otherwise we would never be able to be educated by these pearls of wisdom you regularly tell us.
June 8, 2013
The whole business of building houses requires a radical re-think. The process is beset with planning hurdles, gross inefficiency in the way houses are created, and the clammy hand of Government all over it.
Think back to the prefabs of post war years, how they solved a problem and lasted way beyond their design date. I do not suggest we resurrect the pre fab of war years, but go look at what they do in Sweden where factory built houses of very high tech spec are produced in factories to many design variations.
In the northeast of England there are disused covered shipbuilding facilities that could readily be turned into house building factories. These could produce state of the art homes in terms of insulation, use of energy, quality of fittings, and cost. Remember what Henry Ford did for the production of the motor car.
Do not allow the current building industry anywhere near such a project because they will only ensure that it stays slow, traditional ie., inefficient, expensive, and profitable to them. They would only be needed to create foundations and put in the services. Civil engineers can deal with the erection, which by all accounts can be achieved in days, rather than the months it now takes. Remember time is money.
Only allow planning departments who have undergone re-education anywhere near such projects because their atrophied thinking will screw it up.
When you compare the technology that goes into a car these days with the very basic requirements of a house you may wonder why the house costs four times as much as the car, even when the cost of the land is deducted.
Then we come to all the financial additions of tax , all of which in my book should be abolished. Think about it, man earns an amount which is then taxed so that he spends the first half of the year working for the profligate Government Everything he gets in the second half of the year is then taxed every time he uses it. How much better man could organise his life with a taxing government off his back. Then 90% of what Government thinks it has to do could be eliminated. Man could then organise his priorities in an infinitely more efficient way than ever Government can.
Though I agree with the direction of your article, the solution requires a level of thinking way beyond anything that Government can produce. Remember what Max Beaverbrook did for aircraft production in 1939 and carry that sort of drive into house manufacture.
June 8, 2013
Large offices are becoming redundant. Change of use to residential needs to be made much easier. Unfortunately help to buy, like QE, is an attempt to treat the symptoms of low growth not the causes. Its a policy driven by the electoral cycle, not the considered long term needs of the Country.
June 8, 2013
“Its a policy driven by the electoral cycle, not the considered long term needs of the Country.”
Aren’t they all alas?
One assumes that is why Cameron is planning to leave such a mess for Milliband and Balls to tackle in 2015. Just as Brown did for Cameron.
June 8, 2013
The Government shouldn’t interfere in the house market. However as it deliberately manipulates short term interest rates then it affects the market. When interest rates return to normal – after QE ends then house prices should fall together with bond and share prices. Houses will then have more realistic prices and the mortgage system will operate more freely.
June 8, 2013
Totally agree Ferdinand.
All the people who go on about building more houses to change the supply v demand ratios clearly dont live in the real world.
As any look at any of the dozens of house programmes on TV will tell you its location, location, location that’s important not quantity.
There are 1,000’s of low cost good quality affordable homes available in the UK, they’re just not where people want them and that is where the demand bottleneck is.
If you then open up vast areas of greenbelt to build starter homes on, people want to move there LESS because you’ve changed the dynamic. Do you see how it works or rather why it doesn’t work. Central planning is and always will be a failure.
As Ferdinand says 1) Stop manipulating interest rates 2) scrap stamp duty on purchase of main home 3) allow banks to lend again instead of buying government bonds
June 8, 2013
You still argue that halving house prices would put more people out of a job. I just don’t agree or understand this. If you are talking estate agents and mortgage advisors, then maybe, although the increased demand stimulated by lowering prices might negate the effect. Overall, allowing lower housing costs would free up more money for real investments (plant, machinery, education, training), and allow young people to own their own house outside of a bubble. To argue otherwise is to argue for the short term sugar-rush, which isn’t your usual style.
Reply Given the importance of housing to the UK economy it has usually been the case that large house price falls reinforce recessions.
June 8, 2013
I have to say that my concern is not so much for estate agents etc, but for the young people who decided that they really couldn’t keep waiting indefinitely for the long-predicted house price crash to happen, and who could be left very badly exposed if that crash now occurred. A young couple put into massive negative equity would be OK provided they could keep up the mortgage repayments and gradually rebuild savings as a defence against bankruptcy if for some reason they had to realise their losses, but of course there would be the possibility of one or both losing their jobs and that would also be an obstacle to whatever plans they had about having children.
June 8, 2013
If you halve house prices then, in many areas, they will cost rather more to build than they would be worth finished. Building of them would stop, destroying many building jobs and confidence.
June 9, 2013
This has already happened in some areas of the north. There are ex-pit villages in the north east that are like ghost towns and you could buy a 2 up-2 down and have plenty of change left from 10k.
I’m led to believe that the average rebuild cost of a 3 bed family home leaves change from 100k. Any more or less is location.
June 8, 2013
Reply to reply
Isn’t the normal sequence of events that recession comes first and house prices fall as a result? It would be interesting to see what would happen if prices could be engineered to fall first, although I accept that this would be extremely difficult on many levels. One of which would be that an increase in interest rates, although excellent for long-forgotten savers, would mean big losses for the banks on their QE primed bond investments.
June 8, 2013
Reply to reply: How tentative and weak our economic ‘recovery’ now ?
I speak as one fully exposed to a house price crash. Throughout my life I have built in large margins in my risks and suffered looking unfashionable and even poor for it. This issue to me seems to be a choice between bankruptcy of individuals or the bankruptcy of the nation.
House prices along with Premier League football have been the bread and circuses thrown to distract the masses from grave democratic changes.
June 8, 2013
The importance of houses to the British economy, is precisely the problem with the British economy.
