Housing Minister's incoherent policy

leitmotif

Hi all,

For several months I have been corresponding with Housing Minister Grant Shapps about his policy, which I believe is incoherent. Whether you want house prices to rise or fall, everyone must surely want to know what his policy means: for example, does he want the average house price to fall gently back to 3½ times average annual salary, or does he want to retain the current multiple?

His correspondence with me has been very revealing. Anyone interested can view it all on the following blog. (N.B. Obviously if you want to read it in chronological order, start with the oldest correspondence - be sure to click 2011 on the right to have all correspondence shown.)

Link.

CLAPTON

An interesting little read

however one must distinguish between conflicting aspirations and (thankfully) no actual policies

I say 'thankfully no policies' because most the the things that government do in the housing field are generally either soundbites or actually harmful

the best that one could hope for is abolition of the 'affordable ' housing targets and easier planning permissions

leitmotif

It's a tricky situation, and given the situation the present government inherited, I think it's a question of damned if you do, damned if you don't. Interestingly the government's housing policy has met with increasing criticism since I was corresponding with Mr Shapps. Articles now abound in the press and on the Internet regarding the total incoherence of policy in this regard (or, as you rightly say Clapton, aspirations rather than policy). Jeremy Paxman recently had Shapps against the ropes on Newsnight.

Still, the most revealing policy discrepancy is highlighted in my mail to Shapps of 26 May ('fourth attempt'):

'However, one inevitable and incontrovertible fact remains. By definition, the price-to-earnings ratio can only be reduced if prices rise at a rate that is slower than average earnings growth. The difference between your statements (2 March 2011 versus 21 April 2011) is revealing. The shift from “would be beneficial [...] if prices were to rise, on average, no faster than earnings” (2 March 2011) to “if prices [...] don’t rise at a rate exceeding average earnings growth, then this in itself would be helpful over the long term by reducing the price to earnings ratio” introduces a new element to your response – that of actually reducing the price-to-earnings ratio, the word ‘reducing’ not having featured in your original e-mail of 2 March. This new addition can mean only one of two things: either 1) reduction of price-to-earnings ratio is one of your aims – in which case prices will have to rise at a rate that is slower than average earnings growth for this aim to be fulfilled; or 2) reduction of price-to-earnings ratio is not one of your aims, and you are merely appending these words to your original sentiment in order to appease those who would welcome such a reduction.'

the_flying_pig

I suppose I doubt that government deliberately targets the house price to earnings ratio at all.

The ratio depends on the relative values of two variables (house prices, wages) that government doesn’t really control [other than in a very slow and indirect way] & can’t really predict movements in, not in any way that’s at all precise.

chewmylegoff

I like the bit where you demand a letter from the man himself instead of some little troll in his office. Although of course the little troll then wrote a letter for him to sign which he probably didn't even read. Still, it's the personal touches that count...!

julieq

Why would you expect a policy based on controlling ratio of price to average earnings, when the earnings of those competing to buy are by definition above average?

There's a clear explanation of what they're doing to ease the true issue with housing, i.e. improve supply and the ability to raise finance. That will moderate prices, but it needs time to work.

Until that happens, rents are heading upwards and prices will probably increase into next year as deposits get saved and confidence improves generally. You can already see some indications this is happening as sales volumes increase.

Jimmy_31

leitmotif wrote: »

Hi all,

For several months I have been corresponding with Housing Minister Grant Shapps about his policy, which I believe is incoherent. Whether you want house prices to rise or fall, everyone must surely want to know what his policy means: for example, does he want the average house price to fall gently back to 3½ times average annual salary, or does he want to retain the current multiple?

His correspondence with me has been very revealing. Anyone interested can view it all on the following blog. (N.B. Obviously if you want to read it in chronological order, start with the oldest correspondence - be sure to click 2011 on the right to have all correspondence shown.)

Link.

Sounds to me like he wants prices to stay as they are, plus he seems quite concerned that the massive house building companys profits are taking a hit.

I sometimes work for the massive house building companys and the wages on site are 5hite, yet the cost of the houses we build are very little compared to the asking price.

The people who actually build the houses cannot afford to buy one of the houses. (just look at that one little point mr shapps.)

Why cant the government set up its own building firm ?

Why is it such a concern that massive house building companys profits are going down, the people who build the houses dont see massive profits or even a fair wage, its just those at the top creaming off thousands of pounds of a made up number for doing nothing.

