Why we have to live with house prices


               Conservatives want more people to be homeowners. We are the homeowning party. We have a proud record of extending ownership to many more. We have done this in the past by Council house sales, by creating conditions for affordable mortgages, and by tax breaks.

               Some write into this site to say we need to get house prices down, so more homes are affordable. Labour tried this – inadvertently no doubt – with a big house price fall at the end of the last decade. It did not price more people into home ownership, because there was too little mortgage money available to buy the cheaper homes. The number of new homes built slumped to new lows.

               The sharp downward adjustment may help in the future, but whilst it is happening it puts people off wanting to buy, plunges people into negative equity and undermines the banks who have lent against homes at higher prices. Why would people want to buy a home if they thought it could be 10% cheaper in a year or two? At some point the authorities have to say enough, and stabilise the position. That is happening now.

               The overall fall in real and in many cases cash house prices has also changed relative prices a lot. The most desirable districts of central London, Sandbanks, parts of Oxford and Cambridge and a few other hotspots have risen whilst elsewhere there have been falls. In the northern towns most damaged by the Big Recession of 2007-9 there are more empty homes and larger price falls were experienced.  The  big movements in relative prices might help in due course rebalance the economy. When more people see that homes are better value  out of London, and see there can be lifestyle improvements for them by moving, the market may start to assist the areas with more and cheaper homes.

             It is far too early to call an end to this housing “boom” which a few commentators already claim is happening. They should get out of Belgravia and Chelsea more. There is no boom in much of the country. We need to see more housing transactions. They generate income for those involved, and usually lead on to work for builders, decorators, home improvers, furniture suppliers and the like.

                        Some  who want lower house prices bemoan how much money and activity the UK expends on housing. I think it is good we do, and want to see more spent in the years ahead. A person’s home is a vital part of their lifestyle and their comforts, an important determinant of whether they can enjoy their lives or not. Modern technology can transform a home. Many more will want to reach for the better heating installations, better insulation, improved labour saving devices, more stylish bathrooms and kitchens that money can now buy.  There is plenty of room for more home improvement, to cut running costs, to make life easier and cheer people up. This also creates plenty of work for the many trades and professions involved in  housing activity.

                  We have to live with the fact that expensive flats and houses in the centre of London are now largely the preserve of the international rich set. It would be stupid to try to stop them coming to London, spending their money with us and setting up businesses and investments here. As they drive the price of prime central London to ever giddier heights, the rest of us can see the charms and attractions of cheaper locations which need our money and our support.



  1. lifelogic
    September 30, 2013

    “Conservatives want more people to be homeowners” well get rid of some of the barriers to building new unit. House prices are a mere reflection of supply and demand. Reduce the population or increase the supply if you want them to be cheaper.

    Daft over the top building regulations and restrictive planning are the main reasons. One small tree can prevent planning being given for example. Is the tree more important than the three unit that could be build for three new homes? Also the utilities are able to over charge for new supplies of gas, electric and water to the units due to a lack of competition. Bat surveys and similar nonsense again pushes up the costs. The religious high energy cost and over taxation in the UK again push up the costs of building, the material deliveries all take diesel and a huge amount of energy goes into the build. The daft employment laws again push up the cost of any build.

    The remedy is all in the hands of government they created the taxes and obstacles in the way of building and created the extra demand with the EU’s uncontrolled immigration.

    Also homeowners are taxed more than tenants with the excessive stamp duties, land reg fees, legal fees, agents fees. Owners also get less benefit if they are sick or unemployed than tenants do. Renting is actually cheaper for the short term, unless you are in a price boom area.

    1. lifelogic
      September 30, 2013

      Absolutely nothing of much sense from Mr “Morally Repugnant” Osborne. Why did he not make the unemployed do something for their money 3+ years ago? A bit late now 20 months from being decimated. Had he done so there would be far fewer of them and far more in employment. No mention of rectifying his past ratting on inheritance tax thresholds and no solution for the totally uncontrolled EU immigration, which is under cutting UK workers. Has Osborne realised yet that over tax, over borrow and tip down the drain – Cameron style – is what is truly morally repugnant.

      Meanwhile Patrick McLoughlin MP seems to want us to compete in the world, but he totally fails to understand that idiotic projects like his HS2 and endless government waste and regulation is what actually prevents the UK from being competitive in the world.

      The Cameron Tories it seems are just going to quietly jump over the cliff for three terms or so – just like Major, and Cameron and Osborne lack the excuse of just being very dim.

      1. uanime5
        October 1, 2013

        Why did he not make the unemployed do something for their money 3+ years ago?

        He made them attend the 2 year long work programme if they were unemployed for a year. It cost £5 billion and was completely useless.

  2. PT
    September 30, 2013

    Ummm, most rational commentators don’t want perpetually falling house prices. They want stable prices at an affordable price.

    You and your buddies in government on the other hand seem in favour of wild swings in values, and the panic buying that results i.e. paying over the odds or rushing to buy due to a fear prices will be 10% higher next year.

    1. libertarian
      September 30, 2013


      You clearly have no idea how markets work.

      The only way you could have stability is if every house was identical, every location was the same and the government mandated a set price. Even communist Soviet Union never managed to pull that off.

      1. Ben
        October 9, 2013

        Check out the Germans:


        Reply Very interesting graph. From 1980 (longest term available for these countries) the rough increases are

        Hong Kong 1500%
        Spain 1200% (was 1700% at peak)
        Singapore 1000%
        Australia 1000%
        UK 750%
        Ireland 600% (was 1200% at peak)

        Germany, Switzerland etc very little increase. The UK is not an outrider in this list. The worst boom/bust was in peripheral Eurozone.

    2. outsider
      September 30, 2013

      You are right. My impression, confirmed by the Nationwide index, is that house prices nationally stabilized more than two years ago. Regional market variations since then reflect underlying conditions, such as incomes.
      Stability suggests that prices should be rising in line with earnings, about 1.5 to 2 per cent a year, as they already are. The idea that economic growth in the North can be stimulated sustainably by pushing up house prices there is daft central government micro-management and wishful thinking.

  3. Mike Stallard
    September 30, 2013

    If you cannot afford something, then you go without. In no way do you go into debt or borrow to pay for it. If you want a mortgage for thirty years, you have to be able to keep up with the payments over the next thirty years.
    If the government interferes (Thank you Mr Clinton,) and the banks go along with the government enthusiastically, then 2008 comes along one day and Mr Brown will no longer be there to save the world.

    PS This refers to our government too where the deficit is seen as some kind of interesting little detail that will be dealt with later.

    1. Leslie Singleton
      September 30, 2013

      Once again the BBC (at the very beginning of the 1.00 News) was talking about “paying down” the deficit. Makes you weep really.

    2. outsider
      September 30, 2013

      You are right Mike. 30 years mortgages presuppose either steady jobs or booming house prices or both. Now we do not have either so government distorts the market first one way then another. With state guarantees, the Treasury is now being drawn into ensuring that house prices keep rising. And if ever Bank Rate were to rise to a normal level, Mr Osborne or his successor will be bringing back mortage interest tax relief.
      PS. Loved your PS. You would not think that the UK budget deficit was double that of the eurozone as a percentage of national income.

  4. Andyvan
    September 30, 2013

    Mr Redwood I am deeply disappointed in you. This article reveals you to be a closet socialist and not the free market advocate you purport to be. The last few decades have shown just how effective the government is at “stabilising” the housing market. What they actually done is create either boom or bust in repeated interferences with free markets. Near zero interest rates billed as help for house owners has created vast distortions in the economy, decimating savings, forcing investors to take big risks and allowing government to run up gigantic debt. If interest rates had been set by a free market and not a cabal of bankers and lick spittle politicians we would see lower house prices and a much healthier economy with a much smaller government (same thing really).
    All these disastrous effects and here is an allegedly free market Conservative calling for more intervention by the very institutions that have wrecked the economy. Mr Redwood you are not what you claim to be, more like Red Ed lite.

