Affordable housing?

On Thursday I spent time talking to employees in a local super market. They were full of commonsense.

Together they were of one voice that too many people are on the dole and needing benefits. They feel strongly that the world is too tough on those who try hard and turn up for work, and not tough enough on those who prefer to stay at home when there are jobs available. They want a welfare reform that works – not to kick the crutches from the cripple, but to pull the duvet from the idle.

The younger ones face a big problem with housing. They want to climb the property ladder. In today’s conditions that is very difficult. House prices did fall as we thought on this site during the recession, but have been rising again more recently. They remain high compared to incomes. Banks under the new regulatory cosh are no longer prepared to lend 90% or 95% of the value, so buyers need substantial deposits. Mortgage rates for new mortgages are many times the 0.5% base rate Labour boast about, making monthly mortgage payments large for the beginner.

I went on from the supermarket to talk to a group of senior managers from a wide range of businesses. They too raised the house price issue. One of them recommended creating the conditions for a further subtsantial house price fall because he was worried about affordability. The others, all home owners, thought this a dreadful idea. They asked what the political parties thought. I said the parties thought there were a lot of home owners out there! Conservatives proposed removing the tax on first time buyer purchasers, and Labour have now done just that, which will help a little.

We are in bind. House prices are too high in many parts of the country for new buyers without rich or generous parents prepared to pay the deposit. The banks are forced to be more prudent, so many go without access to the credit they need. Any ideas?


  1. Stuart Fairney
    April 3, 2010

    As a house builder the most obvious is to obey a simple law of economics, namely if the price of something is high, increase supply to moderate prices.

    It is my experience of nearly 20 years in the industry that the very people who complain when their kids can't get houses are the same people who turn up with the "no housing in " when you go for a planning consent.

    On a more detailed note, review the workings of section 106 agreements ~ these are now routinely used way beyond the scope of the 1990 Act. Also have much higher trigger points for social housing. The current low triggers and high demands mean that smal sites with just a handful of units get built, along with the very large ones. But medium sized sites are made uneconomic because of the de-facto tax demand at source the council try to extract. I might also withdraw from the EU legislation on special protection areas (SPA's) which to my knowledge has bankrupted otherwise profitabel companies and look again at the whole concept of the tree protection order which certainly detroys more trees than it ever saves and stops many more from ever being planted.

    Finally, look again at social housing provision. Back in 1990 demands were for between 10% and 15% social housing. These days 50% is not unusual. It seems to me that if a policy is failing, it is illogical to demand more of it. I would be tempted to withdraw completely from the field of social provision. Knowing there were no more free houses to be had for irrational, anti-social behaviour you might find people moderated their actions. As it is, as a young "lady" you face the choice of saving for some years for a deposit whilst being taxed to hell the whole time, or randomly laying down with someone and producing another member of the underclass. Which behaviour should our system encourage? Which does it encourage?

    1. alan jutson
      April 3, 2010

      Stuart you make many good points.

      Causes of high prices.

      Section 106 (payments to local Authorities for Planning approval) increases the cost of developments.
      NIMBY culture of the population to stop Planning approvals/building,
      Stamp Duty rates now discourage moving unless you really have to (job/family circumstances).
      Stamp duty rates give false price thresholds, if you are going to have different rates then do so like the tax system and stagger them, not charge the highest rate for the whole value.
      Stamp duty rates also now discourage development of older buildings to bring them back into life, as indeed does VAT which is paid on improvement, but not new build.
      Increased immigration and a higher total birth rate means more housing is required, since we do not make land any more (unlike Holland who have reclaimed it) we are allowing the sea to reclaim many parts of the coast through policy choice.
      If house building numbers is lower than the increase in population, then prices go up, simple. Supply and demand.
      Only way to curtail house prices is to have a stronger lending policy, but then wealthy parents bugger this up by giving /lending money to their kids, and so keep the demand cycle going.

      Only thing that rising house prices give, is a feeling of security to those who already own one or more. So its the feel good factor which also encourages people to spend on improving their property and keeps many in work.

      House prices are higher in areas of demand, good Schools, good shopping, employment choice, good landscape, low crime, good infrastructure for transport etc. So local Authorities play a part here, as does government and the police

      Quickest way to get a reduction in house prices is to refuse to lend any money for house purchase at all. Clearly this would be close to insanity and a nonesense with all the repercussions, but you get my drift.

      For too long Governments have encouraged House purchase at almost any cost (bank lending) so that they can reap the tax benefits later, stamp duty, Vat on improvements, and inheritance tax. etc,

    2. Timm
      April 4, 2010

      Builder Stuart makes some good points in post one. As a Local Authority planner, perhaps I can add to some of them:

      1. "increase supply"
      I would add: I's time to allow building on some greenfield sites in areas of high demand. There is plenty of low grade arable land that also has low amenity value on the edge of settlements. Ameliorate the limited harm this loss creates by increasing access (allotments, and recreation in more attractive areas). Let landowners offer such deals as part of the development process.

      2. "review the workings of section 106 agreements ~ these are now routinely used way beyond the scope of the 1990 Act."
      I would add: S106 agreements should bring forward / contribute to the infrastructure that the development needs, not fund separate political projects such as Affordable Housing.

      3. "look again at social housing provision"
      I would add: Why on earth are we restricting the supply of housing that is affordable to workers, by determinedly increasing the supply of housing that is free to the unproductive? This is not merely moral hazard; it is negative social engineering.

    3. Acorn
      April 4, 2010

      Some thoughts have come to mind from a previous dalliance with local government.

      Local planning committees never discuss money. There is no direct connection between increased Council Tax yield and planning applications, though the fees yield a small but not insignificant income for the council.

      A section 106 requirement "the bung", will be dealt with by officers outside the planning committee. The money generated has to be held in a separate account; you are supposed to give it back if the council does not use it; as per the agreement terms.

      There is no charge for holding land out of the market and waiting for the council to put in a road and utility infrastructure close to it raising its future value and "the bung".

      England is one of the few places where actual square footage of an average new dwelling is getting smaller.

      The price escalation of a property occurs in the land value, not much in the new bricks and mortar to build the dwelling. The proper residual land value – the price of the land to make the pay back of a social housing development – is never achieved; councils basically give the land away and make a loss for Council Tax Payers. Keep in mind that social housing rents are just over half the private market rate.

      Now; if we had Land Value Tax (LVT) on all 32 million acres of England; and, it formed a very large percentage of a councils total income; replacing or reducing substantially Council Tax; Unified Business Rates; 106; RSG and the like …… discuss.

      1. Stuart Fairney
        April 4, 2010

        Help me out here ?

        "There is no direct connection between increased Council Tax yield and planning applications"

        How can this be true? surely if you consent another 500 houses you get another 500 council tax bills (less the social housing who don't pay it of course).

        1. Acorn
          April 5, 2010

          My point is that a local council planning committee only deals with the technicalities of a planning application based on the policies it – and central government – have set.

          It would not consider that those 500 houses will yield around three quarters of a million in increased income for the council. Or that they could use that for increasing services or reducing the average council tax. It has no incentive to build more houses other than the political consequences of the housing waiting list, at election time.

      2. Stuart Fairney
        April 4, 2010

        I would not go for land value tax but would agree that councils should be responsible for raising all the revenue they spend. The current system of rate support grant is a dogs breakfast which should be urgently reformed. All you ened up with is each branch of government blaming each other and the befuddled
        tax-payer raped as always.

        Also if they raised their own cash and truly ran the borough, they would be fully accountable and responsible for it's performance. Also it would introduce some very necessary tax competition in business rates (a tax on jobs if ever there was one!)

  2. Mick Anderson
    April 3, 2010

    Part of the problem is the way that we all know the figures have been manipulated.

    My stepson has been unemployed for about a year. In January he was notionally put on an (unsuitable) course to "help him back towards employment". This course has yet to start, but it seems to mean that he is no longer counted as unemployed.

    As with many people who have lost their jobs, he is in debt. There are things that we could have done to help him financially, for example, buy his flat from him and rent it back. This would have cleared all of his debt and left a bit of spare to help fund him while job-seeking. Apart from helping him, this approach would put a big chunk of cash back into the economy, instead of earning bu**er all as savings. However, there are so many rules about the support that he is receiving from the Government that we concluded it was better for us to stand back.

    So, the evidence that we have seen is that Mr Browns policies have helped his job to be lost, have tied him up in a maze of pointless paperwork, and lied about his status to make themselves look (relatively) good.

    it's going to take many, many years to unpick the mess that Mr Brown (as Chancellor and PM) has created….

  3. Ruth
    April 3, 2010

    On housing, here in East Lancashire prices are static, if not falling. Within a quarter of a mile from my house there are 3 houses which have all been up for sale for 2 years. The only houses which are selling in this area are those in need of renovation and are therefore going cheap- 2 neglected houses in this village have sold in the last year. I have noticed that more houses have gone up for sale in recent weeks, but they are very slow selling, so that is likely to depress prices further.

    So here we have an oversupply which is depressing prices – market forces rule. As you point out, by making it harder to borrow money, the banks are effectively depressing the market themselves. Is this a bad thing? When I bought my first house in 1992 I couldn't borrow more than 3 times my income. It was the banks removing this restraint which fuelled the house price boom in the first place, so withholding credit should have the opposite effect.

    This is a problem for people who really want to buy now, plus those who bought at the top of the market find themselves in negative equity, as indeed I did in the early 90s. But in the long term, shouldn't prices being corrected downwards lead to increased affordability? A hard correction, but one that is overdue in my opinion. My current house, bought in 1997, doubled in value in 6 years, and by the height of the boom was "worth"over 2 1/2 times what I paid. That's the economics of crazy town…

  4. Simon D
    April 3, 2010

    I think your supermarket visit raises an interesting general issue. Almost everybody is now totally uninterested in the class war, the workers' struggle against capitalism and other generalities beloved of ageing student Marxists. We want things to work and we want politicians to get out of the way so that we can live fulfilling lives. If things don't work we want solutions to problems formulated as they would be at the Harvard Business School. Most of us are bored by a political class still playing historical games at Westminster more appropriate to the last century, or even the one before.

    We want an economy similar to that which Mr. Brown inherited in 1997 (and then trashed), a strong pound, schools that teach children to read and write, low unemployment, a justice system that punishes criminals, non-porous national borders, a benefit system which supplies needs only to genuine applicants, a sensible banking system meeting high street customer needs and an adult relationship with the EU project (or out of it altogether). Many viewers of your blog will be able to add to this list. Almost all will want less interference by the state at every level.

    Why can't more politicians go into supermarkets and listen to what real people really want, instead of embroiling themselves in spin and paying too much attention to overpaid journalists with excessively large egos. And why do real people believe that there is an impenetrable glass ceiling between themselves and politicians which produces an elective dictatorship where things are done to please or amuse politicians and journalists which have little popular support whilst the real needs of the public are ignored?

    The antics of the Westminster Village are well beyond their sell-by date. MPs expenses are a red herring. Bring on the Harvard Business School revolution in politics as soon as possible.

  5. Antisthenes
    April 3, 2010

    Naturally people who have not yet purchased a home and want to want lower prices and those who already own one high prices. The greedy versus the needy, ironically as soon as the needy become a home owner they join the greedy.

    Possibly the answer to this dilemma is to have a policy that ensures house prices remain fairly stable and below the rate of inflation until the ratio between cost and earning is more realistic. Once that is achieved ensure that house price rises are kept to that cost earnings ratio.

    Rapid house price rises have so many negative effects, it stimulates personal debt, it causes unsustainable price bubbles the effects of which are all to apparent and puts home ownership beyond the reach of too many.

    1. Richard
      April 3, 2010

      Good points, best way to do this would be to ease the planning rules.

      To the people that say "we are an island nation, no space etc" take a look at just how much green space there is around London:

      now compare that to Japan, a real island nation with no space:…

      Labour benefited from the feel good factor that ever increasing house prices provided. The last thing they wanted to do was risk that by permitting too much supply of new houses.

      Obviously, this is unsustainable and it will be too late to fix it once our young people have all left either in body or spirit.

    2. Mike Wilson
      April 4, 2010

      100% Capital gains tax on the profits from the sale of one's own residence would be a good start in stabilising the market.

      If house prices never go up, people would pay as little as possible for them and have loads of money to spend and create demand in the economy.

      Think of the money that would be invested in pensions and businesses if people knew they wouldn't make any money from their house.

      1. alan jutson
        April 5, 2010


        So who would move then ???

        No point in looking to move job to another area.

        People stuck in a 1 bedroom flat (all they could afford at the time) who want a family.

        Families will not trade down to release larger houses for those wanting to move up.

        Compulsary purchase by the council for road widening/new housing schemes.

        Neighbours from hell who you cannot move away from.

        Sorry but more money to the government for them to waste is not my idea of a solution.

        Your Primary residence (and most of us only have one house) is your home, full stop.

    3. Kevin Peat
      April 4, 2010

      "Rapid house price rises have so many negative effects, it stimulates personal debt, it causes unsustainable price bubbles"

      This was very nearly the downfall of the West. In fact we're still not out of the woods yet as the hope of a resurgence in property prices seems to be what Brown is clinging to in order to right the banks.

      I can't stress the lunacy of property ramping being at the heart of wealth creation.

      Any time soon the Chinese and Indians are going to realise that, for the most part, our economies are fluff.

  6. Lola
    April 3, 2010

    High and forever rising house prices are a transfer of wealth from the future generation to the present generation. Taxation on land and housing is too low, while tax on work and capital are too high. Transferring the burden of tax back onto land from labour and capital might go a long way to both currently reducing house prices and stabilising them into the future. Essentially we have to learn that the way to wealth is hard work and enterprise, not sitting on yer bum in a pile of bricks.

    1. APL
      April 3, 2010

      Lola: "Transferring the burden of tax back onto land from labour and capital might go a long way to both currently reducing house prices .."

      Rather than just transfering the burden from janet to john, why not reduce the amount of money the state spends?

      Is that too radical an idea?

      As to house prices, they have been artificially goosed and are being artificially goosed in advance of the election, viz QE.

      QE has it seems to me manifested itself in three primary areas of the economy.

      1. the Stock market.
      2. the housing market – without it house prices would be very much lower.
      2. inflation – QE has led to a depreciation of Sterling leading to import prices rising.

      Despite owning property (one house) and stocks, these are not good results.

      1. APL
        April 3, 2010

        Federal reserve admits to loosing 30% – 40% on the assets it has bought up.

        Well, OK. That is the Americans, it they want to bankrupt their country that is up to them.

        But what about the Bank of England, what has it bought and what is it worth now?

      2. Lola
        April 5, 2010

        Oh yes. Lots less tax. My ambition? Do all government for 10% od GDP. Tithes work for me.

  7. Ian Jones
    April 3, 2010

    You mean apart from the massive bail out given to house owners by the bank of England who printed money and cut interest rates to 0.5%. This has prevented the correction in prices that should have happened in prices resulting in a massive transfer of wealth to existing owners from the next generation who are already being screwed on tuition fees and pensions!

    As for actions, increase supply by building a lot more houses (and flats in cities). Move tax to being based on square footage and property values so those who have big houses pay more. Old people can move out to smaller places thus freeing up supply and reducing prices.

    Remove tax benefits for Buy to Let and allow long term tenants to be able to buy a property at the price the property would have been when they moved in. Landlords make their money on the rental income why should they get a capital gain on top?

    Stop giving housing benefit in over populated areas, move the people to less costly areas thus increasing supply and reducing demand.

    Unless radical action is taken, the British should not be surprised if the next generation move towards communism because it will be the only way they can get their hands on a decent standard of living.

    1. alan jutson
      April 3, 2010


      Whenever has Communism produced a better standard of living other than for those in Power ?.

      So you think I should sell my big house (which I designed and built myself) when my kids leave home, then sell off my furniture (to much to go in a small house), pay a solicitor, estate agent, and stamp duty to move to a smaller property rather than stay where I am.

      I will when the time is right for me, not you or the State.

      Do not think that just because you live in a large house you should aurtomatically pay more (you do with Council tax as it happens), I do not smoke, gamble or drink much, thats one of the reasons I can afford a large house.

      The poll tax was a much fairer system than Council tax, as all paid a little for the services provided for the majority.

      Multiple occupation of smaller houses is more of a drain on the system than a few people in a large house.

      1. Bazman
        April 4, 2010

        That's why it was often referred to as the 'Pool Tax'. A tax on having a swimming pool.

  8. Mike G
    April 3, 2010

    House price inflation has allowed the banks to take a huge stake in the private economy, effectively enslaving house "owners" with debt. It is hard to see any net social benefit.

    The unrestrained drive to expand borrowing lead finally to the predatory lending insanity of teaser rates, US subprime/option ARM/alt-A, and Northern Rock 125%. The inevitable consequence is debt servicing failure.

    How can it be right to persuade potential first time buyers to take on crushing debt in this uncertain post-GFC climate? Probably the least worse solution is gentle house price deflation over a decade, and encouraging rental.

    Any attempt to ease house price purchase will defer any correction. Of course, politicians and banks will fight such deflation by any means.

    Study of Latvia following the Soviet breakup is a sad lesson in the destruction of an economy by credit-driven inflation.


  9. John Bowman
    April 3, 2010

    If you cannot afford to buy, rent until you can.

    When I bought my first flat, 1977, of course I had no idea about prices. I set out to find what I wanted in a chosen location. Was I in for a rude awakening!

    Nobody would lend more than 3 times salary, so "affordable" housing I soon learned was any property upon which the loan would be up to 3 times my salary, not necessarily what I wanted to buy.

    No building society would loan more than 85% on my "affordable" property because it was a "conversion", one of two flats in what had been a house. My savings were insufficient to make up the difference so I got a top-up loan from an insurance company at a fantastic 2% below the going rate- the going rate being 16%: the two loans together were slightly less than 3 times my salary.

    I had little furniture, no TV, no phone and slept on the floor as the deposit and other expenses had wiped out my savings. I waited until the January sales and bought stuff on credit but only to the extent I could afford to make the payments. When one lot was paid off, I bought some more.

    In those days you had to be a regular saver with a building society before they would give you a mortgage. Even if you fulfilled all the requirements, you still had to go on a waiting list until mortgage money became available, as money was released in tranches by the societies.

    Suggestions for those trying to get on the property ladder? Face up to reality, first step on the property ladder is what you can afford, not what you want, where you want. Subsequent steps take you to what and where you want. (Same advice to the unemployed, get a job that is available not the one you want or like, then move on.)