June 8, 2013
Net migration under the first 2 years of the Coalition was 400k. Under Labour it was nearly 2m. Vast numbers of ambitious middle-class and lower -class people – who generally have small families – have left, along with pensioners. Even larger numbers of cheap labour have arrived and they generally have big families. This is why there is a housing crisis, especially in the SE and its going to get worse. We all know that, which is why people are prepared to play inflated prices in London and the SE.
June 8, 2013
Yes, cutting stamp duty would help; a tax on housing mobility is lousy economics.
But I think the biggest problem, exemplified in my home town, is coalition politicians essentially opposing government policy by ferociously opposing most housing developments. 2015 will determine if this they have read the local mood correctly; I hope not.
June 8, 2013
Alex–Although some attempts have been made at improvement in recent years one of the main reasons there is such opposition is that developments tend to look so awful. There are may reasons for this. Modern uniform bricks all in stretcher bond with no attractive and preferably burnt headers, set in modern cement needing mastic joints because it is a ghastly product compared with lime mortar, not a chance of a string course or a real arch springing vertically and correctly from each side, plastic windows and doors, a total lack of understanding of the concept of unresolved duality, too many straight lines especially ridges which used to bow down in the middle and talking of roofs more natural slate instead of modern tiles, no use of stone in quoins and the like etc etc and in general all the same and boring. Little boxes on a hillside as Dylan put it. And for those for whom what I am saying is too expensive and as I said yesterday, bring back prefabs which never looked unattractive to me–a modicum in all areas.
June 9, 2013
My in-laws used to live in a park home which they inhabited for twenty years. This provided perfectly good accommodation. In fact it was detached and far more pleasant than some of the houses I’ve lived in.
June 8, 2013
I was just wondering if there was any way of encouraging people to move up north where it seems nobody wants to live.
June 8, 2013
Well you could offer people a lifetime of benefits if they agree to live in a place where they have no chance of ever finding a job. Though this won’t help the north.
June 8, 2013
A job?
June 8, 2013
Aye. It’s one of those things all those lads from Eastern Europe do pretty well.
June 9, 2013
Have a think why?
June 8, 2013
Will it be discussed at the Bilderberg Group meetings that Cameron, Osborne, Clarke and Mandelson are atttending? We will never know, as unusually for politicians who normally cannot resist a press briefing, there will be no details of the discussions. Clearly, we plebs are not thought worthy to know what is discussed (and agreed?) which makes it appear that it will be against our interests. Does that extend to MPs? Why not ask questions in our Parliament or are MPs not interested in what ministers of the state get up to? Incidentally, who pays for the enormous police presence? I read that it will fall on the local taxpayers of Watford. It should be the organisers should it not?
Reply If they want to do anything as a result of their discussion they will need to tell us and persuade Parliament.
June 8, 2013
Ed Balls is there as well and quite likely a representative from the TUC .
So much for democracy . The elites own every horse in the race .
June 8, 2013
Stamp duty is not really relevant to the debate about the price of a house. In some European countries, home sales attract VAT but their house prices are still lower than those in the UK. If the Gov is serious about reducing house prices then it can do 3 things that would really help (1) take steps to make land cheaper. Land is by far the biggest cost to the price of a home and this ridiculous practice of allowing builders to stockpile land by land banking drives up the price of a home for no valid commercisl reason. This is compounded by the Gov’s resistance to free up its own extensive brownfield sites for development. (2) stop local authorities imposing enormous S106 liabilities on builders as the price for granting planing permission. These just get passed on to the home buyer in the form of higher house prices (3) engage in urban redevelopment by allowing mixed residential & retail developments in our inner cities. Before the crash 40% of new homes were apartments in major cities. This market has now almost entirely gone. It you want to provide affordable homes close to where people work, this market needs to be re activated. Help to Buy, New Buy & Funding for Lending have all addressed the issue of price for home builders profits by making it easier to borrow more. Nothing has been done to increase supply. That is why we are now seeing the start of a Gov induced home price bubble.
June 8, 2013
This seems to get to the point. An unattractive alliance of local authorities and builders seems to be the cause of many housing problems, not just price.
June 8, 2013
“Under Labour the build rates were below the rates needed to keep up with the rapid rate of migration.”
This is a point I tried to highlight in a comment submitted yesterday but not published: that as I understand the build rates across the country were more than enough to meet the needs of the established population, taking into account both the small excess of births over deaths and the trend towards lower occupancy, but not enough to also cope with the effects of the increase of the population through large-scale immigration from abroad.
In my view the Labour party policy of allowing and encouraging mass immigration was not just wrong-headed, and not just anti-democratic – given that they knew very well that if they had ever asked the citizens to directly endorse that policy in a referendum then it would have been roundly rejected – but also positively wicked.
Apart from anything else, not only did that policy directly increase the need for housing, it contributed greatly to making houses increasingly unaffordable by depressing the growth of wages, one factor which then led to the Bank of England’s MPC setting interest rates too low and so further fuelling excessive house price rises.
It’s astonishing to think that in 2003 Brown changed his inflation target from one which indirectly took some account of housing costs to one which gave that element much less or no weight, and then some years later he not only boasted about unduly low interest rates but even boasted that house prices had trebled in nominal terms and doubled in real terms, as if such a phenomenal rise was a good thing.
June 8, 2013
Denis,
Have a look at this very misrepresentative graph and what it is NOT saying…….
http://m.conservatives.com/Policy/Issues/ImmigrationFigures.aspx
zorro
June 9, 2013
Indeed, and should we check whether the ONS is being quoted or misquoted?
