2 Oct 2014, 7:54pm
economy:
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  • It’s Election year, lots of lovely pork is up for grabs

    now this looks like trouble...

    not that sort of pork…

    Bank of England to Government – we need powers to rein in the housing market

    Threadneedle Street is asking the chancellor, George Osborne, for powers to restrict the size of mortgages compared with the value of a property and borrowers’ income, in what is a major policy shift following the 2008 banking crisis. The buy-to-let market will be part of its considerations when deciding to apply any restrictions.

    Government to, well pretty much anyone

    Sod that for a game of tin soldiers, we want more people paying more money for homes – so we’ll give them a 20% bung to make it happen

    Are they ever going to learn? Imagine a parallel universe where house prices were half the cost they are. Where the Bank of England operated credit controls, like they did in the 1970s, so that you could only borrow so much of your wages. We still wouldn’t have any more houses, because we hate everything about building houses. Niccolo Machiavelli told us why, in The Prince

    It ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new. This coolness arises partly from fear of the opponents, who have the laws on their side, and partly from the incredulity of men, who do not readily believe in new things until they have had a long experience of them.

    So it is that everyone who already lives in a place, no matter how mean and ugly their hovel, thinks “I don’t want that development of mean little hovels, because it will inconvenience me/spoil the view/just piss me off”. So no more houses would be built than now. Some would say fewer would be built, but the cost of a house is determined not by the cost of building it but by the value of the land. If stupid people could be stopped from overbidding for this, these costs would fall. Nevertheless, there would be a massive boost for the common weal.

    Why? Just think of the extra fun we could all have with the money that’s no longer ticking up the numbers on our mortgages, at least. The poor could go on holiday/afford to buy food and the rich could afford to send Tarquin and Jemima to public school, although they would probably bid the price up with the new found money they weren’t pouring into housing. That’s not such a bad thing as nobody needs public schooling, whereas everybody needs to take shelter from the rain.

    No more bloody pork for the housing market, Dave. Just don’t go there. Don’t fight the tape, don’t add fuel to the fire, butt right out of it. Everything about housing is so deeply wrong in the UK, this is an area where we need Government – to stop the self-harm. But until we can put something in the water supply that cans the meme that paying rent to a landlord is wasted money, because paying rent on the money rented from a bank for a house you will never get to own outright is so much better – even though it’s just a change of counterparty. The Telegraph tells us the average working life is no longer long enough to be able to afford to buy a house. So you are renting that money.

    It’s been a bad week for a lot of proposals that will have some ghastly consequences. At the risk of sounding like David Icke here’s some obvious actions and reactions

    Death taxes, eh? Wanna know what a death tax is? This fellow knew how death taxes work, and it's not the way the retired colonels of the Torygraph were fearful of...

    Death taxes, eh? Wanna know what a death tax is? This fellow knew how death taxes work, and it’s not the way the retired colonels of the Torygraph were fearful of…

    Action:

    Ros Altmann tells us  Seven things you need to know about George Osborne’s abolition of the pensions death tax. Dear Ros, and all the others who call this a death tax –

    You can’t take it with you you stupid berks, there are no ‘king pockets in a shroud!!! The dead pay no taxes.

    Reaction:

    Rich people will featherbed their kids, who will outspend their compatriots on housing. After a couple of generations of this, we will have a dog-eat-dog society if we are lucky. If not we will have the English Revolution as the dispossessed battle the possessed in a war of all against all. The Ermine is not of the opinion that people’s children have unlimited rights to the fruit of their ancestor’s labours once these ancestors are pushing up daisies. An awful lot of people died in the past to wrest the wealth of the country, first from the King with all that Magna Carta malarkey and then from the aristocracy after the World Wars. I am all for property rights and the rule of law, and I don’t want to see the politics of envy and wealth creators stripped of the fruit of their labours. In life their property is theirs, but in death, well, they really can’t take it with them.

    wealth distribution in the UK

    wealth distribution in the UK – a 300k IHT tax-free lump sticks each child into the 5’th wealth decile of people at the high-water-mark of lifetime wealth accumulation

    To forestall the usual I worked hard for this blah blah blah, note that a) you can give money to your kids tax-free over a period while you are alive, b) ahem, you’re dead, pal, and past caring, and c) a couple can pass £600,000 to their children before IHT is charged. Divvied up across two rugrats who have zero other wealth would put each of them into the 5th decile of wealth in the UK. It would be sad to see a New Aristocracy rise from the ashes. I am sure that solutions can be found to address Pa deceasing when the child is a minor and other edge cases, but in general we are living longer – particularly the richer among us.

