So what's the solution?

nickmason

Naive of me to dream that there might be one, but...

First of all, the problem. It seems that house prices are - by almost any sensible measure - too high. There are loads of vested interests that want them to stay that high, or to drop, but that's to be expected. The challenge is to find a solution that satisfies what both sides are looking to have achieved.

In the meantime, rates are very low. Which is increasing the gulf between haves and have-nots as those "on the ladder" can benefit from very low cost of servicing their debt.

Incidentally, there is clearly no magic bullet - it's a classic negotiation problem; what does each side really want, and what can they forego in order to get there. In this context, I would think negative equity isn't a red line issue, the way that being thrown out or being unable to afford a house is.

Lots of people are twitching about interest rates. The truth seems to be that (assuming factors outside of our control don't force it) the government is hardly likely to allow rates to go to the level that would force prices down - as has been pointed out, there would be a serious risk of riots on the street.

My guess is that the solution is to find a way of reducing house prices without causing large-scale foreclosures (and consequent riots). Much of the framework for this seems in place, with low rates. To move prices down without touching rates would require an increase in supply, and doesn't need to cause a whole load of repossessions. So if the government encourages higher levels of building, prices drop while rates stay lowish. Which incidentally would have some reasonably beneficial economic consequences, as well as addressing the moral hazard problem (of risk takers being disproportionately rewarded)

I'm sure there are loads of problems with that analysis. But are there any better solutions? Or aren't we near a negotiating point?

Jowo_2

nickmason wrote: »

...The truth seems to be that (assuming factors outside of our control don't force it) the government is hardly likely to allow rates to go to the level that would force prices down - as has been pointed out, there would be a serious risk of riots on the street.

Riots are usually carried out by the totally dispossessed in communities marked by social or economic exclusion of its members, not by a minority of residents who have had an asset repossessed...

There have been periods in the past when interest rates have rocketed and thousands of repossessions have happened - there was no marked civil unrest. I see this as a series of unconnected personal tragedies for those that lose their property, not something that sends people out in the street enmasse to perpetrate violence.

In the US and Spain where the property bubbles have been utterly burst, there has been no rioting by home owners that I'm aware of. Those that lose their financial status often go quietly.

bendix

Riots on the streets, my a**e.

Good grief.

CLAPTON

contrary to the general opinion on this board, the level of interest rates is not set solely and only by their effect on house prices.
they are set very largely on the perceived effect on the general economy and hence the effect on unemployment

high levels of youth unemployment are far more likely to lead to riots that high levels of repossessions; (for whatever reason the fairly limited rise in unemployment is probably the reason for the general low level of public displays fo discontent.)

However, increased suppy of suitable housing in the areas of need does seem a no brainer: the issue seems how do we achieve this? Clearly finance is one issue but our planning laws are also a real barrier to greater property building. The current fashion for 'localism ' is likely to see a decrease in building rather than an increase.

Generali

If you want lower house prices, build more houses.

As CLAPTON says, that's not likely under current rules and they seem to be moving towards less not more building. I think it's idiotic myself but what do I know.

HAMISH_MCTAVISH

If you are of the opinion that prices are too high, then there is only one solution that is anything more than temporary tinkering around the edges.

Build more houses.

Not just a few, but enough to exceed population growth.

300,000 new houses a year for a couple of decades would do the trick, as the neutrality point to maintain prices at current levels is around 250,000 a year.

We currently build around 100,000 a year.

Credit limitations and high deposits don't prevent HPI, they merely delay it, and penalise a lot of people in the meantime.

chucky

the solution is to build more houses

along with engineering the demographics around the UK so that there is less demand in certain areas (like the South East and more 'natural' demand to live in lesser populated areas)

alongside reducing immigration

and reducing the birth rate

i'm completely against the last two

housing is going to be the least of our worries in the UK - the cost of food is going to be a massive issue unless we start to produce our own to be self-sufficient.

housing is a political tool - nothing to do with vested our even unvested interests.

SwipernoSwiping

While I agree, more places to live are required, lets not forget there's an issue of only having so much land in areas where people want to live.
The solution to house prices, ownership, building, investing, saving... is all very closely tied together and no one thing would change it. It is ingrained into our populace, "Landownership/property ownership" = wealth. We have hundreds of years history the "little" people being lorded over by land owners.
No one wishes to live in an area with a lack of jobs, or terrible schools, crime, so -on. So builders build on greenfield sites.
Remember the field you as a kid used to play on, climb the trees in? is it still there?
America doesn't have land shortage issues - hence the houses are larger, nor does it have the historican issues imprinted on its populace, you can do what you pretty much like on your land so long as you own it.
There was plenty of riots and protests - just not large enough to make our screens here.
Address the social morals, the desire to own everything - and replace it the minute it's no longer pretty - that is sold to us by manufacturers and marketing experts, the need to have more and more of a thing, and to live beyond our means requiring two day jobs.
As a nation we don't export a great deal of stuff any more cause we want it cheaper at the expense of quality, thus less jobs.
In fairness... who the heck is going to tell a nation to stop doing what it knows how to do, what it wants to do, to hide from ugly reality, tell them that it's wrong to want more and they should face up to problems?
Who would do that and hope to stay in power? Who would adopt this as a business model and hope to sell?
Greed powers the world, money makes it turn.

Generali

chucky wrote: »

housing is a political tool - nothing to do with vested our even unvested interests.

Anyone know what a 'vested interest' actually is? I know what the popular usage is but it's something that has been bugging me for a bit.

Good post BTW chucky.

Really2

So what's the solution?

I was hoping it was going to be a chemistry quiz.

Graham_Devon

Theres other solutions that could be added to a building programme.

For my area moreso than other areas, make holiday homes and second homes less attractive, via tax.

Personally think there are a lot of small changes that could be implemented that combined would make a big difference with existing stock.