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Britain's Strange Housing Priorities

by Helen Tue May 31st, 2011 at 04:34:20 PM EST

Following on from a story posted in Salon today, I felt obliged to write a few comments that have grown into a diary (as requested by ceebs)

Indpendent - Britain to become a nation of renters

A generation of young British adults is close to giving up hope of ever owning their own place to live. A startling new survey reveals that while the great majority of young Britons from "Generation Rent" would like to become homeowners, most believe they will be unable to raise the mortgage they require to get on to the property ladder.

A combination of continually rising house prices and pessimism about the future is threatening to send into reverse the explosion in home ownership stimulated by Margaret Thatcher 30 years ago, making Britain more like Europe, where living in rented property is the norm.


The problem is that the market has most definitely not been "supplying" affordable homes in the British market for decades. It has, however, been delivering superb profits for home-owners, builders and, of course, the estate agents who parasitise the process. Effectively this is a transfer from the young and (relatively) poor to the wealthier old. A policy that might have been defensible if perpetual, but it was never designed for that.

As I have discussed previously, the UK market is distorted by the reality that all of the demand is in the south east of England, an area which already contains over 1/3 of the population. The area is too crowded and each year that passes with ever decreasing employment elsewhere makes the problem worse.

A problem that is exacerbated by planning laws which mean that any land that might have planning permission to build is extremely expensive and snapped up by consortia who are determined to extract maximum return. And they do that by preferring to build houses that serve a niche market of wealthy people and ignoring the lower end of affordability for the simple and obvious reason that there isn't as much profit in it.

So the less wealthy unhoused are pushed into a rented sector where demand far exceeds supply and the rents expected have become ridiculous. Typical rents for a 2 bedroom flat within commuting distance of London in a half decent area can go as high as £1000 a month. A four bedroom house two doors away from me is rented at £2500 a month. Considering that the mortgage on such a property is generally 1/3 - 1/2 of the cost of renting, you can understand the traditional push for home ownership.

Solutions ? Build more houses of course, but equally employment must be moved away from the South East to ease the pressure. However that requires govt incentives - a recognition that the market has failed utterly to serve the needs and requirements of the population.

Is such a government likely ? Sadly there isn't a chance. Labour are as much prisoners of the market as the Tories, their only difference is to believe in a bigger mop to clear up the mess it creates. The idea that the mess can be prevented is no longer encompassed by their impoverished and cowed imagination.

Display:
One of the big factors in creating the crush in the South East has been the 30 year project to run the UK rail system into the ground.

Good transport links are vital to helping persuade industry move away from London.

Another element is the subsidy of the South East water supply and sewage infrastructure by central government through various schemes.

by Metatone (metatone [a|t] gmail (dot) com) on Tue May 31st, 2011 at 04:58:40 PM EST
With people thinking little of commuting distances of 60 - 80 miles, and spending anything up to 90 minutes each way to do it, it's difficult to imagine how infrastructure can solve the problem that more than one third of the population live in much less than one tenth of the area (can't be bothered to work out actual proportion).

You don't need transport links to encourage employment away from london, you need employers to move away from london.

but when all of government, most of the civil service, most of the senior defence establishment, all of the finance industry is sited within a circle 10 miles in diameter, then that in itself is going to act as a magnet for everything else. No other country in the world co-sites its financial interests and government. It's like a black hole sucking in everything else.

to reverse that, they need to be drastic in encouraging as much as possible to move away, including the government (I have long believed that the UK would be in a better position if government were to move to Lancaster or Preston)

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Tue May 31st, 2011 at 05:14:43 PM EST
[ Parent ]
You don't need employers to move away from London - you need to persuade them to move beyond office culture.

One of the magazines I work for went virtual recently. They downsized from a couple of floors to a shoebox office with a PC and some storage. The MD splits her time between HQ and home. Everyone else works from home full-time, and they stay in touch over Skype.

They've all saved a few hundred pounds a month in travel costs, and they have an extra couple of hours a day free. They're not being any less efficient or productive than they used to be, and they're still working normal office hours - but they're doing it in different locations, from home.

If anything they're working more smoothly because meetings don't waste as much time as they used to, and there's an automatic record of all conversations.

I'm amazed how few tech companies support telecommuting. There's Skype, there's Facetime, there's email, there are Wikis and blogs, but companies still seem to believe the only way to get things done is to haul everyone into a single building at the same time every morning, keep them there all day whether they're busy or not, and send them off home again at the end of the day - five times a week.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 31st, 2011 at 05:25:35 PM EST
[ Parent ]
Telecommuting has its own pitfalls, though.

Oh, I don't doubt that it can be good for the company. But if you're not careful it produces a cubicle culture where employees don't interact with each other in any natural way.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 31st, 2011 at 05:36:53 PM EST
[ Parent ]
You can balance that by meeting once a month and making it an Informal Friday - for those who live close enough to do that.

And I'm finding it difficult to think of anything more cubicle-ish and artificial than the usual corporate at-work interactions.

I've been working from home since 1993, and I get far more done in far less time than I've ever been able to manage in an office.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 31st, 2011 at 05:48:04 PM EST
[ Parent ]
I miss my cubicle back at Census.  Sure, the building was in a demilitarized zone, and the commute was four times longer, but it was also new!  And it had insulation.  Now I have my own office in a muggy old building that I'm pretty sure must have been built during Union occupation or something.  The elevators break down almost daily.

Voldemort also doesn't let us use the heating system in winter anymore.

/csb

So, yeah, I'm down with the whole work-from-home thing.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Tue May 31st, 2011 at 07:20:25 PM EST
[ Parent ]
Like you, I've been working from home (or away from the fray) for nearly 20 years, and I'm part of a network of small companies and freelancers that assemble for media projects. I'm tempted to say I'm part of a creative ecosystem that is enabled by communication technologies.

I even have several regular clients I've never met F2F, though there are always 'connectors' involved i.e. trusted colleagues who recommend my work (and vice versa). These faceless clients tend to be outside Helsinki - as far away as Lapland.

The advantages to the entrepreneur are obvious: no expensive office space, little travel time and travel expenses (I DO meet clients), flexible work hours, better life quality, etc. There needs to be a greater investment in communication tech, but these days it's fairly cheap.

For clients, their 'advantage' is that they need to construct better briefs! And that means no more meetings without agendas and decisions. "We need to have another meeting to find out why we are not getting through our workload".

For society it means (or should) fewer cars on the roads, rural repopulation, profitable public transport, less pollution, support for local shops and services - and peace of mind.

The problem, of course, is that not all work is as interesting and challenging as the work you and I do. I'd do it for free - and I often do it for free for non-profit projects or to help younger colleagues get started. In corporate panoptikonia, the slave-driving hierarchy can only control workers in unsatisfying jobs by putting them in cells, and only allowing them out at night. There has to be a better way.

You can't be me, I'm taken

by Sven Triloqvist on Wed Jun 1st, 2011 at 03:51:22 AM EST
[ Parent ]
I think telecommuting is fine for that part of the creative class who have an established set of marketable skills, but it won't suit entry-level jobs and it has little application to most of the jobs that most people do.

keep to the Fen Causeway
by Helen (lareinagal at yahoo dot co dot uk) on Wed Jun 1st, 2011 at 06:52:22 AM EST
[ Parent ]
I disagree. A good proportion of office jobs can be done from home. Entry-level jobs like call-centre work can easily be done from home.

The only jobs that can't are the ones where physical stuff has to be warehoused and/or processed. But anything that's paper-based, phone-based or e-based is an easy win.

Some businesses are already doing it. I know a couple of people with ordinary office jobs who have been shifted out of central London properties and are now working from home.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Jun 1st, 2011 at 07:21:21 AM EST
[ Parent ]
I know a couple of people with call center jobs who provide phone support for a large satellite TV firm from their homes in the middle of nowhere

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Wed Jun 1st, 2011 at 07:28:27 AM EST
[ Parent ]
No, especially as routine paperwork becomes electronic and it becomes routine to scan physical paperwork as it arrives. The issue isn't being able to do the job, it's more a management issue - bosses like to see rows of peons working away where they can see them.
by Colman (colman at eurotrib.com) on Wed Jun 1st, 2011 at 07:36:19 AM EST
[ Parent ]
Well what status is there in being a distributed manager? in not having serried ranks of  peons slaving in front of you?

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Wed Jun 1st, 2011 at 07:47:27 AM EST
[ Parent ]
My experience of living and working in the North is that transport is a huge issue. None of the economic areas outside London/SE are as large as London, which means sooner or later you're going to need to do business with someone either from a different city.

Half the time in the Midlands, that involves travelling via London.

In the North, it's just painful to realise that Leeds to Manchester is a grand total of 36 miles and it takes roughly an hour on the train.

The final insult is the total lack of cross-London rail lines and links. There's a substantial concentration of multinational companies in the Thames Valley and the main way you get there from the North is... train to London, tube to another part of London, train out to Reading/Slough/etc.

Freight is an even bigger problem - the natural advantage of places outside the South East is space for big manufacturing enterprise. But the lack of investment in freight rail means that transport costs on ever more clogged roads just go up and up.

To be clear, up to now, none of this is really about HS2.

I do believe in some kind of HS2 project - some say other investments are a better payback, but I think that concedes too much. If we actually want to get people out of the SE, we need to do the cross-regional projects and HS2.

And it's not all about HS2 tracks - we're still waiting for direct trains to Paris/Brussels. It's 2 hrs from St Pancras to Brussels by Eurostar. In principle that's 4-5 hours from Leeds to Brussels by train. That competes with air travel and makes a business relationship with that part of Europe easier, without moving to Buckinghamshire.

Of course it would be nice if Britain were not so centralised around London, if some radical government in 1970 had made a change... but starting from where we are, some things have been moved (parts of the BBC to Salford, DWP to Leeds) - and what makes or breaks the deployment is the ease of continued access to London. If those things work, then there's the potential to get some critical mass going.