    I know it’s an unpopular view, all I can say is be careful what you wish for the precious fruit of your loins, and hope there’s no afterlife so you never get to hear about the results of these best laid plans 😉 The obvious side to be on in this Hobbesian choice is on the side of ancestral wealth. Just don’t mention this dude and the Reign of Terror, eh? The trouble for the ancestral wealth is that all the bad guys are already inside the country’s borders, and they will have little to lose. Also see #3 – they may not have to take up arms…

    Action:

    Help to buy, or any other cobblers like that under the banner of “assistance for people to pay too much for a house”

    Reaction:

    People pay too much for houses. D’oh. That’s what you want, Mr Cameron. yes? So that ties up loads of capital in an unproductive asset. In theory if I own a car factory and invest twice as much into it I get to make more cars in the same time, or better cars, or cheaper cars. If I pay twice as much for a house in real terms than the last person who buys it, it still keeps the same amount of rain off my head. The only people who win from that game are Buy to Letters. Who can look after themselves, thanks.

    Action:

    Loads of the proletariat earning less than £12k get to pay no tax at all. And yes, an Ermine will benefit no end, indeed I may shift my affairs as to get a higher proportion of income from ISAs if necessary.

    Reaction:

    Loads of people vote for stuff without any regard for the cost of provision. It’s a particularly hard one to undo because of all the new losers in a one person one vote system where an increasing percentage of the voters pay no tax at all. Let’s face it, turkeys don’t vote for Christmas, do they?

     

    Urgh; the Tories are just so awful.

    It seems to me they have a focus group working out “what would get unthinking people to vote for us”, write down a policy to match on a fag packet and then release it.

    Then they have this amazing PR department that somehow make people believe we “just have to do this”. Seriously, how can anyone in a £2M house complain? I bet there isn’t a single person who fits the “would have to live on bread and water in my mansion” story. Even if there was, they haven’t saved enough and should sell the damn thing and live a life of luxury in a slightly smaller house. (Or hope for a housing crash so they don’t have to pay it!)

    I hate this ludicrous focus on the deficit as if it the country will catch fire if it doesn’t get to zero, and that the only way to do it is by cutting investment and trimming from people who really need it. We can borrow for free, FFS! Why don’t we issue serious amounts of debt and actually improve our infrastructure? (Housing is a start and urgent, but there’s plenty more.) And no, bond rates would not spiral.

    We even have an experiment (though an economics one so almost worthless due to all the other factors). US – stimulus. UK – austerity-light. EU – austerity proper.

    It’s almost embarrassing looking at how the Lib Dems have been slaughtered by them. (Though they should have seen it coming and deserve it.) “Oh look at this horrible policy this Lib Dem said he wouldn’t do and is now doing it.” No-one stops to think “hold on, isn’t this a Tory policy and it’s only going through as you guys totally outnumber the LDs?”

    I think this high house price thing is their secret master-plan to reduce immigration. Simply make it miserable for people who have to build their own way from from the bottom, but give people already here a hand-me-down from their parents. (Everyone has rich parents, right?)

    Perhaps the pensions thing is a way of having a ‘family’ pension fund that follows people through many generations. Then they can get rid of that pesky public pension!

    And as for the human rights thing; that’s an absolute disgrace. Let’s see; do I want the subtle and complex fundamental rights of man decided by someone who has spent their lifetime pondering such issues and making decisions, or short-termist populists pandering to the media..?

    I’m not amazingly happy with the alternatives, but the Tories are almost comically bad.

    3 Oct 2014, 3:28pm
    by Ray MacDonald

    reply

    The concept of tax free pensions after the grave seems grossly unfair to the public purse.
    In Canada either surviving spouse gets to keep all RRSP pension funds tax free in the plan and draw down as needed. After we’re both gone, we’re past caring.
    My daughter and SIL have their own pensions, they’ll still get a fair inheritance and besides if we are all that concerned we can get some last to die life insurance to pay the taxes.

    So close to my heart, all of mess. I’m still reeling from Boris Johnsons recent announcement of “affordable” (I’m hating that word more every day) rental flats in London. Yours for only £1,170 for a 1 bed,£1,690 for a 2 bed or £2,800 for the 4 bed affordable family flat. Is this a joke? You’d need to earn 46k gross a year just to pay then rent. Up your earnings and you could turn the lights on.

    Cards on the table here, I was out on my ear at 16, estranged parents, no family home and no small, large or medium sized inheritance of any sort coming my way. Back in the 80’s/90’s I was pretty chipper about it because it didn’t matter who your parents were so much, you could achieve stuff by getting a job, you know… going to work, improving your skills and earning a decent wage. Old fashioned I know. You were on a level playing field with your mates from the private gated road, because a house didn’t require BOMAD to helicopter drop 6 figures into your bank account. The same grafting away me, earning pretty well, in 2014, is getting left behind at an alarming rate. By having the fore sight to get into The Firm and grab that DB Pension before it closed, I can save and invest my way out of this, just. I feel desperately sad for kids now approaching school leaving age with no parental/financial support because I just don’t see how they can compete or succeed in this environment, no matter how hard they work. Whatever happened to meritocracy.