    1. libertarian
      September 30, 2013


      Agree totally with your analysis of the cause of the problem. As always its politicians. I’ve just come from a meeting where a LEP wants to spend money ( our money) “supporting business”. Of course they aren’t actually going to do anything that business wants or needs oh no they are going to spend it on upskilling NVQ’s managed top down by the LEP.

      Politicians and their rent seeking hangers on are what is holding us back

    2. zorro
      October 1, 2013

      ‘Red John Redwood’…..yes, it has a certain ring to it. But please John, don’t take my ‘Strictly’ analogy of you with John Prescott too far! John is doing what politicians do – buy votes – the only trouble being that we all pay for it through implicit state guarantees and taxes. I found this a disappointing blog too, but the Tories have form for screwing up the economy – Barber boom, Lawson boom etc – anything to get back in power. The Referendum Guarantee will probably be the latest iteration in this process.


  5. Gary
    September 30, 2013

    Making the mortgage payments vs renting is not the issue. It is ploughing all savings into the deposit and into renovations that is the problem with home ownership. Those savings are now being denied to other export led manufacturers. I don’t know how you cannot see this ?

    House prices are too high because the govt is subsidizing the price. The market has ceased to function. Those calling it a supply shortage have it wrong, it is an overdemand due to subsidization. It was just as daft to say the problem with the tulip mania was that there was a shortage of tulips!

    There are hundreds of thousands of vacant houses outside London because this obsession with financialization and investment of savings away from export industry into houses has made the banking center, London, the only business centre left standing.

    The solution is to get govt out of the housing market and get govt out of underwriting banks.

    1. lifelogic
      September 30, 2013

      Building and refurbishing houses for sale to wealth foreigners is, in effect, an export business.

      1. StevenL
        October 1, 2013

        It is indeed. And for as long as we run a big trade deficit we’ll have to carry on exporting our assets to the foreigners that provide our consumables.

    2. Mike
      September 30, 2013

      And the underlying problem as I see it is that the government already underwrites the housing market even before the Help to Buy Votes scheme.

      Councils effectively set the base rent that property is worth with their valuations for housing benefit. These are far too high which reduces the ability of those renting to save and turns huge profits for the buy to let merchants. Yields of 12% are not uncommon when you would struggle to get 6% on the stockmarket, which is implicitly riskier.

      Housing benefit distorts the market and forces up prices. This is clearly deliberate as rising house prices are something welcomed by our perennial psitticine snollygosters.

  6. JoeSoap
    September 30, 2013

    This is mainly tosh.
    1 The government is creating a false illusion of low prices by decreasing interest rates, printing money and subsidising purchases. This can only go on for so long, and somebody else has to pay,. Exactly the same as Mr Milliband’s energy policy which you decry.
    2 Prices never really fell here in the desirable or semi-desirable areas; some froth was wiped away where fold had bought in run-down areas and not been able to sell on in the exceptional circumstances of 2008 and the crazy Labour administartion at the time, which was running around like a flock of headless chicken after Norther Rock.
    3 Wjy do you want folk to pour more and more of their earnings into bricks and mortar, when we are running a massive trade deficit? Shouldn’t that money be going into corporate investment so that we can drive ourselves out of oblivion rather than deeper into it?

    1. APL
      October 1, 2013

      JoeSoap: 1, 2 & 3


  7. margaret brandreth-j
    September 30, 2013

    You may be pinpointing one part of the whole , but I see the devaluation in education , in professional status, the devaluation in pensions, the devaluation in years served for workers, the devaluation in work experience and academic input, the devaluation in public life, the deterioration in standards and devaluation of the past .We have had the heavy boot of a type of unfair socialism, where private contractors have interfered with the running of all industry for the sake of what they can get out of it and not what they are prepared to put into it, on our collective heads. We have been devalued by the greedy and not by the conservative socialism which I was grounded in. We are devalued in conversation by the smart ars** who think that they are superior to everyone else and personally wont recognise others . Houses represent security and safety, that is nature. We have been devalued as a nation.

  8. alan jutson
    September 30, 2013

    Whilst I agree we do not want a price crash in property prices, we do not want an artificial promotion with no risk, high loan to value mortgages, underwritten by taxpayers either.

    If you want to help to promote house purchase, then reduce the stamp duty tax and make it a simple low flat rate.

    If you want to promote the building industry and insulate and modify homes then zero rate VAT on such work, so that genuine registered builders and tradesmen are on a level playing field with the work for cash alternative economy operators.

    John, there are far more sensible ways of using the tax system to encourage growth, than simply underwriting loans.

    1. Hope
      September 30, 2013

      It is an abuse of taxpayers’ money to underwrite loans that financial institutions would not because of risk, have the Tories learnt anything from the last mess? With the national increasing and deficits till increasing (failed Tory led coalition policy) it would be reasonable to assume that government cannot and should not play with market forces usingt taxpayers’ money. Then again, Osborne has failed on all measurements he asked us to judge him by ie triple A raring, getting rid offices tructural deficit, reducing the. Debt, not using funny money, not bailing out Eurozone countries directly or indirectly. In short no difference to Ed Balls borrow, waste, give away and spend fecklessly.

    2. outsider
      September 30, 2013

      Dear Alan Jutson, Some of us (including yourself I think) have been arguing for VAT relief for home improvement, extensions and rebuilding work since this government came to office. So much more helpful for “rebalancing the economy” than Labour’s general VAT cut or the present government’s various failed attempts to stimulate infrastructure spending (eg stalled power stations, stalled by-passes and programmes not starting until 2016 ). I suggest that the lower 5 per cent VAT would be better than zero-rating to avoid complications with bought in materials.

      1. alan jutson
        October 1, 2013


        5% Vat rate certainly better than the 20% robbery and disincentive at the moment.

        The reason I suggested a Zero Rate was to line up with new build, and improvements to listed Buildings, both of which are Zero rated.

        Zero rated Vat on Improvements would also mean that registered (with the tax authorities) Builders could then compete on the same level price charging field, as the alternative cash economy workers who pay little or no tax, and as such take business from those who do.

        Thus Zero rated work favours both the customer and the tax man.

        Yes you are right I have been campaigning for such a move for many years.
        Now retired, but still think its right.

    3. wab
      September 30, 2013

      “If you want to help to promote house purchase, then reduce the stamp duty tax and make it a simple low flat rate.”

      This does not help, at least in those parts of the UK which have more demand than supply of houses. The house market in the UK is not a normal market, it is one in which the government completely controls the supply of each and every one. As such, people (at least those who plan on living in the house) will spend exactly what they can afford to pay in their monthly mortgage payment. Thus, if you reduce stamp duty then the price of houses will rise to compensate, and so it is the seller who will get most of the benefit, not the buyer. For the same reason, lower interest rates = higher house prices and higher interest rates = lower house prices.

      1. alan jutson
        October 2, 2013


        I was not talking about promoting home ownership, but just getting the market moving and trading again.

        With stamp duty rates so high compared to what you get (Prices in London and the South at least) people think twice about moving up or down, simply due to the cost of doing so.

        Paying £10,000 in tax, plus other costs just to purchase a 3 bed semi outside of the M25 is a real disincentive to purchase and either has to be saved or added to a mortgage, either way it has to be paid for out of taxed income.

  9. stred
    September 30, 2013

    It is understandable that Mr Cameron wishes to undo the effect of banking regulations and help people, who cannot save for high deposits, to buy a house. However, could you please explain why the proposed subsidy should apply to houses up to £600,000 in value and any buyer, irrespective of their financial position or nationality. Could it be used by foreign buyer to buy expensive property in London. If so it is well and truly insane.

    1. Bob
      September 30, 2013

      ” help people, who cannot save for high deposits,”

      Interesting fact.
      The Stamp Duty for a £600,000 property would be £24,000.

    2. zorro
      October 1, 2013

      There is absolutely nothing to stop this happening. Come to Britain and the government will underwrite your loan….Oh yes, that will get net migration down…..


  10. David Hope
    September 30, 2013

    Do you not think you are being a little complacent on this issue? I would be with you if I believed housing was a true free market and come to its natural equilibrium but…

    In a normal free market supply rises to meet demands, rather than price forever increasing – this hasn’t happened. As well as mortgage issues house building comes with a lot of regulation and restrictions that makes it difficult. Obviously immigration has pushed up demand a lot.