All this is predicated on the notion that the convenience of the managerial class is the defining factor. But I think that's realistic. It's never stopped being cheaper and better for access to good graduates to base a business in one of the good university cities of the North - but it's rarely happened.

by Metatone (metatone [a|t] gmail (dot) com) on Wed Jun 1st, 2011 at 03:02:33 AM EST
[ Parent ]
Of course, to take up TBG's point, if we actually had world leading internet infrastructure then we might be in a position to let transport rot.

But we don't - the early days of the UK internet saw a lot of activity in the M62 corridor and also in Nottingham - but as bandwidth requirements rose, the data centres drifted south...

World-class internet interconnection touches the UK in London - and basically nowhere else...

by Metatone (metatone [a|t] gmail (dot) com) on Wed Jun 1st, 2011 at 03:12:58 AM EST
[ Parent ]
One plan discussed in Finland was to set up office centres next to schools which would both be provided with best broadband access. The offices would be places where outworkers from different companies could gather. Office space would be flexible (all you need is your laptop) FCFS, and there would be a cafe/lunch restaurant, copying/office printing services, a library and so on.

You can't be me, I'm taken
by Sven Triloqvist on Wed Jun 1st, 2011 at 03:57:00 AM EST
[ Parent ]
Don't get me wrong, I don't mean to suggest that there's no internet outside of London.

My focus is on the extremely high bandwidth infrastructure that cutting edge applications require. That's an area where government planning and investment could affect the whole business landscape.

by Metatone (metatone [a|t] gmail (dot) com) on Wed Jun 1st, 2011 at 04:22:40 AM EST
[ Parent ]
Absolutely.

You can't be me, I'm taken
by Sven Triloqvist on Wed Jun 1st, 2011 at 05:31:50 AM EST
[ Parent ]
That's an area where government planning and investment

You must be referring to another country. British government doesn't do planning and investment

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Wed Jun 1st, 2011 at 06:50:19 AM EST
[ Parent ]
The one thing the Tories are doing right is pushing rural Internet. Wiltshire is getting £5 million for a local roll-out, and Somerset is getting something like £15m.

But for cutting-edge hosting, there's no real need to keep a server at home. You can hire or co-locate in London and get all the usual bandwidth and benefits, with remote management. For a lot of applications it's cheaper to do that than it is to buy a custom server and pay for a spare high speed broadband line.

Industrial data centres will usually have a leased line anyway, so they're not so dependent on public broadband.

It does mean they won't be based in the Hebrides, but there's no technical reason why they can't be based in the Midlands.

I know someone who ran a dating site on a cheap PC she kept in a spare bedroom. Initially it was connected to a couple of ISDN lines.

She happened to live in London, but she could have done it anywhere.

She sold the site a few years ago for half a million.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Jun 1st, 2011 at 07:29:21 AM EST
[ Parent ]
Metatone:
Leeds to Manchester is a grand total of 36 miles and it takes roughly an hour on the train

For the same distance in 1830, the Liverpool and Manchester Railway took twice that time.

Travel time halved in well-nigh two centuries. You can't stop progress, can you?

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jun 1st, 2011 at 05:45:26 AM EST
[ Parent ]
Lack of investment in Rail freight,

 did you see the salon piece a couple of nights ago, that they've had to bring in a hobbyists diesel loco to move some freight in the north thats class was retired 30 years ago, due to unanticipated increases in freight use.

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Wed Jun 1st, 2011 at 05:47:30 AM EST
[ Parent ]
Even so, the point remains valid. An awful lot of freight handling depots have been mothballed and left to rot such that re-establishing a widespread freight network would be quite expensive.

It's no good being able to move the freight to within a couple of miles if you've no sidings where you can process it and no infrastructure to do so.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Wed Jun 1st, 2011 at 06:36:47 AM EST
[ Parent ]
and spending anything up to 90 minutes each way to do it,
 

They are right. Why would they spend their precious lives commuting?
to reverse that, they need to be drastic in encouraging as much as possible to move away, including the government
 

They are trying something like that here but it's going to be hard...and slow...

Science without religion is lame, religion without science is blind...Albert Einstein
by vbo on Wed Jun 1st, 2011 at 06:44:54 PM EST
[ Parent ]
New Statesman - Property scandal

"There is a myth in this country," says Kevin Cahill, author of the seminal Who Owns Britain (Canongate, 2001), "that land is scarce. It is not scarce. There is 41 million acres out there, about one-third of it so uneconomic that it has to be subsidised, hidden behind nothing but a myth. The problem is that there is simply not enough land coming on to the market for housing, which puts fierce pressure on the little land that is available, and thus dramatically inflates its price."

The hereditary landowners have been adept at protecting their interests - making plentiful land look scarce, and being paid from the public purse to keep it that way. The Land Act 1925 requires all land transactions in England and Wales to be registered. Registration is necessary only once a sale has been made; as such, many of the large estates, where ownership passes on through generations of the same family, have not been registered; to date, roughly 35 per cent of land in England and Wales remains unregistered. The Land Act was never debated in the Commons. Responsibility for debate was abdicated to the House of Lords, where the law was passed without discussion.

One of the reasons why landowners are so resistant to change, and indeed to registering just how much land they own, is that they receive huge subsidies, funded by British taxpayers through the European Union, simply for owning designated agricultural land that is frequently unproductive. (See the table on the next page.) Subsidy allows landowners to retain very expensive assets, while ensuring that not enough land reaches the market.



Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Tue May 31st, 2011 at 07:54:35 PM EST
Yea, I know that ChrisCook has a view on Land Tax that I'd love to see imposed, but the system is created by the rich for the rich and Land Taxes are lower-order intrusions that will not be tolerated

keep to the Fen Causeway
by Helen (lareinagal at yahoo dot co dot uk) on Wed Jun 1st, 2011 at 06:48:26 AM EST
[ Parent ]
But if you own a house (or at least are paying on a mortgage), then it is harder for you to move. I would think that the best situation would be if everyone could move around freely. Like money can.
by asdf on Tue May 31st, 2011 at 11:52:04 PM EST
Most people don't want to move. Most people want a job and raise a family, preferably near friends and family.

That such a modest aspiration is increasingly impossible should not be considered a plus factor

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Wed Jun 1st, 2011 at 06:46:45 AM EST
[ Parent ]

 the operative word being "freely".

     As you point out, it's one thing to move house because one wants to--for better employment opportunity, for example--and another thing to move house because one has to--for better employment opportunity, for example.

    Recently, all the residents in the vicinity of Fukushima found they were suddenly no longer obliged to remain where they'd been living.  

"In such an environment it is not surprising that the ills of technology should seem curable only through the application of more technology..." John W Aldridge

by proximity1 on Wed Jun 1st, 2011 at 07:50:02 AM EST
[ Parent ]
Yeah...Brits are moving very far as we speak...Australia is full of them now and everywhere you can hear accent...I just met a young couple that came here. Nice people, young and educated. They came from Birmingham. They are franticly looking for jobs here. As professionals they can hardly find serious jobs (their jobs) on visitors/working visa so now they are applying for permanent residence. They miss their families a lot. They would like to bring their parents here. They can apply for family reunion after they have permanent residence but waiting list for their parents to come after they are granted visas is 24 years. Go figure. They will either continue to miss their families and stay here (if they manage to find jobs) or they will go back after this crisis.
It's getting harder to find a job here even as professionals (if you do not want to live in rural areas, which is interesting for some professions like some engineer and medical professions etc,). Friend told me that she recently applied for pretty high manager job here in Brisbane and 90 people applied for that job too. 8 years ago when she came here from New Zealand she got that job over the internet and them payed for family to move here (tickets, container for furniture etc). Same happened to us. My husband had a choice of few companies giving him job and paying all expenses. It is much different now...


Science without religion is lame, religion without science is blind...Albert Einstein
by vbo on Wed Jun 1st, 2011 at 07:06:45 PM EST
[ Parent ]
So the less wealthy unhoused are pushed into a rented sector where demand far exceeds supply and the rents expected have become ridiculous. Typical rents for a 2 bedroom flat within commuting distance of London in a half decent area can go as high as £1000 a month. A four bedroom house two doors away from me is rented at £2500 a month. Considering that the mortgage on such a property is generally 1/3 - 1/2 of the cost of renting, you can understand the traditional push for home ownership.

There has been a recent big push of people going for second home ownership as substitutes for a pension scheme, the parasites of the the financial industry having been eyed and found wanting. Much of this is funded by a "Buy to let" mortgage. These mortgages almost always come with the condition that the rent should be set at a minimum of 110% or 120% of the mortgage, to prevent the mortgage company losing out while a property is between tenants. As many of the buy to let houses were brought in the run up to the financial crash, tenants are paying  120% of peak mortgage rates, plus administration fees, plus whatever profits the owner cares to add into the situation. it's generally considered reasonable that an investors rental return should be about 8% of house cost

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Wed Jun 1st, 2011 at 06:28:09 AM EST
"Buy-to-let" is one of the most horrible market distortions to be let loose on the British housing market. Again, it's a net transference of wealth from relatively poor to increasingly rich.

To say it "shouldn't be allowed" is an understatement.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Wed Jun 1st, 2011 at 06:44:47 AM EST
[ Parent ]
""Buy-to-let" is one of the most horrible market distortions to be let loose on the British housing market. Again, it's a net transference of wealth from relatively poor to increasingly rich.

To say it "shouldn't be allowed" is an understatement. "

Er... why exactly? You state that there are not enough flats offered for rent.
If you forbid people to buy with the intention of letting the flat, you are forcing people to buy or else. How would that be an improvement?

Just regulate the price increase while letting buy to let happen and you may find that the price adjustment will be a lot faster.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Fri Jun 3rd, 2011 at 04:11:16 AM EST
[ Parent ]
Look at it from the perspective of the bank that lends to the buy-to-letter or the buy-to-owner.

The BTO will be paying principal and interest out of their income.

The BTL will be paying out of their income plus the income of the expected tenant.

Therefore the bank will lend more to the BTL than to the BTO. This means BTL drives BTO out of the purchase market.

The problem is that the BTL's business plan is predicated on a certain demand for rental. In theory the BTO being shut out of the property market will fall back on the rental market. Except the BTO already has a place to live. So what happens is not that the BTO is forced to rent from the BTL. The BTO stays put and the BTL doesn't have an additional potential renter.

