Nick Clegg today is proudly announcing a coalition housing policy which is perhaps the maddest thing the government has come up with yet (though that is a tough competition). Apparently the answer to housing problems is to find ways to enable people to take on yet more debt, being helped by government to find deposits which they will however ultimately have to repay in addition to the ordinary mortgage.
In effect the government thinks that the only problem with the housing market, is that it is not as it was in early 2008. The government supports ludicrous inflated house prices, giving the economy an entirely fictional huge monetary value asset base, sustained by mortgages of 100% or more on the inflated value, amounting to many multiples of the debtor’s income.
The answer to housing availability is not for the government to find ways to enable young people to take on unrealistic amounts of debt so they can afford fake prices. The answer in the owned sector is for house prices to crash down to realistic levels which people can actually afford.
These government proposals are the precise opposite of what is needed.
The primary answer in the rented sector is for local councils to build public housing and rent it to people at genuinely affordable prices. There are a huge number of brownfield sites which can be utilised and a huge number of empty buildings ripe for conversion – including many of those empty shops. 50% of the “printed” money created by the Bank of England in the last round of Quantitative Easing exercise, and given to the banks, would have built 400,000 family homes if given to local authorities for that purpose. Think of the employment that would have created.
The UK is every bit as indebted as Greece, both as a per capita absolute and as a percentage of GDP. The difference is that Britain has more private and Greece more individual debt. But it is equally impossible to pay it back in the long term. That incredible mountain of personal debt is what has sustained Britain’s ludicrous house prices. Just as the bamks have had to take a 50% haircut on Greek debt, so also they are going, in the end, to have to take a massive haircut on their UK mortgage portfolios.
The extraordinary thing is, that those mortgages – based on totally unreasonable house valuations – constitute not liabilities but “assets” on a bank’s balance sheet, and the banksters have been able to “leverage” those assets to make speculative financial transactions – or bets – to the valuse of 12 times the “asset”.
These are some my policy prescriptions:
Give local authorities money to build 400,000 new council houses for truly social rent levels, using cash from quantitative easing
nationalise all housing association property and give to local councils as council housing
wipe off 50% of all outstanding mortgages
watch house prices crash, and cheer!
That may sound extreme to some of you. But I promise you it is infinitely more sensible than the incredible folly the government has just produced.
Odd, Mervin King put the kibosh on a similar scheme back in 2008.
Not like he has any bias of course.
http://www.heraldscotland.com/mervyn-king-warns-i-ll-quit-over-no-10-s-mortgage-scheme-1.826675
“The extraordinary thing is, that those mortgages – based on totally unreasonable house valuations – constitute not liabilities but “assets” on a bank’s balance sheet, and the banksters have been able to “leverage” those assets to make speculative financial transactions – or bets – to the valuse of 12 times the “asset””
Not to mention using such dodgy assets to pay themselves the massive bonuses.
I agree with the main drift of your argument, although I suspect a more realistic hope is for house prices to remain more or less static for a few years while inflation effectively wipes off 1/2 to 1/3 of the value. Sooner or later though, we must have mechanisms for keeping house prices in line with incomes. In the past, those stabilisers have been higher interest rates and adequate supply of housing. I struggle to see how the situation can be restored in the foreseeable future. Is there any other way?
It must be very strange to share a view with James Delingpole!
http://blogs.telegraph.co.uk/news/jamesdelingpole/100118773/cameron-copies-freddie-mac-fannie-mae-yeah-thatll-work/
Spiffing wheeze for re-inflating the housing bubble. Thatcher’s tried and tested solution to too much social housing for the undeserving proles with a side order of subsidy for developers to build housing which will then trickle back into private ownership.
We must remember that The Market’s convenience is paramount and our own desperation is a small price to pay.
Insert bad language here.
It is particularly dishonest to use taxes collected from people who will never be able to afford a house to clear the way for the aspirations of the even slightly more-comfortably off.
Agree on the house prices, but to manage it better why not deflate the mortgages to bring the costs down, heck i bet Northern Rocks debt which we own (£46b) would do it.
Yes, very good Craig, I agree. But the rich will lose too much money.
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1) You can make it easier to blackmail people, they can`t go on strike with a mortgage to pay.
2) The rich need you to have a large asset so you can pay for your health care and old age in a care home (when your insurance company finds a way not to payout).
The above are just two examples, there are many more.
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Its all an illusion of given people false hope of having wealth, 90% never will. People fall for it though…everytime.
I recall Ralph Nader, who in early days employed Barack Obama on a project in the south end of Chicago, said of him on TV within minutes of his election: ‘Remember his primary modus operandi. He’s got where he’s got to by compliance.’
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Even more so is this true of Nickocchio. His dripping exoskeletal nose (visible only under a full moon) must by now be longer than his floppy sponge foam backbone.