    Save! instead of spending on life's luxuries. Make buying a property number one priority. How many of those unable to get "affordable" housing do not have mobile phones, iPods, plasma tellies, etc? Few I'll wager.

    Understand neither life nor society owes you anything. Disabuse yourself of the notion promoted by Socialists and so-called liberals that you are "entitled" to anything you want and the rest of society/government must provide it for you, that you should not have to struggle, face hardship, disappointment.Get used to the idea that it is up to you whether you succeed or fail.

    Life is tough – get on with it!

    1. John Smith
      April 3, 2010

      Greg –
      You bought your first home for 3 times your salary.
      I earn a fairly decent wage – £40K pa – so I took a look at what I could buy for 3x my wage within 10 miles of my home is St Albans.
      The answer:

      A mobile home.

      So please stop going on about how hard it was in your day, dad working all day down the pit and bringing home a lump of coal for dinner, etc…

      The plain truth is that housing was CHEAP compared to today.

      High house prices are a blight on this country. We desperately need to reduce our costs if we are going to ever be competitive against the far East; we need to seriously look at REDUCING wages, but for that to happen, workers need to be able to live on less – and HOUSING is the biggest cost in their lives.

      1. Mick Anderson
        April 3, 2010

        Why does everybody assume that you houses have to be priced at three or four times a single salary? My parents could only afford to buy a house in the 1960s because they both worked.

        A friend is about to buy a first house with his fiance. Three and a half times their combined salary is £175k, as they are both on average salaries (~£25k). Allowing for a 10% deposit, they are looking at houses for £195k, and that gives them a reasonable amount of choice of starter home where they live (Hampshire).

        Equally, there are flats in SW Surrey for £100k. They might not be everybodies Utopia, but there's nothing wrong with them for what they are. It is at least a foot on the proverbial property ladder….

        You don't need massive salary multiples to be able to afford a decent house, but it's a long-term commitment, and you do need to be prepared to work for it.

        However, it will always be the case that some people will not be able to afford to buy a house. The NINJA mortgages in the US that helped trigger the Credit Crunch should have taught us that! There is nothing wrong with renting.

        1. John Smith
          April 4, 2010

          "Why does everybody assume that you houses have to be priced at three or four times a single salary?"

          I am not assuming that they have to – I was responding to a poster who stated that "the two loans together were slightly less than 3 times my salary."

          He then went on to moan about FTBs (First Time Buyers) being unrealistic in their expectations, of being lazy, and on and on…

          I simply pointed out that houses today are VERY EXPENSIVE, and that the poster had it EASY in his day – he bought his first house for 3x his wage, today all I can buy for that (with my decent wage) is a mobile home.

          Your suggestions change nothing to my basic point:
          – your friend is buying a house based on the combined salary of him and his fiancee. Good for him, but it means that you today need TWO wages to buy something that you used to be able to buy for ONE wage.
          – flats in SW Surrey? Thank you, but it's a rather long commute! I could more there, but then almost certainly as I move further away from London, my wage expectations would have to drop, so it's back to square one…

          I stick by my original point: the poster who said that today's first time buyers are lazy was wrong, wrong, wrong. We WANT to buy a house, but even people on GOOD wages can no longer afford a house.

    2. Richard
      April 3, 2010

      Greg is right, expectations of the young are sky-high only matched by the astonishing amount of money they waste on new cars, clothes, mobile phones etc that they should be saving instead.

      However it doesn't get away from the key problem: "3 times salary"

      3 x average salary of a graduate is £24k. With an 8K deposit that is £80k to spend. In 1997, I bought a very nice two bed flat, less than 40 minutes door-2-door to the City for £80k. Same flat is worth £300k today.

      In the same 12 year period, China and India have moved up the "skills ladder" and can do all the same jobs we can do. This means, I can employ a computer programmer in India (with a PhD) for £10k. I have to pay someone in the UK at least 3 x this just to cover his rent/mortgage. How is that sensible?

  10. no one
    April 3, 2010

    there are houses, just in the wrong parts of the country

    part of the problem is that the north of england does not have the clout which the scots and welsh got with their own parliaments

    and there is a natural tendancy for foreign business to setup in ripples from heathrow

    so people have to go where jobs are, and that is largely the south east, and housing is bad there

    house prices are too high in the UK its way beyond economic sense, and there will be a big correction at some point, you only have to compare prices in brussels or paris with here

    so i wouldnt artificially help keep prices up, as mrs t used to say you carnt buck the markets, its doomed to failure as much as current home owners want

    most of all we need houses being built that people want, ie semis with a drive and not flats

    we need a much more vibrant rented sector where folk can get reasonable security of tenure to bring kids up outside the state housing stock

    we need folk in state housing to be able to move for work between towns much more easily

    we probaby need better solutions for folk in the middle between the state housing wastelands and being able to afford to buy

    simple? some of it is

  11. A.Sedgwick
    April 3, 2010

    Most working people have conservative values, our problem has been that we have been deserted by the Conservative Party in recent years.

    The shortage of housing for decent young people has been made worse by massive uncontrolled immigration and unjustified housing benefit.

    Capital gains tax should be applied to all personal property gains with reductions for long term ownership, no stamp duty at all to £250,000 after which it should be incremental not stepped, tax incentives for landlords willing to give long leases, building maintenance and improvements VAT exempt.

    As many have commented we are completely different to continental Europe where rent is the norm and tenants can live for decades in the same property at a fair rent.

    Town Planning is arguably the most contentious local government issue, where no one is a winner. Councils agree to the most unworthy schemes yet dig their heels in against others. Rules become guidelines when it suits and vice versa. Scruffy green belt is protected against housing yet roads carve through the landscape. Builders want too many units and upset local residents, who are discriminated against as they do not have the same rights of appeal. Planning needs far more objectivity and for me should be removed from local government involvement.

  12. PT
    April 3, 2010

    Reducing house prices either through mortgage regulation or a nationwide easing of planning restriction would be political suicide. Both Labour and Tory know this, so will continue market intervention to maintain upward price stability and instead promote cheaper mortgages and 25/50/75% shared ownership as a means to buy.

    This is clearly undesirable, damaging to UK competitiveness and likely unsustainable in the long-term, but when did any of these influence policy of British governments? Short-termism, pandering to market interests and populism is pretty much what we'll continue to get.

  13. Bill
    April 3, 2010

    Not sure that there is a solution as such.

    This problem has been around for as long as I remember, back in the 70’s I couldn’t get a mortgage even though UI had scraped together a deposit, the problem was that the building societies rationed the loans. I didn’t tick the box that I had held a savings account for x years.

    Now at least there are mortgage deals around without that savings requirement.

    If the government coerced the mortgage lenders to lend 90% again and so diminish the deposit, then that would help a lot of struggling buyers get onto the ladder, but this would just drive prices up.

    Relaxing planning restrictions would probably be the only way to help, ensuring a greater supply and lowering the unit costs of the dwelling, land being the most expensive factor. The downside is that this would be too detrimental to rural UK.

    I think that in the longer term first time buyers properties will come into the range of those buyers, but it always was, and always is, a struggle. There are periods like the present when the difficulty is greater.
    Realising that you can’t start out with your dream home, lowering expectations, when you start out and working at it will afford results.

    1. Mark
      April 4, 2010

      When I read that Labour plan to build 3 million houses by 2020, I understand that they mean to encourage net immigration to fill the houses (less a small number pulled down as no longer fit for occupation). The link between house numbers and prices is much more tenuous than the availability of finance. In the US, Eire and Spain house prices rose sharply while there were great speculative building booms, which now leave behind many unoccupied properties – there is no shortage of housing. What has changed is that in those countries mortgage finance has become much harder to obtain.

  14. yorkie boy
    April 3, 2010

    The bottom line is that the average house eg a three bedroom semi should be affordable for the average family.

    In most of the country it isn't.

    Any government policy related to housing should aim to make it affordable.

    High house prices are bad for the country in encouraging debt, reducing mobility and reducing home ownership and also in making the UK a high cost country – very dangerous in a globalised economy.

    The only "benefit" is that they give the illusion of wealth.

  15. JimF
    April 3, 2010

    There has to be a return to favour the interests of savers and business investors over those of investors in property. As has been said elsewhere here, a gradual deflation of the property bubble is now probably the best way.

    Very high interest rates do colatteral damage elsewhere in the economy; this was the alleged concern in the days of the boom when the MPC refused to raise rates despite rocketing property prices. So other measures need to be considered to skew investment away from excessive investment in property and in favour of productive assets, viz:

    Decrease the risk of investing in people and machinery, by a more lax business regulatory regime;
    Increase the risk in property investment by a more lax regulatory environment on planning;
    Decrease the return on investment in property by more stringent CGT measures, without affecting mobility, (and less stringent CGT on business assets).

    All told, rental costs will find their own market level, which will determine whether first time buyers should rent or buy. In the absence of further QE I suspect renting will be the answer, but QE is the wildcard which any Government here could use to throw that answer into reverse gear.

    What are your thoughts on Messrs Cameron and Osborne using QE to save the millions of homeowners who might vote for him, from higher interest rates and falling prices? Would you support such a move?

  16. brian kelly
    April 3, 2010

    The fundamental problem of this country affecting so many areas, but particularly the the young, is that there are not enough 'proper' jobs in our economy. Nor are we educating our youngsters for 'proper' jobs – the education system is deplorable and must be changed radically. This directly leads to deep social and economic problems, of course, due to 'generational' unemployment. [In my young days everyone could get a 'proper' job and did so] and large scale uncontrolled immigration such as the labour party has contrived ed to happen has greatly and dangerously contributed to all these problems. The welfare system reinforces the mentality of acceptance of unemployment and must, most certainly, be reformed without harming those who cannot work. The next government, [hopefully conservative], must work might and main to encourage private industry large and small and unashamedly 'bias' our country to this end. It must get the state off the backs of private industry and 'us' and reduce the regulation, tax and red tape. Our very future depends on this.

  17. Mark
    April 3, 2010

    I've an interesting history on the attempts to sell a substantial house (2,600 sq ft in 0.5 acre) just outside Dublin. Initially marketed in February, 2008 for €1 million, the price was progressively reduced to €680,000 before attracting a bid in June, 2009. The sale fell through in September, and the price has been further reduced in stages to €550,000 in January, and the house remains for sale. You have to suspect that it won't fetch half the original asking price. This fall has happened because the Irish have not propped up their housing market by having the central bank provide over a quarter of all mortgage funding directly – as is the case in the UK.

    There are two ways out of the housing bubble – high inflation, or falling house prices. High inflation will mean high interest rates on our massive debts – both government and private, and a further big economic slide. The high rates will lead to a large increase in unaffordable mortgages, and hence repossessions, and losses for banks. Falling house prices will also lead to more repossessions and bank losses – but probably fewer.

    We know that banks will have to re-finance £440bn out their £1,237bn mortgage lending by 2012. Since they are being lent £319bn by the lender of last resort already, it is hard to see this being provided by normal commercial lending.

    House prices have to correct in real terms. It is completely unsustainable to be financing half our mortgage lending by borrowing abroad (as we were before the bubble broke). It's best to let it happen sooner rather than later. The longer the delay, the more people who end up with unaffordable house purchases.

    1. Mark
      April 5, 2010

      Here is CML's view of the funding crisis:

      There are some important statistics in the paper on the extent to which RMBS have been sold to foreign investors, although there is an incomplete admission of the amount of reliance on foreign funding h overall. It is clear that there is trouble ahead – with threats such as wider interest rate margins referred to in the body of the paper, which is mainly aimed at laying groundwork towards appeals for further intervention and state subsidy. It is important background for anyone devising solutions. Careful reading can allow some probing questions to be asked.

  18. Lindsay McDougall
    April 3, 2010

    House prices are too high because of monetary policy that is too loose. End QE and raise base rate to 3%. If it can be done, a 20% fall in house prices, followed by a long period in which house prices stay constant in paper money terms, is about right. But not too popular.

  19. Kevin Peat
    April 3, 2010

    If we are to believe that our birth rate is going down and that immigration is under control then there shouldn't be excessive demand for housing. In reality prices have been inflated not by population levels but by imaginative lending methods and the factoring of dual incomes in mortgages. This has done four things which suit Labour:

    – create the economic miracle on which their boom is based

    – Make women work and undermine the traditional family

    – give panem et circenses to baby boomers (to win their votes)

    – make our youth permanently indebted and therefore compliant (and that's before we start talking about tuition fees)

    This week the Govt announces that it's going to enable the Post Office to provide new super mortgages to enable first time buyers on to the ladder. Why ? Shouldn't the market be allowed to find its own level ? Labour wants housing to boom in perpetuity – that is their one economic trick.

    First you must ignore the baby boomers. They have had their crack of the whip. We really need to make Britain an attractive place for our most talented youth – if they aren't going to be allowed to buy their own patch of Britain in an area which hasn't been completely concreted over because of a fake boom they aren't going to stay. Why should they ?

  20. Paul Flusk
    April 3, 2010


    Thanks for raising the opportunity to talk about this key issue. For too long, this issue has been ignored, with the majority of the country benefitting from excess house price rises, with first time buyer entrants expected to pick up the tab, a disgraceful situation. My wife and I, on a reasonable joint salary


    OK, we all know that the suggestion of house prices dropping to double what someone paid for it back in 2000 is politically unpalatable, even if that is the right thing to do. So what to do? I think some of those commenting on here, who bought in the 70s need to remember a couple of facts. We are living through an era of incredibly low inflation, and with it, low wage inflation. Mortgage profit margins are far higher than in the 70’s. We will not get the benefit of wage inflation eating our mortgage debt like you did. You comment on tight mortgage multipliers. I want them back, many other nations have them, and its no surprise they have had no boom and bust. They also need to remember that prices are desperately unafordable. Real prices and affordability has never been worse, despite record low interest rates. The suggestion that FTBs lower expectations is great; until you realise that the average FTB age is now 38, by which stage, people have families and children, so lowering your expectations to a 1 bed flat is not feasible.

    I think the solutions need to be as follows.

    Cut the Support to mortgage scheme to those on anything other than Jobseekers allowance. Those on jobseekers allowance need to understand that support will last for 12 months, and once that limit is over, the support will finish. 12 months will be plenty of time to allow a seller to sell a property once they have lost their job. This will also increase housing supply, to those who desperately need to move onto the ladder.

    Make it clear to the banks that the Special liquidity scheme WILL NOT be rolled over. We DO NOT NEED more Bank of England stimulus money entering the market, which will all end in tears. We need prices to adjust to the reality of affordability. To this end, we need to re-introduce Mortgage salary multiples, as suggested by Lord Turner, initially at 4 times single salary and 3 times joint. This needs to be established in LAW. No-one needs to speculate above these levels to buy a HOME. If you want to invest, invest in the FTSE on gearing. Whilst this will generate short term pain, it will also introduce an economic stabiliser, as house price crashes are so bad for the economy.

    Taxation and discincentivise second homes. Cut inheritance tax (sweetner) but tax second homes. The country need the revenue, the market needs property. There are hundreds of thousands of empty holiday homes in the UK, as second homes, many in areas of drastic housing shortage and prices at over 10 times local average salary. They are economically unproductive, preventing many young people from getting jobs in their local area. Whilst as a Conservative I fully agree that business taxation needs to be adjusted to assist future growth, how does owning a second home (no jokes about MPs here) assist economic flexibility? a 2 times escalator on local council tax plus 0.5% levy on estimated price based off land registry valuation will raise revenue, will be easy to implement and will increase housing supply, especially in areas of excessive pricing.

    Increase taxation/disincentivise BTL. Why should a first time buyer on the 40% tax rate pay post-taxed income to service a mortgage, whilst BTL landlords get to claim tax back? Pull any BTL landlords on the Support to mortgage Interest Scheme off the scheme imediately and add a 0.5% enforced mortgage levy on all individuals on BTL mortgages, or those renting out a home on a residential mortgage. This 0.5% levy could be used to increase housing supply drastically in the UK.

    Finally, planning permission. We need to get this sorted. Middle/Upper income Britain need to get over themselves. They cannot continue to block decent local development, in a hopes to pull the planning drawbridge up from behind them once they are all set up in their quaint little village and refuse the opportunities like they had, often buying at a fraction of current prices. I would be more than willing to buy a plot of land, and do a self-build, within the bounds of taste and decency for the local area, with full local consultation. However, I cant. I cannot afford 500,000 per acre that it costs to land to self-build on. I never will. As a First time buyer, I would LOVE protection as a first time buyer to over-rule any planning decision made by the planning department if it is not objected to locally, even if this involves building on greenbelt infil between existing properties and in a sustainable way. I am not looking to build a block of flats. I simply want a single, decent HOME, one with sufficient space to raise my family (wife, child on the way), at a price that means that when my wife has given birth, she is not required to go straight back to work within 6 months and instead we can raise a family off my above average single income. Is that too much to ask? The UK currently has only 7% of land occupancy, under half of which is used for residential housing. Can we honestly ill-afford to build, decent, spaced out accommodation for our hard working families? Or are people too cut up about the potential impact on their future house prices to see that we need to do this? I am a country lad, I am not looking to turn the countryside into a car park, I do think we could use some more of our farm land to build the 1 1/2 million decent, 3 bed semi homes with a decent garden that we need so desperately. I have the savings to fund such a project, stimulate the local construction industry and create jobs, but cannot do so due to the prohibitive cost of the land.

    One final point. If this issue is ignored, I, and many other in my situation will not stay here. I am already making contingency plans to get out of the UK, and am serious when I say I will emmigrate over this issue. 40% of those on my Aerospace Degree course already have. Those expecting the youngest to pay for their NHS treatment, gold edged state sector pensions and now an additional bonus in the form of a house they bought for 1/6 of its current real adjusted price would be best to remember that we may not choose to stick round in the UK if they turn their backs on us.

    1. Richard
      April 3, 2010

      Wow, spot on. You should go into politics. I'd gladly fund your second home.

      I second the emigration plans:

    2. a-tracy
      April 3, 2010

      Well said.