So eventually the BTL's business plan will fail, with losses for both the BTL and the bank.

The whole thing is a bubble and has to stop.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Fri Jun 3rd, 2011 at 04:49:35 AM EST
[ Parent ]
"The BTO will be paying principal and interest out of their income.

The BTL will be paying out of their income plus the income of the expected tenant."

He will also have greater expenses as he ALSO needs to pay for his place to live.

"This means BTL drives BTO out of the purchase market."

Which needs not be a bad thing where there are too many owner-occupied houses and not enough ones for rent.

"So eventually the BTL's business plan will fail, with losses for both the BTL and the bank. "

Yes, so what? They made some during the good times, why should they not be allowed to take losses at other times? Plus, well, shouldn't the bank then stop giving more money to the BTL as the business model may not hold?

"The whole thing is a bubble and has to stop."

Then address the bubble, but not the idea of buying to let. Banning buy-to-let, in the long run, means that there will be no rental market at all.

Now, I know why right wing politicians would see that as a good thing: it has been demonstrated that owning a house makes you much more likely to vote righ-wing. But in general, I don't see how having lots of owner-occupied houses is a nice goal per se.


Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Fri Jun 3rd, 2011 at 11:31:35 AM EST
[ Parent ]
He will also have greater expenses as he ALSO needs to pay for his place to live.

He has no greater expenses, because the tenant pays all his "investment" costs. The BTL makes his profit from capital gains.

Which needs not be a bad thing where there are too many owner-occupied houses...

No...

Then address the bubble, but not the idea of buying to let. Banning buy-to-let, in the long run, means that there will be no rental market at all.

Who needs rental market? Some CEO's in business trips? Labour families don't need them.

But in general, I don't see how having lots of owner-occupied houses is a nice goal per se.

Why not?

by kjr63 on Fri Jun 3rd, 2011 at 03:57:24 PM EST
[ Parent ]
But in general, I don't see how having lots of owner-occupied houses is a nice goal per se.

Why not?

It does bad things to your political culture. Also tends to blow up your financial system every once in a while.

Real estate taxes are the first line of defence against real estate bubbles (because they force people to put up real money to support the bubble valuation, even if their bank takes leave of its senses and offers negative-amortisation, no-money-down loans). So declining real estate taxes weakens your defence against real estate bubbles.

If you have lots of owner-occupiers it is electorally very difficult to raise real estate taxes, because raising real estate taxes will make homeowners unable to pay their bills. And you will, in a democratic system, occasionally have a right-populist government that enacts irresponsible tax cuts. So high homeownership builds in a structural advantage for macroeconomically illiterate right-wingers.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jun 3rd, 2011 at 06:05:53 PM EST
[ Parent ]
Real estate taxes are the first line of defence against real estate bubbles (because they force people to put up real money to support the bubble valuation, even if their bank takes leave of its senses and offers negative-amortisation, no-money-down loans). So declining real estate taxes weakens your defence against real estate bubbles.

Nothing prevents banks for loaning people money to pay both the mortgage and the taxes.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Fri Jun 3rd, 2011 at 06:07:57 PM EST
[ Parent ]
True in principle.

In practise, this tends to strain the credulity of even the most soundly sleeping financial regulator.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jun 3rd, 2011 at 06:16:15 PM EST
[ Parent ]
and you dont think they still would have found a way to justify it?

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Fri Jun 3rd, 2011 at 09:50:54 PM EST
[ Parent ]
True in practice.

You pay the expenses and taxes through a consumer loan, not a mortgage.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sat Jun 4th, 2011 at 04:10:17 AM EST
[ Parent ]
But the mechanics of that differ from the mechanics of a neg-amortisation loan.

Think about a negative-amortisation loan as an interest-only loan plus some fictional interest. This extra interest increases the bank's assets but not its liabilities, compared to an interest-only loan at a correspondingly lower interest. It's free funny-money for the bank, in that it comes with no funding cost - no extra liabilities means no need to borrow more from the CB.

Taxes don't work like that, because they have to be paid in real money, not Monopoly money. So a consumer loan to pay taxes actually increases the bank's liabilities, making it less attractive on paper.

(That, and mortgages typically come with stickier strings attached than consumer loans.)

Of course there are no regulations that a sufficiently incompetent or corrupt regulator cannot fuck up. Foolproof systems do not exist in economics, and even if they did nature is ever at work improving the stock of fools. But as a first line of defence, property taxes are not bad.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 4th, 2011 at 06:22:23 AM EST
[ Parent ]
I agree all this. It is a political issue. But this is not true:

"..because raising real estate taxes will make homeowners unable to pay their bills."

you can decrease taxes on labour and labour will have more purchase power, not less. Property tax is a very progressive tax.

by kjr63 on Sat Jun 4th, 2011 at 04:41:54 AM EST
[ Parent ]
Ah, so you're just building a general tax-cut bias into your political economy. Because that's so much better.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 4th, 2011 at 06:14:35 AM EST
[ Parent ]
No. Just wealth transfer from wealth extractors to wealth creators.
by kjr63 on Sat Jun 4th, 2011 at 07:11:54 AM EST
[ Parent ]
Because making land-owners a more politically powerful group tends to do that...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 4th, 2011 at 07:35:31 AM EST
[ Parent ]
Please elaborate. And what do you actually mean by "general tax-cut bias?"
by kjr63 on Sat Jun 4th, 2011 at 09:58:08 AM EST
[ Parent ]
What I'm saying: Promoting homeownership makes it politically difficult to raise taxes on real estate, because raising taxes on real estate will cause people's houses to decline in price and their total housing expenses to increase (since interest payments and loan amortisations do not decline just because taxes are increased).

You dismiss this with some hand-waving about lowering other taxes to compensate.

First, that won't work. The reason real estate taxes are less upwardly flexible than other taxes is that they make real estate lose value as mortgage collateral. If you make a revenue-neutral shift in the tax share from income to real estate, real estate prices are going to drop. Which may cause homeowners to become insolvent even though they are still able to make their monthly payments.

And second, even if it did work, it would build a general tax-cut bias into your political economy, because every time a wingnut government lowered taxes on real estate, the next responsible government would have to limit itself to revenue-neutral tax reforms in order to prevent a housing panic. Over a full cycle, this causes a net drop in tax rates. Thus, a built-in tax-cut bias.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 4th, 2011 at 10:24:14 AM EST
[ Parent ]
If you make a revenue-neutral shift in the tax share from income to real estate, real estate prices are going to drop.

Not so fast.
First, of course tax increase is a market value depreciation. But only half of the housing is apartments, another half is commercial real estate. And from both these big portion are not owner-occupied. And add there natural monopolies.
But second, real estate tax transfers money from economic rent payments to the demand of goods and services. This means higher employment, higher wages (=less labour supply) and higher wealth for wealth creators. This would change income distribution for the benefit of labour and landless. That means higher demand for housing market.

And second, even if it did work, it would build a general tax-cut bias into your political economy, because every time a wingnut government lowered taxes on real estate, the next responsible government would have to limit itself to revenue-neutral tax reforms in order to prevent a housing panic.

Why would "revenue-neutral" become such a keyword? And land tax is not a "tax" really. It is a return of public wealth to the public.
But of course we have seen this in the USA. They have made there for 100 years politics with "property tax relief" agenda. And property tax is the most hated tax everywhere.

by kjr63 on Sat Jun 4th, 2011 at 12:31:27 PM EST
[ Parent ]
First, of course tax increase is a market value depreciation. But only half of the housing is apartments, another half is commercial real estate.

It is less than perfectly clear to me why that matters.

The problem is that if you raise real estate taxes on your residential owner-occupiers, a number of them becomes insolvent (because this tax is discounted in the market value).

Therefore, if you have a lot of homeowners, raising taxes on residential real estate will be electorally difficult.

If you fail to tax residential real estate, you weaken the defence against real estate bubbles.

Therefore, lots of homeowners makes your real estate market harder to defend from bubbles.

The logic is broadly similar for corporate real estate, but fewer people are involved, so you lose fewer direct votes.

But second, real estate tax transfers money from economic rent payments to the demand of goods and services.

No.

Inasmuch as taxes crowd out amortisations, they don't matter to demand. Taxes destroy money, amortisation destroys money - either way, the money is destroyed.

Inasmuch as taxes crowd out interest payments, you reduce banker income, which ceteris paribus reduces demand.

Which is a feature, not a bug, because bankers' demand profile tends to be undesirable (a notably higher fraction of their spending goes to renting politicians and buying pundits than is normal for a citizen of a democratic country). And you can always compensate for the lost demand by spending on more productive things.

Why would "revenue-neutral" become such a keyword?

Because if you take more home in taxes than previously, then ceteris paribus people will have a harder time meeting predetermined financial commitments like debt servicing. People take out debt based on the current tax regime, meaning that if you have high private debts, raising taxes becomes harder. Homeownership promotes private debt, because people have to take out mortgages.

So widespread homeownership increases resistance to tax increases.

And land tax is not a "tax" really. It is a return of public wealth to the public.

All taxes are under a fiat currency.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 4th, 2011 at 05:24:36 PM EST
[ Parent ]
The problem is that if you raise real estate taxes on your residential owner-occupiers, a number of them becomes insolvent (because this tax is discounted in the market value).

If their mortgage goes underwater, it does not mean they are insolvent, if their other wealth increases. You cannot decide a household wealth only from the balance sheet of their mortgage.
And anyway, this is an issue of politics. That is a very poor starting point for seeking remedies. Politics must follow policy, not the other way around.

Inasmuch as taxes crowd out amortisations, they don't matter to demand. Taxes destroy money, amortisation destroys money - either way, the money is destroyed.

No. This is the central point. Property tax destroys economic rent. Labour tax destroys wealth. A whole different thing.

Inasmuch as taxes crowd out interest payments, you reduce banker income, which ceteris paribus reduces demand.