    In a free market interest rates match the time value of money to different parties in a transaction. But we have had very low interest rates for a long time, keep prices artificially high.The reductions of 2008 were not on the same scale as preceding rises. Price to earnings is still high.

    In a free market, most things get cheaper as production gets more efficient. People still buy cars, tvs etc even though prices drop. At the very least you can get better quality every few years for the same price. This is not happening with housing.

    Finally, in a free market betting on the price is not a one way bet. In London, if a rich Russian wishes to buy himself a house that is up to him. However a lot of what is happening is new flats all being bought up in what what would be considered very average areas through to SE London by people who see London housing as a safe investment in the face of inflating currencies and very uncertain markets with few trends. The price increases should not be a one way bet surely.

    Like you I want all who want to to be able to buy their own home. But the nature of the housing market troubles me. And with current prices, were interest rates to rise in a year or two it’d be very tough even in say Manchester or Newcastle for many newcomers to afford their home. Less immigration and much more house building are required surely. (NOT Milliband’s idea of enforced land grabs!!)

  11. Magnolia
    September 30, 2013

    A home is a store of wealth as well as protection from the elements but…..
    I have a twenty five year old bathroom which badly needs replacing.
    I have the money saved.
    I have good, trusted local plumbers, joiners and decorators who I would love to employ.
    I hold off because I resent paying a fifth of the costs to government for what in this day and age is really an essential property repair.
    My children are fleeing the nest.
    My spouse and I would like to move to a smaller house down the road.
    We will stay put and stick it out because we resent paying thousands of £s stamp duty to government just to move half a mile.
    Home ownership is also ready cash for government under present rules.

    1. Sarah
      September 30, 2013

      We are in a similar position having saved for our house out of taxed income and no mortgage relief! We do not improve our house due to the looming spectre of the mansion tax!

  12. Denis Cooper
    September 30, 2013

    No mention here of the simple fact that anybody who comes from abroad to live in this country will need a roof over their head, creating additional demand for housing which would not otherwise be there, and so increasing the upwards pressure on prices.

    1. outsider
      September 30, 2013

      You are right to raise this key housing issue DC. In many cases, previously owner-occupied homes are converted into buy-to-let to accommodate expatriot workers who cannot hope to buy and mostly would not wish to. So, instead of building more homes for a rising working population we are cannibalising the existing stock, to the disadvantage of would-be first-time buyers.

  13. Richard1
    September 30, 2013

    Is it really bad news if a property in London is refurbished at enormous expense and then sold for £10ms to a rich foreigner? I would have thought its potentially good news – money has been spent on the house, the new owner will require services and will spend money on other goods and services in the UK. Why do so many think it would be better if the international rich went elsewhere?

    A bubble is when people buy an asset in the expectation of selling it at a higher price in the short term (eg the tech bubble which burst in March 2000). All the evidence in the London housing market is that wealthy foreigners are buying to hold. I think its good news that the market puts a premium on living in the UK – it shows we must be doing something right.

    1. stred
      September 30, 2013

      As reported, it appears that, from next week, a wealthy foreigner will be able to buy a £600k property in London, for a family member if necessary, or to conceal existing property ownership. The investment would then be part of the rapidly rising bubble and the loan will be guaranteed by the taxpayer if the bubble bursts and it is repossessed and sold at a lower value. Surely, the boys in Downing St have thought this through? Or does the possibility not matter, as it will be after the election.

    2. lifelogic
      September 30, 2013

      “Why do so many think it would be better if the international rich went elsewhere?”

      Because the BBC, Labour & the Libdems endlessly pump the evil the politics of envy and “unfairness” at people. Creating discontent and unhappiness in search of buying lefty votes for tiny hand outs of other peoples’ money.

      Clearly it is grossly unfair that everyone cannot have house in Chelsea with a view of the river – even if they have never done a days work in their lives.

      1. stred
        October 1, 2013

        The buyers of expensive property are welcome to buy off plan investment property, but why on earth should the taxpayer guarantee the loan if it goes sour and the bank has to sell at a loss?

  14. frank salmon
    September 30, 2013

    Interest rates are artificially low, hence mortgages are artificially cheap. If the market were operating, house prices would be lower than they currently are. The help to buy scheme is just a sop to the artificially high prices. It will end in tears.

  15. Brian Tomkinson
    September 30, 2013

    Don’t you mean – Why we have to live with higher house prices?

  16. Atlas
    September 30, 2013

    True concerning house prices -but what about energy prices? Here it is the Government that is behind large, but masked to the general public, costs. Is the silence on this matter because MPs of all three political parties (with a few honourable exceptions) signed up to the Climate Act in 2008 – and so now do not want to admit they got it wrong??

    I notice that both Miliband and Cameron have said nothing recently about gas fracking. Its rapid adoption would cut our costs, increase our energy security and boost growth. Why the reticence?

    1. Mike Wilson
      September 30, 2013

      @Atlas ‘ … about gas fracking. Its rapid adoption would cut our costs, ….’

      I’m curious. Do you genuinely believe that gas via fracking will be cheaper for consumers?

      We had cheap North Sea oil but we had the most expensive petrol in Europe.

      I am sure that if fracked gas is cheaper than gas piped from Russia or brought here on ships from the Middle East, it will be exactly the same price when it is supplied to my hob. The government will go ‘whoopee, let’s tax this up to the same price as other gas’.

      1. Atlas
        October 1, 2013


        I think what you say has more than a grain of truth in it concerning politicians and ‘golden-egg laying geese’.

        Osborne would, po-faced, say that he is ‘reducing the debt’. Balls would, rubbing hands in glee, say that we need to fix the NHS/Country/EU/World/Milky-Way/Universe.

    2. lifelogic
      September 30, 2013

      They say almost nothing on the government inflicted disasters (by all parties) of the EU and hugely expensive religious energy.

  17. Mike Wilson
    September 30, 2013

    I find this blanket refusal to accept that anything is wrong with the housing market – and that, if there is anything wrong, it is nothing to do with the Tories – laughable.

    ‘We have done this in the past by Council house sales, by creating conditions for affordable mortgages, and by tax breaks.

    ‘ … creating conditions for affordable mortgages …’???? What? What about the Tory house price boom and bust in the 1980s Mr. Redwood? The signalling, IN ADVANCE!, of the end of joint mortgate tax relief (‘ … and by tax breaks …’????) which poured petrol an a housing market already on fire due to de-regulation of credit.

    The facts are simple: The price of housing in this country is a factor of the cost (interest rate charged) and availability (salary multiples allowed) of credit.

    Successive governments have made it easier for the banks to lend more and more money against houses and prices have gone up courtesy of the infinite demand caused by the planning system.

    Someone I know sold a very ordinary, small 1930s 3 bed semi in Hampton, Middlesex a while ago. It is in an area not far from Kempton racecourse – not far from Feltham – not by any means at the ‘posh end’ of Hampton – an area I would describe as a bog standard, not very pleasant, Outer London suburb filled with street after street of 1930s semis. He got £470,000 for the house.

    I grew up in an Outer London suburb. Many of my friends parents owned a 1930s semi. They were all run of the mill, working people. A carpenter who worked on building sites, a draughtsman, a baggage handler at Heathrow ….

    For a young person these days they will have to be earning really exceptional money to be able to afford a 470k 3 bed semi.

    And this, Mr. Redwood, is the crux of the matter. By and large the next generation is priced out of home ownership. Most of my peers’ children have little expectation of ever living in a house like their parents (until their parents die). My younger brother – mechanical engineer – 4 bed detached. His nearly 40 year old son – project manager in a software development company earning good money – 3 bed ex council semi with truly massive mortgage.

    Your former, great leader once said ‘you can’t buck the market’. This is a lesson you clearly have not learned as you still think that, somehow, you can keep house prices at their astronomical highs – with historically low interest rates – by interfering in the market. All you are doing is delaying the inevitable return to a normal relationship between salaries and house prices and, in the meantime, suckering in a few more willing young fools who believe the government can rig the housing market.