    3. Dom
      April 4, 2010

      Brilliantly put – best post by a mile

  21. Teddy
    April 3, 2010

    Housing – I believe that tax breaks need to stop for people letting out property. When I was young, if one or both of you were lucky enough to have a flat, when you moved in together you sold it and put the money into a house. Now I see over and over again couples keeping on the flat "as an investment" while they also buy a house. The next lot of young people then end up having to rent from older couple, on a tenancy that doesn't give them security and doesn't allow them to decorate the property. The owners of the flat get tax relief on their mortgage payments by being able to offset the interest against the rent. This seems very unfair.
    Stop these tax breaks for people hoarding property suitable for the younger generation and at least give a bit more of an even playing field.
    Also, people are often hoarding these properties on interest only mortgages – this should not be allowed – if owners can't demontrate that they have a suitable savings vehicle in place they are clearly speculating.
    Thank you.

  22. Thomas Hobbes
    April 3, 2010

    house prices have already fallen 30%-40% in non-sterling terms, and it is only a matter of time before the nominal sterling value falls by that amount as well, whether home owners want it to or not.

    There will a reckoning in the housing market as the bubble collapses – the only question is whether you allow it to deflate in a manageable way as it did in the 90s, or whether you desperately try to prop it up with low interest rates and QE and maxing out every dodgy credit card available, as Labour have, forcing a catastrophic collapse later.

    Regrettably Gordon's criminal recklessness has succeeded in this, so the crash and therefore the blame will be much greater and will now fall on the next government.

    No wonder Labour are doing everything they can to lose this next election.

    1. Richard
      April 3, 2010

      An incoming Tory government (god willing) should get the correction over with *as soon as possible* so they can blame it on "no more Boom & Bust Brown".

      If they leave it to slowly correct (like last time) they will get the blame…

  23. Jeff
    April 3, 2010

    "The others, all home owners, thought this a dreadful idea."

    Some folk just don't think things through do they. Britain seems to be full of the type of people who think that if gold was as common as muck, we would all be rich. In a rising market, anyone who considers himself on the housing ladder has to climb rungs that move further apart as house prices inflate. Unless your already at the top, your move to your next bigger nicer house would come more easily if house prices relative to wages dropped. Even if you have reached the top of the ladder, you will not benefit until you downsize. Even then, if your helping your children out with their mortgage deposits or part paying their mortgage, you may well find that you haven't gained. In the meantime you will have struggled to pay a big mortgage. What free cash you have had available has not gone as far as it should either, because the property bubble has increased the overheads of those from whom you buy goods and services. Remember also that this bubble started to collapse under its own weight.

    House prices have been driven by the debt mania that has caused us so much trouble. If it was true that there was a housing shortage, rents would have gone up in a similar way to house prices. They haven't, and that's despite rents being supported by a spendthrift government paying very high amounts of housing benefit. People have just been outbidding each other with money lent to them by other people who knew that they personally would be rewarded even if the borrower defaulted. This was all part of the regulatory failure that John so often mentions. Left to its own devices, the market would have adjusted very quickly. Instead we have quantitative easing, which dilutes the wealth of those who are not net debtors, and ultra low interest rates which effectively confiscate money from those with savings. All to keep badly/dishonestly run banks going and try to reverse a drop house prices.

    If we are going to deal with our nations debt problem, we are going to have to deal with the countries overall debt addiction. The mortgage withdrawal junkies as well as government debt.
    Instead we have politicians who believe, probably correctly, that they will lose too many swing voters if they tell them that they will let these imbalances correct themselves. Even though it would be in our long term interests if they did so.

    1. Mark
      April 4, 2010

      Excellent analysis!

  24. M. Bussey
    April 3, 2010

    I have written to, and received replies from, the Conservative shadow housing minister. So at least some people do listen, briefly, at least till they gain power!

    BTL receive a tax advantage over home buyers in that they are able to access their own equivalent of MIRAS which is only limited to the value of their loan. (homeowner MIRAS was limited to 30,000 I believe). They can thus outbid any 'hard working' prospective homeowner.
    The reason for this is that they are meant to operate as a small business and like any business can deduct interest from income. But the are not like a business in so far as they make nothing, and employ no one but themselves. Even assuming they are a small buiness they receive another tax break in that the BTL income is NOT subject to NI! Any small business taking a wage in the way BTL operators do is clobbered for income tax and NI.

    So leveling the playing field would not go amiss.

    3 x income
    or 2.5 x one plus 1x other for joint applicants.

    or 'affordability' criteria (as in canada)
    not more than 30% salary to cover mortgage costs. Mortgage costs based on a 25 year repayment mortgage fixed for 5 years. (If the buyer subsequently takes a lower 'offer' from banks that is up to the buyer – if he does so then no housing benefit is payable if his circumstances change)

    As national wealth increases so does housing stock

    Incentive to work and increase salary, documentated with INLAND REVENUE, to move up housing ladder.

    All mortgage documentation checked. (amazing that this has to be written) against Revenue Statistics for salary.

    Then there would be no boom and bust and no boom and bust in house prices.

    Its not hard.

    1. Andrew Gately
      April 3, 2010

      I have heard the buy to let have an advantage argument and it is utter nonsense.

      Of course mortgage interest should be tax allowable it's a business expense.

      That's how tax on business works you pay tax on your bottom line not your top line.

      Further buy to let makes up a very small percentage of the housing market and is not the reason why house prices are unaffordable.

      1. Mark
        April 4, 2010

        The CML is now being much more reluctant to release data about BTL mortgages. However, the latest data show that 1,205,000 mortgages (11% of all mortgages) account for total outstandings of £144.2bn (11.7% of the total) from nothing in 1996 when BTL mortgages were introduced (indeed, lending didn't really take off until Brown's tripartite FSA regime was introduced). Earlier CML data show that the average LTV ratio for BTL mortgages was 85% in 2007 and 83% in 2008 – a huge level of gearing for such an investment.

        It is clear from the data that BTL investment is concentrated in lower than average cost property, especially when you account for the concentration of BTL investment in London and the SE: almost 80% of the investment is in terraced houses and flats.

        Of course, the NHPAU (a quango to cull), run by ex MPC member (and low interest rate bubble blower) Stephen Nickell has done some research trying to suggest that the BTL impact is only 7% of house prices. I leave it as an elementary exercise for econometrics undergraduates to find the flaws in the model – with a big hint that an average is not a marginal position.

        I think that BTL should be limited to a much lower LTV ratio on mortgages (e.g. 60% max) to prevent gearing being used to outbid home buyers.

        Renters should realise that if mortgage interest is disallowed as a business expense, then rents would rise. However, the burden of interest payments over the lifetime of a repayment mortgage varies between almost 100% and almost nothing, which means that the allowable varies likewise as the rental profit goes increasingly towards repaying capital. There may be some merit in an equalisation scheme.

        1. Andrew Gately
          April 4, 2010

          The private rental sector used to account for 50% of this country's housing stock and this shrunk to about 10% were it has stayed. There has not been any explosion in the private rental sector.

          Regarding the mortgage interest as a tax break argument, business can set items such as mobile phones, travel, stationery, purchase of computers against their tax and private individuals cannot.

          It's how tax on business works you pay tax on profits because if you don't have any profits then you can't afford to pay the tax.

          Regarding the lower loan to values for landlords that happens anyway as banks consider landlords a bigger risk, landlords also pay higher interest rates and larger arrangement fees.

          Perhaps rather than attack private landlords who mostly rent to students and people who need to move to an area on a temporary basis. You should consider why the public sector gives it's housing stock to people who contribute least to society.

        2. Mark
          April 5, 2010

          I'm not attacking private landlords: rather, the change in the mortgage rules that have allowed a rapid change in the tenure of the housing stock in a way that has helped to create a speculative bubble, and the fact that BTL mortgages were on average at higher gearing than general house purchase mortgages. BTL just became a speculative vehicle because of lax regulation – the blame lies with the regulator, not those who seek to take advantage per se.

          I think it is clear that 50% private renting is not the right balance – and 10% may not be either. There needs to be an intelligent debate and assessment of how much rental stock should be provided, and the public/private division of that provision. There probably also needs to be greater sophistication of the law to allow for different types of rental – particularly longer term rental, where the (quasi) public sector currently dominates. However, the debate can only be conducted intelligently when we have a housing market that has deflated its bubble.

      2. Paul Flusk
        April 5, 2010

        aah, a ….. Buy to let investor if I ever did spot one!

        "Further buy to let makes up a very small percentage of the housing market and is not the reason why house prices are unaffordable."

        Want to explain this then?

        1. Andrew Gately
          April 5, 2010

          I have one buy to let property.

          I also was bidding to by my own house when prices when property prices went crazy.

          I reckon I must have missed out on seven or eight before I was able to purchase my own property and I can assure you on the occasions when I was outbid it was not by buy to let investors.

        2. Andrew Gately
          April 5, 2010

          There probably also needs to be greater sophistication of the law to allow for different types of rental – particularly longer term rental, where the (quasi) public sector currently dominates. However, the debate can only be conducted intelligently when we have a housing market that has deflated its bubble.

          I agree in Germany it is normal to rent but the property becomes more like your own with longer leases and the tenant responsible for the upkeep of the property. It would be good to debate this sensibly but it is going to be difficult to do this as housing is a large part of the socialist agenda and the temptation to smear for them is too great.

          If the housing market remains too expensive for young people then there will probably be a demand for longer term rentals. At present the main barriers are that banks will only provide mortgages on short assured tenancys and that the protection in the event of a tenant defaulting on there rent are indequate.

        3. M. Bussey
          April 6, 2010

          I agree about the allowable expense of the mortgage interest but if it is allowable then the ‘income’ from the buy to let landlord should be subject to NI.

          I run a small business, have many allowable expenses, but I pay NI on my income. The BTL landlord only pays income tax.

          It really should be one or the other, not both.

  25. Shylock
    April 3, 2010

    Mr Redwood,

    There is nothing to be done concerning housing. The banks are bankrupt, and no-one can afford to buy. Your likely FTB is groaning under the combined weight of student debt and the problems of seeking and holding work. There is no-one underpinning the bottom of the market and with those owning homes either unwilling to realise the loss they are sitting on (due to poor market timing or mortgage equity withdrawal) or unwilling to sell their house for anything less than 2007 prices, the market is moribund. The following is going to happen which will further depress prices:

    1. Public sector cull
    2. Public sector wage freeze
    3. A likely double dip as the Tories need to rein in Labour's spending (it is, as I am sure all on this site are aware, this that has pulled us out of recession and is unsustainable)
    4. Tax increases
    5. Interest rate rises

    All of the above are going to happen at some point and all of the above will lower people's ability to spend and hence lower the price of housing. This will further lower the banks and building society's capacity/willingness to spend and hence mortgage availability. This will cause a negative downward spiral, feeding on itself.

    The question isn't what can the government do to make housing affordable. The question is what will the government do when they have to stop pretending everything is fine and make people take the medicine? This is what the Conservatives need to be thinking about and planning for. The more we resist the market Canute style, the worse the pain will be.

    If you manage to win the election with a workable majority (sadly and confusingly not a foregone conclusion by any means) I'd advise bringing the pain immediately in the hope of turning it around within 5 years. As Conservatives you should hopefully have the patriotism to realise that the long term good of the country is far more important than popularity.

    I wish you and your colleagues the very best of luck. We are all going to need it.

  26. begob
    April 3, 2010

    One discrete area of the bail out policy that needs a good seeing to is the support for mortgage interest scheme.

    Someone on benefits who has mortgage arrears gets the interest paid by the government. There are many people on this scheme.

    If the mortgage is interest only, the government pays all the monthly instalments. Not only that, the government pays at a fixed rate of 6.08% (recently reaffirmed and apparently justified by the notion that monitoring individual rates would be too expensive) – in effect, the government is paying down principal on many of these mortgages. Not only that, the borrower who applied for this support prior to January 09 is subject to no time limit for this support (an applicant after that date is limited to two years) – if the interest rate stays low, the government will effectively over the term of the mortgage pay the lender all its expected profits and hand a huge chunk of equity in the property to the borrower (perhaps even clear the principal). If the interest rate happens to be 6.08% for the term, the bank not only gets its profits but will be entitled to the house after the last instalment is due.

    It's an old scheme intended to help people out of temporary difficulties, but seems to have taken on a life of its own. Last year it was expanded to apply to mortgages up to £200k. I've been told that the original limit of £100k is to be restored next year, but cannot confirm this.

    People who work for a living can only look on with loathing at this perverse circle jerk between government, its clients, and the bankers.

  27. Jim
    April 3, 2010

    There are no easy answers to this situation. Government policy for the last 50 years has been to push up asset prices to mask the reduction in manufacturing, however, given that banks have to import capital to make loans on property means we rely on foreigners to support our housing market.
    Over the last year foreigners have been moving their money out of Britain, so we have had QE, where the Bank of England bought all of the gilts issued by the government over the last year. This has caused the pound to fall. Thus pushing up inflation.
    Looking at Greece, whose deficit is an a similar level to ours, Zero Hedge reports that Greek ten year bonds now pay per year 353.08%!!!
    This is our future. From peak to trough of a bubble prices typically fall 90%, like they did in Japan. I imagine pretty soon that the banks will own most property as people default on their mortgages, and the governments will own the banks as they go bankrupt, so private property will soon be a thing of the past. That's socialism, but as we know, socialism doesn't work.

  28. Shell B
    April 3, 2010

    House prices are way too high. I could afford to buy a decent 3 bedroomed house in the South East outright (i.e. no mortgage required) if I chose to, but am happy to rent and will refuse to buy until house prices come down to an acceptable level (i.e. 4 x average single income or 2.5 average joint income).

    As others on this site have already commented, we have had too many years of totally irresponsible lending by banks, which has fuelled the "buy what you want, not what you can afford" mentality.

    Any political party who will let the market correct as it now should would get my vote, and I am sure the votes of many, many others.

    A house should be a place to live in, not a get rich quick scheme.

  29. jonathan davis
    April 3, 2010


    For a couple of years, until early last year, I was the hon media spokesman for and I put the site on the map. I am an economist and investment adviser and the most accurate forecaster of HPs in the UK. Check the record if you don't believe me.
    Prices will fall a further c 30% from where we are now even if your lot (ie politicians) continue to meddle (stampo duty free to 350k for FTBers – garbage!). The banks can't lend and they won't for years. BTLers are toast. Repos will soar from H2 2010. Then mortgage rates will rise (irrespective of you lot). Unemployment will rise and more so in the public sector.

    THERE IS NOTHING YOU LOT CAN DO ABOUT IT. All you can do is defer a little while longer but then the 2nd crash will be bigger.

    Look at NAMA. Obama. They can do nothing to preven the obvious.

    Get out of the way.

    1. a-tracy
      April 3, 2010

      Gosh you're scary 😉 glad I didn't move now or invest in BTL property (something I personally disagree with, my generation pulling the rug out from under our offspring).

      You've set out the gloom and doom scenario, do you have any ideas on prevention? Is there a silver lining to this cloud or is this the only medicine we must take in order for our children to buy their homes and have a happy family life in the future.

      1. jonathan davis
        April 13, 2010

        "is this the only medicine we must take in order for our children to buy their homes and have a happy family life in the future."

        There is nothing the politicians can do to sort out the mess they have put us in. We have gone beyond the point of no return. Once we get over this deflation then we go to super inflation and stagnation. Stocks and property will do abysmally during stagflation. Think 1970s.

        Renting for years is the way to go. Save then buy in one big lump or with a 50% deposit.

  30. jonathan davis
    April 3, 2010

    mistype – obviously meant 250k

  31. John
    April 3, 2010

    Why are house prices high? Subsidised mortgages (low interest rates), paid for mortgages (200,000 plus families subsidised by the tax payer), BTL tax breaks for ‘investors’ and no capital gains tax on second homes – just move into your erstwhile second home and then sell it as your ‘main’ home. The property bubble was fuelled by ‘liar loans’ and the government did nothing about it. Average prices are now 5.5 times average salary and there needs to be a price correction but which party will upset all of the home owners property investors by allowing it to happen?

    Mr Brown said: "I will not allow house prices to get out of control and put at risk the sustainability of the future." He said he was determined that the UK should not return to the "instability, speculation and negative equity" of the 1980s and 1990s. Gordon Brown said in April 2008 "We've seen house prices rise by about 180% over the last 10 years …

    Is the Conservative party going to do anything about HPI?

  32. Paul Flusk
    April 3, 2010

    John, not that you would have reason to, but if you wish to get in touch regarding what I have to say, feel free.

  33. Alan Wheatley
    April 3, 2010

    My idea is that the first thing we should is to stop talking about "affordable" housing. Every house can be afforded by some and not by others. A particular house can be made affordable to more people by subsidising the purchaser or reducing the cost, some of which is under government control. A much better way is to make more people more prosperous.

    Price is also influenced by supply and demand. There is a limit to what can be achieved on the supply side as, ultimately, we are limited by the land area of the country.

    As with any social imbalance, correction is best achieved gradually, as step changes cause disquiet. Labour seem to understand this if their changes to fuel duty is anything to go by.

  34. Nick
    April 3, 2010

    1. Fix the credit market

    The “credit crunch” has demonstrated that the principal driver for house prices is supply and demand, not of housing, but of credit. Yet we’ve lived on a fantasyland monetary system, where interest rates – the driver of credit – stayed low while money supply let rip. All because we took a meaningless price index (or should I say an index of the rise of Chinese cheap manufacturing?) and called it “inflation”.

    Recommendation: If interest rates are your monetary policy instrument of choice, then tie them to M4 money supply, not to RPI/CPI.

    Right now, higher interest rates would improve the market by incentivising owners of empty homes (e.g. those who have moved or inherited and are under no pressure) to put them on the market, thus boosting supply. I may well be wrong here, but didn’t the number of empty homes rise from about 1 million to 1.3 million in just a year of “credit crunch”?

    2. Support home saving

    As it stands, we have some very perverse incentives. Stretch to a mortgage beyond your means, and lots of taxpayer help is available if you need it, and the asset is completely excluded from means-testing. But save money to buy a house, and you exclude yourself from all means-tested benefits if your income is interrupted, until your deposit is gone.

    Proposal: a class of homesaver account, available to anyone who is renting in the UK, and which is protected against means-testing and tax, thus putting it on an equal footing with owning a home. To prevent abuse it is ring-fenced for house purchase, with the alternative of transferring to a pension fund if your circumstances change (e.g. you move in permanently to a partner’s house). Saving/investment options could be based on current rules for ISAs or SIPPs.

    3. Stop pouring public money in.

    Every round of “social housing” picks a few winners (no doubt needy/deserving except where there’s corruption), but leaves others all the more excluded. That includes schemes like special mortgage support, which is even now keeping non-owners priced out.