June 9, 2013
Hmm….I’m having difficulty understanding the Conservative Party graph when compared to the latest ONS figures. They seem to give a misleading baseline impression.
http://www.ons.gov.uk/ons/rel/migration1/migration-statistics-quarterly-report/may-2013/msqr-may13.html#tab-1–What-are-the-latest-total-figures-of-international-migration-
zorro
June 8, 2013
The first thing you could have done was to introduce Land Value Tax (LVT). Then people sitting on bits of land, would have to pay for the privilege of doing so every month. Frequent revaluation will be required, as public infrastructure improvements raise the value of parcels of land.
Second, make local government raise more of its own revenue locally. Make it 80% instead of 20%. Business Rates and Council Tax will raise £55 billion, that can be converted to LVT and smoothed across 14 million acres of non-farm England for starters. Even for Councils; Quangos and the MOD, sitting on land will become expensive. VAT brings in about £100 billion, let the council keep a lot of it. Those three taxes together will cover 90% of local government spending. It will become obvious to the Nimby, that it is in their interest to raise their councils LVT and VAT income by better land use.
June 9, 2013
Given that “ownership” of land amounts to little more than a right of conquest , I’d agree that all land should be considered common land and a charge levied for exclusive use .
This could be viewed as an extension of communal ownership of subsurface mineral rights to include surface rights .
Make the dividends of the land accrue to the many rather than the few .
No taxation system is perfect but it’s better to move taxation onto monopolies like land than tax industry and labour which are almost entirely private endeavors .
A solution has to be found for pensions provision too . Ownership of UK based assets including land by a state pension fund looks like providing the double return which is required .
June 8, 2013
Well something needs to be done, and quick!
It’s galling to watch ones kids holding down two jobs, and working all the hours God sends in order to save up for a deposit, then see house prices outstrip the rate at which they can save.
‘Under Labour the build rates were below the rates needed to keep up with the rapid rate of migration.’
I wonder why!
I guess we are so desperately short of taxi drivers, super market workers, and tea trolley pushers, that we have to source those skills from anywhere we can, and of course, they all need a place to live, which puts pressure on this already overcrowded island’s housing stock.
Might it not be possible to stop immigration, where someone coming to these shores is about to take a job that one of our own unemployed people could do, or is that too difficult and ‘out of the box’ for politicians to contemplate?
I heard the respected writer and broadcaster, Robin Page, say on local radio yesterday, that Britain is now more densely populated than either Japan or India. I can’t say if he’s right or not, but it sure as hell feels like it! And never a day goes by without the press heaping more doom upon the first-time buyer. Margaret Thatcher’s dream of a property-owning democracy is starting to look ever more like an unattainable goal.
Tad Davison
Cambridge
June 8, 2013
Just seen the BBC news, and it carried a story where new developments in London are being offered to Chinese buyers before Londoners are being given a chance to buy. Make of that what you will, but it doesn’t look good. The Lib Dem, Simon Hughes, is to take it up with Boris and I guess, anyone else who’ll listen. And some within Labour are saying they want a cap on rents. This is a proper pot-mess!
Tad
June 9, 2013
According to Wikipedia India is the 33rd most populous country in the world with 382 people per km², Japan is 38th with 337 people per km², while the UK is 51st with 260 people per km². So the UK is not more densely populated than either of these countries and is unlikely to become more densely populated any time soon.
The most populous place is Macau in China which has 20,069 people per km².
http://en.wikipedia.org/wiki/List_of_sovereign_states_and_dependent_territories_by_population_density
June 8, 2013
The net immigration number is partly driven by an increase in emigration of skilled people to find work abroad- hardly a vote of confidence in the UK.
Immigration has come down largely due to the lack of opportunities here in our stagnant economy plus a perception from foreign students that they are not welcome to study here- again hardly things to boast about.
The government should not interfere in the housing market beyond ensuring that the Planning system allows the construction of sufficient dwellings to meet demand, which is rising due to demographic factors other than immigration – more households as people live longer and divorce rates are higher. What rational reason is there to want houses to be expensive? How can continuing to inflate the current bubble/illusion possibly help in the long run?
I appreciate I am being repetitive but the proposed Help to Buy scheme really is the worst initiative I can imagine and I worry about my children getting sucked in to the madness.
I do agree with you. on Stamp Duty!
Reply A lot of people who divorce then live together with a new partner. Not all divorcees need single accommodation.
June 8, 2013
Why not start by looking at why houses are so expensive?
My local council are currently discussiong the ‘Community Infrastructure Levy’. For zone 4 residents they are recommending a rate of £80 per square metre of building and rubbing their hands with joy at the £2 million this tax is expected to deliver them. In addition they add section106 payments to developments and housing development is subject to an ‘affordable housing levy’.
Stuff VAT on top and every new house has been increased in price by about 30% or more – and then governments whinge about low house building.
June 8, 2013
Stamp duty certainly is a problem where I live since 250k is in the middle of the two bed flat category, creating a no fly zone between about 250-275k. Why not apply special rates of stamp duty for non-doms both to discourage foreign interference in the London market and recoup some of the social costs of the shortages they create; it must about the easiest tax to collect, without exception?
The right of those on housing benefit to decide where they live should be removed and the cap reduced progressively so that benefit tenants no longer lived where working people cannot afford. The compulsory affordable build scheme should be abolished, since building new better properties reduces demand for older less desirable properties; property for rental by taxpayer subsidised tenants should be purpose built in suitably cheaper locations. The inflated housing market is, in part, being artificially maintained by the failure of this government to address the market abuses enacted by Labour.
June 9, 2013
The problem with reducing the benefits of the unemployed is that they will eventually be forced into areas where there are no jobs, thus condemning them to permanent unemployment.