It is not ceteris paribus at all. When banker incomes are economic rent (created interest charges over existing wealth, like land, real estate, shares etc.) these "incomes" are the actual "the beef" that destroy demand. This is exactly what property tax helps to get rid of.

by kjr63 on Sun Jun 5th, 2011 at 04:42:47 AM EST
[ Parent ]
If their mortgage goes underwater, it does not mean they are insolvent, if their other wealth increases.

But it won't.

Household's bankable assets are basically houses and pensions. And raising real estate taxes will not increase the nominal value of their pensions.

And anyway, this is an issue of politics. That is a very poor starting point for seeking remedies. Politics must follow policy, not the other way around.

As I've pointed out in the context of the Euro crisis, it is unwise to design a system that grants a structural advantage to bad policies.

When banker incomes are economic rent (created interest charges over existing wealth, like land, real estate, shares etc.) these "incomes" are the actual "the beef" that destroy demand.

Look, the household doesn't care whether it pays rent to the taxman or to the bank. It loses the income either way.

The banker does care, because he gains income in the first case and not in the second. So the banker will have less money to spend. This destroys demand.

There's no problem with that, because the government can always spend enough to ensure full employment. But that's the spending side, not the taxation side.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 5th, 2011 at 05:00:40 AM EST
[ Parent ]
Look, the household doesn't care whether it pays rent to the taxman or to the bank. It loses the income either way.

Yes.

The banker does care, because he gains income in the first case and not in the second. So the banker will have less money to spend. This destroys demand.

No. As i explained. With this logic, the production is useless.

There's no problem with that, because the government can always spend enough to ensure full employment. But that's the spending side, not the taxation side.

Yes and no. If the created money is extracted by rentiers, no jobs will follow. Only asset price inflation of the wealth already in place.

by kjr63 on Sun Jun 5th, 2011 at 05:35:23 AM EST
[ Parent ]
No. As i explained. With this logic, the production is useless.

Can you elaborate? Or link to your explanation? Aren't we talking about nominal demand?

by generic on Sun Jun 5th, 2011 at 07:21:05 AM EST
[ Parent ]
Rent/interest are payments for nothing. There is no service or goods exchange behind it, no labour involved. If this money is instead used for public consumption (as taxes) this money then circulates in the hands of wealth creators, labour and capital, not rentier. And when the interest of labour and capital grows, there will be more wealth and more exchange and more consumption. Both (real) investment demand and wage purchase power and equal income distribution.

(And there is also multiplier effect).

by kjr63 on Mon Jun 6th, 2011 at 03:47:58 AM EST
[ Parent ]
While I disagree that a modern monetary system works like that you probably have a case if we look at the lunatic Euro arrangement. And generally I find nothing wrong with taxing rentiers.
by generic on Mon Jun 6th, 2011 at 08:36:53 AM EST
[ Parent ]
Rent/interest are payments for nothing.

Well, no.

Rent is payment for the use value of the land you are occupying. That land could have been used for warehousing, farming, water storage, sewage treatment or any number of other things. The fact that you are living there means that it can't be used for those things. Rent is what you pay to make sure people don't use your living room for sewage processing. That has a real value.

Interest is payment for deployment of state power (money) to serve your goals. That, as well, has a real value.

If this money is instead used for public consumption (as taxes)

But taxes do not create or enable public consumption. Public spending creates public consumption. You do not need to tax in order to spend - you need to tax in order to prevent other people from spending (because you want to free up more capacity in the private economy than the inefficiencies in the private sector create automatically).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jun 6th, 2011 at 01:49:04 PM EST
[ Parent ]
That has a real value.

Of course it has real value. And huge value indeed it has. But this is not created by the title holder. Paying rent to title holder, or interest extractor, without any labour nor entrepreneurship, creates additional cost to market prices.

Interest is payment for deployment of state power (money) to serve your goals. That, as well, has a real value.

I was talking about interest created over existing wealth. If interest is not a return to productive capital, whatever the mechanism is, it is just "rent" and again just an additional, unnecessary, cost.

by kjr63 on Mon Jun 6th, 2011 at 06:04:44 PM EST
[ Parent ]
Of course it has real value. And huge value indeed it has. But this is not created by the title holder. Paying rent to title holder, or interest extractor, without any labour nor entrepreneurship, creates additional cost to market prices.

No, the market price does not depend on whether it is extracted by the man who created the value or by someone else. If I can deny you an object of value, I can get you to pay for it, whether I created it or not.

There are advantages to taxing rents, but lower cost of living is not one of them.

Interest is payment for deployment of state power (money) to serve your goals. That, as well, has a real value.

I was talking about interest created over existing wealth.

Interest is still a payment for services rendered. Specifically, it is a payment for the service of not sending goons with guns to kick you out of your home. (That's also the service taxes are paid for.)

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jun 7th, 2011 at 04:47:57 AM EST
[ Parent ]
No, the market price does not depend on whether it is extracted by the man who created the value or by someone else.

Yes it does. If i pay more production costs (less economic rent) in the markets, then there is more production incomes in the market. And so more supply relative to demand.

If I can deny you an object of value, I can get you to pay for it, whether I created it or not.

It is called rent, or monopoly profit. (Or perhaps interest).

There are advantages to taxing rents, but lower cost of living is not one of them.

Lower prices, equal income distribution, poverty abolished and meritocratic society. From pure economic point of view.

Interest is still a payment for services rendered, Specifically, it is a payment for the service of not sending goons with guns to kick you out of your home.

You mean mafia protection against the government?


(That's also the service taxes are paid for.)

And this second payment is for government protection against the mafia?

by kjr63 on Wed Jun 8th, 2011 at 06:11:15 AM EST
[ Parent ]
kjr63:

Interest is still a payment for services rendered, Specifically, it is a payment for the service of not sending goons with guns to kick you out of your home.

You mean mafia protection against the government?

More likely enforcers of the eviction order.

kjr63:


(That's also the service taxes are paid for.)

And this second payment is for government protection against the mafia?

In the larger order of things yes, but I think Jake is referring to the uniformed goons with guns and badges that the government employs to take people away when they do not pay their taxes.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Wed Jun 8th, 2011 at 10:22:51 AM EST
[ Parent ]
Interest is still a payment for services rendered. Specifically, it is a payment for the service of not sending goons with guns to kick you out of your home. (That's also the service taxes are paid for.)

BTW, why only landless need this "protection?" Not owners? They pay neither interest, rent nor taxes.

One would think that property owners need protection against the poor, right?

by kjr63 on Wed Jun 8th, 2011 at 06:27:09 AM EST
[ Parent ]
That's why property owners pay taxes.

Anyway, John Stuart Mill altready theorised about private property along these lines:

Further, in the social state, in every state except total solitude, any disposal whatever of them can only take place by the consent of society, or rather of those who dispose of its active force. Even what a person has produced by his individual toil unaided by any one, he cannot keep, unless by the permission of society. Not only can society take it from him, but individuals could and would take it from him, if society only remained passive; if it did not either interfere en masse, or employ and pay people for the purpose of preventing him from being disturbed in the possession. The distribution of wealth, therefore, depends on the laws and customs of society. The rules by which it is determined, are what the opinions and feelings of the ruling portion of the community make them, and are very different in different ages and countries, and might be still more different, if mankind so chose.
(diary)

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 8th, 2011 at 06:41:23 AM EST
[ Parent ]
Why does labour pay taxes?

Mill is obviously right.

by kjr63 on Wed Jun 8th, 2011 at 10:35:10 AM EST
[ Parent ]
..and even if we had this "protection money circle," that does make it right nor change economic laws.
by kjr63 on Wed Jun 8th, 2011 at 10:46:39 AM EST
[ Parent ]
No. As i explained. With this logic, the production is useless.

For creating demand?

Yes. Production creates no demand. And more to the point, taxing away rents certainly does not create demand.

Spending creates demand.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 5th, 2011 at 10:04:35 AM EST
[ Parent ]
"Yes. Production creates no demand"

Spending and production are chicken and egg.

"..taxing away rents certainly does not create demand."

Of course it does. It removes economic rent from market prices. When prices come down to the actual cost of production, there is more exchange, more consumption and more wealth. This is the basic idea of Smith and Marx. And this is why Smith called ground rents as ideal tax base.

Labour cannot spend, because they pay from their earnings both taxes and and rent/interest for existing wealth. If they would pay only rents (and rents are collected by tax collector) they could also afford housing, right? And this is achieved simply by cutting off the parasite.

by kjr63 on Mon Jun 6th, 2011 at 03:18:21 AM EST
[ Parent ]
Spending and production are chicken and egg.

Say's fallacy.

Of course it does. It removes economic rent from market prices.

No, it just makes that rent go to the state instead. While there is a strong economic justification for this, it is not that it lowers prices or increase demand.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jun 6th, 2011 at 01:51:23 PM EST
[ Parent ]
Say's fallacy.

Not.

No, it just makes that rent go to the state instead.

To nurses, teachers, police, roads, infrastructure. Without rentier, land does not go away, without production, we have nothing. See the difference between wealth creation and wealth extraction?

by kjr63 on Mon Jun 6th, 2011 at 06:41:43 PM EST
[ Parent ]
No, it just makes that rent go to the state instead.

To nurses, teachers, police, roads, infrastructure.

No. Taxes do not fund spending.

Unless the rentier was planning to spend the money on real goods and services, taxing it away does nothing to create spending room for the sovereign (nor, conversely, does it greatly affect demand - which is why tax-and-spend policies are effective in a depression).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jun 7th, 2011 at 05:57:36 AM EST
[ Parent ]
No. Taxes do not fund spending.

That's semantics. In that model, you need to destroy money to avoid it becoming worthless.

Unless the rentier was planning to spend the money on real goods and services, taxing it away does nothing to create spending room for the sovereign.

If you tax rentier, you destroy costs. If you tax labour you destroy wealth.
If money creation creates just rents/interest, it destroys wealth. And to avoid destruction, you must stop printing money, right? Like Michael Hudson says, interest grows exponentially, productivity linearly.
Keynesians seem to think that more money = more wealth. That's not the case. The issue is income distribution, not money creation.

by kjr63 on Sun Jun 12th, 2011 at 05:56:13 AM EST
[ Parent ]
That's semantics. In that model, you need to destroy money to avoid it becoming worthless.