“nationalise all housing association property and give to local councils as council housing”
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Don’t follow the logic of this. It’s also impractical. Many tenants of HA properties own them jointly with the HA. Nor do HAs have lots of unoccupied properties on their books. Don’t see how giving them to councils achieves anything.
It must have been about four years ago that the first council house was built in Scotland in twenty five years, that was to help house prices to go up and up, along with the private rent sector. What is happening was planned to be this way, many knew it would lead to this now. I call it the evil manipulation and control of the people by successive governments, they consciously done all this for their own wealth and power, what gets me is that so many people were so willingly led up this alley to the dark place we now find ourselves. The evil of it all, the sheer evil, all helped/done with the breathtaking ignorance/greed of the people.
Well said.
What we need is a national house building programme run by the government to tackle the housing shortage which is organised around actual targets. This was done in the past so why not today?. This will make renting or buying affordable, provide employment and boost the economy.
“wipe off 50% of all outstanding mortgages”
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So the more recklessly someone borrowed, and the less they’ve bothered to pay back, the more that person benefits? Great. What about someone who borrowed modest amounts well within their means, and – through thrift and hard graft – actually paid most of it back?
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Person 1 – Borrows £100K 10 years ago. Remaining mortgage, £50K. Half of this should be wiped, so they benefit to the tune of £25K. Their assets are now worth £75K.
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Person 2 – Borrows £250 10 years ago, Remaining mortgage £300K (they spent a bit extra on improvements in the meantime and only paid the interest, no principle). Half of this should be wiped, so they end up benefiting by £150K. Their assets are now worth £150K.
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I’m not at all sure about all of us paying to wiping out the debts of people who borrow to live beyond their means. It’s a moral hazzard and sets a terrible example of personal responsibility. Don’t bother paying debt, the government will eventually sort it out for us. Borrow whatever you like, spend what you like, you probably won’t have to pay it back.
The Housing Association who took over ourlocal council housing stock, had to pay a paultry £4700,- for them, on the Governments recommendation, then Labour. They aregued that their modernisation [programe would cost loads and and, so hence they paid the minimum. Now these houses carry solar panels, an extra income stream for these hard pressed HA’s.
I agree with nationalising the HA stock once again, but not at the market price, but at the same price plus the improvements minus depreciation of whatever was modernised.
The more I hear from Clegg whether its his hard talk on Iran or this pathetic scam, I think he has been thouroughly Conserved, pulped and flattened, the Lib Dems have zeroed themselves.
here in Norfolk three councillors have jumped ship to become Conservatives, all without by elections off course. One of them staredoff as alabour councillor and when Labour was wobblin’ he jumped ship then, now he’s done it again, anythingto keep his sodden job. The whole party political scene is so debased now, that people get angry if you talk about politics, and rightly so, nobody deserves our vote.
Global markets down on debt fears
Markets worldwide tumble on fears over global debt – with another impasse due in the US and continuing fears over the eurozone crisis.
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House sellers drop asking prices by 3.1%
Asking prices may now be starting to fall in the face of a dearth of buyers
The asking price of homes being put up for sale has fallen by 3.1% in the past month, according to the property website Rightmove.
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Today’s headlines on BBC website
http://www.bbc.co.uk/news/business-15817982
Q&A: The new housing strategy
The government hopes its plan will stimulate more house sales
The prime minister has a new housing strategy to make it easier for people in England to buy or rent homes.
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Q Has Cameron some elephant blood in his genes?
Glenn
That’s just the same moral hazard in wiping out Greece’s debt. But you have to start somewhere – there is no perfect solution to this unholy mess.
“Apparently the answer to housing problems is to find ways to enable people to take on yet more credit…”
I think you mean “debt”, actually, but I see what you mean.
That’s exactly what happened in the USA and here to cause the crisis of 2008.
I was woken up by this news on the Today programme. Normally I doze for a while; today I was wide awake. This incredible folly made it impossible to go back to sleep.
OK. It’s not happening in Scotland, I’m happy to hear, but for God’s sake what is the fool thinking about. The poor English.
No wonder some estate agents are (still) offering 100% mortgages.
As others like James Kwak have noted, housing ownership is over-emphasized in current society. Most people don’t realize all the baggage that comes with it – taxes, maintenance, HOA fees (depending), insurance, etc. It’s very easy for a perspective homeowner to underestimate their liability (and I suspect that many-a-foreclosure was not from the mortgage itself, but rather subsidiary conditions).
Regardless, James’ piece is a worthy read:
http://baselinescenario.com/2010/08/23/housing-in-ten-words/
Get your Atlantic Bridge scandals here:
http://order-order.com/2011/11/21/tory-foreign-affairs-chairman-in-atlantic-bridge-mystery/
“The extraordinary thing is, that those mortgages – based on totally unreasonable house valuations – constitute not liabilities but “assets” on a bank’s balance sheet”
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Love a lot of what you say, Craig, but sorry, this is just crazy. It’s a centuries’ old accounting convention that money lent is an asset for the lender. Money lent foolishly is a shitty asset, but for accounting purposes it is still an asset. Nothing extraordinary about this.