    1. zorro
      October 1, 2013

      No answer to our arguments as the silence shows…..


    2. alan jutson
      October 2, 2013


      Agree with many of your thoughts, but the problem is too little building land, and too many people.

      Agree that present enforced low interest rates will cause some massive problems for many when they rise to their average historic levels of around 8% again.

      House prices may then drop a little, but the cost of paying for them will go up substantially, so no one will be better off really.

  18. a-tracy
    September 30, 2013

    When I visit London I am always surprised at some of the slum empty housing and empty buildings that could be converted into lower cost homes. If you need one bedroomed social housing to free up larger homes for families why doesn’t the government set up a housing scheme for ISA type investors to get the project moving, taxpayers are paying enormous private rents in the city for people out of work so this has two savings, providing the right size home for single housing benefit recipients, cheaper rentals for family homes which would then be released and clearing up disused areas so that regeneration can take place, it could also provide over 60’s apartments so that people can downsize from private properties but stay local without having to live cheek to jowl with young party animals in apartment living. It could also assist to register buy-to-let landlords in ‘home projects’ with reasonable returns, instead of housing associations provided by bank loans and help to bring rents down to reasonable levels near the City perhaps.

    1. lifelogic
      September 30, 2013

      These site owners are usually arguing with planning departments ovr development or more likely they belong to the dead incompetent hand of the state sector, so they often do not care what happens to them or when.

      Unless they can some how be used to pay there wages, bonuses or pensions that is.

      1. lifelogic
        September 30, 2013

        Or perhaps daft tenancy laws hold it all up.

  19. Iain Gill
    September 30, 2013

    Mrs T said “you carnt buck the markets” and without massive government intervention in lots of different ways house prices would be much lower. Government intervention can only work so long, and then there will be a correction one way or another. Especially as the government is borrowing ever more for its conuntless interventions, and the market is not so stupid.

    I think you are making a mistake on this one for lots of different reasons.

    Lots of talented people will simply leave the UK to go where housing is much more affordable, its already been happening a lot, although I suppose the govt is happy with that as it makes their “net migration” stats moderately more tolerable.

    I thought you were a free market Conservative fighting for the UK’s position in the world? not in favour of massive top down state control of markets?

    On this one probably Max Keiser is correct. I note in conference week he has tweeted that not a single Conservative MP is prepared to go on his show, surely the Conservative party should get its act together because only by turning up and talking on shows like this do they stand a chance collectively. Max may not be to the Conservatives taste but they need to get their message out.

    As for the transport secretary speech telling us he is going to invest in widening the roads, do you know how many tears of laughter are rolling down my cheeks? After they have been spending masses of money thinning roads down in a misguided attempt to discourage cars for so long…

    Politicians are really funny sometimes…

    1. zorro
      October 1, 2013

      They are not at all funny, and do rather stupid things….as was once said politics is show business for ugly people.


  20. David
    September 30, 2013

    ” We need to see more housing transactions.” Get rid of stamp duty.
    For a couple with a £300k house moving to another one they should pay 1% (I paid) less to the estate agent, £2 K to the solicitor and £1 K moving – a total of £6k.
    However the Government gets £9K in tax. I once worked out that it would be cheaper for my and wife and I to emigrate than to move up the housing ladder!

    1. lifelogic
      September 30, 2013

      Try it in London! Moving from say a two bed flat to a small house might cost you £200K. You might pay double what your gross earnings that year just in tax. Yet Cameron says he does not want a “Wealth Tax”. He has of course many in place and has increased some already. The IHT ratting, pension tax increases and stamp duty. How can he sit there and talk such drivel in total contradiction to what his government has done? He will be telling us he is a tax cutter and a believer in smaller state next!

      CGT, IHT, Income tax, Inflation, stamp duty etc. in the UK can easily combine to steal well over 80% of your wealth over about 20 years- just do the simple sums.

      1. zorro
        October 1, 2013

        ‘He will be telling us he is a tax cutter and a believer in smaller state next!’….But he has lifelogic on several occasions in public. He also seems to believe that we have low interest rates because of his good management of the economy. He is clearly delusional as ZIRP has diddly squat to do with his claimed ‘good management of the economy’….


  21. Neil craig
    September 30, 2013

    Labour’s inadvertent house price fall did not apply to new houses, because it only signalled a fall in economic demand (no money available) so it is not surprising it led to a fall in new build.

    The fact is that 3/4 of the cost of building houses is government parasitism. Without that there would be no housing shortage.

    “Why would people want to buy a home if they thought it could be 10% cheaper in a year or two?” give it away.

    People buy cars, TVs etc on that basis because they want cars and TVs and are willing to pay for them. So much of the housing market is actually an attempt to save, money being subject to government produced inflation. Housing, like old masters, is only a good way of saving because the laws of supply and demand – increasing demand increases prices and hence supply – are not able, by government fiat in the case of housing, to work.

    1. Bazman
      September 30, 2013

      People buy cars, TVs etc on that basis because they want cars and TVs and are willing to pay for them? Who would want to buy a car when in ten years it will be in the scrapyard? Top end cars would be more than a house. Why does the same logic not apply to houses? New houses loose money anyway like new cars do. The smart thing to do is buy a year old car and let someone or a company pay the tax and take the drop. No VAT or car tax on second hand cars saving 20%+ and thousands straight away. 7k miles is not new with todays cars? could be the same for houses?

  22. A different Simon
    September 30, 2013

    John ,

    When are the Govt going to publish details of the National Equity Release Scheme ?

  23. Max Dunbar
    September 30, 2013

    This issue of housing is one of the most emotively driven and interfered with next to the NHS and education. Just get the government out of it and let it run whichever way that it needs to go. Get rid of stamp duty for a start. How you can talk about the Conservative government being ‘proud’ in this area I do not know. Thatcher’s much needed reforms were a long time ago now.
    You mention the housing price falls of the northern towns. There are massive areas there where nobody in their right mind would want to live. They are desolate. There are no jobs. Perhaps they will be demolished eventually and returned to fields.
    If you are not a socialist then let us get on with our lives free from punitive and manipulative taxes and misguided incentives using tax-payers cash. We don’t need ownership ‘extended’ to us by the government. This is social relativism. Just keep out of it, start acting like conservatives and roll back socialism; then your party may start to recover some of the lost votes in time for the next election.

  24. StevenL
    September 30, 2013

    How many times my £27k salary would you advise me to borrow on Mr Osborne’s Help to Sell Buy scheme?

    Four times would buy me a one bed flat in a scruffy part of town. But I was thinking, now that I know the government will do all it can to make sure the price keeps going up, why not borrow 6 times and get an ex-council 2 bed place? Do you think this would be a good idea?

    Reply: This site does not offer financial advice to individuals. THose of us who have bought homes in the past on mortgage have of course borrowed multiples of our income. To do so safely you do need to make prudent forecasts of the trend of interest charges of your mortgage, and your likely salary progression.

    1. A different Simon
      October 1, 2013

      StevenL ,

      All the money you would have saved for old age 20 years ago should be spent on your accommodation .

      As for salary progression for most people it is down in real terms and many of us in monetary terms since 2007 .

      Mr Redwood what are you offering kids leaving education ?

      What right do you and your cronys have to deny them any opportunity of owning their own accomodation or starting a family ?

      Why do we have to sacrifice our young on the alter of high price housing ?

      Why won’t you do anything about it ?

      Repyl I have no wish to sacrifice young people on the altar of dear housing. That is why the government is offering help with their deposits, low interest rates, and higher build rates. What more do you suggest? What is your answer if you don;’t like mine?

      1. Anonymous
        October 1, 2013

        Reply to reply: Whatever laudable aims there may be in those measures, Mr Redwood, they are most certainly not in place to return us to reasonable wage-to-mortgage multiples of lending.

        That HTB extends to houses valued at £600k tells us that this is not about helping struggling first time buyers. The generations that follow will be completely stuffed.