Only if the rentier was planning to spend it.

Money that just sits in your bank account does not cause inflation.

If you tax rentier, you destroy costs.

You keep saying that, but it's just not so.

If you tax the rentier, you make sure that the rent is paid to the tax man rather than the private rentier. But that does not make the rent go away - the user still has to pay it.

What it does do is alter the term structure of the rent - from being paid up front in the asset price to being paid over time in taxes. Which is helpful in preventing bubbles, but not make the rent any lower in and of itself.

Like Michael Hudson says, interest grows exponentially,

But it does not, unless you allow scammy stuff like negative amortisation loans.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 12th, 2011 at 08:35:03 AM EST
[ Parent ]
Money that just sits in your bank account does not cause inflation.

Neither wealth creation. Why should government create money to somebodys bank account? That is not the function of money.  Why should rentier accumulate this capital and not the wealth creator?

If you tax the rentier, you make sure that the rent is paid to the tax man rather than the private rentier.

You don't see the difference?

But that does not make the rent go away - the user still has to pay it.

You keep saying this, but i have never said that rents go away. Labour taxes go away.

What it does do is alter the term structure of the rent - from being paid up front in the asset price to being paid over time in taxes.

Less unproductive debt and interest.

Which is helpful in preventing bubbles, but not make the rent any lower in and of itself.

Bubbles and labour taxes (=wealth transfer from the poor to the rich).

But it does not, unless you allow scammy stuff like negative amortisation loans.

It does, if interest is not a return to productive capital.

by kjr63 on Mon Jun 13th, 2011 at 09:19:12 AM EST
[ Parent ]
Why should rentier accumulate this capital and not the wealth creator?

Money != capital.

And there's no reason the rentier should get to keep that money. I'm just pointing out that taking it away from him will not change anything until such time as he might have wanted to spend it. Money only matters when it is used.

When you believe that you can lower labour taxes and raise property taxes, and that these will compensate each other, you are engaging in a version of the loanable funds fallacy. The term structure of payments and the valuation of collateral matters, not just net present value.

If you tax the rentier, you make sure that the rent is paid to the tax man rather than the private rentier.

You don't see the difference?

On the distribution of wealth? Absolutely. On your political culture? Absolutely. On consumer prices? No.

But that does not make the rent go away - the user still has to pay it.

You keep saying this, but i have never said that rents go away. Labour taxes go away.

And as I do not tire of pointing out, your policy proposal is unstable against a tax-cut government. Because asset prices are easier to inflate than deflate, and property taxes are therefore easier to cut than to raise.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jun 13th, 2011 at 05:17:52 PM EST
[ Parent ]
When you believe that you can lower labour taxes and raise property taxes, and that these will compensate each other, you are engaging in a version of the loanable funds fallacy.

Not really. Property taxes are a subset of capital taxes, and the point of capital taxes is to force money into motion.

This has nothing to do with money being too cheap. The aim of capital taxation is to move money out of the fake lalala casino economy into the productive economy - and you can only do this by making the casino economy so unprofitable that investors are forced to do something useful with their cash.

"Useful" meaning "physically or culturally productive" - i.e. more than a speculative fiction.

Property is a hybrid store of value that has a basic utility value - it provides a roof over your head - and a capital/investment value that can be multiply leveraged.

If you don't tax the capital value, you get a bubble followed by a crash, because the capital value will always be multiply leveraged in various unlikely schemes, and in bubble land, what goes up must come down.

What you shouldn't tax is the basic utility value. And ideally you should also run a housing policy that keeps the utility cost so low that it doesn't start mutating into significant investment capital.

The real reason property taxes don't work like this is because the 0.1% who benefit from vast estates don't want them to. Slapping a fixed 10% annual tax on the largest land + property owners - say from £1.5m upwards - would crash the country estate market and force them to sell their palaces to the state.

Some of these estates are absolutely vast, with literally millions of acres owned by a relatively small number of private landowners.

The UK actually did something similar to this in the 1950s and 60s. The results were bad for the estate owners, but good for everyone else. Shrinking price differentials made the housing market a much more interesting and accessible place.

It's possibly not a coincidence that this period coincided with a massive boom in new housing development.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jun 13th, 2011 at 09:58:29 PM EST
[ Parent ]
That's all obviously true.

It is also completely tangential to my point, which is that you cannot both have a high fraction of owner-occupiers and responsible real estate taxation, because that is unstable against tax-cut populists: The tax-cut populist gets to enjoy the bubble, the responsible party that comes after it gets to clean up the mess. That only works if either (a) the voters understand that the pain they suffer during the cleanup is actually caused by the irresponsible tax-cutters, not the responsible adults who raise real estate taxes. Or (b) the fraction of owner-occupiers (and their dependents) is sufficiently small that you can fuck them over with relative electoral impunity.

I would not bet a lot of money on (a), let alone an election campaign.

Of course, you could get creative and automatically index mortgage principals to some real estate index. That would prevent homeowners from going underwater when the market tanks (and reduce their ability to play the leverage game). But then you'll have your banks running equity risk, and I am not completely sanguine about the implications of that for financial stability.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jun 14th, 2011 at 12:03:36 AM EST
[ Parent ]
In that scheme you'd get controlled equity risk vs uncontrolled explosive equity risk - the latter being the inevitable outcome of the current system, and Not a Good Thing.

So I wouldn't see controlled equity risk as a problem, because any scheme that controls risk is also going to lower volatility. It becomes hugely less likely that the entire economy will implode because of a bubble, and the real risk of going underwater becomes much lower for everyone.

As for the political argument - you can't immediately fix a democratic deficit by moving money around. You need to have decent representation first - as in policy influence at every level, and not just token show-voting every few years - and then you can start on the rest.

Unfortunately with the current system, even if there's an outbreak of something approaching bottom-up democracy, it's soon co-opted into the usual economic tyranny, making power redistribution politically impossible.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Jun 14th, 2011 at 04:30:04 AM EST
[ Parent ]
In that scheme you'd get controlled equity risk vs uncontrolled explosive equity risk

You also get a huge incentive for the financial sector to encourage bubbles (albeit a smaller one for homeowners to participate in them).

As for the political argument - you can't immediately fix a democratic deficit by moving money around.

But my point is that high property taxes requires that property holders are not a politically effective constituency.

In other words, they either have to be a small constituency, or they have to be labouring under a democratic deficit that prevents a large constituency from materially affecting policy.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jun 14th, 2011 at 06:49:21 AM EST
[ Parent ]
It's possibly not a coincidence that this period coincided with a massive boom in new housing development.

In Finland happened, after so called "Renter Law" (1919), in the 1920's a massive boom in agriculture and development. Over 100 yrs long extreme poverty in countryside was abolished in only 10 years, simply by dismantling the feudals.

All "social programs" and "birth control education" schemes were waste of time, only thing that was needed was kicking out the parasite (the lords), and liberate people from rents.

by kjr63 on Sat Jun 18th, 2011 at 08:34:41 PM EST
[ Parent ]
...only thing that was needed was kicking out the parasite (the lords), ...

There we goooooo.  Everyone paying attention?

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Sat Jun 18th, 2011 at 08:48:15 PM EST
[ Parent ]
When you believe that you can lower labour taxes and raise property taxes, and that these will compensate each other, you are engaging in a version of the loanable funds fallacy.

They will more than compensate, because increasing wealth creation cannot affect negatively to any payments or valuations now or future.

On consumer prices? No.

Of course prices will not fall, because increasing supply creates increasing demand. Let's put it this way: more value with same price; more wealth, less parasites.

by kjr63 on Sat Jun 18th, 2011 at 08:11:09 PM EST
[ Parent ]
One elaboration:

increasing supply creates increasing demand

To be more precise, income distribution to wealth creators creates increasing demand in a parasite-free economy. With multiplier effect.

by kjr63 on Sat Jun 18th, 2011 at 08:16:31 PM EST
[ Parent ]
They will more than compensate, because increasing wealth creation cannot affect negatively to any payments or valuations now or future.

You are confusing stocks and flows. You cannot use higher income tomorrow to answer margin calls today.

Of course prices will not fall, because increasing supply creates increasing demand.

Say's fallacy.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 19th, 2011 at 10:00:24 AM EST
[ Parent ]
"general tax-cut bias?" = non-personal taxation?
by kjr63 on Sat Jun 4th, 2011 at 10:02:17 AM EST
[ Parent ]
If you forbid people to buy with the intention of letting the flat, you are forcing people to buy or else. How would that be an improvement?

Because it means there are fewer houses to buy, and therefore prices for buyers are higher. And because landlords have to make a guaranteed return - or they lose the property - rents are higher too.

Just regulate the price increase while letting buy to let happen and you may find that the price adjustment will be a lot faster.

Rent regulation is Immensely Unserious.

I think there may still be some vestiges of regulation left in London, but no one in government is going to mind much if there's a new generation of rich landlords.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Jun 3rd, 2011 at 04:53:43 AM EST
[ Parent ]
but no one in government is going to mind much if there's a new generation of rich landlords.

in that case the limit of housing benefit and rents is a funny way to go about it.  On the plus side it should collapse the BTR market and thus bring house prices back into the reach of the less rich.

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Fri Jun 3rd, 2011 at 08:05:16 AM EST
[ Parent ]
Hmmm.

Torygraph

In an attempt to end the era of heavily subsidised (council house) rents, the Coalition's new system will lead to tenants paying as much as 80 or 90 per cent of the market rate. "This is still about there being affordable rent, but it needs to be more realistic. At the moment, if you get a council house you are really winning the jackpot," said a source. "In terms of the rent you pay it is very, very heavily subsidised. You may pay only a third or a half of the market rate."

And increasing council rents will help push up private rents.

Plentiful council housing is one of the best ways of keeping rents down. But too much of that would annoy "the market."

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Jun 3rd, 2011 at 08:40:06 AM EST
[ Parent ]
Lets see, Council housing has basically not been built since roughly the early 1980's when the Thatcher government ruled to stop councils spending money on the council housing that they sold under the house sales scheme on building new council houses. So those houses  that are not renting at market rates, were constructedd at best at 1970's prices, so don't have the recent price explosions as part of their costs.