    At least some of the taxpayers whose privilege it is to pay are people who can only dream of living anywhere that nice. In the rentals market, it’s very frustrating to have to compete with people whose benefits will pay much more than a self-funding renter can afford.

    Conclusion: ALL benefits should be linked to local markets, not to actual costs paid, so that recipients are incentivised to look for lower prices along with the self-funding. And the rates should not be such as to push the market upwards: there should be an expectation that you are better-off working than claiming.

    The logic of our benefits regime is exemplified in cases like of private sector housing that falls far short of minimal standards for social housing.

    I encountered this myself as a young graduate in the 1980s, when I found myself paying two thirds of my post-tax income for a room in a shared house in a rough area, without luxuries like working hot water. My income (pre-tax) was more than six times higher than my student grant had been, but in reality I was poorer due to losing use of student housing.

    4. Fix the tax system

    Owner-occupiers pay zero tax other than stamp duty (council tax being tied to occupancy, not ownership). Landlords (including the whole new class of spivs to arise in the boom) pay at most 18% capital gains when their leveraged bet rises. Yet anyone working hard to save for a house pays well over 40% in tax (20% headline, 11% + 13% “National insurance”), and rates up to 76% for above-average earners.

    This leads to the logic of my calculation of three years ago, which shows a basic state pension plus ownership of an average house (in an environment of house price inflation) to be worth an earned income of £95155 + benefits:

    My best proposal here is a land tax, to replace both council tax and business rates. This is justified by the fact that land is precisely the limited resource we can’t just produce more of, and my exclusive rights over one patch deprives the rest of the world (plus the environmental and infrastructure costs of building). My colleague in Illinois pays $4k/year on a $170k house and regards that as perfectly normal; I understand he more-than compensates for that (compared to the UK) by lower taxes on other activities including his hard-earned.

    5. Better protection for renters, to make it a more attractive option.

    Landlords must be protected against the tenant from hell: this is the motivation for the AST, and in its time it did the job of improving the supply of property available for rent. Now there’s a much bigger, healthier rental market, we need a partial reversal, and the correction of some anomalies.

    The partial reversal is that a tenant in good standing deserves much more than two months notice to find a new home when a landlord wants a house back, and should not be liable for rent beyond the day of leaving. Of course this only applies where a landlord gives notice to quit; current rules are fine for the more usual case where the tenant is the one to give notice. Landlords need the courts protection against delinquent tenants, not the right to rapid possession against good tenants.

    On a related note, the abuse of Section 21 notices (usually by agents) should be outlawed.

    Finally, the major anomaly that needs to be dealt with is the case of a lender repossessing a landlord’s property, when the tenant may not even have notice of the bailiffs! The tenant should be able to register an interest, which will bind any lenders to the landlord’s side of the tenancy in the event of reposession. Where there is fraud involved (e.g. a landlord in breach of mortgage terms that don’t permit letting), it can be sorted and prosecuted early rather than sprung on the tenant without notice.

  35. LevelPlayingField
    April 3, 2010

    These are very relevant questions.
    (1) Benefit Scroungers. I know at least two middle aged people who claim disability benefit, who are as fit if not fitter than me, and could do all manner of jobs from low to high-skilled. They have a nice life and will fight tooth and nail and with great effectiveness against any clampdown on disability criteria. They have no intention of working for amyone ever again. The only thing you might be able to do is introduced a tiered disability system where you have to jump through tougher hoops to get the higher level of benefit, and you get lower benefit when your condition only makes it slightly inconvenient for you to work, but doesn't make it impossible.
    (2) House Prices. I actively manage my savings lump sum and I am struck by the tax loophole that is residential housing. Your gains are the only tax free investment left. Admittedly mortgage interest is not tax-deductable but, if you have a salary, you can lever yourself to massive levels and make your capital yield huge returns (last 2 years excepting). My first thought is that capital gains on houses should be taxed. Failing that, maybe personal investment should enjoy better tax treatment (acknowledging the 18% CGT rate was a big improvement). There is nothing to be done about the current crisis, houses prices need to weaken further. But next time around maybe the tax system could help take the euphoria out of the market.

    1. Mark
      April 4, 2010

      Houses as homes are a long term investment. If prices rise in line with general inflation there are no grounds for imposing CGT as presently formulated – with no indexation allowance at all. Imposing of CGT on primary homes will delay their sale by empty nesters because the tax will take out the downsizing release of capital that would otherwise occur. Why pay tax to move into a smaller property?

      1. Mark
        April 4, 2010

        One other point: I would certainly not like to see allowable losses for CGT arising on house purchases.

        1. LevelPlayField
          April 4, 2010

          These are valid points Mark, but:
          (1) Why is my share porfolio, another long-term investment, taxed, when my primary home isn't? Why are pension funds taxed? Why are private pensions taxed? Doesn't all this, together with 90% mortgages, incentivise me to max out on property?
          (2) Indexation allowance always was a good idea whose time may return if inflation starts to pick up.
          (3) Empty nesters are pretty tardy in downsizing anyway in my experience. Maybe CGT could cease to apply after 10 years of holding the asset? But I take your point, it would be a nasty side effect.
          My CGT suggestion is just an attempt to get to the root cause of the housing bubble – which is that the capital gain on your own house is extremely favourably treated by the tax system, which together with high levels of leverage offers potentially huge rates of return.

        2. Mark
          April 5, 2010

          1) Your largest long term share portfolio (I assume you have a pension) is still not subject to CGT, although Brown has been taxing the income it generates. You may also have other CGT exempt shares in ISAs etc. Tax on inflation is bad in principle – ultimately it encourages capital flight. However, tax driven investment strategy is often wrong, because too many funds follow the tax break overheating prices that eat away the tax advantage, and too few the riskier opportunity.
          2) Agreed. I think the main function of CGT should be as an anti income/corporation tax avoidance measure.
          3) Some empty nesters have the families of their children to stay from time to time – and in other cases the nest has been refilled. I think those who saw their parents' or grandparents' stock market investments crash in 1973/4 are tempted to spread their asset risks by holding some surplus property (they still need somewhere to live). That doesn't seem unreasonable (although I wouldn't pick property as a good investment at the moment!) – and perhaps there needs to be an alternative mechanism to allow them to do so.

          Gain on your own property is only advantageous if you are in a position to realise it. That means at least downsizing, if not emigrating. Perhaps you might use it as security against a business loan – whilst being aware that falling house prices could undermine your business if the security is no longer adequate. For those who plan on acquiring a larger property to accommodate a growing family, rising house prices are a disaster because it increases the cost of trading up. That has encouraged a lot of new extensions and loft conversions instead.

          I think the root cause of the bubble is simply the oversupply of mortgage finance. Without mortgage funding prices could not have been bid up as they were. The alchemy of derivatives built on the assumption that house prices never fall (as several senior bankers now admit) was a fuel that fanned the flames.

    2. Tim
      April 4, 2010

      "The only thing you might be able to do is introduced a tiered disability system where you have to jump through tougher hoops to get the higher level of benefit, and you get lower benefit when your condition only makes it slightly inconvenient for you to work, but doesn’t make it impossible."

      The problem with this is that a lot of employers don't want to employ disabled people; the figures bear this out. I know a disabled person with a PHD who spent many years updating his employability, but still no employer would take him on. The problem with the argument – 'he could do some work' – is that it assumes that the person can simply roll into that work.

      1. LevelPlayingField
        April 5, 2010

        The share portfolio is not in a pension, its just owned my me as an individual, just like my share of the house. The capital gain on one is taxed, the other not. Gordon Brown has ratcheted up tax on retirment trusts so that they are no longer worth it. Not fair IMO.

        Equity in an oversized house is released by increasing or taking on extra mortgages, or by guaranteeeing mortgages for their children. I have to say in any other property market that we have now its a stonking way to make money, all thanks to the tax distortion.

        The problem with simply blaming mortage finance is that it says that there has been a market failure, which I find hard to accept on idealogical grounds.

        A further factor in the housing bubble might be the UK's style of mortgage security, where the loan is full recourse to the borrower and therefore the downward corrections are resisted because there would be mass bankruptcies. From what I understand in the the USA you simply walk away from an over-mortgaged property and start again somewhere else. Painful for the banks, but people get a chance to move on.

        Your point about disabilities is clearly a good one. I suppose that if you are claiming disability benefit even at a lower level it would count against you. I wonder if the employer could be incentivised financially to overcome this, although it starts to get expensive and convoluted. The problem seems to be that you need to be able to claim benefit from the government without necessarily divulging your (minor) disability to the employer. Maybe a special lower tax rate for the slightly disabled? Dunno. Its a minefield!

  36. Tim
    April 3, 2010

    I'm angry the government let house prices get so out of control, but doing everything in its power to prop it up at my expense has just added insult to injury! Housing is just too expensive, and going back to letting banks lend insane amounts of money to people is a recipe for disaster. I think some or all of the following would be useful:

    *A *gradual* increase in interest rates to stop punishing savers and get those who truly can't afford their mortages into a better situation (i.e. into affordable/social housing).

    *A large programme of social housing construction, along with a reduction in influence of residents to block house building. These are often the same people who call for the rest of us to subsidise services like broadband for them! This country NEEDS more housing and we can't pack it all into the cities.

    *An earnings-to-loan value cap (which would make a bit more sense than a loan-to-value cap IMHO).

    *End tax breaks for BtL.

    *Double council tax for additional homes (which aren't rented out), rather than halving it. They may well use fewer services, but having empty homes causes other damage to those communities.

    *Make renting more viable: in my rental contract there is a long list of things that I am not allowed to do in what is supposed to be my home for the duration! Is it really that hard to look at how our European neighbours do it?

    John Bowman: It's all well and good saving up for things (I have very little debt myself so I know where you're coming from), but I would classify having to live like a hermit for years and years just to save up a deposit for a tiny flat, and then having to have to continue living like a hermit just to keep up with the mortgage payments no real life at all. Shelter have said "The average family’s weekly grocery bill would be around £420 if the cost of food had risen in line with house prices". Do you think this is reasonable?

  37. Jan Maciag
    April 3, 2010

    It is the same old story of chaos following on the heels of government intervention. In my work I am constantly faced by clients who have land and are willing to develop but are prevented because of the dreaded Section 106 demands from the planners makes it uneconomic. It is pretty standard practice to demand that the developer gives away 40% of the homes they build for affordable housing. It means that the remaining 60% have to pay a hidden private subsidy to the government so that the government can generously house the ‘poor’.

    The result is that the so-called market housing becomes more expensive that it needed to be…and, presumably, less affordable for those on ordinary pay. This is a viscous spiral that theoretically can only end when housing is so unaffordable that 100% of new developments have to be expropriated (at gunpoint I assume) from developers.

    Would we tolerate such a sneaky private subsidy scheme in the provision of ‘affordable’ food or ‘affordable’ cars?

  38. hotairmail
    April 3, 2010

    Property prices need to be managed down to an affordable level so that more money can be spent in the economy rather than wasted on interest or driving up the fundamental costs of business and driving jobs abroad.

    The builder's option is to build more. Another option is to recognise prices as being a function of the credit bubble and this has not been allowed to deflate as it should.

    QE has been used to buy gilts in the second hand market. The SLS has been about swapping gilts with banks' Mortgage Backed Securities so they can get cash. In this way, bubble level house prices have been supported at the expense of those saving for their first home. Policy has been all about picking winners and losers rather than providing fundamental solutions to our problems. Young people yet to put their first step on the ladder are the worst affected and contributes to a growing inter-generational schism.

    Credit availability MUST BE LIMITED. It is not difficult…Loan to Value limits or Income Multiples – get away from so-called 'affordability rules'. When interest rates tend to zero as they have, working on 'affordability' but limitless lending merely creates more problems for the future.

  39. Javelin
    April 3, 2010

    House prices reflect future security of the few who are moving home. Turn over of houses at the moment is low and there are a few who can afford it.

    A couple of points. We have a 1 trillion debt and are paying 4% (40 billion) on it pa. This debt is going up at 180 billion pa. So in 2 years we will be 1.25 trillion in debt and be paying 5. I have not seen any credible plans by any party to fix this.

    The 3 main thrusts to solve this issue are (1) cut backs (2) tax increases and (3) inflation. All 3 will reduce house prices. Cut backs will reduce house prices because there will be less security an over supply of labour and a reduction in salaries. Tax increases (ie 20% vat) will reduce house prices because there will be a reduction in disposable income and demand for products. Inflation will reduce house prices because interest rates will rise (given current policies).

    Government cuts will determine where house prices fall. Interest rates will have the greatesst effect because the current low interest rates for existing mortgages mean a smalll rise in interest rates will have a big effect.

    I work on the trading floor of a global investment bank. What we are looking for is something like a 25% cut in (non ring fenced) Government, inflation up 2.5% and 2.5% increase in VAT in the first few years.

    All in all the prices of houses depends on the mood music set by the Tories. They will have to be down beat for a couple of years to prepare the country for the cuts and VAT rises.

    In the longer term the supply of housing will have to rise and the population will have to fall to stop house prices and greed dominating our economy as it does.

    1. Mark
      April 4, 2010

      Don't forget the £1.46 trillion of consumer debt – secured and unsecured.

  40. Toby Jacobs
    April 3, 2010

    Let’s look at past decades. The 70's and early 80's high interest rates and high inflation (including wages and salaries) were tough for the electorate. However, paying such a high percentage of take home pay was relative to housing costs. Overtime you were inflated out of debt. During this time there was minimal unskilled immigration, no rampant out-sourcing to India, China and Eastern Europe. In addition if unskilled labour did enter the country they could easily get a job – making something.

    I know house prices are everything to governments. I doubt Labour would have been in power so long if the electorate wasn’t feeling so rich. I know the 20% drop the UK had last year will be the low for this cycle.

    This doesn’t help the next generation buy a house with their stagnant salaries. Remember they compete with foreigners living in mud hut eating rice for a quid a day.

    There is only one way out this, protectionism, inflation and controlled immigration. A return to the 70's and 80's. Don’t hate on boomers, just demand the same working conditions they had.

    I warn you now, if this isn’t done in 15 years when a new generation of youngsters joins the group of voters already in this boat they will demand a solution. If I was a political party I’d get ahead of the curve.

  41. Steve Cox
    April 3, 2010

    I'd suggest that the answer is in somehow (but don't ask me how!) promoting rental as a lifelong option instead of the millstone of property ownership. It's well established that large regional differences between house prices, as well as an illiquid property market as we have at present, are major handicaps to job mobility. Surely, that is enough in itself to encourage reform? In Germany, for example, many if not most people rent rather than buy, and they have a much, much healthier economy than ours. Mrs Thatcher was right to sell off as much dismal council housing as possible – for the most part, who in their right mind would want to live in such dreadful places? But that doesn't mean to say, in a different world 20 years later, that home ownership is the solution to all ills – possibly the opposite in fact. The economy has become far too dependent on people stupidly and avariciously trying to mortgage themselves to the hilt and but ever more foolishly expensive properties. Of course, this was partly caused by Gordon Clown's (and his predecessors', to be fair) ridiculously complicated rules on personal pensions, which resulted in many people deciding that their pension pot was better invested in property rather than leaving it to rogues like Equitable Life.

    So in summary, rental reform should be top of your list, some way of making it more attractive to rent rather than own, plus maybe a MAJOR simplification of pension rules, so that fewer people see property ownership as a better bet than a professionally managed fund.

    1. Paul Flusk
      April 3, 2010


      Let me guess, you are a BTL landlord. How about you try and invest in something that is productive for our economy (Like the FTSE, corporate bonds etc) and stop leeching off those unfortunate to be born after 1980? I have an excellent salary, unfortunately, due to(search for profits) from people like yourself, my life has been put on hold and my ability to invest in the economy scuppered. BTL landlords need to be taxed (heavily), not encouraged.

  42. Hotel girl
    April 3, 2010

    I think that quantative Easing was EVIL. It stole from the savers and currency holders and gave to the debt theives. Similarly with low interest rates. Its THEFT. I do not want to give my money to a bank to pay me nothing for it AND give it out for free.

    Houses are for living in. BTL specuoators are EVIL. They are stealing peoples fortunes and inheritences for themselves. BTL speculators are forcing house prices up. BTL should be illegal. If I had my way I would shoot them all.

    I would expect my MP to immediatly get ALL taxpayers money back, instantly, from the banks, as you would do after discovering a crime. And every last penny of Quantative Easing should be returned.

    Hope that makes sense.

      September 11, 2010

      Fine love

      I will just chuck all my tenants out in the street and they can go live in the local park as if you have your way there would be no place else for them to go to

      Then sell up to FTBs and eff off to a sunnier country and sit by the pool…

  43. Cy
    April 3, 2010

    Should property incur higher taxes? Yes, and here are just two of the reasons why:

    1) A rate policy set by the central bank has proven inadequate to head off property bubbles. Fiscal and/or regulatory policy (such as % loan-to-value controls) would've been much better targeted, and without the side-effects on business lending.

    2) The property boom is to a large extent the flipside to the credit boom. We are now having to pay higher NICs and stealth duties to sort out a mess that was always reasonably likely to follow the years of property mania. When the market was booming, the government should've got a "piece of the action" and levied property taxes on the huge gains that some were making. These taxes should've been used to pay down debt.

    Now, a time of static/falling propery prices, is the time to implement the tax and regulatory policies which will take the edge off the next property boom and help pay for the next cleanup (if required).

  44. Nick
    April 3, 2010

    In my comment just now I cut&paste an incorrect (though relevant) website link. Can you please fix it to my blog, as in this comment?


  45. hotairmail
    April 3, 2010

    I've re-read your blog and found this section:

    "I went on from the supermarket to talk to a group of senior managers from a wide range of businesses. They too raised the house price issue. One of them recommended creating the conditions for a further subtsantial house price fall because he was worried about affordability. The others, all home owners, thought this a dreadful idea. They asked what the political parties thought. I SAID THE PARTIES THOUGHT THERE WERE A LOT OF HOME OWNERS OUT THERE!"

    So – far from looking for fundamental solutions to affordable housing you are merely looking at the short term needs of votes. Feigning sympathy for the plight of people forced to take out huge mortgages if they can get them at all.

    So you'll keep house prices as they are, make nice warm purring sounds and perhaps throw a policy or two to first time buyers that merely have the effect of inflating the bubble even more.

    I am very disappointed in you Mr Redwood. Very disappointed indeed.

