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daveyjacko

First Timer

Posts:6

07/06/2008 5:23 AM	Alert
So, the much hoped for 'correction' (i.e. much longed for crash) does not seem to be coming about. Yes, prices are dropping slowly, but let's not kid ourselves that this is anything like a crash. And the press are up in arms, and the government - to appease the homeowning majority - are doing their very best to prop up prices. What concerns me is how little is mentioned about the unfairness of it all. We all know that no real wealth is created by rising house prices, only that wealth is shifted from one section of society (those who don't own property but would like to) to another (those that already do). I read recently some lowlife commentator in the papers talking about how HPI benefits property owners, and has no negative impact on non-owners! Yeah, so if you do manage to buy a place, you will never be able to pay it off, or will only manage to just before you croak. The only person I've noticed recently speaking out against this has been (perversley) the former Tory cabinet minister Michael Portillo - in his Sunday Times column he questioned why labour was trying to prop up prices, seeing as rampant HPI had created the biggest disparity in wealth in modern times (and that labour had basically conspired to allow it to happen, obviously to profit electorally from the feel good factor instilled into the property haves). There is now a whole generation of hard working young (and, after a decade of this, no longer so young) people priced out of the chance of buying a place that they could eventually pay off in their working lifetimes - denying them the chance of security so enjoyed by the property haves. I'm really suprised at how easily this blatantly unfair situation has been accepted by the nation in general - even (at least some) vested interests must surely have a tiny sense of fair play - or has Britain really become a country of 'I'm all right Jacks'. Why do the property have nots take it so easily? Ok, so we have no political representation. Apart from the odd comment now and then about how sorry they feel for us, none of the vested interests show much real interest in our plight. The best we get is nonsense like scrapping stamp duty, or shared ownership (if anyone thinks this is anything other than a scheme to promote further HPI they must be mad). The housing market is totally rigged against us, by almost soviet style planning restrictions - whatever happened to free markets? Yet still we sit back and take it. Maybe it's time to stop being bitter and hoping sentiment will change, or circumstances will save us - it's time to get disruptive and angry like any disenfranchised group who are victims of blantant market rigging and unfairness.

chefdave

Activist

Posts:464

07/06/2008 6:45 AM	Alert
Whilst I completely sympathise with your anger, I think you're being overly optimistic on how well the housing market is going to hold up. Halifax have just released their data for May and for the property haves it was very bad, down 2.5% in a month. This is quite firmly crash territory; nominal prices would be down a further 15% by December if this trend continues at the same pace. The market has largely been inflated due to the international securities and money markets, now they don't want to know the money just simply isn't there to support sky high prices. Banks want larger deposits, which first time buyers don't have, are charging more on their mortgage products, which is going to prove calamitous for Buy To Let landlords and their financiers (I.e the Bradford and Bingley) as well as the economy in general as households tighten their belts in order to secure the roof above their head. Sentiment HAS changed, but only because the basic laws of economics have forced this. The government has very little power over the unfolding events now. They cannot even change the interest rates as the independent Bank of England was granted this power by Brown when Labour came to power. They may try and coerce Mervyn King into doing whatever Browns thinks is best but it'll make no difference now. Its GAME OVER.