 This is nothing more than an attempt to  transfer the cost of local government from taxpayers over to renters

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Fri Jun 3rd, 2011 at 09:21:31 AM EST
[ Parent ]
"Because it means there are fewer houses to buy, and therefore prices for buyers are higher."

Yes, but the alternative means fewer houses to rent, and therefore prices for renters are higher. Which is worse when there are already too many owner-occupied houses.

"And because landlords have to make a guaranteed return - or they lose the property - rents are higher too."

Well, having no tenant certainly does not give you a guaranteed return.
Now you may argue that banks should not be allowed to demand a guaranteed return. But to talk about banning buy to let seems crazy.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Fri Jun 3rd, 2011 at 11:50:04 AM EST
[ Parent ]
Well, having no tenant certainly does not give you a guaranteed return.

When there's high demand this doesn't happen much. A bigger problem - so I'm told - is the cost of wear and tear, decoration, and repairs after tenants leave.

As for landlords, owner-occupiers traditionally rent out spare rooms anyway. So owner-occupiers don't necessarily push rents up. Generally they're less likely to be demanding about rent because they don't have to pay the extra cost of repairs/maintenance/redecoration. And they can choose to rent out casually, or not.

BTL landlords don't have that choice. They're on the hook for all expenses, they don't live with tenants so their costs are likely to be higher, and they have to pass those costs on tenants to keep up with payments.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Jun 3rd, 2011 at 12:19:31 PM EST
[ Parent ]
This is just a hunch, but I guess Helen would be pretty satisfied with "regulating BTL so it is no longer pushing BTO out of the market". Giving rights to tenants would be a logical step.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Sun Jun 5th, 2011 at 11:27:58 AM EST
[ Parent ]
There has been a recent big push of people going for second home ownership as substitutes for a pension scheme

Same here...Some friends actually started to behave totally crazy...buying and buying...mortgage after mortgage...Luckily they have tenants and rents are pretty high. But if any of them lose just one job it's going to be hell. Some even calculated that they need to buy like 6 or 7 properties to be able to live comfortably after retirements. Well housing market is pretty strong here for now but I expect it to follow European and USA at some point. We do not live on another planet and we are connected big time financially with all of you guys.
It was on TV the other day that retirees are financing their life style increasingly by taking loans on their equity.
I wonder if there will be a state pensions in say 10-15 years and as market can crash any time they can lose peoples retirement funds in a day...Interesting and scary times we live in...


Science without religion is lame, religion without science is blind...Albert Einstein

by vbo on Wed Jun 1st, 2011 at 08:27:58 PM EST
[ Parent ]
Those must be either some of the best mortgage rates in history or some really creative financing.  What would an equivalent of that same £1,000/month flat sell for?

As I recall the math on Mig's old house in Leyton, which seemed to me to be a pretty standard middle-class terraced house inside the M25, suggested buying was insane, because you could rent the actual house for a fraction of the cost of renting the money to buy it (without even taking upkeep and other costs of ownership into account).

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Wed Jun 1st, 2011 at 06:30:58 AM EST
buying it would have been costly, but it was the deposit that would have been prohibitive. The mortgage would probably have been £800 or so, Mig would know better.

but imo to be within cycling distance of your job in the City carries a considerable premium where you're saving £150 - £250 a month in commuting charges. Plus personal time saved.

I compare London to a black hole, the event horizon where the normal laws break down is probably the M25. Leyton is well within that.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Wed Jun 1st, 2011 at 06:41:52 AM EST
[ Parent ]
buying it would have been costly, but it was the deposit that would have been prohibitive. The mortgage would probably have been £800 or so, Mig would know better.

The way I remember it we were paying less than £1000/mo for rent but would have paid over £1500/mo for a mortgage.

Of course, when you're paying rent all the rent minus owner's expenses goes to the owner, whereas when you're paying a mortgage the mortgage minus interest stays with you, so it might still make sense to buy at £1500/mo over renting at £1000/mo. However, I just couldn't sustain an outlay of £1500/mo plus owner's expenses, whereas I could sustain a rent of £1000/mo. So there was no choice. The "better option" was simply unaffordable.

I'm shocked at the prices you refer in the diary. £2500/mo for rent in the friggin' boonies? What?

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Wed Jun 1st, 2011 at 06:57:35 AM EST
[ Parent ]
Well, as I said, it all breaks down inside the M25, especially given buy-to-let, which I forgot to talk about.

Yes, £2500 a month. And it's prone to flooding. Madness, but that's what it's like

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Wed Jun 1st, 2011 at 07:04:35 AM EST
[ Parent ]
Leyton is in area 3 of the Tube well inside the M25. What has gone on with prices since I left in 2008? 2500 for rent was Bermondsey prices in 2008.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 1st, 2011 at 07:06:52 AM EST
[ Parent ]
Out at this distance, being London comuterland, just over an hour by train from St Pancras station, it's £800 to rent a 2 bed house/flat, with an extra £600 to spend on monthly train tickets to get to work if you work in the London. so that's clos to £17,000 a year before you start to think about food and bills

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Wed Jun 1st, 2011 at 07:26:23 AM EST
[ Parent ]
How on earth did I manage to rent a 3 bed house for less than 1000 in Tube area 3, which meant 100/mo per adult for public transport? What's happened since 2008?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 1st, 2011 at 07:47:28 AM EST
[ Parent ]
well the bubble went up to it's peak, plus buy to let percentage bonus so market rate is set  at that price point. and everyone else then rents at that market rate.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Wed Jun 1st, 2011 at 07:50:56 AM EST
[ Parent ]
Can you do me a favour and upload a static copy of this graph?

Looks like the bubble did deflate, got stabilised and is deflating again.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Wed Jun 1st, 2011 at 08:18:29 AM EST
[ Parent ]
i know it's the express, so as realistic as rollerskating Hippos

Express.co.uk - Home of the Daily and Sunday Express | UK News :: 2015 housing recovery predicted

Improvements to the major banks' balance sheets should lead to them loosening their strict lending criteria, enabling more people to buy a home.

The previous upturn in the housing market was caused by a mismatch between supply and demand, but the recovery petered out as economic uncertainty caused potential buyers to sit on their hands, while those who wanted to press ahead with a purchase continued to face problems raising the mortgage finance they needed.

But CEBR said with just 130,000 new homes built in 2010, around half the level needed to keep pace with the growing number of households, prices should increase by 16% between 2011 and 2015, the equivalent of a gain of around 4% a year.

The recovery will be more marked in London, with demand from international buyers, as the pound remains weak, set to push up the cost of housing in the capital by around 2% a year more than across the UK as a whole.


Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Wed Jun 1st, 2011 at 08:38:20 AM EST
[ Parent ]


Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Wed Jun 1st, 2011 at 08:38:56 AM EST
[ Parent ]
It hasn't changed much. You were in an unpopular area.

The rent for that area today is still around £1000-1200 for a 3br.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Jun 1st, 2011 at 09:16:24 AM EST
[ Parent ]
Yeah, I guess upstanding white English don't want to share their neighbourhood with pakis, blacks, polish plumbers, students, kiwis and aussies on their 2 years abroad, white trash, and other assorted rabble.

If Helen is complaining that prices out in suburbia are outrageous, well, colour me unimpressed.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Wed Jun 1st, 2011 at 09:35:43 AM EST
[ Parent ]
£1k pcm is about what you'd pay for a 4 bed out here.

I think I may have mentioned the local manor house - not a huge country house, but more than 4 beds - is being rented for £2k pcm.

At the other extreme the top line London properties go for around £1-3m for a penthouse flat in a des area, to £3-5m for a family house somewhere on the outskirts, two or three times that closer in, and £20-40m for a premium property near the centre.

There are rumours the flats in Hyde Park One - supposedly the most expensive tower block in London - sold for around £70m.

An estate near me with four substantial houses and a fair amount of land sold for around £6m recently.

Typical "successful middle class" homes - lawyers, business owners, small-scale entrepreneurs, minion-class board members, thieves and gangsters - are consistently between £1-2m in most of the UK, and maybe double that around the London green belts.

I have no idea how these prices compare to the rest of the EU.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Jun 1st, 2011 at 09:57:25 AM EST
[ Parent ]
I'm complaining that the entire UK housing market is hopelessly distorted and massively over-priced.

As for Leyton being "cheap", it has always been true that you can always tell Londoners as they (mostly) live outside the M25. London is full of people who weren't born there and are on their way somewhere else (better probably).

Anybody who wants to won a house with garden cannot possibly afford london anymore, so they leave.

As this letter in the Independent explained today (I didn't write it);-

Once upon a time, not too long ago, a single bread-winner could go out and earn sufficient money to both feed a typical family and pay a reasonable mortgage. Nowadays two bread-winners are struggling to earn sufficient to be able to save for a deposit ("Britain to become a nation of renters", 31 May).

Obviously something has gone badly wrong; either rates of pay are far too low or house prices are far too high. The only two solutions seem to be to raise wages or to build a lot more council houses to reduce house prices.

Incidentally, if the principle of "right to buy" is such a good principle, why isn't it extended to the private rented sector?



keep to the Fen Causeway
by Helen (lareinagal at yahoo dot co dot uk) on Wed Jun 1st, 2011 at 10:01:32 AM EST
[ Parent ]
Anybody who wants to own a house with garden
That's why the diary is called "Strange Housing Priorities". My parallel with suburbia does not seem out of place. If "Londoners" live "outside the M25" (i.e., outside the Greater London Authority let alone London proper) and everyone wants "a house with a garden" it's not so different from America's sprawl where people will mortgage themselves to the hilt to own a huge house out in the desert and commute 2h each way in traffic jams.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 1st, 2011 at 10:28:49 AM EST
[ Parent ]
where people will mortgage themselves to the hilt to own a huge house out in the desert and commute 2h each way in traffic jams.

Dude, we don't all live in Southern California. ;)

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Wed Jun 1st, 2011 at 10:48:15 AM EST
[ Parent ]
I know... But it appears "Ground Zeros" of the real estate bust are a dime a dozen in the US. Denver, Florida...