June 8, 2013
Successive governments have seen house buying as an easy means of collecting more tax revenue, by increasing Stamp Duties. It is another case of government taxing something they believe is a good, with perverse consequences. If government wanted to do more about affordability, a cut in Stamp Duty would help.
Then why have house prices risen much faster than stamp duty has risen? Also as there’s no stamp duty on properties worth up to £125,000 (£250,000 for first time buyers) why hasn’t this resulted in more houses within these price ranges?
http://www.hmrc.gov.uk/so/rates/rates-mar10-apr11.htm#1
At the very least they could consider only charging the higher rates on the amount over each threshold. So the 3% duty would not be charged on the whole transaction of a £300,000 property, but just on the £50,000 above the threshold.
Good idea. I wish they did that with import taxes as well, rather than taxing you based on the entire value of the package (including postage and a handling fee).
In hard pressed Lodnon, where considerably more space is required, there is a more permissive regime to allow high rise blocks of flats for private rent and purchase.
More flats, rather than more houses, will eventually be the solution to this problem. After all it worked in Japan, the USA, and many EU countries.
In other news the problems caused by the bedroom tax, complex benefit system, and long sanctions continue to mount.
http://www.independent.co.uk/news/uk/politics/soaring-numbers-need-urgent-help-from-citizens-advice-bureau-after-welfare-changes-drive-people-to-despair-8650251.html
Also the Government’s legal aid plans are likely to cause major problems because most lawyers won’t be able to afford to work at the reduced rate and any couple earning more than £37,500 will be forced to pay for most of the cost of their legal defence.
http://www.independent.co.uk/voices/comment/six-reasons-the-cuts-to-legal-aid-will-ruin-our-justice-system-8650303.html
June 8, 2013
Thanks for the comment on stamp duty. It is highly iniquitous and (as with council tax) a punishment for aspiration rather than an entitlement to extra service – the higher rate now applies to tiny homes in rough parts of London too.
But what can we expect ? The Government needs an awful of revenue and can’t be too picky about how it gets it.
A relaxation on stamp duty will only go to drive prices up higher. The problem is the over-inflation of house prices, way beyond reasonable wage multiples in a market disconnected from global – or even local – events and fed from the bottom by the welfare state and mass migration. High expectations over reality propped up with artificially low interest rates and various other schemes.
No-one allowed to fail no matter how much they over-stretch themselves. This all seems remarkably socialist to me.
To sustain high house prices we need jobs. Lots of them and paying lots of money.
Building more houses without these jobs will only go to deflate the housing market which seems counter to what you want to achieve.
June 8, 2013
PS, Hat tip on the reduction in migration. But it can’t last if we remain members of the EU.
June 9, 2013
Electro-Kevin ,
“To sustain high house prices we need jobs. Lots of them and paying lots of money. ”
My customers are based outside the EU where labour costs are two-thirds UK rates in one of their countries and one-third UK rates in another of their countries .
Evidently they must think a lot of me to to pay a premium of 50% and 200% respectively but even so I have had to reduce my rates to keep the business .
In a global economy the UK’s economic salvation lies with reduced cost of living rather than a rising cost of living and rising wages .
Without affordable housing and a proper plan for pensions (not that NEST kludge) the UK has no future .
June 8, 2013
The iniquity of stamp duty is a very good point. Envy taxes like that are pure socialism.
The second point about migration seems to tow the Party line. Tractor production statistics are meaningless. We know that the Conservative Party will do nothing meaningful to address the problem of mass immigration. In the meantime, the Mark 1 eyeball is probably the best indicator of current population trends.
The third point is good. Just as long as these developments are of high quality and remain well maintained with appropriate infrastructure to complement them.
June 8, 2013
I assume the comment about ‘house prices halving from the comfort of your armchair’ was aimed at me.
Mr. Redwood – your government in the 1980s de-regulated credit and allowed lenders to abandon their previous prudent lending criteria and a house price boom ensued. Your idiotic chancellor poured petrol on the flames by announcing in advance that joint mortgage tax relief was to end – and in the spring and summer of 1988 the housing market became ludicrously overheated. People were asking friends, any friend, to ‘get a mortgage’ with them so they could get a foot on the ladder before the joint tax relief ended.
It all came to a dramatic climax on July 31st 1988. The housing market literally stopped functioning and a house price collapse ensued. Many people lost their homes in the subsequent recession which featured the ERM debacle and bank rate, at one point, being moved by the government up 5% in one go. It lasted about an hour as I recall and we pulled out of the ERM. Nonetheless, high interest rates were imposed to support the currency and neither you, nor any of your peers, seemed to give a fig about people losing their jobs and homes. This was deemed necessary to get the economy back on an even keel.
Then Gordon ‘I will not allow a house price boom to put at risk the sustainability of the recovery’ Brown came along. He has seen the mess you had made of the economy in the 1980s and first half of the 1990s and decided he would not make the same mistake.
But, incredibly, he did. And, EVEN MORE INCREDIBLY, not one Tory ever got on their hind legs and said ‘Do you know what – all this growth is based on debt. This massive increase in house prices is a TERRIBLE thing – house prices going up constantly sucks money out of the economy and into the hands of bankers. And people have no money to spend on other things – creating demand, employment and wealth all round. We made a mess in the 1980s – look, Gordon Brown is in the process of making a bigger mess’
But NO! Not one word was uttered. Vince Cable, to his credit, warned Gordon Brown after the budget in 2003 about the dangerous growth in consumer debt. Brown made a patronising comment by way of a reply.
