The investment paradox

 

Most politicians think investment is a good thing. Indeed, Tony Blair and Gordon Brown thought it was such a good thing the redefined a large amount of current public spending as investment to justify their large increases in spending.

Today politicians urge more investment on the more conventional definition that investment is buying something that can be used for more than a year.  A new railway line, extra equipment for a hospital or a new school is on this definition an investment, as is a new private sector house, a new piece of machinery for a factory and a new business vehicle.

At the same time it is also fashionable amongst many to decry investing too much in property in general, and in houses in particular. Banks have for sometime since the crash been under regulatory constraints to cut the proportion of their lending that finances property.

Some  Commentators and bloggers urge on us the “continental model” of more people renting their own home, to cut the amount we “waste” by investing in property. Presumably they wish by this to have people living in cheaper and meaner properties, as the amount invested in residential property would remain the same if we simply shifted from owning to renting, as someone has to own the homes we would rent. The construction and improvement of the rented homes will still count as investment. I have never understood the  impulse to recreate a nation of tenants dependent on rich landlords or the state as the richest landlord of them all like some medieval King dishing out property favours to his supporters.

If you examine the patterns of investment, you soon discover that investment in new and improved housing, and investment in buildings and structures by business has always comprised a large element of total investment. Those who see the construction of a new hospital or school as a good investment in the public sector should not begrudge the private sector its equivalent investment in a  better home or smarter factory building. Investment in buildings is typically more than a third of total business investment in this country or one fifth of total investment, and investment in housing is another one fifth of total investment as well.

Not all investment is productive. Some investments turn out to be a bad idea, bankrupting their makers. State “investments” are especially difficult to evaluate, as in a free at the point of use or heavily subsidised service there will be no profit on the investment. The case has to be made for the investment on the basis that it will raise the quality, or cut the cost  or increase the capacity of the service in a  way which is needed.

If we wish to see total investment in our economy expand then we need to welcome more new buildings, and be ready to finance a new generation of better homes and more modern business buildings. Our banking system needs to be freed to finance these on a sensible and sustainable basis. The new bias against property is both unrealistic and cramping.

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164 Comments

  1. Nina Andreeva
    Posted August 22, 2013 at 5:33 am | Permalink

    JR you need to become a little more familiar with renting in Europe, particularly in Germany.
    Unlike the UK most rented property is owned by big companies, such as Deutsche Wohen, and not by small time amateur players, as here, who often get their fingers burned by the portfolios when the economic cycle turns against them.

    If anything property looks ‘meaner” in the UK than what you will find on their website for example. Give me an “altbauwohnung” any day than one of those soulless, near identical estates with the rabbit hutch rooms that builders throw up over here. Leases are also over the long term so people can plan their lives out and they are not cojoined to the fortunes of their landlord. While if you need to change jobs you can “get on your bike” and go to where the work is quickly, without being dependent on a chain to sell your house. There is also no need for the state to either to pay your mortgage interest if you cannot be bothered to find a new job. Pensioners also seem to be able to afford their rents too without being cast out onto the pavement.

    Reply You are missing the point I am making. I am not against decent houses to rent if that is what people want and they are prepared to pay for them. It will of course be dearer over a lifetime for the tenant than buying one house and sticking with it. I am making the point that those who say all our current investment in owner occupied housing is wasteful have to accept that in a rented system you would still need to make the same investment if you wanted the same standard of housing.

    • Gary
      Posted August 22, 2013 at 8:35 am | Permalink

      “. It will of course be dearer over a
      lifetime for the tenant than
      buying one house and sticking
      with it.”

      Why? If the tenant invested his money into stocks and shares or built a business with the savings he would otherwise plough into a house he may increase his return, create new jobs and contribute to exports of the country.

      Reply His lifetime rent will greatly exceed the mortgage costs and mortgage repayment. He will not have a surplus to invest.

      • Iain Gill
        Posted August 22, 2013 at 11:08 am | Permalink

        Re “His lifetime rent will greatly exceed the mortgage costs and mortgage repayment. He will not have a surplus to invest.”
        He will if he gets more money through better jobs by being able to move when the opportunities arise.

        Reply It can be just as easy to move from an owned property as from a rental agreement.

        • Iain Gill
          Posted August 22, 2013 at 12:42 pm | Permalink

          come on John? be sensible, you dont really believe that do you surely? its certainly completely at odds with my experiences

          • nina andreeva
            Posted August 22, 2013 at 1:15 pm | Permalink

            me too at the minute i am trying to get out of bristol which is hardly a distressed part of the country and its really difficult. i hope someone comes on from wokingham to show jr how out of touch he is on this point

            Reply Why is it difficult? The housing market is picking up and sensibly prices properties now sell quite quickly. Good luck if you are trying to do that.

          • nina Andreeva
            Posted August 22, 2013 at 7:00 pm | Permalink

            I agree. I want to move to West Cumbria, unfortunately the locals do not appear to understand that the local jobs market cannot support the prices they are asking, neither is some mug going to come up from the South and handover their ill gotten gains. Therefore their properties remain up for sale for two or three years or more.

            Meanwhile here in Bristol “sold” signs are everywhere, but they are only attached to properties that are attractive to the (mug) BTL speculators/student landlords. Family sized homes are tending to be slow sellers, even the lovely Georgian townhouses by the suspension bridge

        • Lifelogic
          Posted August 22, 2013 at 2:03 pm | Permalink

          Not really you have overlaps with two properties on your hands stamp duty at huge rates legals, abortive costs agents fees, land reg fees …. Perhaps if you do not move or choose a good booming area. tenant usually tend to rend more modest properties too perhaps over shops or similar.

          • Bazman
            Posted August 23, 2013 at 5:45 am | Permalink

            Villa, penthouse, mansion or above a fried chicken takeaway shop watching roaches climb the wall? Hmm. Let me think? Stamp duty at huge rates legals, abortive costs agents fees, land reg fees ….Smoke some fags and play some pool, pretend you never went to school…

    • zorro
      Posted August 22, 2013 at 8:52 am | Permalink

      John, who actually has said that ‘all our current investment in owner occupied housing is wasteful’…..? I think that you will find that some like Nina, me, and others are merely stating that the British obsession with increasing house prices at the expense of everything else is a tad barmy, and perhaps misdirecting our investments/savings…..

      There is absolutely nothing wrong with owning a house, but it does not necessarily help with mobility. What is wrong is that people are being priced out of the market, and Gideon is wrecklessly underwriting mortgages to lure people in. Prices may well rise, but this is not real wealth. We are hopelessly over borrowed as a nation, and need to focus on how we can have sustainable growth and improve our creditworthiness……..Or, of course, we could go the whole hog and just create our productive capacity around the housing industry, but we might regret it in the long run.

      zorro

      zorro

      Reply We are collectively a rich nation, with total assets in the private sector well in excess of our debts.

      • Anonymous
        Posted August 22, 2013 at 10:45 am | Permalink

        Reply to reply: Do those ‘assets’ in the private sector include houses with notional valuations attached to them ? The notional value upon which much of that debt was secured ?

        As regards ‘meaner’ property (from your original post) – have you seen some of the rabbit hutches built by the private sector ? With their mirrored walls and down-scaled furniture ?

        I’d go for a solid, well proportioned ex council property over that rubbish any day.

        Why did the Tories sell council properties off so cheaply and then fail to put any money back into social housing ?

        Reply Yes, the wealth of course values homes at market values. The sale of Council houses was a great policy – the same family lived in the home after sale as before so it did not cut the amount of housing available. A Council was allowed to reinvest the sales money after paying off any debt against the homes they sold.

        • a-tracy
          Posted August 22, 2013 at 12:04 pm | Permalink

          The problem with the council house sales was that many of those homes are rented back out to housing benefit recipients who then charge the taxpayer £650 per month to rent them rather than £300 per month. Many people I know sold them prior to their retirement, blew the investment money and now live fully supported in housing association bungalows and flats.

        • Anonymous
          Posted August 22, 2013 at 12:12 pm | Permalink

          Thanks for the reply.

          Council houses could only be sold cheaply once. Where could lowly paid workers afford to live within the vicinity of their work once the housing stock had gone onto the ‘normal price’ escalator ?

          The answer, of course, was to import cheap labour prepared to bunk four to a room thus increasing pressure on housing supply.

          The councils were ‘allowed’ to reinvest money but did they ? Clearly not enough or we wouldn’t be having this discussion.

          Far better to have kept social housing and to have linked it to some sort of work incentive. Instead we have dole-to-landlord govt subsidy whereby it’s homes-for-shirkers and not for workers. By far the most direct route for a young woman to independence is to have an illegitimate child and seek housing from the council. The alternative for most workers is to put off children until mid thirties and then to have only one child in day care. Thus the Conservative base is being outbred.

          No. It was not a great policy.

          It wasn’t done for the benefit of working people but by a government who wanted to turn them into Conservative voters. 13 years out of office and a Coalition after the awful Brown Govt speaks for itself.

          As for ‘market value’ of housing. Not forgetting that Govt housing subsidy and distortions have not gone away. Those market values are set at the margins of sale activity – they do not represent the value of the entire market stock. What would they be worth, say, if they were all put up for sale at the same time to clear our debt ?

          By what measure can we be called a wealthy nation ?

          • Bazman
            Posted August 22, 2013 at 5:33 pm | Permalink

            The councils were ‘allowed’ to reinvest money but did they ? Clearly not enough or we wouldn’t be having this discussion.

            The Tory government passed legislation specifically forbidding the money raised from the sale of council housing to fund the further building of more council houses y councils. Wonder why?

            Reply Not so. Councils did, however, have to sue sale proceeds to repay any debts against the homes they were selling, just as an individual home buyer has to repay the mortgage out of the sale proceeds.

        • alan jutson
          Posted August 22, 2013 at 1:06 pm | Permalink

          Reply – Reply

          Oh Dear.

          Pray tell me why in the 1980’s Reading Borough Council offered unmodernised 3 bed semi detatched houses for sale to tenants for £12,500.

          But after modernisation.

          Which included.

          Retiled roof, new gutters, facia boards, soffits, new kitchens, bathrooms, central heating, timber and damp treatment, new internal and external doors, new double glazed windows, loft insulation, wall insulation and complete redecoration including new carpets.

          Those very same houses were offered for sale for £14,500.

          How do I know?
          My company was working on those properties at the time.

          They were sold to buy votes, pure and Simple, no other reason, because it made absolutely no financial sense.

          Reply It made sense to both -parties to the transaction. The new owner would have cheaper accommodation over their lifetimes, once the mortgage was repaid.The Council no longer had to spend money on improvements/maintenance etc

          • alan jutson
            Posted August 22, 2013 at 3:46 pm | Permalink

            reply-reply

            John, no one bought them unmodernised, they all bought them for two thousand quid more than the original offer price, after tens of thousands were spent on each of them by the Council.

            Pray tell me how the Council decision was sensible, it seems financial lunacy to me, but a great financial windfall for those families who purchased them.