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 1st, 2011 at 10:51:47 AM EST
[ Parent ]
Once upon a time, not too long ago, a single bread-winner could go out and earn sufficient money to both feed a typical family and pay a reasonable mortgage. Nowadays two bread-winners are struggling to earn sufficient to be able to save for a deposit ("Britain to become a nation of renters", 31 May).

Obviously something has gone badly wrong; either rates of pay are far too low or house prices are far too high. The only two solutions seem to be to raise wages or to build a lot more council houses to reduce house prices.


Same here and I suppose almost everywhere...

Science without religion is lame, religion without science is blind...Albert Einstein
by vbo on Wed Jun 1st, 2011 at 09:04:19 PM EST
[ Parent ]
Out at this distance, being London comuterland, just over an hour by train from St Pancras station, it's £800 to rent a 2 bed house/flat, with an extra £600 to spend on monthly train tickets to get to work if you work in the London.

That's insane.

An hour by ordinary commuter rail... that's what, 100 km? And you're not crossing any expensive bridges or tunnels.

Two adults, monthly rail cards, 100 km, no choke points, that shouldn't work out to more than £100-200. Tops.

What has the UK been doing to its rail net?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jun 1st, 2011 at 10:18:14 AM EST
[ Parent ]
But if you move within area 6 of the Transport for London system you can cut those commute costs to under 200 pounds a month. And you will be able to find a 2-bed for 800 in that range (albeit in an "unpopular" - i.e., full of the wrong kind of regular people).

It's all about choices.

But, yes, I was just checking that a 1-way ticket from Luton to St. Pancras (30 minute train ride) costs 13 pounds off-peak. So spending 30 pounds a day commuting into London (plus some London public transport) does not seem impossible.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Wed Jun 1st, 2011 at 10:22:55 AM EST
[ Parent ]
But, yes, I was just checking that a 1-way ticket from Luton to St. Pancras (30 minute train ride) costs 13 pounds off-peak.

But any properly run rail net has a tiered price scheme, where greater commitment on volume nets you lower price. That separates chumps and tourists from their money more efficiently, while still allowing commuters to pay only the (lower) true economic cost.

If you buy a monthly card and you're not getting at least 50 % off the one-way price, you should feel like someone's cheating you. Coz they would be. Hell, in Copenhagen, a ten-trip card gives you 30-40 % off the one-way price, and the monthly card breaks even with the ten-ticket packs at around 40 trips per month.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jun 1st, 2011 at 10:34:10 AM EST
[ Parent ]
There are ways to save. One way is to buy a ticket before 6pm the previous evening.
Advance - Buy in advance, sold in limited numbers and subject to availability. These tickets are only valid on the date/train specified.      
Off-Peak - Buy any time, travel off-peak                      
Anytime - Buy any time, travel any time
Season - Unlimited travel between two stations for a specified period
Rovers and Rangers - Unlimited travel within a specified area. There may be a few time restrictions on when you can travel.
Railcards offer value for money if you travel by train, saving you at least 1/3 on rail fares. They cost from £18 to £26 each and are valid for 12 months. Our Railcards page shows more details. Take a look at our discounts page to see what other discounts are available.
Various discounts are cumulative, resulting in a Byzantine faer system. But it's still expensive.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 1st, 2011 at 10:43:27 AM EST
[ Parent ]
Going to the Railways season ticket calculator, a Luton to central London monthly season ticket with area 1-6 tube card is £406.30, without the tube it's £326

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Thu Jun 2nd, 2011 at 08:21:29 AM EST
[ Parent ]
Also, Luton is far worse than many of London's "unpopular" areas.

There are people out here who commute to London regularly - about 3-4 hours by car and 2 hours by train.

But if the mortgage doesn't get you the train fares will.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Jun 3rd, 2011 at 05:01:14 AM EST
[ Parent ]
Jesus, just move somewhere in tube areas 4-6.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Fri Jun 3rd, 2011 at 05:11:27 AM EST
[ Parent ]
Those times are both ways.

An hour into London isn't much worse than getting in from (say) the outer limits of Zone 6.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Jun 3rd, 2011 at 05:20:16 AM EST
[ Parent ]
Just to take an extreme example, Chesham to Bank is an hour and fifteen minutes.

Brighton to Bank is an hour and nineteen.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri Jun 3rd, 2011 at 08:22:16 AM EST
[ Parent ]
Here ya go.  5BR house on Worrin Road in Brentwood that's up for both sale and rent (always helpful when you can compare them on the same house obviously).

You can rent it for £2,950 per month or buy it for £950k.

Good way to figure out if this makes sense: Divide the annual rent by the interest rate, and adjust the interest rate up (thus the price down) to take into account maintenance, insurance, taxes, etc.

P = (RPCM*12)/i

Actual interest alone is going to run you more than 4%, but even assuming 4% the house is only worth £885k.

At 6% -- typically thought of as a good sort of indifference point between buying and renting -- the house is only worth £590k.  At 9% -- a good point to say, "Okay, time to buy before I miss my chance" -- the house is only worth £393k.

That house can't even fetch enough in rent to cover the interest payment, let alone principal and cost of ownership.

Here's another for rent at £900/month.  One next to it is selling for £215k.  At 5% interest, it's about spot on.  On a fairly generous 7% assumption, it should go for £155k.  At 9%, £120k.

That's similar to the math on Mig's place in Leyton.  It's less bubblicious than the 5BR, but still quite bad.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Wed Jun 1st, 2011 at 07:54:07 AM EST
[ Parent ]
Worrin road (only 3 miles away form me) probably ranks as one of the most desirable places in Essex. Leafy, quiet, upper middle class (very non-Essex) grass verges on pavements and walking distance from a fast train into the City. Front door to Bank (in the middle of the City) in 35 - 40mins easy.

So wealthy that Shenfield still has two very up-market butchers (one is a game supplier), a fish shop, a greengrocers as well as a Tesco.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Wed Jun 1st, 2011 at 08:06:51 AM EST
[ Parent ]
Those things are relevant when comparing neighborhoods.  But if people are willing to pay more to live in the area, they'll be willing to pay more in either mortgage or rent.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Wed Jun 1st, 2011 at 08:22:28 AM EST
[ Parent ]
Well since 2009 the Financial services Authority has put a limit of a maximum of 3*earnings as an amount that can be loaned as a mortgage, so on mean London income, the maximum available as a mortgage is  just under £90,000 which will mean you need quite a deposit to get anything.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Wed Jun 1st, 2011 at 09:48:54 AM EST
[ Parent ]
Or prices will have to go down.

I knew the UK housing market was insane when they started offering 5x mortgages and I still couldn't afford to by the place I was renting.

And it hasn't let up.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Wed Jun 1st, 2011 at 09:55:54 AM EST
[ Parent ]
That on its own is going to kill most of the market, when average earnings are around £21kpa.

Anyone with a £100k deposit and earning enough to afford a £200k mortgage isn't going to want to live in an area where they can afford a £300k family home.

Really what's happening is that buy-to-let is keeping prices artificially inflated. People with no choice keep renting, the owners keep cashing in.

But if rates rise the numbers won't add up, and it's unlikely rents can rise much further.

If there's a mass exodus from b2l, or mass repossessions, prices will fall by up to 30% best case.

Worst case will be Ireland 2.0.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Jun 1st, 2011 at 10:05:05 AM EST
[ Parent ]
I'm surprised Buy to Let hasn't blown up yet.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 1st, 2011 at 10:08:29 AM EST
[ Parent ]
BBC News:

The number of mortgages approved for house purchases hit a new low in April, Bank of England figures show.

At just 45,166, the number of new approvals was the lowest April figure since the Bank's records began in 1992.

Analysts said the data may have been affected by the number of public holidays in April.

However, the figures suggest that the UK property market will remain subdued in the coming months, with a low level of sales and falling prices.

The number of approvals was 4% lower than in March and 9% down on April last year.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Jun 1st, 2011 at 10:17:59 AM EST
[ Parent ]
9% down on last year when sales were terrible, that can't be good.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Wed Jun 1st, 2011 at 11:21:40 AM EST
[ Parent ]
Depends on your definition of "good."

A housing market where an entry-level mortgage is 5+ times median income is not my definition of "good." There are only two ways in which that can change: Higher incomes or lower prices. And higher incomes would take time, even if the British government had the inclination or the economic expertise to make them happen.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jun 1st, 2011 at 11:54:47 AM EST
[ Parent ]
I'm sure with 0% down and 45 years to pay the mortgage the 5-bedroom makes more sense.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 1st, 2011 at 08:14:58 AM EST
[ Parent ]
Funny how close to that we got by accident. We need to move because there will be one more of us. And we had found a place to rent.

But then we saw that, all of a sudden, it was for sale! And we were not in the flat yet so we did not feel too comfortable. I much preferred renting (hell, we probably won't even be in the same country in 10 years time...), my wife maybe swallows a little bit too easily some of the legends about housing but I tried to keep that in check.
Of course, renting in the UK is not the most pleasant situation, with the landlord able to raise the prices pretty much as he feels (that is highly regulated in France).

Anyway, we had agreed to rent it for 550 a week, which was a lot but with the nursery we had to be close to our workplace.
And we made the offer at... 480k (they were asking for 530). Which makes the rental price 5.96% of the offered price. Which they ended up accepting. So we're pretty much in the indifference zone.

On the other hand, it confirms that our Paris flat (which we failed to sell when the market just stopped) should not be worth what it would apparently sell for right now. Based on the rent (OK, maybe I could have a wee bit more but it's not too silly) it should be 260k€. And judging from the offers on the agencies (even taking 10% off) and what you read in the press it would probably go for 360k€.


Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu Jun 2nd, 2011 at 02:24:08 PM EST
[ Parent ]
In countries where tenants have rights (foreign concept, I know), there tends to be a markdown if it's occupied - so you'd want to sell when between tenants.

Or not at all - as long as the operating expenses and amortisations are paid out of revenue, it's making you free money.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jun 2nd, 2011 at 03:50:07 PM EST
[ Parent ]
I know that -but there were no tenants. The owners were leaving. So AFTER agreeing to have us as tenants (but pushing back the date when they'd vacate it) they decided to try and sell it -without telling us.