And, even more incredibly, your party guaranteed to match Gordon Brown’s ‘debt fuelled’ spending! Surely it is clear you have NO IDEA how to run an economy and learnt nothing from your mistakes in the 1980s. You should have been shouting from the rooftops that ‘this debt fuelled growth will end in tears’. If you had, when the banking crisis happened you could have said ‘we told you this would happen, you can’t base growth on ever increasing debt’. But, no. Your constant silence and acquiescence throughout the Brown madness removed your credibility on the economy.
So, where are we now? The next generation priced out of home ownership. FULL STOP. Not a cat in hell’s chance of being able to leave home and raise a family. You, and the previous government, have destroyed the hopes of a generation.
Yet you say ‘what about those who will lose their homes if house prices go down’. Well, sorry, surely it is about time that it was spelt out that
‘THE HOUSING MARKET IS NOT A ONE WAY BET.
ONLY BUY A HOME YOU CAN AFFORD.
ONLY BUY A HOME ALLOWING FOR ONE OF YOU TO STAY AT HOME FOR A NUMBER OF YEARS TO RAISE THE CHILDREN.
ALLOW FOR THE FACT THAT INTEREST RATES GO UP AND DOWN ALL THE TIME.
If someone buys a home at historically high prices, at historically low interest rates with a massive mortgage multiple compared to their salary – THEY ARE MAD.
And it is the government’s job to protect people from the banking wolves who will lend any amount of money to anyone if they can get away with it.
I can only see one way out of this mess.
The government must intervene and force councils to release land / give planning permission for self build homes for first time buyers. My eldest lad works full time as a construction site manager. He is doing a degree in his own time. And he undertakes private work to supplement his income. Most of his friends are similarly hard working and responsible.
If he could be part of a local self build scheme he would definitely commit the hours needed to build his own home. This would give him a chance in life – the same sort of change that our generation enjoyed when a bog standard 3 bed semi (275k in Wokingham) was not TEN TIMES AN AVERAGE SALARY.
So, come on Mr. Redwood. Become an evangelist for the chances of the next generation. We already have a million 16 to 24 year olds out of work. Get behind a massive self build program that could teach lots of youngsters valuable skills that would help them find work all their lives and would give them a chance to leave home and lead independent lives – without putting themselves in hock to the devil for 10 times their salary for the rest of their lives.
June 8, 2013
Well said Mike……I know that you must feel better after getting that out!
zorro
June 8, 2013
Well said Mike Wilson .
Overpriced housing is in my opinion the biggest problem facing the economy and ruining the one and only life of so many people .
Interconnected to this problem is the pensions crisis – 8 out of 10 private sector workers retiring with a pension pot of less than £30,000 .
Sort out the first and you help sort out the second .
What have you got to say about the pensions crisis ?
June 9, 2013
@A different Simon
I agree completely with your point. I am facing working until I die. I have earned reasonably good money during my life – but, most of the time, I have been self employed. All my life I have been forced to pay high taxes and high housing costs and the £100 a month I used to save with Equitable Life ended up worthless.
So, yes – high house prices are screwing most of us all our lives.
The ONLY people who benefit from rising house prices are the banks. They create money out of thin air, lend into the housing market and pay themselves billions in bonuses out of the proceeds.
And most people act like sheep and as soon as they have a bit of unearned equity become the banks’ biggest fans and proponents of the system. In a way, it’s quite funny.
June 9, 2013
Nice comment, but you’re swimming against the tide, the MP’s, Sir Humprey’s and their donors are all long prime UK land and short sterling / sterling interest rates.
June 9, 2013
If I were young with a good portable skill I wouldn’t be staying in Britain.
As with education, we have created a country whereby only those with rich parents can attain any sort of foothold.
June 10, 2013
Further to Mike Wilson’s comment:
People are now choosing between houses and pensions – it is considered a luxury among the young to be able to have both. Houses it is then.
There will need to be a massive release of equity sometime in the future to meet retirement costs. It is then that we will realise that that equity is entirely notional.
The exchange of rich/skilled people for poor/unskilled people – as our ‘net’ migration figures would indicate is happening – does not bode well for the high wage economy that is going to be needed to sustain high house prices.
June 10, 2013
Mike
I agree with your comments, but the first housing bubble came in 1972-73 when house prices doubled in 18 months.
Certainly self build is popular, with about 20,000 houses a year being constructed by individuals, indeed I did this myself in 1980-81, and we still live in that same property.
Whilst I agree that land costs seem/are very high, the problem you have of selling it off cheap, is that the purchasers then make a killing when selling off the completed structure at some future date at the full market price.
Rather like those who purchased council houses on the cheap.
Thus it is the Council (council tax payers) who actually subsidise such a policy.
Rather like Gordon Brown selling off Gold on the cheap (advising the market in advance that he was selling) with the taxpayers having to fund the difference.
I certainly agree lending went completely out of control in the past, and perhaps if we got back to more sensible income multiples, then a gradual price adjustment/correction, may not be so dramatic.
I agree with your point on Pensions, having also been a victim with the same Company, my planned and GUARRANTEED pension ending up at only 30% of what was originally promised in their official policy documents.
June 8, 2013
I do think the excessive high rates of stamp duty are restricting labour mobility and so are very damaging at this stage of the economic cycle. New employees have no labour rights during the first two years and can be laid off with no compensation. Yet to take up a new job very often entails moving home and incurring very many thousands of pounds of stamp duty with the balance of risk falling entirely on those prepared to ‘get on their bikes’ to seek work.
June 8, 2013
Collapsing house prices is too drastic, Freezing them is maybe a better method, then they reduce with inflation so the effect is delayed. Also, as the French do, tax equity profit on a sliding scale so the longer you live in the house the more of the price difference you keep, that will cut down speculative house purchasing.