            Reply Yes, but the Council washed its hands of all future liability for maintenance etc

          • Bazman
            Posted August 22, 2013 at 5:42 pm | Permalink

            The 1974 one I bought from a private landlord who bought it from photos was unmodernised. All period features intact. The 1970’s solid laminate internal doors with square aluminium door knobs with push button release are a dream to use and look at. Marvellous! Most of the peasants in the street have changed them I have noticed. Tahhh! How common.

          • zorro
            Posted August 22, 2013 at 7:17 pm | Permalink

            Reply to reply – It also washed its hands of future rent payments and the actual value of the property……

            zorro

          • Bazman
            Posted August 23, 2013 at 5:49 am | Permalink

            Council house rent was an income stream for the council and helped to keep rates down and it’s no surprise that council rents are now the highest they have ever been and council taxes are where they are.

          • Edward2
            Posted August 23, 2013 at 10:42 am | Permalink

            Councils lost many millions on their provision of social housing Baz.
            It was a negative income stream.
            Rental income versus the costs of maintaining council houses added to costs of loans taken out to build them in the first place just did not add up.
            Councils also lost millions on bad debts written off due to their failure in collecting rents from the “can’t pay or won’t pay” people who knew that councils ultimately have a statutory requirement to house them.

          • Bazman
            Posted August 23, 2013 at 4:09 pm | Permalink

            So you are telling us the housing benefit bill would now be more if we had carried on with a council housing building programme? In your dreams the housing benefits bill is one of the largest bills that has to be paid by the government with most of it finding it’s way into landlords pockets who eventually got to own the ex council houses and now rent them back to the council for a third more.

          • Edward2
            Posted August 23, 2013 at 5:40 pm | Permalink

            You are confusing two separate arguments here Baz.
            One is your original claim that social housing provided by Councils was a profitable income stream. Which it was not.

            Your next post is arguing that as a result of the reduction in social housing provided by Councils, was housing benefit higher as a result.
            Yes I would guess housing benefit is higher as a result, but the interesting calculation would be to balance the losses once made by Council housing provision against the extra cost of giving private Landlords housing benefit.
            Don’t forget that Councils also got housing benefits paid to them for those deemed to be unable to afford their rent.

          • Bazman
            Posted August 25, 2013 at 2:46 pm | Permalink

            Figures from the Commons library show the amount of housing benefit paid to private landlords will rise from £7.9billion to £9.4billion and it is forecast to increase still further over the next three years with the bedroom tax adding to the cost instead of saving. This is the results of the lack of social housing and the reliance on a low wage high rent economy. The rent being funded by the taxpayers in the form of housing benefits and tax credits allowing minimum living standards and entitlements to be met.

      • zorro
        Posted August 22, 2013 at 1:38 pm | Permalink

        Hey John, don’t tell the government or they’ll be after the wealth to pay off their debts….. 😉 I wonder how much they will be worth then.

        zorro

        • alan jutson
          Posted August 22, 2013 at 4:10 pm | Permalink

          Zorro

          Thats why the inheritance tax band has remained at £325,000

          He will eventually reel huge numbers into the net through fiscal drag.

          Do I remember a certain Conservative Prime Minister saying a “Downwards Cascade of wealth”

          Not after Care home fees, and the Government have taken their share FIRST.

          Another nail in the coffin for the stivers and savers of this World.

          I have to say we are starting to think, bugger it, blow it all on some super holidays, enjoy ourselves now, and if we need to claim on the State later, then we will.

          • zorro
            Posted August 22, 2013 at 7:19 pm | Permalink

            That thought process has to go through one’s mind. Why let them mug you on inheritance tax and overpriced ‘care’ fees?…… Enjoy your time, you’ve paid for it!

            zorro

      • Lifelogic
        Posted August 22, 2013 at 3:34 pm | Permalink

        Prices are a reflection of supply and demand. Not an obcession, The supply is constricted by idiotic planning rules which encourage pointless wind farms and fields of PV cells (that generate virtual nothing and then only if the weather is right) or pigs, spuds or cap subsidised, sugar beet or pig homes. They prefer these to homes for people it seems.

        Demand is fueled by the increasing population and net migration and consequential high birth rates.

    • Mike Wilson
      Posted August 22, 2013 at 9:45 am | Permalink

      From the reply: I am making the point that those who say all our current investment in owner occupied housing is wasteful have to accept that in a rented system you would still need to make the same investment if you wanted the same standard of housing.

      Yes. But that is not the point people are making. The point people are making is that the ‘investment’ (the money needed) to buy a house is TOO HIGH.

      That’s all. Nothing to do with renting versus buying.

      If the government controls the supply (which it does via the planning system) and the banks are allowed to create money out of thin air and lend ever increasing amounts against the housing stock … well, come on, I don’t need to keep spelling it out do I? The banks will enslave the people in debt and they, the people, will have no money to spend on other things.

      This isn’t rocket science. Let’s face the fact that successive governments have SCREWED UP. We now have a massively over-priced housing market that, regardless of whether people are paying rent to pay other people’s mortgages or paying their own mortgages, is SUCKING THE LIFE OUT OF THE ECONOMY.

      Surely, you must acknowledge this? The reign of Gordon Brown ‘I will not allow a boom in house prices to put at risk the sustainability of the recovery’ was an absolute disaster for this country.

      Reply That is a different point. Switching to renting does not make housing cheaper – far from it. High house prices for rent and purchase are the result of past monetary policies, high taxes on building and property and land rationing through the planning system.

      • zorro
        Posted August 22, 2013 at 1:48 pm | Permalink

        Absolutely John, but we are dealing with the present. Pumping up prices and hanging more debt around necks is not a sound policy…. Let prices find a sensible level.

        zorro

        • Lifelogic
          Posted August 22, 2013 at 3:36 pm | Permalink

          Indeed and increase the supply or reduce the population.

    • lifelogic
      Posted August 22, 2013 at 9:57 am | Permalink

      To Reply:

      You are quite right, but buying can often be rather more expensive with 5%+ stamp duty, legal costs and the likes. This particularly in areas where prices do not go up due to the ready availability of new land and perhaps few jobs available. Also where people have to move frequently buying makes little sense or where you end up with an inheritance tax problem thanks to ratter Osborne.

      Tenants often forget that rent usually includes building insurance and maintenance cost and gives flexibility to leave at fairly short notice.

      • zorro
        Posted August 22, 2013 at 1:50 pm | Permalink

        If you were cynical, you might think that this pumping up of prices is to catch more people in the IHT trap……

        zorro

        • Lifelogic
          Posted August 22, 2013 at 3:38 pm | Permalink

          The ratter Osborne trap will they increase thresholds ever one wonders if they ever do return to power in say 15 year time or so?

    • libertarian
      Posted August 22, 2013 at 10:47 am | Permalink

      Nina

      Well I’ve just done some research on the German housing market.

      The reason most housing is owned by big corporates is the massively high cost of buying.

      According to German government stats the majority of Germans live in rented flats !!

      The average rent for a 2 bed flat in a provincial town in Germany is between £500 and £1200 per month. For the same outlay as that you could borrow £250,000 at todays rates in the UK. I would suggest that in most provincial towns that would easily buy you a two bed flat in the UK

      • nina andreeva
        Posted August 22, 2013 at 1:43 pm | Permalink

        please put some evidence forward as to just how expensivegerman houses are…..i think you are looking at the wrong country
        prices are lower because if you do not keep the house for at least ten years you get hit by a severe form of cgt
        do not confuse this with buying costs and do not forget the rip off rates of stamp duty here either

        • Bazman
          Posted August 22, 2013 at 5:49 pm | Permalink

          Cheap houses in Germany? In your dreams. 100 year mortgages are not uncommon, this is why everyone rents and rent of £500 t0 £1200 a week sounds about right. Bavaria being the most expensive. Just mind boggling.

      • Mike Wilson
        Posted August 22, 2013 at 2:09 pm | Permalink

        So, you could borrow 250k at ‘today’s rates’ and pay £1200 a month? A 250k repayment mortgage at 6% would cost you about £1600 a month.

        What about when rates go up?

        £1600 a month is a lot of money for someone on average wages. I’d say someone on average wages ough to be able to buy a house, never mind a 2 bed flat.

      • Lifelogic
        Posted August 22, 2013 at 3:41 pm | Permalink

        More land in Germany and they build more efficiently too so usually cheaper than The UK but also when renting people are more frugal as not interested in the value down the line.

    • Leslie Singleton
      Posted August 22, 2013 at 10:59 am | Permalink

      Comment on John’s Reply–Four thoughts, viz

      First– Not so obvious to me that (“of course”, no less??) cheaper to buy, and in any event referring to one house over a lifetime is completely misleading in that it never happens. I don’t know why the usual stuff about risks and benefit of ownership would not apply, because there are plenty of possible risks, in particular the forthcoming housing collapse that many of us see or unforeseeable idiocies like HS2 in your back garden.

      Secondly–Buying and selling a house is a nightmare pure and simple and at best is uncertain and takes time. Some people like or need to move around.

      Thirdly–The country is close to bankruptcy and needs rescuing and ‘turning around’. The way to rescue is ‘to manage for cash’ as the Americans say, which means grabbing the cheque book and not writing any cheques unless immediately essential, it being of the essence that one does not (till out of the woods) even think about the future (investment, discounts, long term deals etc). I do not see why this does not also apply to the country as a whole.

      Finally–And as I have said before, during my last year or two working as an NHS auditor it seemed obvious to me that the policy being followed was the complete opposite of the above–with some sort of obsession on wholesale new building involving vast amounts of money.

      For my money, forget “investment” and pay the debt down.

      • Lifelogic
        Posted August 22, 2013 at 3:43 pm | Permalink

        At least they almost got rid of hip packs so that saves a little pointless expenditure. Just the absurd energy drivel now.

        • Leslie Singleton
          Posted August 22, 2013 at 4:17 pm | Permalink

          Lifelogic–I in fact thought very highly of HIP’s because the lower, repeat lower, the score the more chance the house hadn’t been buggered about with.

          • lifelogic
            Posted August 22, 2013 at 8:41 pm | Permalink

            Yes but anyone can see all they need to know by just looking round for half an hour.

          • Leslie Singleton
            Posted August 23, 2013 at 10:25 am | Permalink

            Next Day Script–Not everyone is as all-seeing as lifelogic (no room for further reply under his comment) and for myself I have a horror in particular of 1000 year old well-thought out cavity walls being filled, removing throughput of air with considerable risk of damp).

    • StevenL
      Posted August 22, 2013 at 1:01 pm | Permalink

      I think JR and Nina are talking at cross purposes. JR is conflating these issues:

      1) Lending ever increasing sums against ever increasing market values of land with scarce and bureaucratically rationed planning permission
      2) How to finance, sensibly, the ‘bricks ‘n mortar’ cost or erecting a new house (less than £100k)

      Some of the folk that elect JR probably have a vested interest in more #1 and as little of #2 in their ‘back yards’ as possible.