    Reply: I don't see why you are disappointed. I was asked for the parties' views, not for mine, so I gave that as I saw it. Are you suggesting I have misread the main parties?

    1. Paul Flusk
      April 3, 2010

      John, to be fair though, you did write this:

      "Could it be that at last they understand there is one thing worse than house prices soaring, and that is house prices falling?"

      I would fervently disagree. I dont see how prices falling 30-40% from peak would have been so bad in the long run. The vast majority of owners dont have a mortgage. Those that do would have been in negative equity, yes, but they are the minority. So, we would have gone back to 2003 prices, so what? Its all fake anyway. If anyone actually thinks their home is 'worth' 3 times what it was in 1999 then they need to see a psycologist, especially considering the mess this country is currently in.

      You would have had increased competitiveness for the country, better consumption spending as mortgages would be lower for new market entrants (mortgage equity withdrawl expenditure is practically zero post credit crunch anyway) No need for 100% mortgages and the risk they put the banks under.

      I dont understand what would have been so bad about letting prices fall to an equitable (for the vast majority anyway) level, then slapping the old 3-4 times salary multiple limit on TOTAL lending, with a maximum of 0.7 times of the above allowed for unsecured lending. Much better for Britain in the long term.

    2. hotairmail
      April 3, 2010

      I'm impressed you have responded to me on a Bank Holiday Mr Redwood. Thankyou.

      It would be rude of me not to ask you, "What are your own views then, Mr Redwood?".

      Reply: That will be the subject of another blog soon.

      1. hotairmail
        April 4, 2010

        Thankyou. I shall very much look forward to that. We need someone like you who has the kind of the outside-the-box thinking being brought to bear on this seemingly intractable problem for the democratic parties.

        Whilst you have stated you believe that the main parties lean towards supporting house prices, can you confirm more specifically that the Conservative Party whom you represent indeed lean towards such support?

        If this is the case as you imply for purely numerical democratic reasons, then surely it would make sense for the Party to be more up front about this and gain accordingly at the polls? And if you feel that such an honest move would not be advantageous then why not and why then is such a policy attractive at all?

        1. hotairmail
          April 5, 2010

          I see you have read and moderated my reply but have not answered the questions.

          Are these questions too difficult to answer?

          If you believe me to be constructing a well laid electoral trap, fear not. The only trap I lay is the one for truth. People need to be told.

    3. Mark
      April 4, 2010

      Misled and missold large unaffordable mortgages perhaps, but FORCED? Too many buyers allowed themselves to be sweet-talked by watching the Hon Kirsty Allsopp suggest that "full asking" was a bargain.

      1. alan jutson
        April 5, 2010


        Agreed. I believe the average percentage interest rate for a mortgage over the last 50 years is near to 8%.

        If people have not factored in this sort of interest rate for the next 20 years, then they could be in for a nasty shock.

        The only sensible way to try and limit house prices, is to limit the lending multiples and ask for an absolute minimum of 10% – 20% deposit.

        Given the above, house prices will find their own level without many nasty shocks, and after a period of stabilisation price rises would be more moderate.

        Owning a house is not a right, its something to aspire to, IF YOU WANT TO, and if you want it bad enough, then you will work hard to save the deposit.

  46. Steve Olive
    April 3, 2010

    The British people spend big money on two things: Houses and cars.

    We're obsessed with showing everyone else how wealthy we'd like them to think we are, so we're prepared to borrow vast sums of money to do it.

    Of course, the banks love us to borrow money, and with a self-fuelling spiral of ever increasing prices, they're on to a winner.

    The government love us to buy houses too, it means we can feel rich without being rich, and use them as a cashpoint to borrow even more money against.

    They've engineered the current situation of course. Stupidly low interest rates, part-ownership schemes, stamp duty cuts…anyting to keep the circus going on.

    From property TV programmes, to self-cert mortgages, to 125% mortgages and newspaper columnists with vested interests in property, so much has been conspired to make the illusion real.

    The solution is simple. Legislation to limit the amount anyone can borrow to buy a property. I'd say 3.5x income or 2.5x joint income. Figures that have worked historically well before the house price explosion was engineered.

    I'd personally bring in another bit of legislation with regard to credit cards. I'd make it the law to refer to them as 'debt cards'. A simple change, easy to implement, yet you'd immediately change people's perception of them.

  47. Paul
    April 3, 2010

    House prices are simply far too high. Unless you're lucky enough to be earning £40k a year, you have little chance of ever buying in the S.E. This means vast amounts of workers in retail, call centres low level govenment jobs (Police, Nurces etc) will be unable to own a property, which is a basic human right.

    To help resolve this, mortgage lending should be limited to 3-4x salary, Capital Gains tax should be increased and Council tax should be at least doubled for BTL investors and 2nd home owners. International property owners should also be taxed or prevented from buying.

    Why should someone be allowed to have multiple properties when so many are without.

  48. Tim
    April 3, 2010

    It is all very well criticising people for being 'idle,' but there may be other reasons why they do not want to work for minimum wage jobs; assuming that such jobs are open to them.

    If a wage does not pay all the bills, then it is not seen as a wage at all, but glorified pocket money.

    It is no good arguing by petitio principii for the 'work ethic.' The work ethic means nothing as a stand-alone principle; it only means something when it is reciprocated with a decent living wage. No amount of pulling silly faces of righteous indignation will get around that fact.

    It is not that people are work-shy, but that they are bad pay-shy. I do not see what is wrong with that. If you can't afford the rent or mortgage, the attractiveness of work evaporates.

  49. Neil B.
    April 3, 2010

    I actually do appreciate that politicians are in a bind with housing. Looking at it dispassionately, house prices are too high and need to come down, but that is only going to upset lots of voters who would feel poorer if prices were to rapidly deflate. The courageous route is to tell home owners (such as myself) the truth; that our property assets are over-valued, then carefully introduce measures to slowly reduce house prices, and keep them low to avoid a housing bubble inflating again.

    Some suggestions for legislation:

    Move to "Islamic" style mortgages where your deposit buys that percentage of the house, and your repayments gradually increase this to 100%. If a bank were to foreclose it would only recover the fraction that remained theirs (this would encourage sensible lending).

    Set the maximum mortgage duration at 20 years, and base lending multiples on only one earner (lots of social benefits to this that you can work out yourself).

    Drop silly stamp duty freebies, instead increase stamp duty to a higher flat rate. Taxes have to be raised somewhere, and given that housing is such a constricted market higher tax will not affect the overall cost to buyers (asking prices should reduce to compensate). It will however dampen speculative froth.

    1. Mark
      April 4, 2010

      Stamp duty is a nonsense tax. It is a tax on moving, which means that people will tend to commute longer distances. Its structure is perverse (especially now that it only starts at £250k). It should be replaced by a fixed charge from the Land Registry who would also be involved in trying to ensure that no aspect of the sale was fraudulent – sensible valuation, proper mortgage, good title, no money laundering, no under the table deals with the developer etc..

  50. mark polden
    April 3, 2010

    Planning should not be political and should also be even handed.

    There is no one size fits all that is why Greenbelt should be an aspiration rather than a rule. Also the effect of local peoples views should be only a part of the decision.

    It is right to build new houses to dilute gradually high house prices also it should be the aspiration of government to gradually bring regulation back to 3 times income. This could be financed by a move to land tax based on square footage.

    To discourage huge housing estates maybe a target should be set each year for each ward, with plot sizes determined and allocated more to self build

    The aspiration should be for an equitable economy, out of europe with all its socialism and big government with a weak pound that can be the factory of the world.

    Some years ago I worked in a job centre as security and a young lad came in saying he had got a min wage job after yearson the dole but had lost all benefits so had to give it up cos he could not pay his rent. So housing benefit should not be a fixed sum but something like a tax credit

  51. Neil Craig
    April 3, 2010

    "One of them recommended creating the conditions for a further subtsantial house price fall because he was worried about affordability. The others, all home owners, thought this a dreadful idea"

    Exactly – those high on the property ladder are as featherbedded as those on the dole. House prices have risen fourfiold over the last century compared to the RPI & this is entirely because government regulation prevents building & mandates pre-mass production methods when it is allowed. In the 1960s government considered providing housing part of its duty, even if it could have let the free market do it better. Since then it has been actively restricting housing, which obviously pushes up the prices.

    The answer is to allow the free market to operate in housing, with restrictions for senci or heritage reasons in opnly very limited areas. It would probably be right to allow anybody selling their house at less than they bought it for, to get a tax rebate on the difference but in general there is no duty on government to keep up house prices thann there would be to stop computers falling in price.

  52. Rose
    April 3, 2010

    I wrote to Lord Turner last year suggesting lending for houses was limited to 3.5-4X income . This is sensible lending and the problem has been that banks have lent much larger multiples than this to too many. So I suggest tightening up lending . This would control house prices and control insane bubbles which benefit only investors and those selling to size down or go abroad. Yes, also land tax and tax the BTL brigade as well. Everyone in the end benefits from lower house prices it should be embraced- instead endless newspapers seem to report a fall in house prices as negative when huge numbers of us 'priced out voters' jump for joy. If the conservatives want future generations to vote for them then maybe admitting the right to buy should be scrapped. I put it like this NO ONE has the right to buy if it means that an average homeless family stay on a waiting list and those desperate for a secure home remain on a list for year. What about their rights to shelter. Yes AVERAGE incomes don't buy a home anymore – two average incomes don't even buy you a rabbit hutch next to a crack den in London. I read 92K a year is what a first time buyer needs for a first time buyers property in London – As for me university educated earning a reasonable salary – NO CHANCE of ever owning unless London prices drop back to a sensible multiple of salary. I was also quoted as 15 years wait as priority for council house. If I hear the word affordable home once more Ill scream.Who wants to part own a house and rent the rest of it it just fuels the system. I know very few who like this idea. MORE SOCIAL HOUSING PLEASE AS ITS ALL BEEN AND IS BEING SOLD OFF. An ex council house in Richmond upon Thames is now almost 600K. Please listen to the next generation – myself ,them and my children have been forced to rent with no security of tenure (and that needs changing too). Ask yourself this – when the baby boomers want to downsize, who will be able to buy their homes? When generations cant afford even a one bed flat there is a big problem? and you can't rely on foreign investors forever ( there are endless homes in London that are empty as investors sit and wait for house price rises) Eventually there will be social unrest if the situation carries on as it is. I have not spoken to one conservative MP who is willing to take the whole issue on BUT as the years go by unless this crazy situation has changed the vast majority of voters will be 'Priced out'. A House is a BASIC NEED not an investment. IT IS SHELTER. Just like water and heat it is necessary. I think there needs to be some brave MP's who are prepared to look at this issue and deal with it in multiple ways. I am praying for a crash because as far as i can see there never was one.

    1. Mark
      April 4, 2010

      There is a huge demand for "social" housing. What this really means is a demand for housing at fair prices. If we had that, the demand for "social" housing would be quite limited.

  53. chefdave
    April 3, 2010

    We need a land tax. Get the tax burden off of labour, savings, interest and investment and shift it back onto the land. This not only increases people's wages but it simultaneously lowers the burden of house prices.

    Once people are incentivised to work they'll get off their bum and look for a job, which also fixes our benefits culture.

  54. Dr Shaw
    April 3, 2010

    Hi John,

    One question you should ask; Is it fair for someone to own 100 homes to make profit while young families can not afford 1 house to live in?

    Dr Shaw

  55. East Herts Tory
    April 3, 2010


    At last a Tory who invites the dreaded question.

    If you're a Socialist you would want a Land Tax

    If you're B*N*P, there isn't a problem, is there?

    If you're a luvvie Libe Dem it will be build more housing and introduce a Land Tax

    If you're a Tory the answer is to stop being controlled by the big boys who have all the land banks and have the housebuilders in your pockets.

    Every village in the land needs more housing. Allow a little extra development over the next 20-30 years. Let it be controlled and allow the Parish Councils a real say in what is built, where and allow them input of design.

    What nobody wants is 20,000 units disguised as Executive noddy boxes when really they are affordable housing f*c*u*k hutches and miniscule flats subsequently bought up by metropolitan councils for their overspills, all located in one place with no soul. Look at Harlow New Town – what a disaster.

    I welcome your engagement to this heated debate.

    Everyone wants somewhere to live and that is to be encouraged. What is not wanted is swathes of our green belt built upon.

    The truth is move out Govt from the South East and relocate to other parts of the UK and allow development there. We needa more balanced spread of employment throughout the UK.

  56. Paul Flusk
    April 3, 2010


    Don't you see there is something inherently un-conservative about what has gone on with housing since Labour got into power? Do you understand the damage caused by your party, as opposition, in not saying a word, letting them get away with what they did?


    1. Favoring traditional views and values; tending to oppose change.
    2. Traditional or restrained in style: a conservative dark suit.
    3. Moderate; cautious: a conservative estimate.

    Want to tell me what is conservative about the median house price average costing 7 times median earnings?

    Conservative about 125% interest only mortgages?

    Conservative about Self-cert liar loan mortgages and a blase attitude the FSA holds towards prosecuting those who committed mortgage fraud in order to secure lending on a property?

    Conservative about throwing caution to the wind and allowing the population to do what it was always going to do, feast themselves to death on over 1 Trillion in secured and unsecured lending?

    The Conservatives were the 'opposition', and with power comes responsibility. You all chose, as a party, to wimp out and tow the line and for that you should all be ashamed.

    There is nothing Conservative about the price of homes climbing in excess of wage inflation for 13 years I would suggest.

    Get back to grass roots. You all know what needs to be done, no matter how unpleasant.

  57. Danny
    April 3, 2010

    As a lowly working class Conservative I feel frustrated with how we have been abandoned. Angry that the interest on our little savings have gone to support people who have selfishly gorged on debt. Lets end QE raise I/R to 3% and let the housing bubble correct itself.
    All property not lived in by the owners should be taxed accordingly, this would reduce the rape of local areas turning them into ghost towns to BTL property speculators.
    My views written however I do not see a new Conservative adminstration making the tough choices needed, Mr Redwood please prove me wrong.

  58. Andrew Gately
    April 3, 2010

    First thing we should do is return to the RPI measure of inflation.

    Second sort out private sector pensions.

    Third reverse the policy of forcing banks to increase their capital requirements.

    Four leave the banks alone and sell the governments holding in the banks.

    Five raise all the bandings for stamp duty in line with inflation then make any rises between the bands incremental.

    Apart from that leave the market alone and it will sort itself out.

  59. Simon
    April 3, 2010

    We have a chronic housing shortage, yet our population is set to hit 70m in the near future, we need to tackle this problem from all angles including the demand side. We cannot possibly house 70m with housbuilding so low , we can't even house the people who live here, it makes no sense to continue on this rapid poulation growth policy.

    We have measure after measure to prop house prices up at unaffordable levels from shared ownership nonsense to low interest rates, SIPP's , tax breaks for property investors, CGT cut, Quantitative Easing the list goes on and on. It's time politicians grasped the problem of house prices being too high, simple. Tory and Labour policy on housing are both diabolical. We even have the Post Office stepping in to give mortgages now.

    High house prices have destroyed this country for many young families, I cannot believe this has been allowed to happen.

  60. Matt
    April 3, 2010

    Please do anything you can to make house prices normal. I graduated with electronics and 5 years of IT experience under me. I work all hours god sends and in return today’s government expect me to live in a shoe box and never retire. I thank god that my family are all healthy but the UK is a miserable place to live for the younger generation and I cant see it getting better. I at least see myself as responsible in not having a string of kids…….i wouldn’t bring them into this. There seems to be definite moves to keep the bubble going..thanks guys!

  61. Jonathan
    April 3, 2010

    This is an excellent topic. Two thoughts.

    There has been a massive oversupply of 2 bed flats in certain parts of the UK over the past few years – primarily due to government planning regs encouraging a higher living density. These regs should be ended and instead high quality flats that are large enough for families need to be built.

    Second, there is a fundamental opposition between housing being a cost of living for people who are renting but the biggest asset most folk have for those who do own. A way of squaring this circle needs to be found to prevent continued problems.

  62. Tom Watkins
    April 3, 2010

    Mr. Redwood. I doubt that you have the capacity or inclination to do what's needed but here goes. Very simple.

    1 Land Value Tax (previously discussed on this blog and many others)

    2 True monetary reform where private banks are no longer responsible for money creation (money as debt or debt as money)

    3 The creation of a National Bank for Economic Recovery. Fully capitalised with 100% reserves. Emphasis on true wealth creation for industry not paper shuffling.

    Money should be a servant of the people-Abraham Lincoln.

  63. Andrew
    April 3, 2010

    The more you rely on something, the harder it is to live without it.

    The UK has gradually (and under this government, rapidly) become more reliant upon house price inflation. Tony Blair and Gordon Brown have simply stoked HPI by turning a blind eye to dodgy lending practices and letting the BoE set interest rates without taking house prices into consideration. When the credit crunch started, we heard the promises of reform to the banking system, and that lessons would be learned. Well now we hear the cry for banks to lend more, and for deposits for property purchases to be reduced. It`s as though the near collapse of the banking system wasn`t a big enough warning about the dangers of loose lending and speculation on a massive scale.

    A little more lending regulation would go a long way to easing the ever rising financial burden of buying a property. 3.5 x salary limits (or something similar), legally enforced, might focus the minds of the lender and the borrower. Some limits on BTL investment might also give the average chap a fair chance of buying a home to live in.

    It`s time the UK economy did cold turkey, and got itself off the HPI drug. Maybe daytime TV would rid itself of the barrage of property porn.

  64. Jonathan
    April 3, 2010

    Firstly, I don't think there is a shortage of housing in this country. If there was, then rents would have increased at broadly the same rate that property prices have increased. They have not. In fact, over the last 12 years or so that I have been renting a house, they haven't really increased at all, while the price of everything else has about doubled.

    So the situation is that there is an increase in demand for people wanting to buy property, but not much of an increase in demand for people wanting to live in them. The main reason I believe is due to Gordon Brown's mismanagement of pensions. People no longer trust pensions as a way to provide for retirement, so they looked around for something else to invest their money in. They found residential property. Also the credit bubble meant lots more money available to purchase property.

    The credit bubble has now been reversed, but the pensions crisis has not, and people have not yet lost faith in the ability of residential property to protect their retirement nest egg. I think they will when interest rates increase, which they inevitably will at some point, and their buy-to-let properties switch from being income generating assets to liabilities.