June 8, 2013
Surely it’s better to tax land by levying an annual fee for the exclusive use of land , whether it is developed or not in proportion to the value of the land in that location ?
“Freezing them is maybe a better method, then they reduce with inflation”
That might be the case if we had wage inflation . I’m earning less than I was 6 years ago and expect my income to reduce further .
Do you know anyone whose wages are going up ?
June 8, 2013
It was all the fashion for people to become part owners in housing association contracts. .Where did this go? surely this is a way on the first rung. Can you imagine the amount of people whose negative equity would be even more if house prices dropped further ..what is the point of a lifetimes hard work , saving and doing without for it all to be for nothing. come on give us some credit ..if the government doesn’t take it all the kids will benefit long term.
June 8, 2013
No! No! No! These schemes just perpetuate the current situation. Can’t afford a flat? Buy 40% of one! And rent the rest! What on earth is the point? Again it is predicated on house prices going up forever. Oh, when you have some equity you can sell up and buy something else. But something else will have gone up too!
Houses are too expensive and schemes to perpetuate that are bringing our economy to its knees as people spend so much of their income on rent and/or mortgages.
It is madness.
June 12, 2013
Mike
Absolutely agree ref part equity.
You may only own a percentage, but you pay 100% of all maintainace, repairs, and improvements.
The scheme is very one sided and expensive.
June 9, 2013
Margaret ,
State pension and most public sector pensions are pay-as-you-go .
Either the next generation :-
– honour pay-as-you-go obligations which they have been saddled with (which they can only do if they do not have to pay everything they earn to landlords and mortgage lenders) .
Or
– compel elderly house owners to get involved in a house equity release scheme and live off the proceeds .
All of us get too attached to our houses . We only need to go back 70 years to see how many people fled occupied Europe or more recently in the Balkans without ever receiving any compensation and being forced to start again from scratch .
June 8, 2013
A much tougher stance needs to be taken on immigration. Labour and the Lib Dems are, of course, strongly pro mass immigration and do not care how much pressure this puts on public services, housing and community cohesion. The Conservatives really need to stop pretending they are making a difference by cutting immigration by a measly amount and actually start to take action (etc ed). As usual, UKIP have got it right by stating there needs to be a five year freeze on immigration for permanent settlement. The three big parties treat the working class with utter contempt.
June 8, 2013
Why does the government (and politicians) love to quote the wholly misleading “net” migration figure?
If 400,000 British people leave these shores and are replaced by 500,000 immigrants, then the net migration figure is only 100,000.
But half a million new people will have arrived and this (word left out ed) figure (and the fact that 400,000 Brits have left) is then masked by quoting the net number.
Don’t worry, this is done for a reason.
June 8, 2013
Now I know you are ‘avin’ a larf.
“The recent buyers then, of course, have an interest in prices staying up.” Why should this be the case? They have a mortgage which, provided they service it, will continue to be extant and they have a home to live in.
“…..assert you want home prices to halve without thinking about how many people would be put out of work or into bankruptcy by such a move.”
Well, if house prices halved overnight, for example, then thousands would be able to afford to buy and the house building sector would be back in business as would first time buyers and this itself would create jobs, not destroy them.
With respect, as much as I think taxes are too high they have little to do with the price af houses which should simply rise and fall in line with supply and demand.
Nor have immigrants, as they caused an increase in demand many years back and still the housing market has languished, until of course this silly Osborne scheme was adopted.
There really is no problem with supply as seen from the way prices have remained high; it is demand that is absent because of the stupidly high prices caused by the moronic policies of this and the previous government in keeping interest rates at such a low level and the failure of the banks to lend, which banks both governments insisted on supporting rather than to insist on an orderly liquidation of assets.
We now have a clutch of zombie banks a gaggle of zombie construction companies and, dare I say, a zombie government.
June 8, 2013
Well, I think recent buyers do have an interest in not crystallising large losses and potentially being pushed into bankruptcy if they were forced to sell before they’d paid down enough of their mortgage loans, with the most obvious reason being that they’d lost their jobs.
June 8, 2013
Just let the market forces find the price, government meddling creates non economical solutions which then needs modification and more interference.
Help-to-buy is typical, just when the USA government lost hundreds of billions in Freddy and Fanny Mae and is trying to extricate itself from the mess, our own government decides to start a similar scheme.
Help-to-buy is a Ponsi scheme in which the public purse is put on the line for the benefit of an unknown section (some deserving sympathy, most, I suspect, will turn out to be undeserving).
People should live where they can afford to live and that’s the end of it.
BTW re: increase in house price: I think that the initial surges during the 60’s – 90’s had to do with the dramatic increase in households where both partners work.
June 8, 2013
@PaulDirac … you wrote ‘BTW re: increase in house price: I think that the initial surges during the 60′s – 90′s had to do with the dramatic increase in households where both partners work.’
I don’t think that – at all. Each time house prices have surged above the rate of inflation – in two big bursts – in the mid 1980s and then, under Gordon (‘I will not allow a house price boom to put at risk the sustainability of the recovery’) Brown – it has been because credit has been either de-regulated (Thatcher’s government (God rest her soul)) or by a government allowing the banks to lend without restrictions – so they could milk all the debt-fuelled growth for tax revenues (New Labour).
People’s RESPONSE to these events was for both parents to HAVE to work. I know some (at the risk of being sexist but, let’s face facts, it used to be women that stayed at home) women wanted to work etc. and not just be a housewife – but I don’t think the army of parents dropping babies off at nurseries at 6 am and collecting them at 6pm are doing it by choice. They are doing it because they have to – so they can have a roof over their heads and eat.