        I suspect that things are much worse than your Government is telling us. A new housing boom is about the only trick left in the book and they’re hanging on in there hoping that something will turn up in the meantime.

        I think this will end badly and I will come back to say I told you so.

      2. zorro
        October 1, 2013

        Reply to reply – but that is exactly what will happen with the government underwriting loans. It WILL push up prices again and again and salaries will not follow.


    2. zorro
      October 1, 2013

      Too right you don’t offer financial advice John! What multiple income did you borrow on your first house purchase and what deposit….6 times…..lol


      reply From memory the interest charge took around half my income on my first home, because in those days interest rates were high.

  25. Denis Cooper
    September 30, 2013

    Friday evening a young friend and her husband went to view a house in Newbury, and having thought about it overnight they rang the estate agent on Saturday morning to make an offer – only to be told that somebody else had viewed it an hour after them and had already put in an offer. As I understand in a few days the agent will be contacting all those who have made offers and asking whether they would like to increase them. This does not look like a stagnating market which requires government intervention to prevent prices drifting down.

    Reply That is interesting – bits of central London have been like that for sometime, but most of the rest of the UK is nowhere near that situation. Poeple selling in my area have not reported anything like that. Was the Newbury home underpriced to start with?

    1. Denis Cooper
      October 1, 2013

      I can’t say whether it was underpriced to start with; I only know that the agents now hope to get those who have expressed interest into a bidding war to get the price up.

    2. zorro
      October 1, 2013

      Well, I am afraid that it is starting and has been doing so. Viewings are increasing, and people will take a point with the 20% underwriting.


  26. Leslie Singleton
    September 30, 2013

    Nothing from you then, John, about anticipating the boom that will undoubtedly follow the Government intervention. As always the Government is going to be far behind the curve and will only recognise they have ignited a boom when it is too late. In any event there is nothing so wonderful about owning the house you live in. Just an attempt as with the Socialists to buy votes.

    Reply I will not be shy to warn if there is an uncontrollable boom or bubble. That is far from being the case today.

  27. Nationalist
    September 30, 2013

    High house prices are a cancer on the face of society. Workers have to be paid more just to live and our industry then cannot complete with countries that have sensible prices such as Germany. And servicing the mortgage takes money that would better be spent into the economy.

    HTB2 is a transparent attempt to engineer a boom in time for the election. It will work – we will have another debt-fueled Potemkin boom followed by an even greater crash than we would have had. Osborne has timed HTB2 so that the party is in full swing by May 2015. He didn’t start it with HTB1 (which is economically neutral) because he didn’t expect it to last long enough to reach May 2015 if he had.

    The cynicism of the Tories is sickening.

    Reply More homeowners and more economic activity is a good thing.

    1. zorro
      October 1, 2013

      Reply to reply – Really? Is that the case when they are in negative equity and lose their job in a downturn precipitated by government underwriting of the market and loose loans which aren’t properly risk assessed. Typical electioneering…..


  28. forthurst
    September 30, 2013

    Things have come to a pretty pass when government resorts to a Help to Sell at even more inflated prices scheme by putting taxpayers on the hook for up to £90,000 per transaction and JR gives it his authoritative stamp of approval. The government now is focusing solely on schemes and putative schemes (we might do…) to entice the sheep back into the fold before 2014 if not the year after. The reason the government is doing this is because it has done nothing substantial in its first three years in power to rectify the very real problems bequeathed by Labour.

    The average house price went from £69,914 in Jan 1996 to £227,236 in Jan 2008 and had only reduced to £213,775 by July 2013. Has the cost of building, despite the influx of Polish plumbers of legend, excluding land values, increased threefold? JR is calling for people to continue to invest their money in inflated land values; are there no better uses for the wealth of individuals and businesses? How does this help the economy grow? It worked for Japan, not.

    There ‘must’ be a peg under house prices because a market adjustment “plunges people into negative equity and undermines the banks who have lent against homes at higher prices.” The banks have been demanding 20% deposits because they have no confidence in the house price level. That it is the government’s responsibility to prevent house buyers falling into negative equity is bizarre. First time buyers were unable to get on the housing ladder because of inflated prices so they have had to rent at extortionate rates preventing them saving for a deposit. So, what would be so wrong then if those locked into negative equity were to rent out their house and rent another to live in if they needed to move, or stay put until they had paid down their mortgage?

    The reason the banks are so vulnerable to asset price movements, unlike building societies which had disastrously been allowed to turn into banks and then crash spectacularly in 2008, is because they employ fractional reserve lending; this was not the case with the building societies which only lent what they had on deposit which consequently acted as a brake on endogenous house price inflation. It also ensured that depositors were fairly rewarded.

    Granted Labour left a toxic brew but this government wishes to bequeath them their own little poisoned chalice. Is good governance impossible in a democracy or do we always vote for the wrong people?

    Reply So what is your answer to the housing problem?

    1. forthurst
      October 1, 2013

      “Reply So what is your answer to the housing problem?”

      It should be a primary function of the BoE to prevent housing bubbles developing; house price inflation should be closely monitored in relation to building constuction costs including taxation and bureaucracy. We cannot have a healthy economy if the banks are either permanently sickly or as soon as they feel flush, engineer assets bubbles in property and then collapse. As you have long argued the banks should be broken up, but also there needs to be examined the possibility of reintroducing the mutual societies which provided a reliable and consistent service where housing finance is constrained and rates set according to a genuine market for capital in relation to private housing. There is also the issue of the foreign ownership of retail banks; to what extent should British borrowers and savers be at the mercy of market conditions in other unrelated economies like Spain. However, there is no reason why people who purchase an asset of any sort should be entitled to expect the taxpayer to underwrite their investment against loss.

    2. zorro
      October 1, 2013

      Reply to reply – Is it not clear in the post? House prices are too high because they are being artificially supported, and not enough are being built because builders are sitting on land knowing that the government is soft and would revert to this bailout. Hopefully, what is necessary is implicit in the post.


  29. uanime5
    September 30, 2013

    The easiest way to protect people from negative equity is is copy the law in the USA which allows people to end their mortgage if they give the house back to the bank (even if its current value is less than the original mortgage). This ensures that in the case of negative equity it is the bank, rather than the individual, who bears the brunt of the negative consequences.

    In other news Osborne has shown that the Conservatives don’t want to help the unemployed but instead want to bully them as much as possible by forcing them to work for their benefits.


    I have a few questions about this policy.

    1) How is someone going to be able to attend a job interview when they have to do slave labour for 30 hours per week and job searching for 10 hours per week?

    2) How is the Government going to ensure there’s enough community work for the 97% of people on the Work Programme couldn’t “help” into work, despite £5 billion being spent to try and get them into work?

    3) How is the Government going to ensure that the unemployed don’t litter and graffiti in their local area to ensure that they won’t be forced to clean neighbouring areas?

    4) Why are the Conservatives trying to revive workfare when it had to be shut down because of public protests and legal challenges?

    5) How is the Job Centre going to cope with a 10 fold increase in people coming in to search for jobs? Are they going to outsource this job searching to the companies who employed for the Work Programme (even though these companies failed to help people find jobs)?

    6) The Conservatives condemned Labour’s New Deal because cost £0.5 billion and 95% of people on it failed to find a job. Why are they now introducing something identical to the New Deal?

    7) How will the Conservatives ensure that there’s enough programmes available for those who have mental health, drug addiction, or illiteracy problems?

    Expect the Conservatives to lose a lot of votes over this stupid policy.

    1. Edward2
      October 1, 2013

      Para 1
      Your idea of making lenders carry the can when there is negative equity sounds great until you remember how just that policy ruined the two biggest mortgage lenders in the USA and started the biggest financial crisis the world has ever seen.

      Rest of your post
      I’m amazed how as a good socialist you do not feel everyone should have work allocated to them by the State so they can play there part in the community.
      Unemployment has never been allowed in socialist countries.
      Work sets you free!
      There is no unemployment pay in Cuba nor was there in the old Soviet states.
      You would be given useful work in the community or given a job of the State’s choosing.
      What is wrong with us doing it?