Asteve

Activist

Posts:917

07/06/2008 8:02 PM	Alert
I think we're seeing the property bubble unravelling... it is happening far slower than suits me - though, I have to note, the consequences of this are far more widespread than I could ever have imagined. A severe house price crash (as I feel is utterly inevitable) in turn implies a banking crisis beyond any banking crisis in living memory. The political and economic fallout from this will be astonishing... ignoring the USA, this deeply affects the whole of Europe - where The UK, like Spain, and, to a lesser extent, Italy, are facing/experiencing severe consequences from a crisis in asset values. The impact of this on our currencies and subsequently on exchange rates and trade and wider politics should not be under estimated. The consequences of the ridiculous bubble in mortgage finance over the past decade will have many significant repercussions for the UK. We need to be aware that spiralling asset prices entrench corporatism - and that this correlates closely with the apparent leanings of the European commission and Eurozone infrastructure. As Britain has 'harmonised' with the Eurozone - adopting its political charters; tweaking statutes; adopting its inflation metrics and the Maastricht definitions of excessive debt... it should be no surprise that the UK has developed the way it has. My take on the situation is that we've seen Goodwin's law demonstrated extremely decisively... i.e. that whatever metric one chooses to control an economy (the metrics chosen by Maastricht, for example) - when used as targets - ultimately alter the economy in such a way as to make the targets either irrelevant or unsuitable. What comes next is anyone's guess. I think the have-nots have taken things so easily because they're trying to fathom why things have not worked out how they expect. That's not a straightforward task.

slicedcake

Activist

Posts:249

08/06/2008 11:34 PM	Alert
Unfairness, -not good, not sustainable. Taking from the poor(asset poor) to give to the rich. Am I right in thinking that Germany has not had high house price inflation, despite being within the same global money lending markets? How can this have happened?

Asteve

Activist

Posts:917

09/06/2008 7:37 AM	Alert
Sliced, that's an excellent question - one I've been asking too. Why has property in France and Germany remained broadly sensible while Britain, Ireland and Spain have simply gone mental. While there are differences in tenants rights and the subjective 'popular feelings about real estate' - these do not, in my opinion, explain things. If we ignore Britain for the moment, within the Eurozone, Germany has the strongest economy (in terms of real tangible productivity) and France has determined nationalist politicians... and between them, they control the Euro to best suit their country's ambitions. This means that economic hangers on - like Spain and Ireland, for example, are faced with monetary policy which doesn't necessarily best fit their national economic situation. I believe that this has, in no small part, caused the house price boom in these countries. France and Germany have benefit because the money borrowed as mortgages would be spent (at least in part) on imports from France and Germany. Britain is the odd-ball... we've a sizeable economy - certainly more significant than Ireland or Spain... and while we have neither adopted the Euro nor are (any longer) in the ERM, our economy has been tracking the Euro. We've adopted a Euro-centric inflation measure and have been actively streamlining British law with European law over the past decade. Maybe we can see ourselves as having been 'unofficially' in the ERM. The events of 2007, of course, undermine all of that - with sterling having devalued ~15% against the Euro over just a few short months, any notion of an unofficial "band" for exchange rates has been spectacularly breeched. What I think has happened to Britain is that with an economy closely aligned with Europe, and becoming more-so by political activity every week... that investors with European interests have been able to invest money in Sterling (with its 1 or 2% higher interest rates) than the Eurozone - safe in the knowledge that the risk of currency devaluation (and hence investment loss) was small. Essentially investors (if you can consider them to have had a collective concious) decided to invest in European production and UK lending - in order to buoy demand for their European products. The "happy" coincidence that 'structured' finance was mainstream acceptable facilitated this strategy to be turbo-charged because those investing in British debt (credit card debt; car loan debt; mortgage debt; student debt - etc) were able to do so using leverage... so, for example, an investor could invest €1 in UK debt, and be able to buy €20 worth... if, say €2 of that €20 loan was spent in the Eurozone, the European economies would benefit - even if the company engaging in investing in the structured debt, in future, transpired to be insolvent. The profits have already been locked in. I've been reading about the history of the Euro and ERM - it is fascinating... in a complicated kind of way... the politics has a steep learning curve. The thing that struck me most about the whole incident was the negotiations of exchange rates. I'd imagined that each state would be jostling to maximise the value of its currency... if you put the Euro to the British people, and asked for a Yes/No at 1€-£1 and 2€=£1, I am sure the latter would get a bigger "Yes" vote than the former. People who hold sterling savings, I presumed, would clearly want their money to go further... but my assumption was utterly wrong. Each nation's politicians got significantly more unhappy as their currency appreciated - and happy as they managed to negotiate a devaluation. On closer inspection this begins to make sense... it means that nations all fear their debts more than they value their cash savings. My reading has reinforced my view that while I can see advantages both to adopting the Euro as our currency - and with retaining sovereign control over interest rates... we currently have the worst of both worlds... we are adopting European inspired policies while gaining none of the benefits of a shared currency. When we ask about the rich and the poor, we need to ask some rather important questions. One key question, I think, is what defines rich and poor? Is the man with a £500K house and a £250K mortgage richer or poorer than a man with nothing? Where debt and ownership of assets go hand-in-hand, the definition of rich becomes extremely blurred.