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And this is just a bit confused…
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“and the banksters have been able to “leverage” those assets to make speculative financial transactions – or bets – to the valuse of 12 times the “asset”.”
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You leverage your balance sheet to invest in assets, like mortgages, for example. 12x leverage, £12 borrowed for £1 of shareholders equity, is actually a pretty safe level historically for banks (you have to risk-weight your assets, however, that’s the evil genius mechanism by which banks like RBS could gross up their balance-sheets. The real scandal is that they were able to do this completely within the rules.).
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By the way, all your analysis points to the desirability of a period of higher inflation. We won’t get it, so don’t worry, but it would catalyse some of the structural adjustments we all need in our economy, reducing the value of private debts for example.
a question . Northern Rock had 2 bill in deposits and had lent out 105billion, 103billion was created out of thin air, if it comes from thin air why can it not disappear in the same way?
The bank of england provides cheap money to the banks and the banks buy government debt earning risk free profits, borrow at near 0.5% and buy 10yr gilt at 3.1%, then pay yourself a bonus for being a genius. Why does not the bank of england cut out the middle man and give every citizen credit at 0.5% say £20,000, they can then reduce their most expensive debt, this will boost the economy.
If you crash housing the rich will be the winners, if say the price of a flat fell from £100k to £50k many people would go out and buy as many as they can, how would it help poor people to buy houses?
The government should do something to stop property investors from reaping huge profits from the buy to let game. The rich are already positioned for a crash, they have cash and will move quickly.
“It’s not happening in Scotland”
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When housing benefit and welfare reforms come into force next year, you will find that the above is not true, many will be facing eviction from their homes in Scotland. Lets see what the SNP will do then ?. I think they can`t wait to use it as a tool to gain independence, it is also true to say that they care about as much for the poor as the tories, all the main parties are the same, as time will tell.
If we vote madmen/women into the asylum then we get madness.
@Guest: Housing benefit and welfare is reserved to Westminster so SG hands are tied by not having the power.
Larry Levin: The money was magicked into existence, yes – but cannot quite be magicked away without a trace in the same fashion. The principle can be repaid, but the interest on that loan remains. Since just about all money was brought about by this method we eventually have more debt than money in the system. That’s basically why everything’s collapsing, and why we always have inflation.
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Craig – you left out a big part of the solution, or at least you only mentioned a tiny part of it in passing. What we need is jobs, more than anything else. You can build houses and that makes some work, sure, but for a sustainable income for the occupants we need decent jobs – millions of them.
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Not just “Do you want fries with that?” jobs either – we need a serious reintroduction of manufacturing. Huge public works projects. Massive infrastructure and public transport investment. Instead of giving our national treasure to oil sheiks and transnational oil corporations, not to mention fighting wars to secure resources, we should be investing internally.
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We cannot compete with a Chinese prison workforce on labour costs, tariffs on imports (and financial transactions) will pay for the investment needed in our own country. We tax all sorts of other transactions, why the horror at import duties or a STET/ Tobin tax?
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Otherwise, we can continue to be an outlet for Chinese goods until we run out of credit and acquire third world status.
I see that Dave and Cleggover launched this nonsense in Guildford today. Linden Homes have built 190 houses with narrow roads on a rather crowded site that previously belonged to MAFF and then Defra who were one of Guildford’s major employers. We were never able to find out what the site sold for.
http://www.getsurrey.co.uk/news/s/2103709_cameron_and_clegg_launch_homes_plan_in_guildford.
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I see it is called a ’boutique’ development. The dearest is just under £1m!!
{http://lindenhomes.co.uk/developments/surrey/boxgrove-gardens-guildford/development-layout}
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Linden Homes is a subsidiary of Galliford Try. Many acquisitions in the boom years.
{ttp://en.wikipedia.org/wiki/Galliford_Try}
Ref my query about Cameron having elephant genes, I left out this bit from the BBC website.
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The prime minister has ++trumpeted++ a new housing strategy to make it easier for people in England to buy or rent homes.
Glenn,
yes, obviously. this post is specific to the housing sector.
Tom Welsh,
thanks, edit made
Sorry, of course it was.
A pretty fair assessment. House prices in the UK are clearly far too high and kept that way, I’m sure, by the financial establishment. As someone who hates interventionism, I do come out in a cold sweat whenever I see the word “nationalise” in a solution. However, if I had the choice between your way and Cameron’s way, I’d choose your way.
The reason? Your comments on this blog are emminently more sensible than anything our useless, corrupt, inept, traitorous members of parliament come out with.
God bless and keep going!