      1. uanime5
        October 1, 2013

        In communists countries there was no unemployment because companies had to create enough jobs for everyone.

        If the community needs work to be done they should be prepared to pay minimum wage to have it done.

        1. Edward2
          October 3, 2013

          If you actually believe what you have said in your first para then you have totally swallowed the communist book of history.
          Para 2
          Is that min wage plus dole money?

  30. Anonymous
    September 30, 2013

    In 1997 I afforded a house on my own in Greater London. Now it would take four of me to do it on similar multiples over a similar term (my wages haven’t increased anywhere near in line with house prices.)

    Clearly we are not just competing against an international rich set in central London. Can we at least see to it that we’re all subject to the same levels of taxation ? Especially capital gains on buy-to-let ?

    (I’ve heard of London door keys being pinned to brides at weddings.)

    1. Anonymous
      September 30, 2013

      As asked by a previous commenter about Help to Buy:

      Up to £600k ???

      It seems that this isn’t about helping struggling first-timers to get a foot on the ladder.

  31. Colin
    September 30, 2013

    People who live in the real world aren’t worried about the cost of housing because they want to get on some “ladder” to unearned bubble riches. People want to own their home so they don’t have to pay rent when they’re retired.

    I’d like to buy a home on a mortgage, pay off the mortgage by the time I retire and then not have to worry about housing costs when my income’s reduced. If I can’t, I’ll end up still renting when I have to live on a meagre pension, and probably dependent on benefits, living in one room because that’s all I can afford to heat.

    That’s why people want house prices to come down. Of course, people with generous public-sector pensions, and who’ve probably owned their own home since the 70s, don’t need to worry so they can say rising house prices are a good thing…

  32. Paul H
    September 30, 2013

    “It would be stupid to try to stop them coming to London, spending their money with us and setting up businesses and investments here.”

    Really? How many of these guys are really investing here, as opposed to taking advantage of a legal framework which is much more protective of their accumulated wealth than that of the countries in which they (by fair means or foul – often the latter) acquired it? And how much tax do they pay here, compared to the average “squeezed middle-class” family? And how much of their expenditure actually ends up in the pockets of foreigners (Harrods is owned by Qatar)?

    I am afraid that you are way off-beam here. London has simply become a marketplace in which rich foreigners trade with each other. Yes, of course some of it ends up benefiting indigenous workers, but many of the workers are not indigenous. In any case, I find it hard to believe that this is not totally outweighed by the creation of Generation Rent among British-born workers.

    There has been a substantial transfer of wealth from the poorer to the already-wealthy. Studies of QE have demonstrated this to be the case and London house prices are part of the some story. Offering the former the consolation prize of “the charms and attractions of cheaper locations” does not cut it. Your complacency makes me very angry.

  33. benj
    September 30, 2013

    Oi Redwood!

    Monopolies are a bad thing right? They suck money out of the productive economy and produce nothing in return. No only is this a transfer of wealth(upwards) it also causes a deadweight loss. Plus monopolies distort markets, and loads of other nasty things.

    The UK land monopoly is worth 250bn per year, capitalised value around 5 trn.

    Shouldn’t you, a Capitalist be advocating policies that reduce and eliminate this monopoly? Clearly it’s and economic millstone.

    Shouldn’t you be a member of a Party that supports work and enterprise, not scrounging or parasitism?

    Something that has value but no cost of production is a nothing more than a mechanism to hold people to ransom. Economic enslavement in other words.

    I don’t think you or the Tories are Capitalists. You are really only about protecting your monopoly privileges.

    The price of this hypocrisy is a heavy one. Not only do we have to suffer a shrunken economy with periodic boom and busts, but rising inequalities and a dysfunctional property market.

    Didn’t God make the World by His efforts? So isn’t the World His property? Sure he gave the World to us to make use of nature and by our own efforts make it productive. That’s our property because our efforts made it. How is it people claim the value of natural resources, like site values, as theirs? Their efforts didn’t produce it, Gods did. So to claim it as theirs is blasphemous is it not?

    God made the Earth for us to share, not to claim as our property and by excluding others, enslave them.

    What is morally good is economically good, remember.

    I don’t reckon God will be letting many Conservative through those Pearly Gates, particularly you Redwood 😉

    Reply Land is far from a monopoly – it is widely owned and I favour more people owning some. Private property is at the heart of freee enterprise, the system which so far has delivered the best living standards.

  34. wab
    September 30, 2013

    As usual Mr Redwood has created straw man arguments. I’m sure Mr Redwood could find the odd person who wants house prices to collapse but most people have not asked for that. But house prices are too high. Households on average incomes should be able to afford to buy an average house in most parts of the country (ok, not in Belgravia) and not have to fork over half or two thirds of their post-tax income to do so. Mr Redwood just does not get it. The Tories have shown, and Mr Redwood has made it abundantly clear, that they have zero interest in the living standards of the average household. But neither do the Lib Dems or Labour, except in rhetoric.

    Mr Redwood continually laughingly talks about house prices in central London, as if anyone (except perhaps some daft Guardian columnist) is using that as a basis for saying that the Help to Buy scheme is idiotic.

    No doubt Mr Redwood could find some Marxist who objects to people spending money doing up their houses, but this is the typical bait and switch argument that Mr Redwood excels in. The issue here is the cost of houses, not what people do once they own a house.

    The Tories are the party of the rich and the old, and of course they are not the ones who suffer from high house prices. I’m sure Mr Redwood’s chums in the City are very happy with high house prices. Meanwhile back in the real world it is a problem.

    One thing the government could do is to introduce a wealth tax on people who own houses in the UK but who are not resident for tax purposes. Mr Redwood continually claim these people benefit the UK but he has provided zero evidence that this is the case, although I’m sure he can try and bolster his feeble case by pointing to some Russian oligarch who saved a few overpaid football players from having to take a pay cut.

    Reply You seem to agree with me mroe than you wish to let on. You see the problem with engineerin a further house price decline, so what do you mean when you say house prices are too dear? Are some house prices too dear for most of us to afford? Yes of course.Are all house prices too dear? No, of course not. The market has a very wide
    range of prices, and price falls have been very pronounced in some parts of the UK. I have no wish to look after the old rich at the expense of everyone else. If house prcies fell the old rich would not be inconvenienced as they would still own the house and live in it.People on mortgages higher than the price they paid for their home might not feel so confortable.

    1. Denis Cooper
      October 1, 2013

      There was no need to engineer a further decline in nominal prices; it would have been enough if nominal prices had remained static while consumer price inflation acted to gradually reduce the real term values, and provided wages rose as fast as consumer price inflation or faster then houses would have gradually become more affordable without more people being pushed into negative equity. Instead we now have nominal prices of houses on the rise again, and faster than wage rises, and houses which had not yet become affordable are becoming even less affordable.

      1. zorro
        October 1, 2013

        Why doesn’t he see this though Denis?


    2. JoeSoap
      October 1, 2013

      Reply to reply:
      It’s clear you don’t get it, so let’s do the Maths:

      1980 average London starting grad salary (architect, teacher etc)= £5000 average price of commutable 2 bed apartment (or 3 bed house in Brixton) = £25’000
      = 5 times

      2013 average London starting grad salary = £30’000 (let’s be generous) average price of commutable 2 bed apartment = £400’000 (3 bed house in Brixton nearer £800’000 – you see I can use extreme cases to bolster my argument too)
      = 13 times (or 26 times for the Brixton house)

      1980 Salary £4K 3 bed house £23K = 5.5 times
      2013 Salary £22K 3 bed house £230K = 11 times

      Ando you want to make this even worse!!!!

      1. Edward2
        October 1, 2013

        Which is why now both parents usually have to work full time to afford houses.
        Or is it a cause of houses costing what they now do?

        1. zorro
          October 1, 2013

          Why would that be the case unless you think that it is exacerbated by not enough homes being built?