slicedcake

Activist

Posts:249

12/06/2008 1:33 PM	Alert
The most unfair thing seems to me to be the speculation on (basically) unoccupied properties. People are making money whilst denying access to accommodation. People should be forced to rent the property out or sell it within 3 months.

Asteve

Activist

Posts:917

12/06/2008 3:11 PM	Alert
I don't think I agree, sliced, but I understand that I'm on thin ethical ice. I'd be comfortable with a punitive tax - say - quadruple the council tax - on unoccupied property. I'd be happy with the abolition of the single-person discount - though that would cost me, I find it extremely distasteful to find that my personal life is questioned when establishing the amount of tax I pay. Being forced to sell unoccupied property seems harsh... what if, for example, I have a single modest home in Britain - and my work takes me abroad for a year? Must I dispose of all my belongings or put them into storage - and hope I can find a property in the same community when I return? I don't think it a good idea to legislate absolutes. Eliminate tax advantages; apply pressure by punitive taxation - probably both OK... but absolutes always victimise some unintended demographic and adversely affect the big picture. One idea would be to 'presume' rental income on all non-permanently occupied houses - and demand income tax on that.

slicedcake

Activist

Posts:249

13/06/2008 9:30 AM	Alert
Yes, the odd one or two exceptions would have to be catered for. Something like being exempt if it's a person's only UK property and they have been living there for three and a half years or more of the last five years. I think that the multiple rate council tax has been discussed before, and may have some potential if set at over quadruple rate. Taxing of presumed rental income, -maybe, although is it escapable via tax loopholes/dodges?

Asteve

Activist

Posts:917

13/06/2008 10:44 AM	Alert
The loopholes and dodges and unforseen consequences that demand special cases are exactly what make this issue so thorny... I'm all for it in principle - but in practice... I'm pinning all my hopes of the credit markets to solve the house price crisis. It's looking as if they'll have the job pretty-much done within 2 or 3 years.

slicedcake

Activist

Posts:249

13/06/2008 3:07 PM	Alert
Hmm, the credit markets seem to produce boom-bust cycles, even when there is a functioning FSA to limit loans to 3 times salary and min. 10% deposit, so I'm not sure about that as a long term solution on it's own. The "single control lever" BOE interest rate thing seems to be inadequate to control varied economic activities, many of which are globally infuenced.

Asteve

Activist

Posts:917

14/06/2008 9:44 AM	Alert
Hey, once this crash is done, we'll have the best part of a decade of affordable homes in which to think about long-term strategy before prices start to rise beyond affordability again.

jezzerk

First Timer

Posts:6

15/06/2008 6:41 AM	Alert
Posted By daveyjacko on 07/06/2008 5:23 AM I'm really suprised at how easily this blatantly unfair situation has been accepted by the nation in general - even (at least some) vested interests must surely have a tiny sense of fair play - or has Britain really become a country of 'I'm all right Jacks'. They don't care about me and I've already decided that when the time comes I won't care about them. It's a horrible thing to say and I'm really sorry that it has come to this.