    • Bazman
      Posted August 22, 2013 at 3:27 pm | Permalink

      I wish I had listened to this renting is better than buying advice in 1999! I have now paid off my property and do not pay anything. Instead I could be renting the same house for £700 a month from a private landlord or £455 from the council assuming I could find one to rent. Renting might be better for some in the short term. In the long term it’s for the birds as many found out.

      • lifelogic
        Posted August 22, 2013 at 8:46 pm | Permalink

        Well if you are sure you are going to stay in that area for say 7+ years, it is not an area where prices are likely to decline for some reason, and you are sure of keeping you job then you are probably better buying. This despite the absurdly high stamp duties. Especially if below the thresholds or £250K/500K/1M

  2. lifelogic
    Posted August 22, 2013 at 5:42 am | Permalink

    Indeed the absurd Libdem, Labour, “BBC think” argument that money invested in property somehow takes it away from other areas is largely nonsense as is nearly all “Libdem think”. People/workers have to live somewhere and businesses need factories and offices. Rent or buy someone has to own and build them, so it make little odds.

    Often renting is less satisfactory due to the limits on changes you can make to the unit and uncertainty of how long you can stay. So why does the government fiscally encourage renting, by absurdly high stamp duty on purchases, and preferential help for renters in difficulties, and the obnoxious and totally counterproductive 40% IHT? All these under IHT threshold ratter Osborne. Additionally owner occupied mortgages are usually slightly cheaper than Buy To Let ones due to the risk of idiotic rent controls and political interference from the loony left or even Libdem/Cameron types.

    Investment is good (government or private) when it is well directed & produces a real, good and positive return. Calling things “investments” when they are clearly just tipping tax payers money down the drain, things like “renewable” energy, the dis-functional and not repaired NHS, and HS2 is not so good. The problem is this government thinks such as the Millennium Dome, HS2, Quack energy & the Olympics are investments. In practice they are often merely a way of diverting tax payers cash to mates, relatives and contacts.

    “Tax, borrow and piss down the drain as in 2015 it is not my problem, raid the sweet shop now” seems to be Cameron’s motto.

    • lifelogic
      Posted August 22, 2013 at 5:50 am | Permalink

      Perhaps the worst investment of all is the vast sums of tax/licence fees that the second rate lefty arts graduates at the BBC get. Used to allow it to drip the nation in loony left propaganda such as quack expensive energy science, absurd global warming exaggerations, pro EU nonsense, pushing for ever higher taxes and the ever bigger suffocating state sector.

      • Bazman
        Posted August 22, 2013 at 3:55 pm | Permalink

        Lefty arts graduates in the BBC? How about your loony right wing propaganda and refusal to answer any points that contradict your own blind bigotry? Harrumphing or ignoring every point that destroys your own world view does not make for ‘sensible’ Scientific’ ‘reasonable’ argument. It is propaganda repeated again and again in the vain hope that it will go unchallenged and somehow stick. How ‘absurd’. Have you changed you mind on any of your arguments even when they have been demolished? What does that tell us? Blind fundamentalist bigotry at it’s best. Look back at his posts and the replies. When challenged just stops and then repeats the same in another article. If that is not bias then what is?

        • lifelogic
          Posted August 22, 2013 at 8:51 pm | Permalink

          When I can understate what point you are putting I reply.

          • lifelogic
            Posted August 23, 2013 at 8:02 am | Permalink

            Sorry “understand”.

          • Bazman
            Posted August 23, 2013 at 4:44 pm | Permalink

            As you have done in previous comments? Who are the feckless you keep mentioning? The idle rich?

    • Gary
      Posted August 22, 2013 at 9:24 am | Permalink

      “, “BBC argument that money invested in propert somehow takes it away from other areas largely nonsense as is nearly all “Libdem think”

      So, where does the money for investment in productive export businesses come from if all investment is being directed to houses? There is no money tree, but with all the printing you would be forgiven for believing there is one.

      Reply There is money enough both to invest in homes and in export businesses. Where are all the entrepreneurs wanting to set up export manufacturing businesses?

      • Gary
        Posted August 22, 2013 at 11:04 am | Permalink

        It is less risk to front run the govt and central bank underwriting the property market than to start a new business.

        • Me
          Posted August 22, 2013 at 2:03 pm | Permalink

          Precisely. Since moving to Sweden 5 years ago I’ve noticed that there is no house price obsession here. Homes are for living in. Profits from home sales are taxed and rents are strictly controlled. Consequently it has a highly skilled army of entrepreneurs not focused on bricks and mortar like most people of the UK, it still has its AAA rating, and it has not resorted to QE to keep a property bubble afloat like the UK has.

          • Winston Smith
            Posted August 22, 2013 at 7:41 pm | Permalink

            Sweden has a property bubble fueled by mass immigation, low interest rates, reduced property taxes and long-term move to ownership from rent. Prices doubled from 1997 to 2007. There was a small correction, but they are now again rising. Source: Global Property Guide.

            It also has deep social problems, rapidly declining education provision and one of the highest suicide rates in the Western World.

          • Me
            Posted August 22, 2013 at 10:27 pm | Permalink

            @Winston Smith

            (Substantial ed) immigration does cause problems here, I’ll give you that but come Jan 2014 when the UK will have to open its borders to other EU countries. I believe the UK with its open door policy will get it much worse than Sweden has it (as a result of the EU policy changes ed) Others within the UK know it too and it’s the reason for a certain party gaining so much in popularity at the expense of the main 3.

            If there is a property bubble (like there seems to be in many countries in the world right now), then at least it’s not being propped up by massive QE, Funding for Lending, Help to Buy and taxpayer backed loans. As for prices doubling, house prices more than tripled within the UK!

            I’m not convinced with the social problems you talk about. I’ve spoken to many Swedes about this from many parts of the country (when the conversation turns to how Brits view Sweden and the Swedish) and they all give me a look of surprise. They say maybe it’s because the Swedes are more honest about things rather than pushing them under the carpet.

            No, I much prefer Sweden, as do many other skilled Brits I’ve met here. The talk has always got on to being happy not to be obsessed with house prices and how much they could go up in value due to a slap of magnolia paint and a few fitted spotlights. I own a 3 story house, with a sauna, approx. 1 acre of land, cinema room, games room with a pool table and bar, 3 bathrooms, 4 bedrooms and it has a beautiful view of lake Värnen. My lakeside summer house is beautiful too. I couldn’t have afforded anything like this anywhere within the UK, probably not even before the property tripling in price.

            I’ll be staying in Sweden with my family. The only thing my wife and daughter miss on occasion is London shopping, but they can live without that. Public services here are absolutely out of this world.

            I’d be very interested to know how many skilled, educated British people with a family have left the UK in the last 10 years for other destinations mostly due to the stupid house price obsession there. My guess is that the numbers are rather high.

          • Me
            Posted August 22, 2013 at 11:04 pm | Permalink

            @Winston Smith

            After some searching after reading your reply, I’ve just found out more about the property bubble in Sweden. I didn’t realise it was as bad as that in Stockholm. It looks like it’s starting to get as bad as London. Thankfully I’ve had enough of city living. People leave their cars and homes unlocked where I live!

      • Iain Gill
        Posted August 22, 2013 at 11:12 am | Permalink

        Sadly lots of money “invested” in housing gets wasted on an inefficient planning system which sucks up about 25% of the costs and so on.

        I have no problem with spending money on the base costs of building decent housing for all sectors, rental and for purhcase, but I do have a problem when lots of money is wasted on state inefficiencies.

        I also think lots of money is tied up in speculation and asset bubbles, rather than the true underlying value of the assets.

      • Lifelogic
        Posted August 22, 2013 at 2:05 pm | Permalink

        The houses are still needed and owned by someone what is the difference?

        • Bazman
          Posted August 22, 2013 at 6:03 pm | Permalink

          There is such a thing called society and infrastructure this is the difference. Private landlords are not able to care about either or do. Private owners must. This high rent in rubbish areas will correct itself. £200k 0r £300 a week above a takeaway on a London high street is not sustainable unless you are a gangster or a bankster. I will not be investing or even buying chips.

  3. alan jutson
    Posted August 22, 2013 at 6:19 am | Permalink

    John

    The biggest problem I have with government investment, is that it is not money put aside for gain, but money borrowed which they did not have.

    Thus all of government investment is in actual fact an increase in debt.

    Most of us think of investment as setting aside spare/saved money to make more money.
    Yes an investment in a property is probably the largest any of us will make, but that should require a reasonable deposit from savings.
    Savings being the proof that you can manage your finances over a period of time.

    Most of us have invesrted in property because we want a HOME.
    We want to choose where we live and in what kind of property, thus an investment of this kind is FIRSTLY for somewhere to live.
    Rather than renting a purchase is made because history tells us that renting is dead money, whilst owning your own home keeps that investment live at least until you require care.
    Renting however does have its advantages if you are constantly on the move, or planning to be moving on a regular basis, as there are no stamp duty, solicitors or agents fees to pay when moving.

    Borrowing to invest is always a gamble, as any business will tell you, the rates of gain against the pain of using borrowed money, can mean either a profit or a loss.

    Most government investments seem to have been on the loss side, especially PFI contracts.

    • Lifelogic
      Posted August 22, 2013 at 3:46 pm | Permalink

      Most on the loss side? Surely virtually all are!

      • Bazman
        Posted August 22, 2013 at 6:04 pm | Permalink

        Not for private companies and their investors. They are ‘perfectly sensible’.

  4. margaret brandreth-j
    Posted August 22, 2013 at 6:29 am | Permalink

    There is a market for renting, but it amazes me how some argue one think or another as though they were mutually exclusive. I am not in favour of new developments reaching out into calmer and greener pastures . I dislike the cities spilling out, but where there are houses boarded up and derelict much investment could be made in renovation to make them desirable. New and more new thereby disregarding what we already have is against my conservative leanings.
    Investment for quality in larger organisations is not money for the sake of quality and cannot be seen not to have any returns as big organisations have many more employers who are more likely to be paid a continuous wage and they themselves contribute to steady pension schemes , buying homes from a regular income and keep alive private and public sector investment in their organisations buildings.

  5. lifelogic
    Posted August 22, 2013 at 6:41 am | Permalink

    “Most politicians think investment is a good thing.”

    Well politicians and civil servants like to call nearly all expenditure (always of other peoples money) “investments”. They especially like it if it can buy votes in certain areas or help their friends out with orders. They rarely invest their own personal money in the same ways. They especially like people who “invest” their money in the bank earning 0.5% (less tax) while they devalue it at 3-4% PA.

    If you want to know way the BoE really thinks observe how they invest the BoE pension fund.

    • Nina Andreeva
      Posted August 22, 2013 at 9:05 am | Permalink

      Eh? Looking at the scheme’s 2013 report as at Feb of this year over 85% of the “assets” were UK government IOUs. I am glad I am not dependent on it for my retirement!