  65. RH James
    April 3, 2010

    The simple answer is that prices are too high and need to be allowed to fall. Government (and yourself reading your August 2008 blog entry) seem to desperately want to avoid any falls and will seemingly stop at nothing to prevent the free market operating. I very much doubt a politician facing home owning voters can ever be made to accept that point however. Your other option is simply "more credit" which is not a viable solution for Britain in 2010 and would simply represent another scheme to prop up an inflated market. Something has to give.

    What I would like to draw your attention to are the social implications of our ludicrous property market. Families in homes too small for them with all the strains that inevitably causes, families without security of tenure and all the disruption this causes their children, couples that can't afford start families unless they throw themselves upon the mercy of the state to provide social housing by taking active steps to mess up their lives, the list goes on. Something I have noticed is increased nihilism on the part of younger people. If hard work and effort can never secure you the stake in this society that a home is held to be, what is there for you? Why strain for that next promotion or the one after that if it won't help you relative to the scale of houseprice cliff-face? This is far from victimless and far from being merely an economic issue. If you want to fix 'Broken Britain' I suggest this is a good place to start.

  66. Realist
    April 3, 2010

    House prices will never fall, no-one is going to sell for a loss.

    What we need is for wages to rise so people can start buying again – a nice healthy dose of inflation. 100% should do it.

    Also emigration is starting to look very tempting when you can get 2 bed properties in Florida for £15K

  67. Mike Wilson
    April 4, 2010

    Clearly for any political party to talk about wanting house prices to fall would be electoral suicide.

    But, equally clearly, high house prices are a really stupid thing to have. For lots of reasons.

    1) High house prices suck money out of the economy. The only thing that drives house price increases above inflation is above inflation increases in lending. Which is better – someone with a 75k mortgage on a house worth 100k – or a 150k mortgage on a house worth 200k. He is paying interest on an extra 75k for 25 years. He is paying that money to a bank. He could be spending that money in the economy and creating demand for goods and services which, in turn, creates jobs. Those jobs would then create more demand etc. A virtuous circle.

    2) High house prices demand high salaries to pay the high mortgages. In a global economy, economies with high house prices MUST HAVE high wages. So, again, high house prices are cheating us out of jobs.

    3) High house prices transfer wealth from young to old. Young people have to borrow massive amounts of money to transfer up property chains to older people leaving the market. The person at the top of a property chain walks away with the price of the house at the bottom of the chain (largely bought with debt) PLUS the extra borrowing taken on by everyone in the chain. Every penny the person at the top of the chain walks away with has been borrowed. Only the banks and those at the top of the chain are winners.

    The problems started in the 1980s when the Conservative government relaxed credit controls in the hope of making credit markets more competitive. The (unforeseen?) consequence was that instead of people having to pay less to borrow, they borrowed a lot more. So, it didn’t work. We had a house price boom in the late 1980s followed by a house price bust combined with a recession that saw the Conservatives kicked out in 1997 and the disaster that is New Labour visited upon us. (The Conservatives would have lost in 1992 but for Kinnock’s congenital unelectability.)

    Gordon Brown saw the damage caused by a house price boom and bust and rubbed salt in the Conservative wound at every opportunity. “I will not allow a house price boom to put at risk the sustainability of the recovery” must surely be on his gravestone in due course. Instead we’ve had the biggest house price boom in our history, fuelled by massive consumer borrowing during which the Conservatives were basically silent. How could they criticise Labour for doing what they themselves had done?

    But, what to do now? You (the Conservatives) can’t mention the desirability of house price falls. Indeed, are they desirable? House price corrections cause recessions. We’ve just had one and are barely out of it even with massive government borrowing.

    Let’s think about what is going to happen after the election.

    Government borrowing will be SLASHED.
    Interest rates will RISE.
    Taxation will RISE.

    Against this backdrop it is hard to envisage that house prices will do anything but fall. But, one thing the Conservatives need to be clear about is, in the words of Mrs. Thatcher, “you can’t buck the market”. By any measure you care to use house prices are over-valued. Therefore they will fall. And the Conservatives should not seek to emulate New Labour and try to manipulate the market. The costs are too high. My children and my children’s children will be paying back the debts taken on by New Labour. I.4 trillion is a lot of money to repay and I can’t see us being in surplus any time in the next 10 years. When we are in surplus and can start paying down the debt, 28 million taxpayers, owing 1.4 trillion between them, will owe about 50 THOUSAND POUNDS EACH.

    Even if they pay an EXTRA THOUSAND POUNDS A YEAR IN TAX to go towards repaying the debt, they’ll be paying that FOR FIFTY YEARS. All their working lives and some of their children’s working lives. This is a scandal that New Labour should never be allowed to forget.

    It is time to start using some selected phrases to start conditioning the electorate.

    “High house prices demand high wages – pricing us out of global markets.”

    “You cannot build an economy on lending more and more money to people to buy houses. You need to lend to people who build businesses and create wealth.”

    “High house prices suck demand out of the economy. When people are paying lots of interest to banks, they don’t have as much money to spend on goods and services”

    “It is unfair to expect young people to take on massive debts just so older people can make a fortune just from owning a house”

    Whatever happens the housing market – and the massive debts owed by those involved in it – is going to be a huge drag on the economy for years, maybe for a generation. The problem is not going to go away regardless of what governments do.

    Unless, you build more houses.

    A house, in terms of labour, should be worth about a year’s wages. A house takes about 12 weeks to build using about 4 men for each of those weeks. So, 48 man weeks in total. So, the labour in a house should be worth about 25k. I haven’t priced the materials lately – let’s say 50k. After all we’re only talking about some concrete, sand, cement, bricks, blocks, timber, plasterboard, insulation, chipboard and bathroom and kitchen fittings. So, about 75k for a modest detached house.

    The problem is the land cost – and the reason for the land cost is the ludicrously restrictive planning laws. An incoming Conservative government, keen to do something about the current insanity and provide a long term solution (so we can get back to proper prosperity) must relax the planning laws – and ride roughshod over its supporters if necessary. In time the benefits will become obvious, but we need more than a 5 year parliamentary term time horizon here.

    What is wrong with cities? Lots of people love living in London. Why not let Reading grow to become a second London? There is lots of room to the North, North West and East of Reading. Currently it is beautiful Oxfordshire countryside but then, once upon a time, so was Reading itself. I can’t see what the problem is in allowing a few square miles of land to be built on. There would still be lots of green fields. Take a look at Google Earth – we have loads of room to build on.

    A properly executed plan with all the infrastructure in place could see a great new vibrant city just half an hour from London. We already have road and rail links – we just need the imagination and vision to create homes, schools, hospitals and parks and gardens for 5 million people.

    Do the same in a few other places and you would cut the supply of youngsters feeding the housing market from the bottom, and the housing market would gently fall over 20 years back to affordable and sustainable levels.

    Gradually, people would come to realise the house they though they were going to 600k for when they retired would only be worth 300k and they’d have to save for their retirement. By saving for their retirement they would either invest in a business or in a pension plan. Either way the money gets invested in business, rather than in property.

    Things have got to change Mr. Redwood. I hope you have the vision and influence in the party after the election (assuming you get elected) to make some real change. I hope the legacy of the next conservative government is to change us from a debt obsessed, property price obsessed failed economy to an economy creating lots of weath through investment in business.

    On the subject of winning the election, your party is failing to pin the blame on New Labour for the mess we’re in. During the Chancellor’s debate a few evenings ago, George Osborne was challenged to explain how he would pay for his proposed National Insurance CUT. He didn’t have the wit to point out to Darling and Cable that NOT IMPLEMENTING A TAX RISE THAT WILL DESTROY JOBS IS NOT A CUT.

    Labour have scored points with the argument that ‘it’s dangerous to risk the recovery by cutting spending now” and you, collectively seem unable to simply make the argument “yours is the most wasteful government in history. We have to start cutting waste and profligate spending now. Our children will have to pay back these massive debts and we owe it to them to get rid of wasteful spending”

    Anyway, good luck with it all. The New Labour spin machine still seems to have the upper hand to me.

  68. HTBB
    April 4, 2010

    I am glad you have identified a problem with high house prices. I doubt however that you or your party will have the political will to do anything about it.

    Have a look at how we got into this mess:
    Irresponsible lending
    So called liar loans
    Interest only mortgages
    BTL becoming mainstream
    Gordon's attack on pension funds.
    Low low interest rates.
    High LTV loans
    Shared equity schemes.

    All these factors have been used to put upward pressure on the market.
    It is time to start removing some of these props. How this is achieved without destroying the banks balance sheets and blighting the lives of the most recent generation of house purchasers is your call! You either blight this generation or the next. Over to you.

  69. InflationVictim
    April 4, 2010

    The solution? Get rid of Income Tax and replace it with a Land Value Tax.

  70. Timm
    April 4, 2010

    Two things I'd like to add to my post above:

    1. I'd like to clarify the difference between "Affordable Housing" and housing that is affordable. "Affordable Housing" tends to drives up the local cost of housing, making it unaffordable.

    There are myriad reasons for this: In the case of shared ownership, buyers focus on the monthly payment, which is temporarily discounted, whilst the market as a whole "anchors" on the theoretical full price. In the case of social rented, the buyers are heavily subsidised; by grant, by tax advantage or by the high social rents payable to them by the state. This allows them to drive up the price of market homes beyond the level that is affordable to working homebuyers, thus creating the excuse to expand a scheme that contributed to the problems in the first place.

    2. A missing "t".

    PS. I am not the same poster as "Tim".

  71. Darren
    April 4, 2010

    On the high house prices I'm afraid that the only answer I see is some people will have to take their medicine and accept lower prices. This country rewards people who take uneducated and reckless risks, whilst punishing those who try to do the right thing (like save up for a deposit, try to get a responsible mortgage).
    The market has been distorted for years by speculative investment, driven by lax credit and favourable tax breaks. This is now having a effect on the generation coming into their late 20's. The simple fact of the matter is that not being able to put down roots is going to seriously skew the demographics of the country. I myself have a good job, but even with a similarly employed partner would be unable to afford a decent family home in which to raise a decent family with some aspirations. Instead I see all of my tax money going to fund the endless children of the workshy who seem to carry on regardless. Following all of the measures taken by the existing government to ensure that house prices stop falling (effectively using my own money to prevent me from owning my own home) I am coming to the conclusion that the only way I will be able to achieve a good standard of living, despite earning well above the national average salary is to emigrate! I don't really want to leave the UK, but if following the election the madness continues I don't think I'll have any choice but to take my skills, Russell-group education and savings elsewhere.

    From what I've seen of Tory housing policy so far you've yet to convince me that you'll do anything differently, but actions may yet convince me otherwise.

  72. Chris H
    April 4, 2010

    The only people who benefit from high house prices are those looking to size downwards. It wouldnt bother me too much if house prices dropped by 50%, because it just means that if your home does, so does everyone else's (give or take a bit).
    It's ridiculous building over every blade of grass, trying to force prices down; in my area (south-west) we have been bludgeoned to death with new housing, and thousands more in the pipeline. This is no longer a rural area, it is fast becoming urbanised, which many residents here never wanted…..that's why we chose to live here in the first place.

    I dont see where the buyers are coming from. Every time new homes are released for sale, they are offered at the going rate, which is pretty high in the south-west. Those who do buy them are not first-timers but people moving out from the big cities. In contrast, there are houses that have been empty for ages. In the country as a whole, there are hundreds of thousands of empty properties, yet we still demand more to be built.

    When I lived alone as a single person, I rented bedsits for years. I never managed to purchase a place until my late 20's. Trouble now is that young couples expect to purchase a home immediately, as a "right". We need to stop letting so many people into this country from overseas; Britain is only a small country, we can't possibly cope with unstoppable millions. Otherwise the country will be concrete from end to end and people will be living like ants in skyscrapers.

    Just one thing, though….I don't agree with being aggressive towards landlords. Without a rented sector, many more people would be without somewhere to live. In my 20's I was grateful that people WERE landlords, either offering a house or a bedsit.

    1. RH James
      April 6, 2010

      Chris, the average first time buyer is 37. That is the cold hard fact of the matter. This isn't about a sense of entitlement held by "young couples" who statistics about actual purchase and intentions show don't expect to purchase anything. You were very fortunate to purchase as early as your late 20s, the perception that you "never managed it" *until* what would be today a prodigiously young age speaks volumes about radically the market has changed.

  73. LevelPlayField
    April 4, 2010

    Aside from CGT on your primary residence, the other way to restore sanity in the housing market is not to underpin it when it wants to crash and let it tank, and for the BOE to warn when property values are outside historic norms, and maybe choke off lending at that time.

    The other thing is maybe just to encourage people to move North: grants, tax breaks or something.

  74. Bazman
    April 4, 2010

    Lots of property for rent in Mayfair, so what housing crisis? How many people do you see sleeping on the streets in Britain? Exactly. Just let the market sort it out the more expensive they become the more incentive to build. Work harder to pay the rent if you are can't afford to buy. Hotel/B&B is also available as are scumbag estates. Beggars can't be choosers.

  75. Gary Delaney
    April 4, 2010

    All the government needs to do is stop intervening in the housing market and it will clear at sensible rates.

    Stop paying the mortgage interest of people who can't afford their houses and need to move.

    Stop paying above market levels of housing benefit (in fact is housing benefit a good idea at all?).

    Stop directing the zombie banks to lend badly and reflate the bubble.

    Stop ZIRP and QE which are artificially inflating asset prices at the expense of the pound and future inflation.

    Stop all wasteful incentive schemes, part buy/part rent, stamp duty exemptions nonsense.

    Stop planning controls. Is it even appropriate for the state to have a role in the allocation of land for housing? as long as there is some co-ordination with councils on planning for schools, roads etc. there is no reason any pressure group or layer of government should have the right to say no.

  76. Ben Savage
    April 4, 2010

    In my opinion there are three things that need to be done:

    1. Stop artificially supporting the housing market. It's a market and should be allowed to behave as such. Allowing people to get burnt from house prices falling, whilst painful for many, would go a long way to changing people's perceptions about property. A house should be a home, not an investment.

    2. Make borrowing money to buy a second home almost impossible. This would make the market far fairer for FTBs not having to compete with home owners borrowing against the equity on their other property.

    3. Adjust planning laws to create the following climate:

    i) Discourage large builders sitting on land banks.
    ii) Stop large builders from putting up ghastly brick boxes with tiny rooms and no architectural merit whatsoever (this is less about house prices than changing people's perception about new housing – i.e. it doesn't need to be ugly).
    iii) Make it easier for smaller builders and individuals to build their own properties. If planning laws made this easier then supply could quickly match demand.

    1. Paul flusk
      April 6, 2010

      Something like resource account budgeting tax on land banks woul. Do it.

  77. Richard
    April 4, 2010

    As someone whio simply cannot afford a new home (And I live in Fife, which I believe has the lowest avg poperty prices in the UK) despite earning a reasonable wage, I feel what is required is to reduce demand in certain ways.

    Part of my job is to be a housing benefit advisor. To give an example which increases demand for housing and costs the tax payer more money (perverse), two parents are on housing benefit (they get all the rent paid in this example), one child reaches 18 and signs on- this will lead to the parents housing benefit being reduced (via a non dependent deduction) and they will have to pay towards the rent (£7.40/wk)- they cannot get the 18yr old to pay so they get them their own house, which they claim housing benefit for (in Dundee upto £55/wk for private rents or all the rent paid in a council or housing association home). So the system actually encourages young people to move out of their parental home which increases demand for housing, costs the taxpayer more and increases costs for the young person- i surely makes sense to attempt to have families on a low income to live together where possible in order to reduce the costs of living- utility bills etc. Reducing demand for housing while reducing tax payer costs, seems sensible to me. Lower demand for housing will reduce prices and rents.

    There is also a problem with the way council and housing association homes are let. If a family needs a 3 bed house they get one, but when the kids move out, they keep the 3 bed house preventing someone who needs this home getting it- forcing them to go private (costs more and leads to more benefit being paid). It would make sense to change the nature of theirtenancy so that they are moved to a home that suits their needs- ie give them a one bed and let a family have the three bed. In short, we need to move towards one year leases and not indefinate ones.

    We also need to change council tax to punish empty homes lying idle- this may seem unfair but as there is a shortage of homes we need to ensure where possible, homes a used.

    Should councils etc be able to make compulsary purchases on run down properties (at a very low price) and be able to do them up- this would increase the housing stock. Over time it would prevent this happening to properties as the owner would not want their property takn from them at a low price.

    And simply build more homes. This is going to be a big problem, as current discussions suggest the housing budget will be slashed by upto 25%- less homes built, more demand, increasing prices = price crash in a number of years- bring it on I say- if people cant see it is their long term interests for asset prices to be stable and not go crazy again, them why should I care when their wealth crashes.

  78. Javelin
    April 4, 2010

    Interesting that an overwhelming number of posters on this website all think house prices are too high. You would not have guessed that.

    One thing is true, that booms and busts in this country are driven by house prices. House prices drive politics and economics in this country. I think there is something fundementally naive with any political party who allows this to happen.

  79. Mark
    April 4, 2010

    I can also recommend UCD Prof Morgan Kelly's seminal study of nearly 40 house price booms and busts across the OECD since 1970, which can now be found here:

    The basic point is that the expectation is for 70% of the real boom will be given up in the bust, which will take a number of years to occur. Roughly, UK prices tripled in nominal terms while RPI increased 30% – an increase in real terms of 130%. That suggests a fall of about 40% from peak prices in real terms can be expected in the UK.

  80. Winston's Black
    April 4, 2010

    My daughter worked and saved hard for a deposit and found a flat locally that suited her.

    However thanks to the fecklessness of bankers and others causing the 10%-15% deposit goalposts to be moved to 20%-30% the only way to purchase this property was for me to re-mortgage my own property and buy the flat outright.

    As I am well into my fifties I had to take a short term mortgage to do this. My daughter is repaying me the equivalent figure of the usual conventional 25 year mortgage term.

    As far as I can see my solution is one way for one child but what about her younger sisters? I have insufficient equity in my own house and will be too old to do the same thing again once or twice more.

    April 4, 2010

    JOHN….first i would slowly tax second homes out of existence as btl has been partly responsible for the price rises as they could bid more than first time buyers hence pushing up prices…i would then go after all the people who have liar loans( might be too many as i reckon most people had to lie to get a mortgage)these liars also raised prices because they could borrow more than ave joe and therefore pushed up prices in each street they bought in.