    3. zorro
      October 1, 2013

      Reply to reply

      ‘If house prcies fell the old rich would not be inconvenienced as they would still own the house and live in it.People on mortgages higher than the price they paid for their home might not feel so confortable’

      Thank you – exactly – they own their house and live in it, and wouldn’t have to pay rent – so no need to ridiculously benefit from unjustified house price increases – People with mortgages higher than their house price might not feel comfortable, but at least they can afford their mortgage in the knowledge that they will earn a property which will be worth more than they paid 25 years ago – so what is wrong with gently declining house prices? I look forward to you advocating this at conference!


  35. MrVeryAngry
    September 30, 2013

    I a fed up with fisking this sort home-0wner-ist nonsense. Really fed up. What it boils down to is getting our children in hock to pay for their parents and to subsidise a crony relationship between you, the banks and the landowners – all done with funny money that destroys the savings of the prudent. Plus pretty well all of the logis isn’t, well, logical. Heaves deep sigh.

    1. Edward2
      October 1, 2013

      Well Mr V Angry, you need a roof over your head, so you either rent one or buy one.
      Renting isn’t very cheap either and at least after 25 years of paying “rent” to the bank you end with something you own.
      We just need to build loads of new homes for our huge and rapidly increasing population.
      We need to build a new City bigger than the size of Coventry every year to cope with the 500,000 new arrivals.

      1. zorro
        October 1, 2013

        I have a solution – Immigration Control


    2. Anonymous
      October 1, 2013

      This “Rich foreign property investors are good for the economy” thing doesn’t stack up when:

      a) First timers are having to get into ever deeper debt in order to survive it

      b) It has to be perpetuated in the form of risky taxpayer-backed HTB schemes

      What a mess.

  36. outsider
    September 30, 2013

    Dear Mr Redwood,
    There is not so much junk mail touting credit cards these day but I have just received a circular from my bank urging me to take out a buy-to-let mortgage, with a special offer on fees and reminding me that the average return on buy-to-let is a hard-to-get 6.3 per cent.
    That is a sign, if one were needed, that there is a boom in buy-to-let even though not in general house prices. It confirms anecdotal evidence that banks have recently been falling over themselves, even more so with the supercharged government money, to lend in this sector.
    Unlike the first-time buyer, buy-to-let can claim mortgage tax relief as well as relief on insurance and repairs and can therefore usually outbid the first-time buyer, especially at the lower end of the market. And that is where a lot of the money supposedly earmarked for small business is going. One can get relief up to 100 per cent of the purchase price, if necessary topping up the mortgage to that level later to fund deposits on the next property.
    So, to correct one distortion that governments have introduced, they pile on more distortions in a vain attempt to even things up.

    Buy-to-let does a good job in bolstering demand for new properties and in converting mean and badly rundown properties into good homes but is unhelpful when it takes decent homes out of the owner-occupied sector.

    A more useful measure would be to confine mortgage relief on buy-to-let to newly built properties or cases where buyers can show that they have spent a lot more than the purchase price to improve the property. That should give a real boost to new build instead of cannibalising existing owner-occupied homes.

  37. Mark
    September 30, 2013

    I looked at the Nationwide quarterly house price data by region.

    YORKS & HSIDE___296%___336%___8.0%
    NORTH WEST______283%___326%___6.0%
    EAST MIDS_______322%___346%___15.2%
    WEST MIDS_______295%___323%___10.9%
    EAST ANGLIA_____346%___363%___21.8%
    OUTER S EAST____385%___400%___20.2%
    OUTER MET_______378%___378%___24.5%
    SOUTH WEST______364%___389%___14.3%
    N IRELAND_______393%___824%___4.2%

    The column headed “Now” is the ratio of the current price to the low in the 1990s (mostly around 1995, some 6 years after the Lawson bubble peaked). For comparison, RPI has increased for 588 to 990, a ratio of 167%. The second column shows the ratio of the peak price to the 1990s low, and the last column show the percentage increase in price from the low post 2007 (mostly in 2009). The biggest fall has been in Northern Ireland, where prices have more than halved from the peak. Elsewhere the low point was clustered at 18-20% down from the peak, except Scotland where the fall was just 14%. These falls are much less than in the 1990s, when drops of 30-35% were seen in the South.

    From the data it is evident that prices remain at historically high levels everywhere, whilst they are also increasing outside London as well as within it. If prices had done no more than keep pace with RPI, even in the regions with the least increase they would be 40% lower than currently.

    Labour created this boom by letting banks treble the stock of mortgage lending and by packing the Monetary Policy Committee with appointees such as Barker and Nickell who supported low interest rates and rising house prices: the Barker review refers to an expectation of prices reaching more than ten times income and considers it unremarkable. Labour it seems wanted unaffordable housing – perhaps because it would leave most dependent on subsidy, and thus potentially client voters.

    The bubble burst inevitably catches those who bought first time or with a substantial upgrade close to the top of the market – with or without a mortgage (or who geared up their borrowing on the assumption of higher prices). It is no different to misjudging the moment to buy a share on the stock market. Prolonging the bubble increases the number of people who are caught by negative equity, unless they are encouraged to repay their borrowings faster, because more people borrow and buy the longer the bubble is stretched out. Damage is minimised by letting prices fall as fast as possible to realistic levels while not causing a banking collapse.

    The way to deal with the folly of the banks is to encourage them to reduce their mortgage lending risks. That means suggesting (and maybe legally demanding) that interest rate premia and fees charged to higher LTV customers are devoted to reducing the principal outstanding instead of contributing to bank profits and bonuses (perhaps even retrospectively); encouraging the conversion of interest only to repayment terms, and similar devices.

    Instead, we have low start, highly geared mortgages being peddled via Help to Buy. They are just Help to Ensure the Next Banking Crisis, with a large chunk of the bill already lined up for taxpayers.

    High house prices crowd out spending. What is spent on rent or should be put by to cover for when interest rates normalise and government can no longer afford subsidies cannot be spent on new kitchens. High rents inhibit the ability to save for a deposit. Instead, we will end up borrowing abroad to fund the mortgages, just as we did to fund Brown’s property boom. That means that the interest and capital is repaid to foreign lenders, instead of recirculating in the domestic economy.

    The alternative is to create inflation, but that cure would entail rapidly rising mortgage rates and lead to many more repossessions: few could afford to pay 10-15% interest that was common in the 1970s and 80s, even if inflation was higher still.

    1. MrVeryAngry
      October 1, 2013

      Excellent. Saved me the bother. You could see the way JR’s piece was heading by the first paragraph which boasts of giving tax breaks to homeowners. This demonstrates either spectacular economic illiteracy or tendentious cronyistic pandering to landowners for political gain, since all such subsidies pass straight through to land prices. It beggars belief that such nonsense should issue from someone who was a Minister of the Crown (and not a socialist) and is involved in investment management and economic education. But then, he is a Tory – the Landowners Party.

      1. Edward2
        October 1, 2013

        Would you have people living outdoors Mr V Angry?
        What is your solution to enable those who want to have a shelter for themselves to have one?

        1. zorro
          October 1, 2013

          Have you read the responses on the blog?


          1. Edward2
            October 3, 2013

            Most seem to be moans about the high price of housing and are blaming lenders for that.
            Planning, immigration, lack of supply and no new towns in decades seem to be rarely spoken about.

        2. Mark
          October 3, 2013

          There is no overall housing shortage. We actually had more people per dwelling in 1995 when prices were at the lows than we have today, with prices having more than tripled since. What we have is overpriced housing, and interference in markets to prevent more efficient allocation and undistorted pricing.

    2. A different Simon
      October 1, 2013

      Mark ,

      The problem with price inflation is that wages are going down for most people .

      Hardly surprising as the housing market has crowded out productive economic activity .

      Unfortunately UKIP have a blindspot for high house prices too .

      1. JoeSoap
        October 1, 2013

        A flat tax would make affordability better in areas where prices and therefore wages are higher, like London, under UKIP

      2. Mark
        October 3, 2013

        Indeed – inflation means that real house prices measured by earnings multiples (especially when you look at disposable incomes) have not come down at all for most people.

        1. Edward2
          October 4, 2013

          So build some more homes and dilute demand and therefore prices and rents.