  6. Iain Gill
    Posted August 22, 2013 at 6:52 am | Permalink

    My own views on these:

    Re “they wish by this to have people living in cheaper and meaner properties” no a better range of properties should be available in the private sector. With tenancies like they are in the rest of the developed world, i.e. good tenants cannot be thrown out every 6 months and the tenants can feel secure they will get their child through a few years of school or feel the benefit from some investment in decoration etc. At the same time allowing the tenants to move house quickly if needed for work reasons, adding to workforce mobility, which is a big issue in this country. Ideally with big reputable companies more prevalent in owning and renting out properties rather than the very variable standard of the current army of buy to let individuals (the market doesn’t work very well in buy to let at the moment as the potential tenants cannot see how bad a potential landlord is until after they have signed up, with big companies reputations and styles are easier to compare).

    Re “recreate a nation of tenants dependent on rich landlords or the state as the richest landlord of them all” it’s already like this for most of the population. It’s no different to big companies owning the mobile phone infrastructure we use and we rent time on it.

    Learn from the best of the rest of the world.

    Reply Most people in the UK own their own home, and a majority of those who rent would like to own their own home. Why try to stop them?

    • Iain Gill
      Posted August 22, 2013 at 8:16 am | Permalink

      In 2011 about 18% of people were renting from social landlords, about 64 % were so called owner occupiers (about 30% owned the majority of the equity the rest owe the majority to the mortgage company), Renting from private landlords doubled in the decade up to 2011, in London the majority of the population are in private rental (and you keep banging on about how London is the wealth generator of the UK). So I put the figure “owning their own home” at a minority, I don’t include those houses still majority owned by the banks with mortgage payers in residence. Home ownership will dip when the inevitable correction eventually occurs no matter how long the government manages to postpone that by stoking a bubble.

      I don’t want to “try and stop” anyone. I just don’t want the state to rig the market so that those that choose one course over another are ripped off to prop up those taking another choice.

    • Iain Gill
      Posted August 22, 2013 at 8:24 am | Permalink

      Oh and most people want to buy because of the negative aspects of the way the rental market runs in the UK, and the way the state drives housing prices up through time, this bias would not be there if the market was more like other Western democracies.

      • libertarian
        Posted August 22, 2013 at 10:12 am | Permalink

        Total nonsense.

        Provide some evidence that most people would prefer renting if the market were different

        Reply Try talking to people – there is an understandable enthusiasm for ownership, so they can choose and control their property. I have no wish to go back to renting.

        • libertarian
          Posted August 22, 2013 at 10:53 am | Permalink

          JR

          Your reply makes no sense I have talked to people , I agree with you thats what my post was saying more people prefer ownership

        • Leslie Singleton
          Posted August 22, 2013 at 3:02 pm | Permalink

          Comment on Reply–No mention of the very obvious fact that people (think they) want to own because of the huge profits that have been made in the past, which some people now regard as an entitlement (soon it will be one of their Human Rights). That and only that is why people want to own. If it weren’t for the ‘get on the (imaginary) housing ladder’ baloney many would soon tire of worrying about, and paying themselves for, fixing the roof, new boiler etc etc, never mind if there is a crash.

      • A different Simon
        Posted August 22, 2013 at 10:17 am | Permalink

        Iain Gill ,

        Good point that people choose to buy because of the negative aspects of renting IN THE UK rather than renting per se .

        Commercially vehicles like lorries and tractors are generally built to far higher standard than passenger cars e.g. components on passenger cars tend to be underspecified and built down to a price .

        Might we expect landlord companies with their longer investment horizons specify better made , more energy efficient , more future proof , less crowded new build accommodation than gets churned out for the amateurs ?

        • Iain Gill
          Posted August 22, 2013 at 11:37 am | Permalink

          yes rather like the nhs and other issues people who look through the blinkers of how everything is done in the UK form understandable views. those of us who have lived and worked abroad a lot can see it through other perspectives. generally the UK has a lot to learn from the rest of the world.

      • libertarian
        Posted August 22, 2013 at 10:56 am | Permalink

        Iain Gill

        You may find this interesting

        Home ownership rates

        http://en.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate

        • Iain Gill
          Posted August 22, 2013 at 12:48 pm | Permalink

          yes but it hides the numbers “owning” who are nothing other than mortgage holders. for instance folk on an interest only mortgage with no plan or means to pay back the capital are not owners in my book they are simply renting from the bank with a stake in property values. and so on.

    • PT
      Posted August 22, 2013 at 8:53 am | Permalink

      “Most people in the UK own their own home, and a majority of those who rent would like to own their own home. Why try to stop them?”

      It seems the more the government and politians seek to rig the market e.g. Funding for Lending/BTL, Shared Equity, asset prices support etc, the number of owner-occupiers drifts lower, and the ability to upsize to a larger, more suitable home dimishes.

      Seems the biggest hurdle to housing provision matching needs is the government’s so-called ‘support’ for homeownership – which is seemingly just a front for support of house prices.

      I find it odd how you take a free market stance on almost all markets except housing – in which you favour asset price support.

    • Bazman
      Posted August 22, 2013 at 4:02 pm | Permalink

      You think it would be OK to put your fate and your families future into the hands of a company with the morals of a mobile phone company. Take a look at their past record on tariffs, tax and the rest. Another silly fantasist. Do you rent or have you bought? I’ll throw a wild guess and say bought and paid for.

      • Iain Gill
        Posted August 22, 2013 at 5:16 pm | Permalink

        I rent

        • Bazman
          Posted August 23, 2013 at 4:37 pm | Permalink

          You are trying to improve something that will not improve. Think about how you are going to buy a house.

    • Winston Smith
      Posted August 22, 2013 at 7:47 pm | Permalink

      Its nonsense to think a corporate landlord is preferable and gives a better service than an individual with one or two properties. Would you apply that to other sectors? Corporate socialism is the enemy of the people.

  7. Gary
    Posted August 22, 2013 at 7:00 am | Permalink

    “Not all investment is productive.
    Some investments turn out to be
    a bad idea, bankrupting their
    makers.”

    And there you have encapsulated exactly why govt makes worse investments, in general, than the private sector.

    And it is worse because, not only does the govt not go out of business if it makes bad investment, the bad investments are propped up indefinitely by the govt using other people’s money instead of the money being freed up to make new, viable investments. The govt creates economic rot.

    And your contention that it is somehow feudal to have landlords and tenants, is not correct because house prices are not bid up into bubbles and if there is no property ladder people can plough their savings into other investment. As long as good laws protect the tenants and landlords where is the problem ? This has worked fine in Germany.

    No country can be self sufficient in this age of specialization (division of labour), and unless others are willing to accept our products we cannot earn currency that we can use to buy foreign products. Trading houses among ourselves does not cut the mustard.

    Reply You can have a buy to let bubble just as you can have an owner occupation bubble.

    • StevenL
      Posted August 23, 2013 at 1:15 am | Permalink

      You can have a buy to let bubble just as you can have an owner occupation bubble

      Due to explode in about 2025 or so. It’s started and it will depend on keeping short term interest rates very low for a very long time. The best way to play it is probably just a leveraged spread bet on the mortgage lenders, lettings agents and other related companies.

  8. Denis Cooper
    Posted August 22, 2013 at 7:25 am | Permalink

    I don’t think you should be mixing up business property and domestic property.

    Business property is clearly intended to be a productive asset, even if in some cases the companies are too lavish in their construction – anecdotally, a spanking new HQ is often an early warning sign that the company is about to hit the rocks – and even if it turns out that the business is unsuccessful.

    Beyond a certain point it becomes much more difficult to regard a more and/or better homes as productive assets deserving investment. Obviously if people are living in slums where disease is rife and the occupants die young it is easy to argue that better housing would improve their health and so potentially they would be more productive and for longer. But mostly we have got beyond that now in the UK and in many cases it has become a matter of greater comfort or even luxury; nothing wrong with that in itself, but perhaps it would be better if some of that investment was being into factories or other productive assets?

    There is of course the question of taxation of capital gains, which must tend to encourage people to invest in owner occupied homes rather in other assets.

  9. Mike Wilson
    Posted August 22, 2013 at 7:34 am | Permalink

    Some Commentators and bloggers urge on us the “continental model” of more people renting their own home, to cut the amount we “waste” by investing in property. Presumably they wish by this to have people living in cheaper and meaner properties, …

    No, not at all. What they wish is that people live in properties that cost less! So that they spend less money on mortgage interest or rent (often to pay someone else’s mortgage interest.) I.e. So that they have more money to spend and give less to the banks in interest.

    In simple terms, in our economy, the price of a house is based on the cost (interest rate charged) and availability (salary multiple allowed) of borrowing.

    In the late 1980s we had a ‘house price crash’. I bought a property in 1991 for 100k that was bought in 1987, by the previous owner, for 157k. It was the same house. It wasn’t a ‘meaner’ house.

    That is what commentators and bloggers want … houses that cost people less money in terms of mortgage and rent payments.

    It is misleading to use the word ‘investment’ with regards to residential property. We all need somewhere to live. It is not a choice like buying a share or buying gold. Obviously, someone buying property they don’t need to live in – a property that want to rent out to get a return on their ‘investment’ is a different matter. But, again, this is no ordinary market. The government does not limit the amount of shares or gold available. But it does severely restrict the amount of residential property that is available.

    So, Mr. Redwood, I think you simply confuse the argument with your thread today. The fact is that far too much of people’s disposable income is spent (not ‘invested’) on putting a roof over their head. And that if we spend less on that – which primarily goes to the banks as interest on money created out of thin air – our economy would be a lot healthier as there would be a lot more demand for other things.

    Reply People who rent rather than buy pay more over their lifetimes for housing! They also have to pay the landlord a profit which the homeowner avoids.

    • Deborah
      Posted August 22, 2013 at 9:21 am | Permalink

      John,
      It seems you are suggesting the British culture of home-ownership is advantageous because, although people have to pay an enormous mortgage, it is slightly less than the extortionate rent they would have to pay for the same house. Although it is true that our current culture makes it better to buy, perhaps a change in culture would benefit us all by bringing down the cost of housing in both sectors to a more reasonable level?
      House prices in this country have been unnaturally high for decades, in large part because people have bid up prices as they scramble to get onto the property ladder and “invest” in the housing market. In a more continental culture where people see houses as a place to live rather than a financial investment, the house would have a lower market value and therefore cost less to own or rent in the first place.
      When a basic necessity is overpriced, everyone loses.

      Reply: Yes, houses are dear in the faster growing parts of the country thanks to past monetary policies and planning controls. Switching to renting would make no difference. It takes other changes to have more homes and lower prices.

    • Mike Wilson
      Posted August 22, 2013 at 9:22 am | Permalink

      Reply to reply: People who rent rather than buy pay more over their lifetimes for housing! They also have to pay the landlord a profit which the homeowner avoids.

      I am astonished. Do you think I am unaware of that? My whole argument, which I have made here on a number of occasions, is that housing costs – for everyone – should be lower. That spending a high percentage of your earnings putting a roof over your head is no use to man nor beast. The ONLY people it bring any real benefits to are the bankers.