I look at the way we work now … 50 to 60 hours a week, both parents working, kids dropped in nurseries or looked after by child minders, answering emails at 9 o’clock at night etc. – and it makes my Dad’s nice, steady 37.5 week with Mum at home being a housewife look like paradise.
We have all been enslaved by the banks. And we are, collectively, too stupid to do anything about it. I’d like to see a mortgage strike myself. The whole country – every mortgagee – refusing to pay their mortgage. That would shake things up a bit.
June 8, 2013
Stamp duty is an irritant. However, the previous holiday simply resulted in buyers paying slightly higher prices to sellers, doing nothing to reduce the cost of buying. It may seem a paradox, but the biggest upturn in sales volume (+45%!!) is in £2m+ properties subject to 7% SDLT as rich foreigners use London mansions as an alternative to a bank account that may be plundered by the authorities. Sales volumes are most depressed at lower price levels where SDLT is low or doesn’t apply, but where affordability is most constrained.
http://www.landregistry.gov.uk/__data/assets/file/0017/42740/HPI-April-2013.pdf
A quick calculation suggests near 60% of all SDLT is paid on £2m+ properties, and almost 75% on those worth more than £500,000. There is probably a case for raising the duty on the most expensive properties until the Laffer curve takes over.
Halving house prices would do little immediate damage to house buyers: it doesn’t change the ability to service a mortgage already taken out – only a rise in interest rates does that. Just look back to the early 1990s, when nominal house prices fell by up to 40% in parts of the SE/London. GDP rapidly returned to growth even while prices were falling. True, repossessions were higher – but so were interest rates, which were substantially higher than inflation. Those who had overextended themselves paid for their folly instead of having their mortgages subsidised and being granted excessive forbearance. Banks did not collapse.
Incidentally, I was surprised when I found out that the stock of housing just about kept pace with the rise in population between 2001 and 2011 (Table 101 DCLG and ONS population estimates – which may be slightly dubious, but include the 2011 Census as an anchor). Of course, new dwellings tended to be rather small, but that is a different issue allied to the burdens such as Sec 106, landbanking, greenergy building standards/fines, Prescott densities etc. that make newbuilds uncompetitive.
June 8, 2013
The simple fact is that house prices are a function of interest rates. Low interest rates mean high house prices. I commitment to long term low interest rates means high house prices in the long term. This means the market is distorted. Stamp duty, buy to let, funding for lending are all zombie economic policies designed to rectify the primary fault of destroying the market for money in the first place. In some cases, like funding for lending, the government makes guarantees about future house values. thereby artificially increasing the prices of housing even more. This is clear nonsense and makes the future ‘correction’ even worse than it would otherwise be.
June 8, 2013
[Sorry for going off-topic again, but I didn’t expect my fears about the Internet – and the particular attendees of the Bilderberg meeting this week – to be borne out so soon.]
The Telegraph reports:
The inventor of the World Wide Web said the internet is facing a “major” threat from “people who want to control it on the sly” through “worrying laws” such as SOPA, the US anti-piracy act, and through the actions of internet giants.
“If you can control [the internet], if you can start tweaking what people say, or intercepting communications, it’s very, very powerful…it’s the sort of power that if you give it to a corrupt government, you give them the ability to stay in power forever.”
There have also been reports that British spies have been gathering intelligence from the internet giants “through a covertly run operation set up by America’s top spy agency”
“Unwarranted government surveillance is an intrusion on basic human rights that threatens the very foundations of a democratic society,” Sir Tim said. “I call on all web users to demand better legal protection and due process safeguards for the privacy of their online communications, including their right to be informed when someone requests or stores their data.
Sir Tim said “companies and governments in different places all over the world trying to take control of the internet in different ways” is a much bigger threat to its development than fears over any one company having an online monopoly.
I just hope that every UK citizen heeds these warnings very seriously. Freedom, once given away, is very much harder to regain.
June 8, 2013
If you want a solution, try promoting early repayment of mortgages. Restrict bank access to favourable BoE cheap money only to mortgages that are rewritten to pay back at least 2% of the principal extra per year on top of the normal mortgage repayment until the LTV is below say 75%. LTV would be assessed simply by using the Land Registry regional price index as a measure of change since the mortgage valuation. Those who did not wish to sign up for such a deal would find their mortgages based on a higher, unsubsidised market rate (preferably above inflation), providing the incentive to switch.
Given that most mortgagors were paying when base rates were 5% or more at the start of the credit crunch there is no reason why those who didn’t over-extend themselves would not be able to afford the 2% extra capital repayment against current 0.5% base rates, and no reason why those who did over-extend themselves should continue to be subsidised. If we had done this from the outset, LTVs would now be nearly 10% lower, and bank balance sheets would be better protected. It would still be a subsidy to mortgages, but one aimed at restoring health to banks and limiting negative equity. Reducing the stock of mortgage lending would free money for lending to the productive economy.
It would also make sense to limit the ability of BTL landlords to out-compete first time buyers by limiting their LTV to say 50%, and by cutting the amount of Housing Benefit they can expect as a subsidy to the rents they charge – which simply allow them to pay a higher price for a property. Landlords have bought the equivalent of every new house built since 2000, plus a number previously owner occupied.
June 8, 2013
The statistics in this report are shocking: 74% of London newbuilds sold to foreigners – mainly absentee landlords – before even being offered to local buyers.
http://www.bbc.co.uk/news/uk-england-london-22825881
Have you asked how the block next to your pied à terre is being financed and marketed?
June 9, 2013
Mark: “The statistics in this report are shocking: 74% of London newbuilds sold to foreigners.”
In which case, given that most ‘foreigners’ don’t vote, there would be no political cost to letting the price of houses fall.