  38. Mike Wilson
    October 1, 2013

    So, Mr. Redwood (and Messrs. Cameron and Osborne) – have you noticed and taken on board the fact that VIRTUALLY EVERYBODY, including your natural supporters, think the intervention in the housing market is not only misguided, it is positively dangerous.

    It seems that as long as you fool enough of the people into ticking ‘your’ box instead of the Labour box – the consequences for the country and our children do not matter.

    reply It is an intervention resulting from the disastrous interventions with the commercial banks on the way up and down in 2005-9, designed to help the housing market at a time when some commercial banks still cannot work in a normal private sector way given the crash and the regulations. I do not like these types of intervention at all, but think they are needed given all that has gone before to try to get us back to a more normal and more market oriented approach to asset ownership and lending.

    1. JoeSoap
      October 1, 2013

      reply to reply
      What evidence is there that commercial banks aren’t already lending appropriately to the housing market?
      It is still easier to get a loan to buy a house, and at a lower rate of interest, than a commercial loan.
      House prices are stable, which I would have thought was a good result right now.
      How can you argue that distorting the market and creating a bubble is a good way to get to a market orientated approach?
      I’m afraid that the argument you are putting here is contradictory and isn’t being supported by anybody on this site. Most people here think that it is a crazy policy. 2015 is sufficiently far ahead for a judgement to be made.

    2. Ben
      October 9, 2013

      John the reason why the market is moribund is because prices are too high.

      If I go down the market and sell apples for a tenner a pop (and the council enforce my permit to sell apples to restrict supply and a free market just as with planning permission) and I don’t sell them would you go and setup a scheme to “kick start” my apple market?

      We need price discovery. This will occur *if* rates return to normal and zombie households are repo’d. Supply will outstrip demand, prices will fall to a level the market can bare and transactions will begin again.

      There is no way around this. What are you going to do? Subsidize an artificial level forever *and* keep rates low? I don’t mind if you have lost faith in the idea of free markets, fine, make that intellectual choice. What you advocate isn’t a choice it’s just muddled and will fail.

  39. Iain Gill
    October 1, 2013

    You keep asking people what their solution is…

    Well I know the property market in several other places around the world too. In Chicago there was a dramatic house price fall when the sub prime crisis hit, a proper market correction across all types of houses. It was painful for a short time. Now prices are back up the curve but not at the wild excesses. And houses are way way cheaper there than they are here, it’s an achievable aim for ordinary middle class workers to buy a decent sized house. That’s my solution. I have just checked and nice middle class 3 bed house with garage in middle class suburbia, commutable, say broadly equivalent to Wokingham… comes out anywhere between 125 K to 250 K US dollars, so say 62.5 to 125 K GBP. There is no way the equivalent in Wokingham is worth its premium over Chicago commuter land, its pure government manipulated fantasy.

    In Brussels I could buy a nice big house for the same as a two bed flat in London.

    And so on.

    Reply House prices here have fallen by around one quarter in real terms from the boom peak. Yes house prices are a lot dearer on average here than in the USA. The main reason is land prices, as there is a much tighter planning controls and much more restricted amounts of land available relative to the size of the settled population. Governments here create artificial land scarcity, usually encouraged by electors who oppose much development on open land adjacent to settlements.

    1. Iain Gill
      October 1, 2013

      Re “Governments here create artificial land scarcity” good I am glad we agree. So sort that out rather than subsidising mortgages with my money.

      1. zorro
        October 1, 2013

        Indeed, and amazingly enough, it doesn’t involve the taxpayer having to underwriting risky loans!


  40. Winston Smith
    October 1, 2013

    “Why would people want to buy a home if they thought it could be 10% cheaper in a year or two?”

    Why do people buy cars, when they know they will worth less in a year? Because they need one to get about. Similarly, people need a house to live in and call their own. they want to be comfortable in their own environment and many of them buy a house for the long term, they are not concerned by short-term fluctuations.

    This blog has gone downhill. Bring back the real John Redwood.

    Reply Homes cost say 10 times the cost of a car, so a 10% loss would wipe out a lot of hard earned income.

    1. Iain Gill
      October 1, 2013

      Re “so a 10% loss would wipe out a lot of hard earned income” yes but rubbish interest rates for savers, quantative easing, removal of index linked national savings accounts from the market, and so on… have wiped out a lot of hard earned income too. you are just choosing to preserve home owners wealth while destroying those, for instance, with savings living in private rental properties.

    2. zorro
      October 1, 2013

      John, that is tosh. House prices will not go down over a 25 year period and no-one is advocating that. As Edward2 said, you buy a house instead of renting because you own something in the end. But you shouldn’t expect a 3 or 4 figure percentage rise in the value whilst salaries remain static……And it doesn’t wipe out hard earned income, it will ‘wipe’ (such emotive language) out a speculative increase which the true economy says is unsustainable.


  41. Lindsay McDougall
    October 2, 2013

    I wonder where you get this evidence that UK house prices have fallen enough. Other people have different data. The http://www.thisismoney.co.uk website contains OECD research published on 31 May 2013. Their chart suggests that based on the price-to-rent ratio, UK house prices are too high by 31%; based on the price to income ratio, they are 21% too high.

    In the same piece, there is a graph of the UK house price to earnings ratio for the last 30 years, sourced from Nationwide and ONS. Selected values of the ratios are:
    Long run average 4.1
    1989 peak 5.0
    1996 trough 2.9
    2007 peak 6.3
    2013 5.3

    Perhaps the most telling sentence in Mr Redwood’s blog is “The sharp downward adjustment may help in the future, but whilst it is happening it puts people off wanting to buy, plunges people into negative equity and undermines the banks who have lent against homes at higher prices.”

    The phrase “sharp downward adjustment” is misleading; the ratio is still closer to the 2007 peak than the long term average. Plunging people into negative equity can be avoided by having house prices stable in nominal terms, gently declining in real terms.

    So we are left with the banks, that received a bail out when HMG overpaid massively for Lloyds and RBS shares, that have benefited from QE, and are now able to minimise their bad debts by keeping house prices artificially high. Yet again the wise virgins are being forced to bail out the foolish virgins.

    All these ‘remedies’ lead to inflation in one form or another and are at best neutral in their effect on economic growth.

    Reply The level of interest rates has an impact on what is an affordable multiple of earnings to borrow. That is why Mr Carney’s policy and guidance are relevant – if low interest rates continue a higher ratio of borrowing to salary is sustainable. It is even more sustainable if people use current low interest rates to lock in to relatively cheap finance for a period of years. It becomes a problem only if interest rates at some date in the future shoot up too high.

    1. Lindsay McDougall
      October 2, 2013

      It depends what you mean by ‘too high’. Under any normal monetary policy, you would expect base rate to be about 1% more than inflation, i.e round about 3.5% rather than 0.5%. If that were to happen, mortgage rates would probably go up by less than the full 3% because banks would reduce their margin. However, they would go up. We know that it’s just a matter of time before that sort of change must happen.

      I don’t mind the Conservative Party, less than 2 years before the next general election, making a vulgar calculation of electoral gain. It would, after all, be a disaster if Labour got in. But let’s not pretend that it’s anything more than that.

  42. Ben
    October 9, 2013

    “The sharp downward adjustment may help in the future, but whilst it is happening it puts people off wanting to buy, plunges people into negative equity and undermines the banks who have lent against homes at higher prices.”

    John I thought you were brighter than this. My child doesn’t like having plasters pulled off. Guess what I tell him?

    Using your logic people would be indebted *forever* to the banks as generation after generation overpay for something that costs far less to build from scratch (and to a better standard).

    The deflation argument is pure crap. I bought a computer the other day. Computers have fallen in price since their inception. People keep buying them.

    “Some who want lower house prices bemoan how much money and activity the UK expends on housing. I think it is good we do, and want to see more spent in the years ahead. ”

    This is a really poor point. The cost to build is far less than the cost to buy. The provision of credit at low interest rates sets prices in a market where demand outstrips supply (where a large part of the “demand” is speculators searching for yield in ZIRP land).

    Really infantile blog post from you John. I didn’t like you but I didn’t think you were an intellectual lightweight.

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