      The argue for continental style renting – for those who cannot afford to buy a home or for those who simply, for some reason, prefer to let someone else deal with the onerous job of owning and maintaining a property – is that rents are lower using the continental model.

      A recent tv program was about a chap who went to sample life in Germany – as a man with a wife and two children. The rent for his 2 bed flat was about £400 a month. Half of what it would be here (in any part of the country where there are reasonable paying jobs).

      • Edward2
        Posted August 22, 2013 at 3:05 pm | Permalink

        That recent BBC programme on Germany was partial in its views and in the examples given Mike.
        On a recent trip to Stuttgart where Porsche and Mercedes are built I saw rents much higher than £400 per month
        Decent 2 bed flats enabling a reasonable commute to areas where the big companies were situated were around the £800 per month unfurnished.

    • libertarian
      Posted August 22, 2013 at 10:19 am | Permalink

      I’m sorry but I’m staggered by these arguments put forward about housing. Can you genuinely not see the issues?

      In France and Germany those countries are approx 5 times larger in land area than the UK with roughly similar populations. Do you not understand shortage of supply? Why do you think property bought or rented is so high in price in Hong Kong, Singapore, Channel Islands and Monoco ???

      In the UK there are plenty of cheaper properties. I know of a brand new very nice 3 bed semi for sale at £79,000 trouble is its in an area people don’t want to live. House prices whether bought or rented ( it makes no difference to the cost) are all about location and supply and demand. The demand for housing in the UK outstrips supply in the DESIRED location.

      If all you want is cheap good quality housing theres plenty available

      Reply Yes, there are plenty of cheaper properties in the UK but not in the hot spots where people generate jobs and wish to live in large numbers. You get the same effect in many successful large cities around the world.

      • libertarian
        Posted August 22, 2013 at 10:55 am | Permalink

        Yes, thats what I’m saying the price is purely a function of supply and demand

      • stred
        Posted August 22, 2013 at 3:16 pm | Permalink

        France has 2x the land area of the UK. It still has high house inflation in popular areas but prices have fallen drastically in unpopular rural towns.The UK is unique in Europe in having had a massive increase in population over the last 10 years, through immigration and birth rates, mainly arising from social benefits for children and the desire of immigrants and newcomers to have native Uk born families. etc ed Is it any surprise that, in London, house prices are ridiculously high in central areas and consequently HB.

        • margaret brandreth-j
          Posted August 22, 2013 at 4:38 pm | Permalink

          I would like a house in that unpopular rural town . Where do you refer to?

          • Graham
            Posted August 22, 2013 at 6:01 pm | Permalink

            Margaret,

            Try any town in north and east Lincolnshire and thereabouts.

            Boston is particularly interesting!!

          • stred
            Posted August 23, 2013 at 10:35 am | Permalink

            For example, in Normandy a 3 bed town house for 89k E.
            Look on the net and spell the google maisons a vendre france to avoid uk agent mark up.

    • Iain Gill
      Posted August 22, 2013 at 1:48 pm | Permalink

      Actually the world gold markets are setup with holdings of more gold than there is in physical existance in the world… its another rigged market because the soverign governments can print promises to deliver gold without actually holding any. Without all this manipulation the gold price would probably be a lot higher.

      Reply The gold price formed a great bubble and has now dropped a lot. Governments do not print promises to deliver gold.

    • Mark
      Posted August 22, 2013 at 4:56 pm | Permalink

      People who rent rather than buy pay more over their lifetimes for housing! They also have to pay the landlord a profit which the homeowner avoids.

      Those who move frequently incur substantial moving costs to cover estate agent fees, legal fees, stamp duty, mortgage fees, surveys, etc. easily equal to 5-10% of the cost of the house (depending on price level). They would find it cheaper to rent, even though they are paying for the services of the landlord to keep the property maintained and to provide the capital tied up in it.

      Of course, these costs can be outweighed heavily by differential price moves between regions. Someone on a short assignment to Belfast would have done well if they arrived in say 2004 and left in 2007, affording a larger property when they moved elsewhere, but their successor would now be nursing a loss of 50% of the house price. Rental would have been a much wiser and cheaper option.

    • Winston Smith
      Posted August 22, 2013 at 7:51 pm | Permalink

      Those sam commentators also want mass immigration to supply cheap services and to support their lifestyles, but they refuse to make the connection.

    • StevenL
      Posted August 23, 2013 at 1:20 am | Permalink

      They also have to pay the landlord a profit which the homeowner avoids. (JR)

      Sounds like Marxism to me. Surely we should re-nationalise everything so sobody has to pay anyone a profit on this logic? Old school tory socialism for wealthy landowners more like.

      • Bazman
        Posted August 23, 2013 at 6:34 pm | Permalink

        Simple to understand. The home owner is his own landlord and pays himself the profits of owning the house.

  10. Neil Craig
    Posted August 22, 2013 at 7:41 am | Permalink

    Very true. 3/4 of the cost of housing is government regulation. I presume it is comparable but a bit less for commercial building because mass production techniques can, to some extent be used for commercial property but are effectively forbidden for housing.

    If 40% of total investment in the country is these 2 sorts of building and it could be cut to 10% that would free an enormous amount for other investment and improve the national average rate of return by 50%.

    • A different Simon
      Posted August 22, 2013 at 10:37 am | Permalink

      I thought that over half (4/8ths) of the cost of low rise accommodation is the land which it sits on .

      Is that not the case ?

      If 3/4 of the remaining 4/8ths is regulation , that implies that only 1/8th of the cost of the house is construction costs net of regulation costs .

      I’m all for streamlining regulation but not doing away with it completely as your figures imply as it will surely just mean accommodation becomes even smaller and closer together and substandard .

      The national average rate of return in terms of rental values would only improve to the extent you suggest if none of the savings are passed on to the customer .

      Wouldn’t a market where increased supply did not feed back into prices imply that the market was disfunctional ?

      • Iain Gill
        Posted August 22, 2013 at 1:52 pm | Permalink

        no land price is not that high a percentage of value for average uk residential property.

        uk residential property has lots of stuff priced in which are unrelated to price to build, being in the catchment area of a decent state school pushes the price up significantly compared to a similar house in a rubbish school catchment area. you see so many things the state does influences so much about house prices. cost of jumping through planning hoops is significant % of price of new houses etc.

        • A different Simon
          Posted August 23, 2013 at 10:26 am | Permalink

          “you see so many things the state does influences so much about house prices”

          The value of land is mainly influenced by collective activities like good schools , having a station in a town , historically decent infrastructure investment .

          Basically society as a whole pays for this stuff but gets none of the rent from these improvements .

          If society captured some of the rent from these improvements by shifting the burden of taxation onto property or better still land with a location value tax it would allow more damaging taxes like employment taxes to be reduced .

  11. Nick
    Posted August 22, 2013 at 7:46 am | Permalink

    Where are the accounts?

    You need to open up the books.

    Money invested.
    Interest paid or accrued.
    Income received.
    Savings made.

    Then we can see how crap you and other politicians are with money.

    Same reason you won’t publish a set of accounts that include all the debts as you should according to the accounting standards.

    Nothing like leaving 6,500 bn off the books is there.

    See section 1-5, 2006 Fraud act for the offences committed.

  12. Gary
    Posted August 22, 2013 at 8:24 am | Permalink

    The buy to let bubble is a consequence of the property bubble. imo. That is why we don’t see a buy to let bubble in countries where renting is high.

    Reply You get bubbles when Central Banks make mistakes.

    • Gary
      Posted August 22, 2013 at 8:59 am | Permalink

      I agree. The central bank held rates artificially low causing a housing bubble causing a buy to let bubble.

      • libertarian
        Posted August 22, 2013 at 10:20 am | Permalink

        Spot on Gary

    • Mike Wilson
      Posted August 22, 2013 at 9:22 am | Permalink

      And they are making a load more at the moment.

  13. David Hope
    Posted August 22, 2013 at 8:26 am | Permalink

    I don’t think wanting more renting must involve small “mean” properties. Friends in the Netherlands and Germany can rent very large nice properties.

    Renting can be useful for people who want flexibility too but I am of course in favour, like you of making it easy for people who want their own place to have one. I just think that renting looks a lot more attractive elsewhere, not like in the South here where 1.5k a month gets you a one bedroom.

    On the investment point though, surely the issue is that savings channeled into other areas can produce new manufacturing equipment, fund startups, allow more staff. Money into bricks and mortar (for homes) can’t.

    If supply were plentiful and interest rates were a much higher more natural rate then prices would be far lower and ideally approximately constant in real terms (quality of the finish goes up a bit, building techniques get more efficient, but in the end a house is a house).

    Were prices far more static homes would be bought for people to live in or for rental fees. Actually though, they are bought instead of stocks or bonds or savings schemes. Often in London though less elsewhere by people with no intention to even rent them out. This is what is unhealthy, that with constricted supple and super cheap credit, homes are being bought for their expected huge return when next sold. And this causes a large misdirection of capital away from growth activities towards homes.

    Reply My point is a simple one – if you want the rented homes to be as good as or better than the homes for sale, then the investment will be a big or bigger. The form of tenure does not give you a sudden saving on the initial investment.

    • David Hope
      Posted August 22, 2013 at 8:45 am | Permalink

      Agreed, the investment must be made by someone in any home. That said, many rented properties are not new and may have long since had their mortgage paid off and can thus be quite cheap in principle without a constraint of supply. (Though of course a lot may be remortgaged for other investments)

    • Mike Wilson
      Posted August 22, 2013 at 9:32 am | Permalink

      Reply to reply: My point is a simple one – if you want the rented homes to be as good as or better than the homes for sale, then the investment will be a big or bigger. The form of tenure does not give you a sudden saving on the initial investment.

      My point is a simple one too. The price of housing is a function of the cost and availability of credit – and, of course, the supply.

      If a bank will lend someone 180k to buy a 200k flat – they will need to rent it out to cover the interest on their 180k mortgage.

      If a bank will only lend someone 90k to buy that flat – that flat will sell for 100k instead of 200k and the rent will be half. The person renting will have much more money to spend on other things – creating demand and jobs.

      • libertarian
        Posted August 22, 2013 at 10:25 am | Permalink

        Your example is naive and simplistic and has no basis in reality

        • Mike Wilson
          Posted August 22, 2013 at 11:08 am | Permalink

          @libertarian No it isn’t. It is a simple and indisputable fact that house prices go up above the rate of wage inflation whenever banks relax their lending criteria.

          We had house price booms in the 1980s and between about 1999 and 2007 for this reason and for no other reason.

          You tell me why a house bought for 34k in 1984 in Kiln Ride in Wokingham is now ‘worth’ about 800k. Do explain.

          Reply You may be interested to know that I looked up how many 1 bed or bigger properties there are currently available in England for less than £100,000 – answer more than 60,000 currently on the market.