Since there are streets and streets in Liverpool that can be bought empty for a couple of quid, there isn’t much political cost to letting the price of something worth £3 fall to nothing, there either.
One can only conclude that MPs must have very significant interest in property if they are so desperate to keep the prices propped up!
June 9, 2013
They are buying for investment purposes. Everyone knows London is experiencing massive population growth, both from overseas migration and to a lesser extent, domestic migration. Basic supply and demand. Plus, no restrictions or tax on foreign buyers.
June 10, 2013
Winston Smith: “They are buying for investment purposes.”
Who are?
And so what? “The value of your investment may go down as well as up, past performance is no guide to future investment returns.”
Invest in a rigged market and somebody is gonna get skinned, (etc ed)
June 8, 2013
“If government wanted to do more about affordability, a cut in Stamp Duty would help.”
Although the absolute, rather than marginal, form of Stamp Duty at the boundaries is perverse and causes all sorts of daft issues (and it is ridiculous that the government has done nothing about it), the level of Stamp Duty by itself does not cause much of an impact on affordability, and so a cut in Stamp Duty would not help buyers, because the house supply is so controlled by the State.
Suppose there is a house and two buyers Alice and Bob, who both want to buy the house and can both get just a big enough mortgage to afford to pay not only 200k for the house, but also the additional money they need to cover all the charges (mainly stamp duty and solicitor fees). If nobody else wants the house then they will bid it up to 200k. Now imagine the government abolishes stamp duty, so a buyer no longer has to pay 2k to the government. Well now both Alice and Bob can afford to pay 202k for the house, so the price will just go up to that. (Well, not exactly, because of the issue of the percentage required for down payments, but near enough.) Result: the buyer is no better off, and all (well, most of) the money goes to the seller. Affordability has not been improved. If this extra 2k to the seller meant that more developers were willing to build more houses, to pocket that extra money, then all well and good eventually, but unfortunately the rate limiting step in the UK, or at least in the parts of the UK where people want to live, is not developers but planning permission, i.e. supply. No government will sort out house prices without sorting out supply (well, there is an issue over second homes, including bought by foreigners, but that stray into another discussion). Houses are not like TV sets where a cut in tax would actually encourage people to buy more and so manufacturers to make more.
To put it another way, a cut in Stamp Duty would in effect on the housing market be very much like the Help to Buy Scheme, which should really be called the Help to Sell Scheme, since it helps sellers more than buyers.
“It is a difficult cycle to break into, and all too easy from an armchair to assert you want home prices to halve.”
Mr Redwood can no doubt find some random cranks who assert this, which is perhaps why he keeps repeating this red herring. But as many people have pointed out over and over in this blog, a far better solution is a gradual reduction in the real cost of houses by having them increase more slowly in price than inflation, and probably best of all would be no increase in nominal terms, so that people who bought houses at the current crazy prices (further increased by the idiotic Help to Buy scheme) do not suffer too much but that the real price falls as fast as is reasonable. Well, no doubt a serious economist could analyse the situation much more carefully and come up with a more refined suggestion.
Reply I do not see why you are arguing with me. In recent years there have been substantial falls in the real price of homes as you wish to see. There has also been a continued divergence in price changes between London and most of the rest of the country signalling that there are now many parts of the country where homes are more affordable than in 2007 where demand for homes remains low.
June 9, 2013
A Policy Exchange study estimated that when the average house price was £160,000, the price would have been £45,000 less if there were no planning restrictions. See:
http://www.policyexchange.org.uk/images/publications/making%20housing%20affordable%20-%20aug%2010.pdf
I did my own back of the envelope calculations which confirmed that result
June 10, 2013
making planning quicker and cheaper, and cutting stamp duty would certainly help, but given that even making mortgages hard to get has had little impact then it is difficult to see anything that would achieve a lowering of house prices. The fact is that even after adjusting for Gordon’s bubble, the market fundamentals have not changed.
June 11, 2013
I think the idea for changing stamp duties is an excellent one. Any tax which has a cliff edge is always going to create distortions so the example of smoothing the tax between £250k and £251k is very sensible.
I think the Help to Buy scheme is a very bad idea generally and if the scheme is implemented then the bad publicity surrounding it will come back to haunt the Conservatives.
June 12, 2013
It is especially the young seeking to enter the market who will be most helped by a fall in house prices, but that would increase the number of people with young mortgages facing negative equity. Keeping house prices constant in nominal terms but decreasing in real terms would be an acceptable compromise, but that would delay achievement of zero inflation. It wouldn’t be a huge problem if a larger proportion of the population chose to rent rather than buy until a real reduction in house prices was achieved.
I never saw the sense in Stamp Duty, or in most transaction taxes where wealth is not created. Much better to charge VAT on all building work. The general principle is that tax should only be charged when wealth has been created.
June 14, 2014
67% of Berkeley Homes new development on Chelsea Bridge Road was sold overseas prior to any UK launch. Barrett London in Fulham have sold 50% to overseas buyers and have increased prices from less than £1000 sq ft in June 2013 to £1500 sq ft in May 2014, based on demand. Its the developers causing the property bubble by selling overseas FIRST and increasing prices by 5% every 4 weeks. Lets stop overseas buyers from getting first choice and increase their stamp duty to 25%. UK buyers pay stamp duty up to 7% when buying and death duties claim another 40% when the property passed to close family, at the current value. Lets stop death duties on property and reduce stamp duty to zero on all first time purchases and ensure all UK developments are sold only to first time buyers and UK residents for the first 90 days without price hikes. This will help buyers onto the property ladder, keep prices low. stop hikes in prices and prevent property bubbles.