    One thing is we are in a hell of a mess and prices will have to fall about 40% for the market to work again.. i have just bought a house with 39% off the original asking price..but so many people who want to sell can not due to the fact that they have used their house as cash machines and withdrawn all the equity and these same people now have their houses up for sale at ridiculous prices because they NEED that amount to pay off the loan..

    until we get back to 3.5x earnings for a couple we are going to have a housing market that can take the economy down with it…

    i hope you really look at the damage buy to let (btl) has done to society and its high prices. why should someone pay 50% of their wages just to put a roof over their heads when that money could be spent elsewhere in the economy instead of going into the pockets of the greedy landlords… tax btl out of existence please.. regards geoff

  82. Bazman
    April 4, 2010

    Never in my life have I ever read so much middle class bleating about the state helping them and somehow owing them a living. If this post had been about benefit payments the distaste about this complete lack of self sufficiency would be coming out of the screen. Do you seriously think the state should help you? Dig more, throw further, and work faster peasants. I think I am going to be sick. My three bedroom house in Cambridgeshire is paid for by the way. Oh! and so is the car.

    1. Paul Flusk
      April 5, 2010

      Let me guess, you were lucky enough to buy BEFORE house prices rose 300% in 10 years?

    2. Simon
      April 5, 2010


      I think the general gist from most people is for the state to STOP intervening in the housing market, so I'm not sure who your comment is aimed at. The market is not a free one when it's artificially propped up using tax payer money.

      I want no help for FTB's and I am one.

  83. Mike Wilson
    April 4, 2010

    Well, what an interesting blog this is. Lots of very intelligent comment and suggestions mixed in with a few incredibly stupid ones like 'If you can't afford to buy, rent until you can'. Anyone with half a brain knows that if, like my son, you pay £750 a month to rent a 2 bed flat in Reading, and you are on average wages, you will never save a penny towards buying a house.

    So, Mr. Redwood – what's the policy to be?

    1. alan jutson
      April 5, 2010


      Suggest your son lives at home with you if possible, and then he can save large amounts, and still pay some rent (£150-£200 month) to you to cover your increased overheads.

      He can then save £600 per month, plus whatever Council tax he is paying, plus he saves on house contents insurance.

      In 5 years he should have £40,000 or more.

      That is what both of my Daughters did.

      Now they both own their own houses in Wokingham.

      It really is a question of choice.

      In addition he could work a second job (that is what I did 40 years ago) to get a deposit for our first house, this has the added advantage of you not spending on going out, as you are working.

      Where there is a will there is a way. I am not suggesting it is easy, but then nothing worth having ever is.

      1. Mike Wilson
        April 6, 2010

        Alan, you make some sweeping assumptions. The first is that I have two spare bedrooms for my son, his wife and their child.

        The second is that they would like to live with me in my house and not be able to live their own lives in their own house.

        If he did what you suggest and came and lived with me for five years and saved 40k – what would be the point? In your world of ever rising house prices, house prices might have gone up by 80k in the meantime. He would be a further 40k behind the curve.

        When I bought my first property in the 1970s I worked as a (fairly junior) construction site engineer – earning what I would say was a pretty average wage. I borrowed 2.1 times my salary to buy a 2 bed flat in West London that would now be 'worth' 275k. A site engineer earns about 30k these days. A site engineer now would need to borrow 9 times their salary to buy something I only needed to borrow just over twice my salary.

        Now I know interest rates have come down a lot, but a mortgage is a 25 year commitment. Would anyone care to guarantee we'll never see mortgage rates in double figures again? I certainly wouldn't. With a government debt of 1.4 trillion and a current government that is printing money to buy its own debt – and a potential debt crisis in the offing as our debt problems are at least as bad as Greece's and the other members of the not so glamorous 'PIGS' club – I think anyone taking on a large mortgage at the moment that is fixed for anything less than 10 years is absolutely BONKERS.

        I will not encourage my son to buy a property at the moment. There are several things that are certain after the election.

        Government spending will be slashed
        Interest rates will (at some stage) go up, possibly dramatically
        Taxes will rise

        With house price unaffordability at already record levels, there is no way the market will go up. We may get a crash, we may get a gradual decline. The only reason the market hasn't crashed properly yet is unprecedented and blatant support for the housing market by the present government. They have even taken lenders' bad debts into temporary ownership to keep them off the banks' balance sheets. These schemes will end in the next couple of years and the banks will then have to stand on their own two feet. Where are they going to get the money to maintain the lending necessary to support the housing market at current prices?

        In case it passed you by, we have just had a credit crunch. The banks, prior to the credit crunch, were using the same collateral over and over again to maintain their lending. Their capitial rations were almost non-existent. When the lending beanfeast stopped they were BANKRUPT. To avoid systemic banking collapse the government bailed them out.

        People in this country need to start facing some facts. We have massive debts to pay back and there is not enough money in the system to maintain bank lending at levels which support current house prices.

        There will either be a crisis and a house price crash, or there will be a gradual decline that may last a generation. Maybe your daughters will work hard all their lives, pay their mortgages off and find their houses are only worth half what they paid for them.

        Because, the price they paid was supported by funny money. Insane lending practices which led our banks and our government into a debt crisis which my children and your children will be paying for all their lives.

        1. alan jutson
          April 7, 2010


          No I was not making any sweeping assumptions, but simply making a statement that there ARE options SHOULD you wish or WANT to take them.

          My daughters chose to live at home whilst they were single in order to save a deposit for a future property, we accepted that this was their wish.

          Clearly if your son chose to get married, leave home and start a family in a rented property then that was his choice, absolutely nothing wrong with that at all, but then please do not complain that he cannot save for a deposit, when he is at the time of his life of maximum financial commitment. We would all have difficulty with that.

          Yes I am certainly aware that there is a credit crunch, I have run my own building company for nearly 30 years, and work has almost but dried up during the last two years. Immigrant labour is working in Reading and the surrounding areas for £40.00 per day (as you probably know) which I and my tradesmen simply refuse to compete with, given we are all fully insured, fully trained, are members of proper trade organisations, and complete work which complies with all current regulations.

          I agree with you that I beleive that we are in for a very long period of house price stabilisation, or indeed a fall.

          I hope it is only a slight fall as otherwise the market, and many thousands of people/families will be in dire financial trouble. which will need the support of the taxpayer through some sort of one of the many benefit schemes available.

          Yes my daughters do work hard, although one of them has now been made redundant for the second time in 12 months, but then that is the way of the world at the moment, I do not like it, but having been made redundant 4 times in my life before I set up my own business, you simply have to try and rise above it, difficult though it is.

          The sooner we get back to a Government of politicians who have actually worked in commerce for a living the better.

          I live in hope, but do not have a lot. like you I am near to retirement, but since Gordon has helped to bugger up private pensions that does not look such a good bet either.

  84. John Wrexham
    April 4, 2010

    Older generations should stop and think before rushing to say younger generations are moaning and want it easy to get on the housing ladder.

    first time buyers just want to be treated fairly. ie why can buy to let landlords put their interest payments against tax when that perk was abolished for owner occupiers years ago? stamp duty is a tax on people who want to buy a property, whereas property sellers get off with paying no tax on their capital gains which are mainly derived from there being a shortage of supply in the housing market. so scrap stamp duty and tax capital gains on primary residences at 20% and buy to lets at the top rate (well, the old top rate that is, 40%) with the usual allowances allowed to any business.

    from a political view point: owner occupation encourages many of the values that conservatives favour, whereas the landlord-tenant relationship all too often guarantees the opposite. about the only positive the rental market provides is flexibility in the labour market, but generally the speculation in property over the past 10-15 years has been a distraction from creating a really dynamic economy so we can pay our way in the world.


    1. Mark
      April 5, 2010

      Taxing sales will prevent them. It would be much better for someone who needs to move to rent their property out rather than sell it and pay a huge tax bill which would leave them without enough to buy their next place. Instead, the props that keep prices high need to be removed. That means cutting the availability of mortgage finance on high income multiple and high loan to value terms, and raising rates. Meantime, if you are renting, be thankful that your rent doesn't have to go up to cover a 40% or 50% tax bill on the landlord's mortgage interest.

  85. jessieamelio
    April 5, 2010

    i visited your site n was good enough then othere site that i visited last month

    study abroad

  86. David Price
    April 5, 2010

    Where government, public and green-belt land is made available, perhaps release it as leasehold so only the house built on it can be sold on at a more appropriate price.

    This would mean that central and local government would be unable to generally sell land off to developers and so would lose one thread of funding for social projects etc.

  87. Steven Martin
    April 5, 2010

    The rise in prices is not due to the supply of houses. It is due to the supply of credit. If lots of credit is available then the value of the asset in bid-up. We have not seen an increase in rents over the same period as the high house price inflation. This is because there are enough houses. Estimates also believe that there are between 500,000 and 800,000 empty houses in the UK.
    We need to stop speculation in the housing market.
    A tax regime that encourages houses to be used as homes would help. Eradicate the benefits that buy to let landlords have which are not available to the owner-occupier. Increase the taxation on people who own more than one property so that locals are not out bid for houses in the areas that they are from.
    Increase the capital gains tax on houses to a realistic rate that is similar to the highest income tax levels.
    Housing speculation takes money away from the productive economy and increases the divisions in society between the haves and have-nots.
    Because of the cost of housing, families are being started later and fewer children are being born. This is helping the demographics of this country to change to one where the old outnumber the young. We will suffer from this very soon.

  88. David F
    April 5, 2010

    The government has done all it can to protect home "owners", by propping up house prices in a very unsustainable manner. At the same time, millions of savers have been royally shafted, and taxes will increase for many years. The house price boom was completely uncontrolled, and I don't see why savers should have to suffer, just to make home owners feel better!

    I think home owners should accept the reality of their situation. They took a risk when they committed to a property. Artificially low interest rates can only continue for so long. The government is adding £400 million onto its debts every day … this has to stop.

    Wages are a significant issue at the moment. Most companies are either capping wage increases, or reducing wages! That will increase the GULF between wages and house prices. The reduced availability of credit will also have a profound effect. The solution is not to increase credit again … that would create another "bubble" waiting to burst. When you combine reduced wages, limited credit, tax hikes, and artificially inflating house prices …… you will see house prices going down, in the long-term. Wages are not about to increase, and credit is tight …. do we really want to go back to 2007? Savers have taken an almighty hit with the interest rates …. it's time for home "owners" to take their medicine!

    P.S. You don't "own" something until you've paid for it 🙂

  89. Gavin Jackson
    April 5, 2010

    It is quite clear that before any government interference / action / stimulus there was an almighty house price correction underway. Without the stimulus I believe that this correction would have continued, overshooting the historical long term average (in relation to wages) and would have at some point left houses reasonably priced, i.e. cheap. It is very worrying that so much of our country's future wealth has been used to support an economy based on non-productive high house prices.

    One of the problems is that as a population we have been conditioned to believe cheap house prices are bad and high house prices and the excessive inflation required to get them there are good. (Inflation in everything else is bad though!) If you could reverse this conditioning then we might be getting somewhere.

    It should be clear (but it's not) that cheaper house prices and a low sustainable inflation benefit not only first time buyers, but also home owners that will at some point be moving 'up-the-ladder'. High prices on the other hand benefit those downsizing, banks, building societies, estate agents and solicitors. I do not have the figures, however, I suspect that cheaper houses would benefit the majority – that would need to be checked out.

    In short, I don't think that much needs to be done for house prices to become affordable – just remove all of the government supporting props (interest rates that are too low, shared ownership, tax incentives for Buy-To-Lets etc). This will be seen as politically bad (as the Affordable Housing piece above suggests), but it shouldn't be. Moreover, you then need to make sure those who will benefit know that they will benefit. That way it should not be politically unpopular.

  90. Tim
    April 5, 2010

    Stop the government taxing money, devaluing money, or borrowing money on people's behalf to prop up the housing market. The market will naturally correct, and then prices will find a point where you don't need to "help" first time buyers. Taxing us all, including first time buyers, to then give the money to help people pay higher prices, thus ensuring those prices continue, is as stupid as it sounds.

  91. Bazman
    April 5, 2010

    I live in 19070's 3 bedroom well build council house in Cambridgeshire. Surely modern politics could not provide the same standard of housing for everyone on £300 a week? It did in the past Redwood.

  92. JB
    April 5, 2010

    I have been saving for 10 years being prudent and doing without things I really wanted and with some clever and lucky investing I have access to nearly £200k. What can I buy with 8x the average salary….a good 1 bed flat or crap 2 bed flat, all that work for that, NO that is far from fair value.
    Why do people view high house prices as good, people who own I guess but why, you cannot benefit unless you sell. Selfish greed.
    I am giving up all hope on this country and its blinkered attitude.

    If I where a generation younger just starting out what hope would I have, I fear very very little.

  93. Bob Jones
    April 6, 2010

    I’m impressed you’ve actually been reading these replies over the long weekend. Small things like that go a long way to securing my vote. But who knows if you will get all the way down to this one?…

    What can be done eh? It’s a tricky one for sure.

    Much of it is out of your hands. You cannot do much about the rise of China and India (and the resulting low inflation in produced goods that enables a low nominal interest rate world).

    However, a government is not powerless. Not by a long way.

    The first, most important, step is to admit we have a problem. We must publically recognise the damage that high house prices (and resulting high debt) are doing to our society and economy, and how much worse it will get if we don’t make the difficult choices now. We simply cannot have an economy based on housing. It’s a sham. We will face many global challenges in the 21st Century. For the UK to prosper we need to think beyond selling ourselves the same bricks and mortar over and over again in a feel-good debt mirage. People need to recognise that too much gravy today means no roast tomorrow. It won’t be an easy debate, but that’s leadership.

    We also need to recognise that we did not simply import the crash from abroad.

    Finance reform is urgently needed in the UK, as in the US. We had a warning in the “crash”. Effectively we were an obese patient that had a heart attack. So far we’ve been been stabilised. The answer to a full recovery is not a packetful of dunkin donuts. Mainlining cheap credit is simply an awful solution.

    Barry Ritholtz has an excellent US centric blog (the big picture) and has listed suggested themes to fix ( I recommend his thoughts. The crucial fixes needed here are broad mirrors of the US (we don’t have high prices solely due to being a small island – it was a global issue).

    Unfortunately we need regulation of synthetic financial instruments. There can be no more slicing and dicing of toxic debt into squeeky clean AAA tranches. And yet we need to find a way to keeps some of the beneficial instruments. It will be a tricky balancing act, not helped by strong bank lobbying. This is clearly a global issue, but one that the UK can lead.

    If it’s too big to fail, it’s too big to exist. Break them up. Check out the thoughts of James Kwak and Simon Johnson (Prof, MIT Sloane) at the Baseline Scenario.

    But there’s much more a commited leadership could do.

    Consideration of house prices can be a guide to interest rate decisions – witness the recent speeches by Glenn Stevens at the Reserve Bank of Australia. If you know the damage high house prices and high debt can do to future consumption (never mind social mobility), factor them in when thinking about interest rate rises. We need shelter more than we need dvds and ipods.

    We really do need financial education in schools. And not one sponsored by Goldman Sachs. Citizens need to know the difference between nominal and real interest rates, they need to know why bidding up prices with falling nominal interest rates will cost them later. They need to know more about the stock market, about inflation, about money.

    Those who commit fraud, and those that bring the system to its knees need to be punished, not bailed out. Shareholders in insolvent institutions need to lose their money. That’s capitalism. If everyone gets bailed out every time it’s not just moral hazard, it socialism.

    I guess that’s a start. The crucial thing is, as stated at the top, to admit we have a problem. Without that we’re going nowhere.

    Unfortunately we need to think long term. I know how hard this is for our current society. We need to ask ourselves the big questions if we truly wish to prosper. It sounds high faluting and airy fairy, but there’s no way around it.

    I still think that we should aspire in the UK to a society where somebody born on a sink estate can, through education and hard work, rise up to a high quality of life. A British dream if you like. We need social mobility (which means both ways) to prevent the ghetto-isation and splintering of society.

    p.s. if you want to scare yourself, imagine 2050. We can debate the timing ’til the cows come home but without an alternative peak oil will hit eventually. And that’s kryptonite to a high debt economy.

    p.p.s. those who come out with the “the young today – they don’t know they’re born mantra might want to check out the facts. House prices are higher today than ever before. “Affordability” measures are snapshots of credit. When you take out a mortgage you buy all of the repayments, not just the 1st year. Check out the three modern myths here:

  94. Alan Gilchrist
    April 6, 2010


    House prices are too high in the UK because the fundamental law of British economics, government and society is that "house prices must not fall."

    For example, without all the various Government interventions over the past year, our housing market would be down 50%. It would have felt horrible (for many NOT all) but we would then have the opportunity to recover – – – see the US for details.

    Part of the fundamental law above is the various myths that people propagate and swallow down whole:
    – nobody say the economic crash coming
    – house price inflation is a good thing
    – it came from the US (poor quality loans etc)

    All of these (and many more) are just absolute rubbish and part of a giant collusion and delusion. Re the second, why does NOBODY in the UK ask the question "If Fred feels £10,000 richer because his house value has increased by this amount, where did the £10,000 come from?" Sure, Fred might spend a bit more but Mary, our mythical first-time buyer now has an interest only mortgage or a 40 year rather than 25 year mortgage etc. Fred feels richer. Mary feels poorer. Hence this is not sustainable economic growth, hence the car crash in the economy.

    The long-term answer to all of this is Land Value Tax. It's SO clear and obvious. It's also unlikely to be adopted by a Tory!!

    But – – – bigger thinking – – – "inheritance" is the issue underlying all of this – – – . Those that have, gradually accumulate more and fight like crazy to hang onto it even beyond death. Those that have not are forced to let a flat from the lucky ones.

    Accumulating further wealth through investment of pre-accumulated assets (whilst sipping a latte) is actually a pretty anti-Conservative action at the fundamental level – – – it's very NON entreprenarial – – – doesn't involve actually doing anything in order to make a living.

    Best wishes,

  95. Ben
    April 6, 2010

    Government types really need to stop pretending the problem is that banks won't lend enough to people with low deposits. This is getting the situation completely backwards.
    The reason house prices are so high is BECAUSE banks lent too much for too long. The last thing we need is for banks to go back to this.
    The problem at the moment is that prices are about 40% too high, but those who would ordinarily be forced to sell have not had to due to rock bottom interest rates and QE. What needs to happen is for the reckless to be punished so that the prudent can buy.
    Stop using our savings to support this farce.