Magrathea

Activist

Posts:422

25/06/2008 3:13 AM	Alert
Daveyjacko wrote: “What concerns me is how little is mentioned about the unfairness of it all. We all know that no real wealth is created by rising house prices, only that wealth is shifted from one section of society (those who don't own property but would like to) to another (those that already do).” It's worse than that, the cost of real estate becomes a cost to all local business and production generally; one of the reasons British and US labour is uncompetitive is that it must support hugely inflated asset prices with it's work and must make very large promises of future work in order to stay secure; this makes it very expensive and risky to employ people in the UK at any reasonable standard of living and security and this has a knock on effect to everyone working, reducing economic opportunity and pushing down real wages (at the same time driving the costs to employers up) You are absolutely correct though; the issue of justice is swept away - or more often simply ignored - at every turn. I think the reason for this is that the interests of the elites are (believe it or not) extremely intellectually vulnerable in this particular area. If they admit that there is a legitimate and significant issue of justice involved and people begin questioning the justice of our institution of real estate itself, in the same general way they presently often question the justice of low wages or bad working conditions or punitive fines then they have a very serious cultural problem on their hands that conflicts precisely with the core of their interests.

slicedcake

Activist

Posts:249

26/06/2008 12:26 PM	Alert
We really have let the attitudes leading to "self serving" get the upper hand. Self worship seems to be the current religion/philosophy of life!

Magrathea

Activist

Posts:422

27/06/2008 2:55 PM	Alert
Sliced wrote: "Hmm, the credit markets seem to produce boom-bust cycles, even when there is a functioning FSA to limit loans to 3 times salary and min. 10% deposit" Indeed If you don't mind, i will occasionally post your words above in the room to remind everyone about the gaping great holes in the public debate about this issue.

Magrathea

Activist

Posts:422

27/06/2008 2:58 PM	Alert
Sliced wrote: "Hmm, the credit markets seem to produce boom-bust cycles, even when there is a functioning FSA to limit loans to 3 times salary and min. 10% deposit" In fact it was the negative results of this control policy that allowed it to be changed in the hope that 'allowing the market to be free' would produce better results. What was missing from the deliberations, of course, was the understanding that real estate isn't and can't be a free market in any normal sense.

slicedcake

Activist

Posts:249

27/06/2008 3:27 PM	Alert
Posted By Magrathea on 27/06/2008 2:58 PM Sliced wrote: "Hmm, the credit markets seem to produce boom-bust cycles, even when there is a functioning FSA to limit loans to 3 times salary and min. 10% deposit" In fact it was the negative results of this control policy that allowed it to be changed in the hope that 'allowing the market to be free' would produce better results. What was missing from the deliberations, of course, was the understanding that real estate isn't and can't be a free market in any normal sense. "What was missing from the deliberations, of course, was the understanding that real estate isn't and can't be a free market in any normal sense." The one size fits all philosophy/mantra of free martkets (uber alles?..) just isn't enough, a bit like simple laws of physics being inadequate when object speeds appraoch the speed of light. Simliar.

Magrathea

Activist

Posts:422

27/06/2008 4:18 PM	Alert
"The one size fits all philosophy/mantra of free martkets (uber alles?..) just isn't enough, a bit like simple laws of physics being inadequate when object speeds appraoch the speed of light. Simliar." Yes, very similar..ostensibly correct rules that are miss-applied But I can add more :) Things are called a free market for reasons, one of those reasons is because all participants are free to replace each others trade; this is the fact that keeps prices low (competition). For instance if all 1 thousand shoe sellers are only selling shoes at a minimum price of £1000 a pair, then it is perfectly legal to entirely replace their trade by providing exactly the same service for £20 a pair - one need NOT buy their ‘market position’ from them because the market is free and open and they do not own their market position as property - one only need provide the same yourself, for less. Now imagine that rather than selling shoes these 1000 traders own the south of England, now it is not legal to replace these people without paying them because they hold their market position itself as property and so replacement without negotiation is quite illegal. Buying land is rather like buying the market position of being a seller of shoes from someone who holds special permissions to sell shoes. The above is caused by the geometric nature of land itself and treating land as if it really is a free market in which participants are free to replace each others trading position causes extreme problems – in fact, it causes the opposite effects that genuine free markets usually create – it creates poverty and privilege rather than competition and increasing wealth.

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