          • Mike Wilson
            Posted August 22, 2013 at 11:58 am | Permalink

            How many in London, Essex, Suffolk, Norfolk, Kent, Sussex, Surry, Hampshire, Berkshire, Hertfordshire, Dorset, Devon, Cornwall, Somerset, Gloucestershire, Worcestershire and Buckinghamshire?

            In the areas where housing is available for less than 100k a typical local wage is about 13k. Even at prices those of us in the Southern half of the country think of as cheap, they are still expensive for the people that live in those areas.

            Many of those properties are in areas you would not be happy to visit, let alone live in.

            Reply Around 400 listed for London – park homes, shared ownership etc.

          • Denis Cooper
            Posted August 22, 2013 at 1:58 pm | Permalink

            “You tell me why a house bought for 34k in 1984 in Kiln Ride in Wokingham is now ‘worth’ about 800k. Do explain.”

            It’s partly the miracle of compound growth; 11.5% a year for 29 years would increase 34k to 799k.

            But obviously that’s an excessive average annual growth rate, even taking into account that there were periods with much higher retail price inflation; with that averaging around 3% a year during those 29 years, 34k would have to become 80k to keep the same purchasing power, and the tenfold growth in real terms would be just over 8% a year.

        • Mike Wilson
          Posted August 22, 2013 at 11:30 am | Permalink

          Of course my example is simple. I am trying to make a simple point. A simple point that most people do not understand.

          Most people think the equity in their house suddenly appeared. That they, somehow, have ‘earnt’ it. That they, also, ‘deserve’ it.

          I’m trying to point out that your equity, when you finally get hold of it, when you sell up and downsize is provided courtesy of someone else below you in the property chain giving you their money. Much of that money will be borrowed. Your equity is other people’s debt.

          It is that simple. Whether you like it or not.

          And I am not naive about housing. I understand very well how the housing market works and how it has got into the state it is in at the moment. You know, the state where the next generation have to pay half their salaries in rent or mortgage payments. Where most of them are priced out of home ownership.

      • alan jutson
        Posted August 22, 2013 at 10:45 am | Permalink

        Mike

        I understand your argument about tenants paying the owners mortgage, but is that true.

        Many owners would like that to be the case, and may try to get that situation, but surely rents are driven by market rates.

        Am I the only one who thinks that buy to let owners may be in for a bit of a shock, when the housing benefits change to a total capped benefit amount of £26,000, which I assume includes housing benefit

        In the past many tenants were not bothered about the scale of the rent, because for many it was all paid by the housing benefit system of unlimited money availability from the State/taxpayer.

        Now that the unlimited benefit payment is ending (we are told), will rents drop as the market determines a new market rate, which will be determined by the new cap ?

        I for one would not rush into BTL becaue, IF RENTS DROP, so may house prices, as the returns on capital invested shrink, and people offload.

        Indeed when mortgage rates rise, which they will eventually, those who own buy to lets with high loan to values, may find themselves squeezed at both ends.

        No, I do not have any BTL properties.

        Reply Nor am I a landlord. What is common is for a landlord to buy a BTL property on mortgage, then rent it out to several joint tenants so they can effectively pay the mortgage for him.

        • alan jutson
          Posted August 22, 2013 at 1:20 pm | Permalink

          reply – reply

          Quite, but if the morgage rate increases and the market rate for rental drops (explained in previous post) and the owner has a high loan to value mortgage, they could be in trouble when you factor in all the other risks and costs of wear and tear, void rental periods, unpaid rent, damage, insurance, etc etc.

          I have looked at BTL in some detail, and I think unless you are managing a fully fledged portfolio of properties within a local area to where you live, with Lowish loan to value morgages, and doing it on a full time basis, where you complete regular inspections yourself, and you either employ local trades people you can trust, or again do it yourself.
          It is high risk for the returns.

          It certainly is not in my opinion a business for the faint hearted, with little cash, who want to do it on a part time basis..

        • Iain Gill
          Posted August 22, 2013 at 2:00 pm | Permalink

          its also common to buy decent family homes and have them all altered into one or two bed flats and rent them out to unmarried mothers on state benefits. massive returns to be made doing this. indeed one of my mates has several tens of millions in the bank from doing this.

          has he actually added to the wealth of the uk? of course not. but good luck to him.

    • A different Simon
      Posted August 22, 2013 at 10:45 am | Permalink

      John ,

      “The form of tenure does not give you a sudden saving on the initial investment. ”

      True but more secure tenure may well discourage the less suitable amateur landlords .

      Companies and pension funds are struggling to find long term returns elsewhere .

      Their expectation of returns will be lower than that of amateurs and their investment horizons much longer .

      Reply There is no reason for them to stay out, and some are now entering this market. To the extent they do, they will help drive home prices up more of course.

      • Mike Wilson
        Posted August 22, 2013 at 1:00 pm | Permalink

        Alan, I agree. Not all landlords have their tenants paying their whole mortgages for them. The principle stands though. I know loads of people who have bought between 1 and 6 properties over the last 10 years with BTL mortgages.

        If the rent does not cover the mortgage and they have to chip in a couple of hundred quid a month themselves, they just regard that as a contribution to their pension.

        The fact is though, the recent army of new buy to let landlords have invested in property on the basis that the tenants will pay the bulk of the mortgage off for them. It seems the bank will lend to Fred, happy that Bill will pay the rent to pay Fred’s mortgage – but they won’t lend to Bill and cut Fred out of the deal. (That is, I admit, simplistic – but true in many cases.)

        If the government had kept its nose out of the housing market and allowed house prices to fall after the credit crunch (by not allowing savers to be shafted by the Bank of England) many buy to let landlords would have been stuffed and would have had to sell up at a loss.

        As it is people are now more convinced than ever that property is a one way bet. Maybe it is now the government is using taxpayers’ money to underwrite the market.

        • alan jutson
          Posted August 22, 2013 at 1:29 pm | Permalink

          Mike

          I am agreeing with you.

          Many landlords WANT the rent to pay the mortgage, but just wait a few years and see what happens.

          We are in strange times at the moment.

          Yes many are using BTL as a pension fund, but do remember when they sell those properties there is Capital Gains tax to pay out of the proceeds.

          I fully agree that the latest government scheme of underwriting mortgages is distoring the market and is daft.

          If the government want to stimulate the housing market, then reduce Vat to ZERO on any refurbishment, and encourage people and builders to bring older houses up to a more modern standard.
          In addition, sort out the stupid Stamp Duty scaled rates.

          • Mark
            Posted August 22, 2013 at 4:25 pm | Permalink

            Renovating older properties would indeed be a good investment. They’re more desirable generally, whereas so many new properties are simply the slums of the future, jammed together, and inadequate as homes because they’re too small, poorly lit and ventilated, offering no parking or good access to shops, jobs and schools.

          • A different Simon
            Posted August 23, 2013 at 10:44 am | Permalink

            “Yes many are using BTL as a pension fund”

            I guess many of us have come to the conclusion that the boom in BTL is a symptom of lack of access to alternative decent pensions options .

            I wish the state would get in on the act by establishing a fund holding assets to partially back the state pension – housing being an obvious asset to hold as a hedge to housing benefit .

            Accommodation can be a pain in the backside and not everyone has the aptitude for ongoing repairs and maintenance .

            It’s quite reasonable that landlords charge a premium for taking on these hassles and long term commitments associated with ownership .

            The current situation of short tenures and insecurity must push quite a few people who would prefer the flexibility and mobility renting can offer into buying .

            We are still left with the situation of a massive gap in provision for old age and house prices which are out of kilter with wages to the point where they are likely to destroy the economy .

            Politicians have managed to make both these problems worse over the last 30 years and it’s not going to be pretty when they come home to roost over the next 5-10 years .

            I don’t think the UK can bungle on like this indefinitely .

            Reply The main pension investments remain a mixture of loans to the UK government and shares in UK companies.

      • Mark
        Posted August 22, 2013 at 4:30 pm | Permalink

        There is an excellent reason for investment companies to stay out of bubble priced property: an expectation that the investment will be loss making in anything other than the short term.

        I note that foreign governments have reached the same conclusion. There are reports of at least £3bn of sales of embassy properties in London pending.

    • zorro
      Posted August 22, 2013 at 12:12 pm | Permalink

      Good comments…….Germans save 10% on average, in the UK 1%……Hence the government funny money tree.

      zorro

  14. a-tracy
    Posted August 22, 2013 at 8:31 am | Permalink

    The issues I have with the housing market in the UK are: middle aged investors buying up low cost housing to rent out to youngsters at such a rate that they can’t afford to save deposits, often at rents that they could have bought the home for themselves.

    I also see the private sector rental market making a mint out of social tenants whom are provided with homes for twenty years at no expense to themselves because the social is picking up the tab, this is often not even recognised as a benefit or living off other workers as it is now seen as a right.

    Surely there is a middle point where NEST could build the one bedroomed apartments we need in all of the Counties for those that have retired for example with no income, with the State then paying the rent for the national good of all NEST pensioners rather than overseas property consortiums, keeping the wealth in the UK must be a priority on national spending. Otherwise where is the NEST investment going to be made? Will it be like the National Insurance employer/employee contributions that we’re now told weren’t an investment for private sector workers pensions and that they are now welfare?

    • A different Simon
      Posted August 22, 2013 at 11:06 am | Permalink

      “Will it be like the National Insurance employer/employee contributions that we’re now told weren’t an investment for private sector workers pensions and that they are now welfare?”

      Yes it is despicable that politicians should claim that state pension is welfare rather than payouts which formed part of the contract under which people payed in .

      I suppose the electorate is partly to blame for not insisting on a partially funded element to the state pension .

      Your proposal essentially addresses one of these elements and it would not be unreasonable to require that the tax relief granted on all pensions contributions be invested in UK infrastructure so that the UK gets a double return .

      I oppose rolling N.I. into income tax because it would just legitamise what tax which should have been hypothecated being misused as general taxation .

      The insurance element of N.I. is not just for healthcare but also as insurance against living beyond the time required to exhaust ones savings .

      The Govt , after years of accepting the premiums now looks like it is gearing up to renege on the claims ….

      • a-tracy
        Posted August 22, 2013 at 12:08 pm | Permalink

        A different Simon, I have opposed the rolling together of NI and tax for years and have blogged about it until my fingers ache. It was sold as a fabulous insurance scheme, with pension and healthcare and we’re now told we’re benefit recipients and can’t get it for another seven years (female) two years (male) and furthermore it keeps getting moved out of reach.
        If this is the case then around 80% of the pension paid to all public sector workers is welfare! Because their portion would have bought 20% of their pension income with a reasonable contribution from their State (ie taxpayer) funded role.

        • StevenL
          Posted August 23, 2013 at 1:34 am | Permalink

          If this is the case then around 80% of the pension paid to all public sector workers is welfare!

          Around 80% of the salary is too! It sure beats working hard to scrape 18k a year though.

          • A different Simon
            Posted August 23, 2013 at 11:03 am | Permalink

            StevenL ,

            For sure there are some excesses in the public sector and worse still in the pseudo public sector of the BBC and quangos’s .