  96. Rich Bennett
    April 6, 2010

    The problem is a simple one, house prices are out of control. The reason – too much availability of credit.

    The result is pricing entire generations out of housing, and forcing a redistribution of a lifetimes earnings from 1 generation to another is causing fundamental breakdowns in our society.


    1. Ensure no one lends more than 3.5 + 1x salary at no more than 90%ltv. This should include unsecured lending.

    2. INCREASE stamp duty considerably on anything over £250k (thats 10x median wage so a _lot_ of money in real terms), and ensure stamp duty starts to kick in at anything over 5x median salary (so around £100k).

    3. Pin stamp duty thresholds at 5, 10 and 20x median national salary adjusted annually to keep it fair and equitable. Consider a housing supertax bracket at 100x median salary to be added on top.

    This should help ensure housing stays at a sensibly affordable level ongoing.

    Mind you, it's probably too late. Most people I know have either already gone, or applied for the visa.


  97. value_investor
    April 6, 2010

    The cause of high house prices is simple – a glut in the supply of money.

    When this was kicked away house prices fell. Then the establishment moved to protect asset prices by dropping interest rates, preventing repossessions and the market from finding a more natural level – in effect the glut of money was retrospectively approved and maintained by the government.

    Thankfully, there's no new money, so no-one's buying or selling. The market's frozen and the higher prices seen recently are on historically low volumes with high levels of cash buyers (mugs) looking for a yield on their non-income generating money.

    High house prices have a depressing effect on business (higher costs to run business, and higher wage demands to meet mortgages). The only ones who gain are those that sell property and realise their "profit". Lower house prices benefit all except recent entrants to the market.

    Rents are still falling, which is as good a sign as any that house prices are irrationally overvalued.

    I have 200K in cash (mostly RPI-linked bonds) and rent very cheaply, waiting for sanity to return.

    The political effect of falling house prices is going to change as the demographic changes. Very few of my relatively well-paid friends have bought property, and they are in their mid-30s.

    1. Ben
      April 6, 2010

      Very interesting – you have exactly the same view on this as me, and an almost identical position. But how long are you prepared to wait for sanity to return, as indeed it must eventually. But as Keynes said; "In the long run we're all dead". I've already waited 5 years and watched one rabbit after another being pulled out of the house price inflating hat.
      Are you not also concerned that there have been some clear attempts to suppress the RPI. In particular the changes to the calculation of the mortgage payment part that went through in March. I've calculated that this change alone will cost me >£1000. I complained to the ONS prior to the change being implemented, but to no avail.
      Back in the day I would have been able to just buy a house without having to worry about moving these ludicrous sums about. Now everyone is being forced into speculation to retain their purchasing power with respect to housing.

      1. value_investor
        April 6, 2010

        Thanks for the reply. Strangely enough I am in the process of analysing the RPI at the moment myself for my own amusement and purposes. I'm a strange cove.

        I'm not terribly concerned that it's fiddled, to be honest. I think it's pretty much on the level. That particular change had some justification (if memory serves) wrt the methodology, as the profile of the average mortgage had changed.

        For me it's not really much of a choice at all. I live in a very expensive part of London near one of its best state schools (I have two small children). I'm paying 1350/month for a 2-bed Victorian house that's "worth" about 600K on the open market. The landlord is a corporation with excellent service. It's a no-brainer for me.

        I agree with your last point though; formerly it was much simpler (for my dad, for instance). I hate moving money around, it's quite stressful. I do find it interesting that so few people know about RPI-linked bonds, though. They're amazed when I tell them of the current return… tax free.

        Incidentally, I think the BoE projections for GDP and CPI are all to cock. That's another interesting subject in itself.

  98. Richard
    April 6, 2010

    The solution to HPI and affordability will vary from area to area.

    While there are general truths that apply to all regions and stem from lax lending in the most part, in some places these factors are exacerbated by local effects.

    In my area, the southwest, S Devon and Cornwall in particular, second home ownership is a significant social and economic problem that causes dead communities in winter and high house prices that are often over 20 x a local wage.

    There should be an economic disincentive to second home ownership that redresses the balance.

    The solution that is often suggested is to build a few affordable homes, but these are rarely in the heart of the community.

  99. David Barker
    April 6, 2010

    High house prices have been driven by excessive lending practises by financial institutions. Without the avaialbility of cheap and excessive lending house prices could never have risen to their current levels.

    One quick fix would be to restrict the tax relief for buy to let investors based on a loan to asset value ratio (say 50%). This tax subsidy is not available for the purchase of other assets e.g. shares.

  100. Sarah
    April 6, 2010

    1) Build more houses. Not rubbishy little rabbit hutches or flats, but proper three and four bedroom family houses of a size last seen in this country in the 1970s. Bring back minimum room sizes.

    2) Get rid of BTL tax breaks. Stop amateur landlords – housing is too important to be left at the mercy of people who want to make a quick buck. To this end, stamp duty should be increased – make buying a house a serious financial transaction, not something you do because you fancy a change. Increase inhertiance tax on properties – if you're dead, you don't need the money and it will act as an incentive for elderly people to live in properties more suited to their needs, rather than rattling around in large family homes.

    3) Reform tenancy laws in favour of the tenant – increase security of tenure.

  101. Gavin
    April 6, 2010

    How about, building new villages/towns in which all housing goes to those who wish to stay there, ie no investment landlords. Each house would be paid for by the government and built to a high standard. The land would be bought as farmland, which ordinary members of the public can't build on but the government could in this case. An average house in the village/town would cost 3.5 times the average wage, about 25,000 * 3.5 = £87,500. £87,500 buys you an average 3 bed home. Flats would be cheaper and bigger houses would be more expensive.

    You would need to apply to the local government body to apply for a house and prove you have work in the area. After a certain period of accepting applicants a lottery would determine the purchaser of each home.

    Or you could just stop the crazy mortgage lending thats going on… the system crashed and screwed up the banks for a reason, now the government are propping it up in an attempt to maintain house prices and further bank loses because the alternative is to hard to face.. but I think they are underestimating the anger young people and savers are harbouring for the unfairness of the current system, that only seems to get more skewed in favour of the property owning debt ridden MINORITY.

  102. ian
    April 6, 2010

    I am beyond caring about housing or anything else in this greedy little cannibalistic country. I want to play no other part now than to join the ranks of the takers. Then at age 55, leave for somewhere that’s a little bit more decent and a lot less ignorant.

    John Redwood does a piece about housing provision. The tories were the party that created the council house shortage with the right to buy. Took also away tenants rights and replaced them with a useless 6 month short hold tenancy agreement and allowed the provision of buy to let mortgages. Here they are now asking for information about how to ‘resolve’ the problem.

    Guess what ?

    I’m beyond caring. I don’t give a rat’s ass what happens here or the hordes of greedy, ignorant, ego fueled drunken populace. I am going to take, take and take, while contributing as little as possible. When I cant take anymore I will go and take my saving’s with me.

  103. fred
    April 7, 2010


    BAN buy to let lending, and levy large interest charges on all current buy to let mortgages, but exclude these additions to home owner loans.

    all we have to do is go for the parasites. come down hard on the freeloading speculators and flippers. freeing up droves of panic sale property, and with no further buy to let speculators able to jump in, affordability for genuine first time buyers who simply need a home, not an investment will become available and with stable mortgages. not many votes will be lost for promising an end to property speculation in the uk and no one will have much sympathy for speculators who made the wrong greed based call and lost. no one politician promised them a paypout. they all made this choice themselves for profit.

    with this banks can lend again safely to get the ‘genuine’ housing market moving. current owners may hit some negative equity and there will be some pain, but the onset of reckless buy to let lending has almost bankrupted our country. creating the potential for pain as never seen before. ending buy to let speculation is the first step in the real correction. people need homes for both stability and mobility. they need security for family production, schools and associates plus a stress free life. also with more disposable income due to falling first time buyer offers, economic activity will increase to local business. the sole losers will be the speculators.

    this would end 80% of our current problems and make the country a fairer more happy little island. opportunities will arise from the increased economic activity, but also this may open up the gates for export of manufacturing as with this scenario our currency and wages can remain low.

  104. Daniel.
    April 7, 2010

    Hello John.

    The tories could start their new parliament by simply ‘doing the right thing’………………….

    The recent pledge by Kennedy that MP’s must pay back profits from the sale of their second homes only applies to gains since November 2009, [gains from massive house price Increases up to 2008 will be ignored.]

    Once again they fail to live up to expectations.

    Profits from second homes need to be backdated to the beginning of an MP’s tenure.

    The truth is there was NEVER any political will to enable the average person earning average wage, to be able to afford an average house in a rising unregulated market, under a secret expenses system, where MP’s were all flipping houses, making hundreds of thousands in personal profits.

    Not one MP represented the average wage earner.

    It is typical that the plan is NOT to reclaim the profits made before 2008 – as this is when 95% of the profit would have been made.
    Again it appears a symbolic gesture to appease angry voters.

    It is not just that MP’s used our money to profit, and paid no tax on the gains, it is also that it created a dangerous conflict of interest that meant that voting for policies which fed the house price bubble also generated personal profits for them.

    MP’s should not be able to make any kind of PERSONAL profit whatsoever, with Taxpayers money.

    All personal profits, acrued by Ministers, from House Price Increases, from the time their second homes were bought, to the time when they were/are sold, MUST BE RETURNED TO THE TAXPAYER to restore at least some measure of faith in our parliamentry system.

    Personally I will not be voting for any political party, until this happens.

  105. Daniel.
    April 7, 2010

    Raise IR to 10% to protect the pound, and encourage foreign investment.

    Those who borrowed to much money to buy a house, or were encouraged to lie on their mortgage applications, by the bank, will be repossessed.


    But thats preferable, and fairer, than forcing me to pay for their houses.

    I have already been forced to waste tens of thousands in rent.

    Why should I pay for their debt, which ensures I will stay in Indentured slavery?

    Nothing to show for a decade of hard work. No capital. Unable to get ahead.

    And nothing I have seen from the Tories convinces me that you will help me.

    The trut is that houses are ridiculosly overpriced, and not one MP will come out and say this, as it would be political suicide.

    But your mandate should be to force house prices back down. By whatever means neccesary.

    The average wage around my area is £18k. Average house price is £200k. Should I borrow ten times my salary?

    All I want is a small house, which I am prepared to work for, and a decent job.

    Is that too much to ask?

    1. Richard
      April 7, 2010

      "But thats preferable, and fairer, than forcing me to pay for their houses."

      Spot on.

      Nor should we forget that this army of young people, unable to buy a stake in UK Plc, will be free to upsticks and move to another country where they wont be paying for everyone else's stupidity.

      Taking their future tax payments with them.

  106. Gary Delooze
    April 7, 2010

    John, I think there are two ways this could be fixed, but it needs to be done gradually to enable those home owners who have bought into the bubble to be deflated over time without too much pain.

    1. Increase the supply of land for housing. We are not as small an island as the government and planning officers would like to make out. Builders will love the idea of being able to build more (and this will feed through into more jobs, more tax, etc.) and a greater supply of land will lead to an increase in the housing stock available, greater competition and lower prices. And for self builders (who should be encouraged), the availability of plots for building at reasonable prices would be a godsend. Simple supply and demand if you like. But at present the planning policies do not allow this to happen, so supply is restricted and prices are kept artificially high.

    2. Put into place legislation and codes of practice around lending. It should not be possible, other than in extreme circumstances, for people to borrow more than 4x income for a mortgage, with a good code of practice being 3x. A flood of cheap credit (based on wholesale lending secured on existing mortgage stocks), self-certification loans and relaxed lending multiples of up to 10x income enabled banks to flood the market with cash, which eventually led to houses being priced on the basis of what people were able to borrow, rather than what they could sensibly afford.

    There are other ills that have fuelled the market, such as Buy-To-Let "investments", but I am not sure that these should be legislated against. If we can get pricing back to a stable level where it is not seen as a significant short-medium term investment, and tax breaks for "investors" are removed, then I think this will right itself over time.

    Good luck with this. As I said, it will need to be done over multiple years (the life of a parliament?) and slowly, to avoid the "shock" impact of a rapid correction in prices, but it could be done. In parallel with a general downward trend due to a loss of confidence, the market could be back to where it should be in 3-4 years from now, and although you will never make everyone happy (especially those with large exposures and little equity), as a nation we will be much better off.

  107. Daniel.
    April 7, 2010

    £200k for a broom cupboard.


  108. Michael
    April 8, 2010

    I'm a first time buyer struggling to buy at te moment here are my thoughts

    firstly you need to keep banks lending tight as it is now. It was reckless lending and fraudulent borring that caused the global recession and created the UK property bubble. The lending of today is sensible and therefore this should bring about sensible house prices.
    Also, property speculation should be heavily regualted and taxed. CBT should be payable on the sale of any second home or BTL property. BTL taxes should be introduced. This would also be a good way to help cut the deficit
    lastly. Remove the measures in place to artificially prop the market and stop politicians and the media enticing young naive buyers into the top end of the biggest asset bubble the UK has ever seen.

  109. JB
    April 8, 2010

    You have the chance to get ahead of the curve here and speak out about a house price correction, because it will happen, it must happen, why, because the debt bubble that grew over the last 10 years got so big and bloated the whole financial system collapsed and bankrupted itself.
    What has really changed? Can we return to this way and keep on inflating this bubble? You decide.
    Vince cable seemed to do well against the other parties chancellors.

  110. James Marshall
    April 11, 2010

    Have the tories done the math on how many hundreds of thousands of voters will still be priced out by 2014?

    How would the tories feel about another prolonged absence from power, commencing in 2014?

  111. Paul Jones
    April 12, 2010

    Dear John.

    Lets take a moment and reflect on the real percentage increases in houses, according to nationwide figures.

    In 1987 the average house price was £40k
    In 1997 the average house price was £55k.

    A 33.3% increase over ten years.

    From 1997 to 2007 the average house price increased from £55k to £190k

    That is a 245% increase over the same period. Ten years


    You could halve house prices, and they would still be insanely overpriced.

    Now look at how little the average wage has increased in that same ten year period.

    I will not be buying my first house until they return to their 1999 prices. PERIOD.

    1. Paul Jones
      April 13, 2010

      'I will not be buying my first house until they return to their 1999 prices.'

      As they nearly have done already in many other countries, like the USA for instance.

  112. Nicolas Fonda
    April 17, 2010

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  113. FTBer
    May 1, 2010

    As Chancellor, Brown abolished dividend tax credits on pension funds in 1997 to raise money.

    Leaving many to lose six figure sums off their pensions.

    [Brown then raised taxes in retirement on any income you may have above what is left of the state pension. ]

    These companies saw the writing on the wall and immediately ended their final salary pension schemes to new employees shortly after the 'Brown raid'.

    They also started to cut down on the number of people with long final salary pension service and worked towards ending a scheme which would no longer be viable, unless as in the public sector ,it is guaranteed and underwritten by the tax payers

    The CBI opposed the Tax credit cuts

    Even the treasury and No.10 opposed them.

    But Brown made the cuts anyway.

    Before 1997, an 8p net dividend would have carried a 2p tax credit, giving a 10p gross dividend. By abolishing the tax credit, the yield for institutional funds across the entire market fell by 20 per cent. Few people outside the City understood the change and hardly any MPs protested. But Whitehall papers produced under Freedom of Information show that Mr Brown was warned by his officials and by the Treasury that there would be dire consequences.

    They warned it would wipe £50bn off the value of funds, and that shares could drop by up to 20 per cent and public sector pensions would need topping up.

    In fact the value of pension funds have lost around £5bn per year since the cuts.

    Pension funds holding the cash that you, me and almost everyone else in the country had planned to use for our retirement have lost around £100 billion over the last 12 years.

    The advice Brown was given by the Treasury, in 1997 was as follows:

    “The changes in incentives are likely to lead to substantial changes in portfolios. Pension funds will find equity relatively less attractive, and will prefer other assets – particularly interest bearing securities and foreign equity – and may also be prompted to consider more direct property investment.”

    Those funds were then channelled into fuelling an unsustainable property bubble, BTL portfolios, which developed because of Labours complete lack of regulation of the Banks.

    This was followed by ever increasing toxic mortgage debt, and this was followed by the bank bailouts.

    This is just one example of Gordon Browns incompetent decision making helped to create the cornerstone of the debt bubble.

    In the ten years previous to Browns Raid on pensions, From 1987 to 1997 the Average House Price rose from £40k to £55k.

    A 33.3% rise over ten years.

    From 1997 to 2007, [after the tax dividend cuts] the Average House Price rose from £55k to £190k

    A staggering 245% increase over the same period. Ten years.

    Make no mistake.

    Labour knew what was happening.

    They let it happen.

    Browns entire ideology was to rob the working man blind.

    What the UK needed was some stability, instead Labour have given us a rollercoaster ride to hell.

    The UK should not be facing the debt we are facing, and The Labour Party are guilty of gross fiscal mismanagement and criminal negligence.

    As aFTB I will not have a gun held against my head, and be forced into debt, to pay for someone elses house.

    I will not be buying my first house until they return to their 1998 sold prices.

  114. cheap ghd
    May 7, 2010

    England is one of the few places where actual square footage of an average new dwelling is getting smaller.

  115. Country Pine Table
    May 9, 2010

    This was a well thought documentation; you have covered a lot of points here.

  116. DAN
    May 28, 2010





  117. John Moss
    September 12, 2010

    The way to increase the supply of "affordable" housing is to end welfare rents and shift support from house-building to households. Take the £6bn currently propping up the building of "affordable" homes – which is not producing anywhere near enough to meet demand – and use that to cover higher Housing Benefit to pay increased rents in the social housing sector, you release £100bn for investment in new homes. The new homes are debt free, so you can use the rent on the new homes to support more borrowing to build even more homes. If you borrow half the value, then half again, and again and again, you end up with not £100bn of investment, but nearer £175bn. That builds 1.5 million homes and will hold down prices without relying on the market as it is the "social" sector which is doing the building. With luck, house prices stay flat in cash terms, so a real terms fall of 2-3% per annum, getting them back to somewhere nearer to the affordability levels of the mid 80s over a period of about ten years.

  118. John
    September 27, 2010

    Build more houses !!!!

    the quality of housing in Britain is awful

    it makes the landscape look an eyesore

    compare British housing with Australian housing or Canadian housing

    we are pathetic

    there should be a huge national plan to build more homes and demolish the horrible old ones

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