    If we did re-enter that parallel universe where house prices are half the price they are, then I predict a much brighter future for all. (apart from BTL landlords, foreign investors and multi property owners, but for the greater good, I don’t give a stuff about them).

    @Starla: that was a most moving paean of praise to Mrs Thatcher. Blair/Brown changed everything, don’t you think?

    Having lived for a long time in Germany which has had no boom and bust in house prices (although they have been creeping up quite a bit recently), it’s interesting to be an outside observer.

    What stops people moving in Germany? Well how about stangling costs that are mainly paid by the seller. In the state where i live the costs are around 11% which is ON TOP OF the deposit.

    Of course in the UK were such polices in place there would be outcry that it was descriminating against those young people “desperate to get on the housing ladder” but wait…..that seems to be less of a problem in Germany as the rental sector is controlled.

    Of course the UK government has absolutely no intention of introducing anything approaching a sensible and well balanced system, after all housing turnover means more stamp duty and rising (housing) wealth brings back that feel good factor and good old fashined wealth driven consumption.

    Its a blunt but effective tool.

    @Greg even the house-rich but cash poor isn’t a good counter-argument 🙂 There’s no fundamental reason why the person living in their mansion shouldn’t elect to transfer the tax to their estate in a similar way to care home fees, and equally in that case any surviving spouse (or joint tenant) isn’t turfed out unceremoniously.

    The trouble with the high house price is it doesn’t particularly discriminate against immigration – they are young, often single and prepared to multiple occupy, which reduces costs greatly. After all, a young Ermine shared a London house with four other guys>

    @Ray – the eminently sensible Canadian policy is pretty much what we used to have over here until this week 🙁

    @Starla – exactly! It wasn’t so long ago that the BOMAD wasn’t necessary just to make a start. It was possible to start with no accumulated capital and get to something. I have no problem with people making shitloads of money as long as it’s mostly within the rules. But I am beginning the really, really, despise the greedy children who want to have it all without putting the work in.

    We all inherit the world from those who went before, the skills and accumulated knowledge. If I had children I would be deeply fearful about this increasing privatisation of the national commons into ancestral wealth, though I do understand the natural desire to look after one’s own flesh and blood that is leading to this tragedy of the commons. It’s where we need political leadership to look ahead at the feudal society this will build and lean against the trend, not add fuel to the fire!

    @dearieme – shouldn’t that be a paean to the post-war consensus that ended with Mrs T?

    She did fix a lot of things that were going wrong; that consensus probably had run out of road and somebody had to land the sucker punch on Art and his damned flying pickets. The current ghastly housing mess is however the most godawful legacy of Thatcher’s clever idea to buy blue collar votes. It’s the curse that keeps on taking. Compared to the state of things now the right royal shafting I took on housing starts to look like a lucky escape. And the rot started in 1979, although the revolting right to buy wasn’t invented by Thatcher. Every time the government touches anything to do with the British housing market a load of poor people get hurt and people who have capital make hay, because of our collective stupid fetish for high house prices. Exactly why parents want to ‘gain’ while delivering the shaft to their children beats the hell out of me…

    @marine_life Germany seems to do a lot right with housing – or should that be in the Uk we do a lot wrong 😉

    Not only is renting a much mroe acceptable alternative, but those of my family in German who did buy seem to buy a lot later in life – 40s to 50s, and they don’t seem to carry shocking levels of mortgage debt for such a long time. Not only do they buy when they have had some career progression and accumulated savings, but they’ve had the flexibility to move around when younger!

    France and Spain also seem to have high transaction costs, though the Spanish seem to have a good understanding of the ‘black money’ in a suitcase to reduce the headline house price 😉

    “@dearieme – shouldn’t that be a paean to the post-war consensus that ended with Mrs T?” No: wrong decades. “Back in the 80’s/90’s I was pretty chipper about it because it didn’t matter who your parents were so much, you could achieve stuff by getting a job, you know… going to work, improving your skills and earning a decent wage.” Very much Thatcherism.