            The establishment has managed to find plenty of well paying “jobs for the boys” .

            One problem I have with a few of the comment makers on John’s site is that they are eager to focus exclusively on the excesses and failures of public sector and use them as an excuse to close the whole thing down .

            Of course many public sector pensions are unjustifiable .

            In order to raise the state pension (primary pension) to a level with makes means testing redundant and so does not disincentivise saving it will be necessary to reduce the size of secondary (vocational) pensions in the public sector .

            I would not however want state sector vocational pensions to be transitioned on bloc to private pensions – which have been an almighty failure except for users .

            I’d much rather the present public sector schemes were scrapped and civil servants charged with coming up with a replacement scheme which was open to everyone .

            I’ve got absolute confidence that those smart people at the ministry would come up with something fabulous that really worked if they knew they were going to be enrolled in it themselves ; unlike NEST .

  15. John B
    Posted August 22, 2013 at 8:34 am | Permalink

    “Most politicians think investment is a good thing.”

    The reason for this is it is not their own money they are risking. The use other peoples’ money to make so-called investments over which the owners of that money have no say or choice.

    The most important influencing factor for an investor is risk/reward. ONLY the person whose money it is can make the best judgement about that. The motive for ‘investment’ by politicians is quite different (ideology, vanity, bribing voters, ‘creating’ jobs) from private investors whose sole motive is highest return.

    Those whose money is at risk also will quickly stop investing in losers, not continue throwing good money after bad to save political face or save jobs.

    Therefore private investment is the most likely to be least ‘wasteful’ and best at allocating resources, Government investment is most likely to be most wasteful and worst at allocating resources.

    It should be the case that politicans who ‘invest’ other peoples’ money should have to stand as guarantor using substantial amount of their own assets for each investment.

    So, by all means let’s have HS2; those Ministers who propose it should first have to invest, say £5 million in it and then act as guarantor for say 50% of any loss to the taxpayer. Let’s see how enthusiastic they are for the project then.

    Mr Redwood: Private Member’s Bill perhaps along these lines?

    Manwhile investing in property. I bought my first property when I was 27 with the idea that my home would be part of my pension pot… I think a lot of people did this.

    That is q mqjor reason why buying not renting is not ‘wasteful’.

    However.

    The notion now that people should not have to release property asset value to pay for their later life care, because the money should go to their kids, defeats this and makes no sense.

    Reply No-one would invest in HS2 as a money making project, as it will be heavily subsidised and heavily loss making pre subsidy.

    • a-tracy
      Posted August 22, 2013 at 1:56 pm | Permalink

      I feel HS2 is out of the UK governments hands, I feel it is a European project to assist Scotland to become independent of the UK and connected by rail to Europe via the Channel Tunnel. If not, why not just start the HS2 project from Scotland South to Birmingham where the slow rail connection is from and to. They need the lines for the European style trains don’t they?

  16. Roger Farmer
    Posted August 22, 2013 at 8:39 am | Permalink

    Investment to me means you put something in and get more out. In terms of selling a kilo of oranges it is a percentage profit. In terms of the NHS it is less quantifiable. However a healthy population costs less and is more productive so in a way the NHS is a good investment and profitable. The fact that Parliament could do more for the health of the nation by clamping down on the unhealthy food sold in supermarkets and fast food outlets seems to have escaped politicians or are most of you in awe of the lobby industry.
    The greatest investment that the political establishment has ignored or tried to destroy is education, but not for their offspring of course. In the UK education is of the best in the World if you can afford the fees or the cost of moving to the right catchment area.
    Most public schools do a superb job, even offering a limited number of scholarships to capable children of impoverished parents. These schools dominate the achievement tables under constant sniping from those with an axe to grind.
    The political establishment since WW2 should be castigated for their failure to get education on a sound basis. From Anthony Greenwoods avowed destruction of grammar schools, via killing off the Direct Grant system to Blair’s flatulent Education, Education, Education, you have all failed over the past sixty years. Any country that fails to educate its youth to the maximum of their abilities across the spectrum of academic and technical challenges deserves contempt. It is the one investment that counts above all else and politicians should be damned for their failure.

    • A different Simon
      Posted August 22, 2013 at 11:16 am | Permalink

      “Any country that fails to educate its youth to the maximum of their abilities across the spectrum of academic and technical challenges deserves contempt. ”

      Surely this is by design rather than accident . If the political establishment wanted a nation of compliant apathetic morons then it would gear the education program to deliver it …. er hang on a moment .

      The real tragedy is that the politicians have no use for the underclass they have created and hold in contempt and are preparing to ditch them . The prognosis for the uneducated who will never vote is very poor ; (etc ed)

      “Investment to me means you put something in and get more out. ”

      Agreed . How perverse that competing for stocks in maxed out blue chip companies is considered investment when usually it doesn’t lead to any increase in productivity only spiraling p/e ratios and proportionally lower dividend returns for those who entered at higher prices .

      • Roger Farmer
        Posted August 22, 2013 at 1:34 pm | Permalink

        I go along with the “By design.” for a certain breed of politicians who would wish to create a compliant, dependant society. The last Labour government did it under the noses of everyone because any criticism led to screams of racist, no one was prepared to shout rubbish. We are now reaping the reward of their evil design. I am contemptuous of those politicians who have benefitted from an excellent education and would deny it to others on the grounds of some ill conceived political agenda. You fail to educate at your peril. Information technology is far to advanced for the populous to tolerate it for eternity.

        • alan jutson
          Posted August 23, 2013 at 7:37 am | Permalink

          Roger

          Agreed

          Political social engineering on a massive scale to try and preserve the power base (votes) of a political Party.

          It is now turning sour, because whilst many people could not see it for what it was at the time, many can now.

          Such manipulation also failed to take account of human nature, where people maximised the rules to ther own advantage, or manipulated the complicated rules to best effect for themselves.

          We now have a number in society who are disconnected from the reality of having to do something for themselves, and expect the State to provide all, whilst they sit back and enjoy the fruits of someone else’s labour.

        • A different Simon
          Posted August 23, 2013 at 11:31 am | Permalink

          Nulabour were the worst for politicising everything they touched ; especially education .

          The elites have been dumbing down education over in America too . This example may shock you :-

          ” A school curriculum developed at Michigan State University for grades 6-8 called “Connected Mathematical Project” says that students should learn that “mathematics is man-made, that it is arbitrary, and good solutions are arrived at by consensus among those who are considered expert” ”

          Whether maths is a science or an art does not strike as a subject to be broached below degree course level .

          Introducing this at grade 6-8 is designed to disorientate and damage impressionable minds and that should be considered a crime and the decision makers who perpetrated it punished most severely for their wickedness .

          We’ve seen relativism replace absolutes , everybody being encouraged to have an opinion on everything and being told that all opinions are equally valid .

          We’ve seen the process of a hypothesis becoming a theorem being downgraded from a proof to a consensus .

          None of us are immune to this brain washing because it is so pervasive and comes in many forms ; obvious , subtle and subliminal .

  17. Acorn
    Posted August 22, 2013 at 9:17 am | Permalink

    “Presumably they wish by this to have people living in cheaper and meaner properties” you say. Correct, new homes in the UK are the smallest in Europe currently at 76 sq m. The average UK house is 85 sq m, and hence getting smaller every year. The UK is the only place I know, that never asks the floor area of a residential property when they buy it, they just count the, getting smaller, bedrooms. But, remember, in the UK, you can fool all the people all the time.

    The Home Builders Federation, representing the biggest house builders in England and Wales, defends the policy of squeezing more properties into smaller and smaller spaces. “If you increase standards you’re going to increase costs,” says the federation’s head of planning Andrew Whitaker”. (Spoken like a true government toady, I say.)

    UK net worth is about £7,300 billion, £4,300 billion of that is residential property, (a capital good that is not consumed), and £600 billion of commercial property that earns its living. The ONS even has to pretend that owner occupiers pay rent for their property to make the GDP and the CPI(H) index work. Now that’s what you call an unbalanced economy!

    Reply London homes are sold on a square footage basis.

    • Mike Wilson
      Posted August 22, 2013 at 11:12 am | Permalink

      @Acorn – UK net worth is about £7.3 trillion, 4.3 trillion of which is residential property.

      How on earth can you value the net worth of the UK’s property? Take an average price and multiply it by the number of houses? At any point of time only a small percentage of the market is for sale and, if the price were based on what anyone with cash could pay for it, the net worth would be a fraction of that number.

      The ‘net worth’ of the housing market is based on how much money the banks are able to lend into it to sustain current prices.

      • Acorn
        Posted August 22, 2013 at 3:00 pm | Permalink

        Mike, have a look at a table from Saville’s Valuing Britain Survey http://pdf.euro.savills.co.uk/brochures/value-of-uk-housing-stock-by-tenure-2011.pdf .

        The ONS does the “National Balance Sheet 2013” http://www.ons.gov.uk/ons/dcp171778_323462.pdf .

        • Mike Wilson
          Posted August 22, 2013 at 4:23 pm | Permalink

          Acorn, but, surely, it is nonsense. In the sense that each owner occupied building is, according to Savills worth 177k. But you couldn’t realise that wealth. It is meaningless. It is based on people being able to borrow the money to buy the houses. The vast majority of the next generation are priced out. So those imaginary valuations are going to have to go down even more than the -2% showing for the last 5 years.

          Any idea why they show rental properties as having gone up in value by 42% over the last 5 years?

          Reply There were falls of up to 25% during the post Credit Crunch slump.

          • Acorn
            Posted August 23, 2013 at 7:05 am | Permalink

            When mortgage lenders stopped lending in the crash, youngsters had to start renting in the private sector. Generally in markets that are reasonably elastic, things are worth what they will earn. Property is a “total return” investment, that is, income plus capital gain. Demand has forced up rents, hence that gets reflected in the price of the property.

            Residential property has a price to gross rent ratio of 16, commercial property is about 12, (same concept as P/E ratio for a company share). Prime London flats will be nearer 48, very poor return for a buy-to-let.

            Reply Gross rent to capital cost in London for a flat is typically 4% – 5% or a multiple of 20 to 25 in your terms. Commercial property yields are 5-10%, multiples of 20-10, depending on location, tenant quality etc. Gross rent to capital value may be higher outside London for residential rentals.

  18. alan jutson
    Posted August 22, 2013 at 9:27 am | Permalink

    Interesting walk ealier this week.

    We are walking the length of the Thames over the period of a couple of years, thus completing the Thames path walk in sections.

    This week we continued from Abingdon walking downstream, the path took us past the view of Didcot Power Station in all its past glory, but now standing unproductive as we scrap that generation of power plants.

    Perhaps a sensible investment would have been to keep it going, until new power Stations came on stream.
    But No.
    Close it down to satisfy some stupid EU rule, with nothing to replace it with.

    Meanwhile China opens a new coal fired power station every week, and Germany is investing in more of the same.

    Another step closer to rationing our power supplies, and another dose of self inflicted pain.

    Reply I agree, and tried to get Ministers to intervene to keep these coal stations open.