A bit unsettling when you're supposed to move 3 weeks later. With a pregnant wife and the clear knowledge that your current place already isn't enough with the number of children (well, child) you currently have.

On a side note, it's a flat with a freehold.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu Jun 2nd, 2011 at 05:17:48 PM EST
[ Parent ]
 Funny (not in the "ha-ha" sense).  I used to live in N6 and shared a house with three others.  My share of rent was ~£25-30/week, a sum which was right at the limit of what I could manage.  Before moving there, I'd lived (blissfully) in WC2--a few minutes' walk from Russell Square; and I walked to work in twenty minutes on mornings when the weather was fair.  Those were the days! (sort of).

"In such an environment it is not surprising that the ills of technology should seem curable only through the application of more technology..." John W Aldridge
by proximity1 on Wed Jun 1st, 2011 at 07:58:07 AM EST
[ Parent ]
The way I remember it we were paying less than £1000/mo for rent but would have paid over £1500/mo for a mortgage.

Depends on how long you are planning to live there. You accumulate more equity in the latter part of the amortisation schedule with a fixed-payment mortgage.

If you're only planning on living there for a year or two and take out a 20 year mortgage, you're kidding yourself if you think you're "saving up" equity. If you plan to live there for ten years, now that's a different story.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jun 1st, 2011 at 07:15:28 AM EST
[ Parent ]
That quoted bit should've been:

Of course, when you're paying rent all the rent minus owner's expenses goes to the owner, whereas when you're paying a mortgage the mortgage minus interest stays with you, so it might still make sense to buy at £1500/mo over renting at £1000/mo.

Needs moar caffeine.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jun 1st, 2011 at 07:16:24 AM EST
[ Parent ]
Independent - Britain to become a nation of renters
As opposed to what? A nation of leaseholders?

The most bizarre feature of the whole UK situation is that people mortgage themselves to own a lease, not a freehold.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Wed Jun 1st, 2011 at 08:10:45 AM EST
I have a friend who did that, worst of both worlds, with an interfering freeholder, and an inability to sell because the mortgage companys think that their is not enough time left on the leasehold (only sixty years!) to guarantee them getting their money back.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Wed Jun 1st, 2011 at 08:21:50 AM EST
[ Parent ]
Leasehold is another horrific aspect of the UK's housing market. Scotland did away with it, so should England. Oh wait, the owners wouldn't allow it.

You can have freehold on houses, it's very much worth paying the premium for and you really shouldn't buy a new house without one. It's very difficult to have freehold on a flat.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Wed Jun 1st, 2011 at 08:41:54 AM EST
[ Parent ]
Well, actually, what Scotland eventually got around to abolishing in 2002 - to the displeasure of the lawyers, who had been milking it for centuries -  was feudal tenure.

In England & Wales, Copyhold and other feudal arcana were done away with by the 1925 Law of Property Act which essentially replaced the lot with Freehold and Leasehold.

In Scotland leases do exist, but are limited to 20 years for residential (not commercial or agricultural) property, which means that they are entirely unfinanceable. That is something the government is aiming to fix shortly.

Then there's Crofting....

As for flats, there are various leasehold enfranchisement laws, and the almost entirely useless ('cos it was neutered by landlords) - but well-intentioned - Commonhold.

In the US there is of course the Condominium which is essentially a form of consensual Co-ownership based upon an agreement which was actually created in the first place by an innovative lawyer,  but 'which worked' so well it became codified and given statutory backing, State by State.

That sort of 'reality-based' approach - simply write the agreement, and see what happens - is essentially the approach I am taking.

My Community Land Partnership is just an agreement between stakeholders which brings in investors within a sort of Condominium agreement; creates an evergreen lease/right to occupy; and creates a sort of Real Estate Investment Trust (REIT) with Units redeemable in payment for rentals.

One could think of the outcome as direct investment in land rental value - or maybe as a loan to the land, rather than to the owner.

Anyway - the Community Land Partnership, is getting a lot of interest, and hopefully, a few prototypes not only for financing new build, but also for optimal funding of property, free of debt and compound interest, but with a return based upon the value of the location, and of the value invested in the location.

Watch this space.


"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Jun 1st, 2011 at 09:56:45 AM EST
[ Parent ]
A combination of continually rising house prices and pessimism about the future is threatening to send into reverse the explosion in home ownership stimulated by Margaret Thatcher 30 years ago, making Britain more like Europe, where living in rented property is the norm.
Can we pick apart this narrative?

First of all, if Maggie had to stimulate home ownership to get the UK to where it is today, then the UK 40 years ago was "more like Europe".

Then, did Maggie do more than stimulate a 30-year housing price bubble by making it easier to buy a property on credit?

Finally, prices cannot continue to rise forever beyond what's affordable. Something has to give. And a lot of "organised support" has been brought to bear on the UK housing market to avert a price crash that might have happened in 2005 or thereabouts (see here).

I claim the first "undulating plateau" starting around 2004 is a signature of artificial price support, and then they managed to restart the bubble until the Global Financial Clusterfuck. Now, London may well deviate from this national average, but still...

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Wed Jun 1st, 2011 at 10:49:39 AM EST
... would have been a lot more informative if it had been normalised to median income instead of a price index.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jun 1st, 2011 at 11:05:34 AM EST
[ Parent ]
You mean like French economist Jacques Friggit?
His famous curves show housing price index normalized to "available income" (after taxes, contributions etc...). It's useful to visualize how much of people's income is going into the property dream...

One example:

Other documents here.

by Bernard on Sat Jun 4th, 2011 at 12:50:31 PM EST
[ Parent ]
As a small question, who are the landlords in other countries in Europe it local communities? or is it  financial organisations and aristocracy?

The big maggie stimulation was to offer council tennants houses at knock down prices (based on the ammount of rent they had already paid) and use the money that came from this to cut the ammount of grant paid by central government into local councils. That cut was forwarded directly If I understand correctly onto tax cuts for the higher earner.

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Wed Jun 1st, 2011 at 11:30:59 AM EST
[ Parent ]
In Denmark, the rental market consists of (a) people who move out of a property (due to marriage, job change, etc.) but do not wish to sell due to contemporary market conditions, (b) pension funds and similar institutional investors (who like rental property because it's a nice hedge against rising housing costs for their subscribers), (c) various forms of private and semi-private cooperatives and (d) public housing, which serves as a (price) buffer and provides capacity to re-house homeless quickly.

And then you have a variety of intermediate forms between full ownership and leases, such as andelsboliger where you have a group of owners who leverage their greater collective income security and bargaining power into cheaper loans.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jun 1st, 2011 at 12:02:23 PM EST
[ Parent ]
Solutions ?

Labour are prisoners of the housing market, because the public wealth they create does not return to them. They pay it twice. First in taxes, then in rents and/or interest.

There is no way out of this basic reality without a) Property tax b) Price regulation c) Credit regulation.

by kjr63 on Wed Jun 1st, 2011 at 07:36:28 PM EST
d) land distribution to end-users may also work.
by kjr63 on Wed Jun 1st, 2011 at 07:51:11 PM EST
[ Parent ]
A fairly recent development in the U.S. is the homeowner's association. You buy a new house in a subdivision but are required to join the association that pays for maintenance of roadside grass and perhaps a community room with a pool table. Association fees can be pretty hefty, hundreds of dollars per month.

Originally the idea was that the developer started the association and then the owners took it over, but recently there has been a tendency for the developer to hand it over to one of the large nation-wide association management companies. Who have, by a legal quirk, a much easier path to foreclosure than the bank does. So if you're in trouble, you pay your association fees and get behind on your mortgage payments, which ruins your credit rating but at least you get to keep your house longer.

It is very difficult to find a new house here that does not come with such an association. And besides the foreclosure threat, they can tell you what color to paint your front door, how many cars you can have on your driveway (usually zero), and how many square feet of bluegrass must be irrigated in your garden...

http://www.nytimes.com/2011/04/15/us/15bchomes.html

by asdf on Wed Jun 1st, 2011 at 11:34:21 PM EST
It can be said, one political reality that did not change through ages (see the Romans and beyond) is the natural rentier power. Would Henry George be surprised that we went so far?

The British housing market situation is saved (or rather magnified) by the Eastern European influx. But the situation back there in emerging markets is no less absurd. The free market was efficient only for so long. What could alleviate the housing stresses within the same paradigm?

Home ownership certainly means freedom, and excess home ownership means belonging to an unstated higher social cast. But you have to take mortgage risks to get there - and there go massive financial dramas.

by das monde on Fri Jun 3rd, 2011 at 01:54:48 AM EST
Home ownership certainly means freedom,

Indeed. And higher wages and/or purchase power.

But you have to take mortgage risks to get there..

And you must pay not only the the rental value, but also the credit interest. And destroy wealth and wages so, that low income families cannot ever get there.

by kjr63 on Fri Jun 3rd, 2011 at 10:04:07 AM EST
[ Parent ]
low income families

Read "labour families."

by kjr63 on Fri Jun 3rd, 2011 at 10:07:46 AM EST
[ Parent ]
Not that it is hugely relevant to the high-powered economics being discussed in this diary, but are you all aware of the movement over here involving "tiny" houses?

The basic argument is that a few hundred square feet (tens of square meters) is enough to live in. A number of companies sell houses of this type.


http://tinyhouseblog.com/

I have not yet convinced my family members that this would be appropriate for us...

by asdf on Mon Jun 6th, 2011 at 08:34:06 PM EST
As we are discovering here in the US, no housing is affordable without a meaningful income stream.  All our frantic pumping of the real estate market finally ran head-on into decades of middle class job destruction, and down went all before it.  The living wage destruction policies implemented by Reichsmarschallin Maggie put the lie to her public reasons for Housing Act 1980.  It did not create an ownership society; it created an owned society, via a massive transfer of public property to the rentier class.
by rifek on Thu Jun 16th, 2011 at 07:07:19 PM EST


Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Fri Jun 17th, 2011 at 01:36:21 AM EST
[ Parent ]


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