I would work for the governments building firm for a fair wage and nothing else, no cut of the profits, no bonuses, nothing, just a wage.

Everybody who is self employed working for the massive house builders could now go and work for the governments building firm and have a real job with a contract, holiday pay, sick pay etc because currently we get nothing.

Imagine the discounts they would get on materials if they were the biggest house builder in the country.

Stick 10k profit onto the cost of the house and the government can now put that money to good use elsewhere.

Average house price would be way under 100k.

Congratulatioins on getting an answer from one of them, i have yet to recieve a response from mr cameron (not even a pi55 off email from his receptionist).

Disclaimer...........My idea might be 5hit but im sticking with it;)

ukcarper

You are in cloud cuckoo land if you think this government would do anything like that in fact if one existed they would privatise it.

leitmotif

julieq wrote: »

Why would you expect a policy based on controlling ratio of price to average earnings, when the earnings of those competing to buy are by definition above average?

You're right that policy itself should not be fixated on numbers or ratios. Nonetheless, the average house price to average annual wage ratio is an important indicator of affordability. And in turn affordability is an important consideration upon which to base policy, at least where said ratio is extreme, because it's overlending and overborrowing that caused the economic crisis in the first place. The cost of owning (or, of course) renting a property relative to income impacts on spending power and is inextricable from the overall health of the economy, etc.

I wouldn't expect a policy fixated on that ratio, and not even based on it in an exclusive sense, but certainly a policy that has it firmly in mind. The Housing Minister's policy, however, is self-contradictory - he states frequently (not just in correspondence with me) that he wants houses to become more affordable in the long run but that he wants house prices to rise in line with wage inflation. You can't have both.

Thrugelmir

leitmotif wrote: »

For several months I have been corresponding with Housing Minister Grant Shapps about his policy, which I believe is incoherent. Whether you want house prices to rise or fall, everyone must surely want to know what his policy means: for example, does he want the average house price to fall gently back to 3½ times average annual salary, or does he want to retain the current multiple?

Only when the banking system (globally) has deleveraged and reduced the collective lending exposure. Will a new base level for property prices be set. Was only in 2000 that UK mortgage lending was entirely funded by retail deposits. So any incumbrent Government will have little meaningful impact on house prices for quite possibly the next decade.

Cleaver

Jimmy_31 wrote: »

I sometimes work for the massive house building companys and the wages on site are 5hite, yet the cost of the houses we build are very little compared to the asking price.

Isn't this the same as pretty much any industry you care to mention? The cost of making Nike t-shirts is pence. The factory in China (or wherever the hell it is) costs nothing and they pay the workers nothing. The materials cost very little yet they sell the t-shirt for £20. Why? Because there is a demand for Nike t-shirts and a market of people that are willing to pay that price for them.

It's just the same with housing. The actual build cost of a house is laregly irrelevant, it's location (i.e. supply and demand) that sets the price.

Jimmy_31 wrote: »

The people who actually build the houses cannot afford to buy one of the houses.

Again, the same as a lot of industries. Those who make the ipods, desinger clothes, TVs, cars, purfumes and everything else often can't afford them. Often those who work in shops cannot afford the products they sell. People who work in certain restaurants cannot afford to eat in them.

Jimmy_31 wrote: »

Why cant the government set up its own building firm ?

Why is it such a concern that massive house building companys profits are going down, the people who build the houses dont see massive profits or even a fair wage, its just those at the top creaming off thousands of pounds of a made up number for doing nothing.

I would work for the governments building firm for a fair wage and nothing else, no cut of the profits, no bonuses, nothing, just a wage.

Everybody who is self employed working for the massive house builders could now go and work for the governments building firm and have a real job with a contract, holiday pay, sick pay etc because currently we get nothing.

Imagine the discounts they would get on materials if they were the biggest house builder in the country.

Stick 10k profit onto the cost of the house and the government can now put that money to good use elsewhere.

Average house price would be way under 100k.

Congratulatioins on getting an answer from one of them, i have yet to recieve a response from mr cameron (not even a pi55 off email from his receptionist).

Disclaimer...........My idea might be 5hit but im sticking with it;)

Your idea has been done many times before. It's called communism. I'm not saying capitalism is perfect, but it's better than communism.