    6 Oct 2014, 12:14pm
    by paullypips

    reply

    Whilst I appreciate that this article is mainly about the “iniquity” of untaxed inheritance and its supposed affect on house prices, my own opinion is that a lot of the problems in the housing market are to do with planning laws. I agree that where large housing developments are undertaken by building companies there should be some state control. What I do think is bad is the way that planning law is used against individuals. Would the country not be a better place if a man (or woman) were allowed to build his own house on his own land for his own family to live in without the full might of the law getting involved in what it looks like? I cannot see that someone so motivated to build their own home would be likely to make it an eyesore. Surely this is how the vast majority of towns and villages developed in days of yore – i.e. one at a time. Quite often these places are now seen as highly desirable and command premium prices. Try to think of a fully planned place which is viewed in the same way. Harlow or Stevenage anyone?

    @ Dearime – I did very well under John Major as it goes. He managed to carry the baton of the 90’s housing crash, which helped my 20 something generation greatly (sorry Ermine I know it smarts). Not sure I’ve ever considered myself a Thatcherite. They say as you get older you get more right wing, this bunch of Tories have nearly turned me left of communist.

    @Paullypips: “Try to think of a fully planned place which is viewed in the same way. Harlow or Stevenage anyone?”

    Edinburgh New Town. It’s the quality of the planning that matters, not the fact of planning.

    @paullypips the problems of the British housing market are legion, and planning is only a part of it (as indeed is inherited wealth at the moment). Much of the problem is jobs – if only the Romans had put Londinium somewhere a bit further north, say Oxford or Nottingham then at least the catchment area would be bigger, though I guess the absence of a navigable river would have stymied the Empire. There’s the whole globalisation winner takes all effect that is doing this. There’s no integrity in anything to do with housing – if you exempt individuals all that will happen is that housebuilders will front-run their businesses through individuals, because they have more capital. And there is always the fundamental issue that beyond a certain packing density putting more people in an area is detrimental to the people who already live there – in a local bit-you-can-see-from-your-window meaning rather than a UKIP way . Then there’s the problem that the British ideal living space is some sort of low-rise Brookside and we look down our noses at flats, which seems to be how other European countries solve this issue.

    Market solutions to housing seem to be trending to a war of all against all – we can see where that goes in the favelas and slums of what used to be called the third world that seem to be coming to parts of London’s Hounslow with garages and sheds being used for living. Then we have rent to rent though it appears to be nothing new – maybe we are going back to the future faster than we think. I think people underestimate just how quickly the bottom half of the wealth bracket is falling behind – I think the idea that even 50% of Britons will own their houses outright is clearly at odds with reality now, and Thatcher’s concept of a home owning democracy will be shown for the vile chimera that it was. If those RTB council tenants could have afforded to pay market rates, then a) they shouldn’t have been council tenants and b) we would have less of the hurt we have now. Most people in Britain are simply not rich enough to own their own homes and it’s high time politicians started to face reality there.

    So yes, planning is part of the problem, but one of so many in the Gordian knot of British housing I don’t think changing it would help that much, it would just shift the problem elsewhere. Fundamentally the problem is that many people can’t earn enough over their living requirements to pay for a capital asset like that over a working lifetime, combined with home ownership being less and less suited to modern working patterns anyway.

    @Starla I pondered challenging dearieme’s Thatcherism but he’s probably right – your education at least did happen under Thatcher 😉 I benefited from the post-war consensus in terms of education but that was iced by Mrs T.

    Although I was truly clobbered by housing at least it was survivable in the end, it starts to look like a lucky escape compared to the absolute rapacious clusterf* going on now.

    @Ed – wow – I didn’t know that was planned! It’s a fabulous result – and indeed Edinburgh is one of the few cities that presents an attractive face to people arriving at the main railway terminus. Mind you, I guess that sort of planning is easier to do in times when you can ignore the hollerings of the masses that go along with ‘democracy’ 😉

    @Ermine, I do so look forward to your posts and to the comments thereon; to Edinburgh New Town I would add for example the Georgian builders seen in Bath, universally admired for the Circus etc not to mention use of the local stone, but other examples of planned speculative building abound even in London; and would recommend central Paris (Hausmann) – just don’t ever go to Canberra.

    8 Oct 2014, 6:42pm
    by paullypips

    reply

    @Ed Of course I agree with you that Edinburgh New Town is well planned. Apparently so too was ancient Rome and Athens. My point was that the planning laws brought in post WWII have generally worked against the common man.
    The planning laws were originally intended to stop the evils of “ribbon development” – something of which most people will be unaware.

    @ermine I think that to avoid the “front running” that you suggested may happen, self builders would only be exempt provided they were to live in their property for a set period of time (maybe five years?). I have personal experience of council planning officers (when trying to build my own house for me, the missus & sprogs)and you wouldn’t believe the control they have and expense they can cause if their whims are not pandered to.

    BTW the Romans did put their capital further north – it was originally Colchester.

    Many thanks for a most enjoyable and thought provoking blog.

     

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