  19. English Pensioner
    Posted August 22, 2013 at 9:29 am | Permalink

    I rarely support government or any form of state investment as it is clear that they never apply the same stringent criteria that a private company or the banks would apply. Governments decide that they want to do something and rarely calculate the true cost or whether the activity is cost-effective, they decide it is “investment” and go ahead regardless, HS2 seemingly being a typical example as are all the failed computer projects. No private organisation would have got involved in PFI type contacts without some form of break clause; yet, according to the media yesterday, we have numerous police stations, built under PFI, which are now unused because of revised policing plans, but for which the taxpayer will be paying for the next 30 years.
    I suspect all this is because the state does not generally employ people with real business experience and are employing amateurs who have risen through the ranks and never been subject to the strict financial disciplines of private organisations. As a result, real business runs circles around them.

    • alan jutson
      Posted August 23, 2013 at 7:41 am | Permalink

      E P

      You make the same point I have on many occassions.

      I wonder who exactly negotiates or agrees to all of these contracts on behalf of the Government.

      John, do you know ?

      Reply major government contracts are negotiated by senior officials, under policies laid down by Ministers.

  20. JimF
    Posted August 22, 2013 at 9:34 am | Permalink

    Your argument today seems to still be pushing towards the line that we should be doing anything to create inflation in the housing market, because that will lead to more investment in housing, leading to greater confidence leading to more demand leading to more inflation and so on. At the same time you are arguing that investment in this area (and thereby inflation) is a good thing.
    This really is just stoking a bubble. In the end, present property owners benefit and renters/those yet to enter the market do not. Rather like anything this government does, the supply side is left pretty well alone, and the demand side is tinkered with through subsidies and legislation. Why not remove this Help to Buy and also remove the planning constraints? You’ll then have some release on the supply side, land will become cheaper, more houses will be built and more folk will be able to buy these houses.

    Reply The government is easing the land supply constraints and is seeking to boost housing output – it is now rising from low levels.

  21. Roy Grainger
    Posted August 22, 2013 at 10:07 am | Permalink

    Germany has a large rented sector – it also currently has a large property price bubble as investors rush to buy properties due to lack of faith in the Euro and low interest rates available elsewhere – so really this is little different to our own situation.

  22. Pleb
    Posted August 22, 2013 at 10:45 am | Permalink

    I have a friend who rents from a housing association. Every year the rent goes up, his pay doesn’t. How could a pensioner afford an annual rent rise? The only way is to buy and to try to get mortgage free before you retire.
    Rent payments are lost money, mortgage payments do give some equity which can accumulate over time. Lots of old people live in houses they could never afford to rent. Renting is a mugs game.

    • Mike Wilson
      Posted August 22, 2013 at 11:13 am | Permalink

      And if you can’t buy because housing is too expensive for you? Which is the situation facing most of the next generation.

      • colliemum
        Posted August 22, 2013 at 5:02 pm | Permalink

        And if you can’t downsize because the costs involved (‘new’ small apartment, legal fees, stamp duty, removal) would leave you with nothing left except the huge hassle of physically moving from one place to the other?

        Moving, as well as house prices, is getting unaffordable for all who are in the 20% tax bracket.

  23. Winston Smith
    Posted August 22, 2013 at 11:05 am | Permalink

    Sorry, off topic. (asks if people had thought it possible that the alleged chemical attack in Syria was done by people who want to drag the US into the conflict – ed)

    Reply We need more information and evidence on what happened and who did it.

  24. Romsey
    Posted August 22, 2013 at 12:05 pm | Permalink

    I find the logic in this article difficult to understand. Private sector housing is being underwritten by huge Gov stimulus with Funding For Lending, New Buy & Help to Buy. This is simply not good use of public resources particularly as it is incentivising banks, the main source of debt finance, to withdraw vast sums from corporate lending, productive use of which could help reduce the trade deficit, and reinvest it in housing. This has created a price bubble as nothing has been done to require builders to use existing landbanks & brownfield sites so builders have gorged themselves buying lots of new land, courtesy of the NPPF which this Gov’s price bubble makes more valuable. Public money needs to be directed, albeit productively, at capital spend items which the country badly needs and which the private sector is either barred or unsuited to supplying – power stations (preferably nuclear), airports, roads, hospitals etc.

  25. Lindsay McDougall
    Posted August 22, 2013 at 2:15 pm | Permalink

    I’m all in favour of investment in new houses, provided that it is driven by market considerations. Central government needs to determine its policy on immigration and make a forecast of the rate of dispersal of immigrants and the overall population growth. District councils are being forced to justify their development plans with detailed calculations of need, but in the absence of this crucial information from central government.

    A rational in favour of investment in ‘social’ [subsidised] housing would be welcome; so far I haven’t heard a good one.

    What I am not in favour of is investment in artificially high house prices. A return to sensible rates of interest and lower inflation would be welcome. Mark Carney can always look for another job.

  26. Mark
    Posted August 22, 2013 at 4:13 pm | Permalink

    If banks have been under regulatory constraint to reduce the proportion of lending involved in property it has been singularly unsuccessful. The stocks of most kinds of bank lending (business loans, credit cards, interbank loans…) have fallen at least 20% since the crisis broke, while mortgage lending has actually increased. Current plans are to increase it through £130bn of Help to Buy mortgages and £80bn of Funding for Lending already being funnelled into the BTL market, on top of the existing £1,266.6bn of mortgages, in just three years at most.

    There can be only one consequence, as there is no way that the supply of new homes will absorb the flow of funds, which is enough to provide 1.4 million additional mortgages at an average £150,000 loan size – we are never going to build close to 500,000 new homes per year. Indeed, the size of the average mortgage has already leapt up to a record £156,000 in June from £141,000 in January in support of higher prices. (BoE Bankstats Table 5.4)

    When businesses invest, they evaluate the project to see if it will offer a good chance of a satisfactory return. If the capital cost is too high, the project does not go ahead. This train of thought seems entirely absent in government and the civil service. Thus we get investment in student loans over 50% of which will never be paid off on government figures, investment in offshore windmills that will produce electricity at more than three times the price of a coal station, investment in PFI for schools and hospitals that offer exceedingly poor value for money, and investment in HS2 that is a destroyer of value.

    Matters are no different where housing is concerned. Government has made investment in new housing a bad proposition by imposing levies for social housing and infrastructure, absurd greenergy building standards and restrictions on parking and plot size, and the costs of excessive landbanks. All of these could be tackled to make new housing competitive with existing housing. Instead, it compensates BTL landlords for purchasing the properties by subsidising their rents and mortgages, and creating a prospect of bubble capital gains as an added sweetner, while thinking nothing of the consequences when the bubble is pierced.

    Moreover, it is putting the whole country further into hock by encouraging further borrowing simply to prop up house prices. That funding will have to come from abroad, as it did in supporting the bubble that led to the credit crunch.

    • alan jutson
      Posted August 23, 2013 at 7:45 am | Permalink

      Mark

      Well said.

  27. Bazman
    Posted August 22, 2013 at 4:15 pm | Permalink

    John puts forward the argument for home ownership and I cannot agree more. Is anyone to put their future into the whims of a landlord including lease agreements? Even the council and housing associations try to lever their tenements for money as income. I complained about a blocked drain on housing association property and they tried to give me the run around blaming the water company. When cornered became threatening and asked if I was a tenant? Guess what? I’m not. Fix the drain or face legal action as it has been blocked for more than 10 years. Fixed. Wonder how it would have turned out for their tenants? They would have had points awarded against then in this area I hear. Every time a landlord or council face a bill the tenant will have to pay more rent. The banks are bad but at least you have some sort of control as you are renting money not property. The posters seem to belive tenants are like millionaires renting villas and the landlords are competing for their business. Hey like trains, utilities and phone companies do? Customer being king. We can’t afford the rent. Ram it.

  28. Bazman
    Posted August 22, 2013 at 6:15 pm | Permalink

    Channel 4’s investigation called ‘Pop Up’ into the north and it’s problems is very good. I have lived The North, The Boro’, and now live in South Cambridgeshire. Economics and attitudes are complex and interlinked in many ways at a government and a personal level. A Must see. What do you anti BBC non TV watchers think? Not right wing enough? It is. Right wing southerners often are right wing because they have work.

  29. uanime5
    Posted August 22, 2013 at 6:49 pm | Permalink

    Given that even in the USA renting is cheaper than having a mortgage I have to wonder why rents and mortgages are at the same level in the UK.

  30. John Wrexham
    Posted August 22, 2013 at 7:41 pm | Permalink

    Private individuals investing in their own homes is a good thing. However, government should encourage investment in business that actually might do something to reduce our balance of payments and increase the productivity of UK plc. Creating a class of buy to let landlords and commercial landlords will not help either of those goals and will create a nation of tenants who are very unlikely to ever vote Conservative!! Renting generally infantilises people and inhibits their potential as individuals.

  31. Winston Smith
    Posted August 22, 2013 at 8:20 pm | Permalink

    Most of this discussion is based on media (mostly left-wing fuelled) fallacy. I’ve spent 15mins on the web and its clear there is no ““continental model” of more people renting their own home”.

    Of the 3 nations mentioned in the thread, home ownershp rates for 2009/2011:

    Germany 46% (and rising fast)
    Holland 60% (again increasing)
    Sweden 68%

    EU27 Avg = 68.2%
    UK 69%
    Norway 77%

    In fact, the only nation in Europe with home ownership below 50% is Germany, and that is likely to change in the next 10yrs. This is all from the Smith Institute’s report and the Global Property Guide.

    Ownership as % of the population has decreased in recent years because we have had unprecedented mass immigration. this brings a huge increase to the transient population and, therefore, rentals.

    I find it amazing that so many educated and seemingly intelligent people fail to take ‘ownership’ of the facts and prefer to ‘rent’ them from the perpetuators of mistruths in the media.

  32. Bazman
    Posted August 23, 2013 at 6:51 pm | Permalink

    BTL in my opinion is a poor investment. The house has to be rented out 52 weeks of the year, maintenance costs need to be added including damage by tenants which can be more trouble than what it is worth to recover the costs, also wear and tear that is difficult to quantify. Every new tenant needs to have the appliance inspected and certified. ‘Absurd!’ what has changed in six weeks with no evidence of tampering by the previous tenant? The law is the law however. The plan relies to much on house price inflation which is not reliable, though continues. The nightmare scenery is the tenant refusing to leave vandalism and theft is small compared to the property being squatted in by a family who will not leave. They would have to be eventually removed by physical force, Never happen. I rented out a property for a while to the Navy through an agency. Good returns, very high standards required by very professional people. Got undercut by a large owner buying a run down hotel and putting the Navy all in one ship there. The contractors where less lucrative and more hassle. Council now bought and levelled the street two years after it doubled in value for what I sold it for..Bought another one and paid off the mortgage. Banks, BS’s tenants, estate agents and landlords and even the council tax, after one payment per annum, can now ram it. The only thing I rent now is beer.

  • 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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