When will the correction come to house prices?

Graham_Devon

HAMISH_MCTAVISH wrote: »

Yes.

When the number of mortgages being issued fell by 75% thanks to the global credit crunch.

If virtually nobody can buy a house thanks to mortgage rationing, then prices will fall.

Only an idiot would think that's normal or desirable however.

Because the result is rents will soar (as they did) house building will fall to the lowest levels in a century (as it did) and a generation of young people will be forced to spend many extra years stuck in rented, buying a house for their landlord instead of themselves (as they were).

It is frankly bonkers that you think repeating all the mistakes of the last 7 years is a good idea.

I'm pointing out that credit plays a part.

Why the credit restriction happened is not the issue here. What I am pointing out is that credit has a part to play and we have evidence showing what happened when credit is reigned in.

If the only problem was a shortage of supply, we wouldn't have seen prices fall when credit was reigned in.

But supply is not the only problem - it's one of them. You can go around shouting idiot as much as you like, but equally you cannot keep extending credit, otherwise we end up in an unsustainable situation which is precisely what the BOE now fears.

HAMISH_MCTAVISH

Graham_Devon wrote: »

I'm pointing out that credit plays a part.

No, you're trying to advocate that the UK should return to a state of lending similar to that seen in the dysfunctional global credit crisis (which of course was not caused by UK lending or UK house prices).

You want this to happen because you saw that it reduced house prices.

You are happy to ignore the inconvenient facts that this worsened the housing shortage, caused rents to soar, caused building to fall to the lowest levels in a century, and caused a generation of young people to enrich their landlords instead of themselves.

That you think this is a good idea is, frankly, absurd.

There is only one solution to a shortage of housing.

It's to build more houses.

wotsthat

Graham_Devon wrote: »

Why the credit restriction happened is not the issue here. What I am pointing out is that credit has a part to play and we have evidence showing what happened when credit is reigned in.

Credit is being reigned in...

The overall value of the residential loan amounts outstanding in Q1 2014 was £1,243 billion, an increase of 0.4% compared with Q4 2013 and an increase of 1.2% over the past four quarters.

http://www.bankofengland.co.uk/pra/Documents/regulatorydata/mlar/2014/q1.pdf

Haven't house prices gone up during that time?

We could decide to cut mortgage lending by 50% and increase the proportion of wealth already owned by the most well off.

Graham_Devon

HAMISH_MCTAVISH wrote: »

No, you're trying to advocate that the UK should return to a state of lending similar to that seen in the dysfunctional global credit crisis (which of course was not caused by UK lending or UK house prices).

I'm not Hamish, and I wish you didn't have to stoop to these levels, making things up to bolster your argument.

You can create a good debate. You can argue your point succinctly. But you undo all of that when you revert to making things up to somehow create your argument.

I would like ot see maybe 4x income multiples applied (it's going to hurt some people, but I really don't know how else you can control things effectively otherwise and whaytsmore, historically this multiple, considering dual incomes is still very high). Decent deposits asked for (10%) and the removal of all policies which only create demand and no supply (HTB2, FFL). BTL reigned in through various measures.

I do not want to see 2008 all over again, which is precisely why I believe the government should implement stuff now....to avoid the inevitable bust and therefore avoid the conditions we faced in 2008.

antrobus

Graham_Devon wrote: »

...Credit plays a huge part in house prices. We've seen the results of credit being reigned in and we've seen the results of it being ramped up.....

Just as well then, that credit is currently not being ramped up then, isn't it?

Jason74

HAMISH_MCTAVISH wrote: »

And that's where we disagree.



Well gosh that seems a complicated way of forced redistribution, if you really want to bypass any semblance of market economics and property rights, why not just pass a law dictating private landlords must offer to sell the property to their tenants at a 50% discount?

That is broadly what you're suggesting here.

That it is acceptable to impose punitive taxes on owners of private property in order to force prices to fall and redistribution to happen.

But why stop there?

Surely if forced redistribution is your goal, you could achieve more of it by imposing punitive taxes on old people with large houses?

That would free up more stock than landlords hold by some margin...

It all sounds like an incredibly complicated way of avoiding a very simple solution....

-Build more houses.

-Lend more to young people.

-Problem solved.



Should be equal to the amount they pay in rent.

But it isn't....

Banks are willing to accept that renters can provide a suitable income stream for the covering of a mortgage on a landlords property at todays prices.

But they won't lend directly to the renters.

Which is patently absurd.



No that argument just doesn't hold water.

The problem is a shortage of housing, and a shortage of lending (which has worsened the shortage of housing), that are available to young people.

You can't fix a shortage of houses by restricting BTL. You can't fix a shortage of mortgage finance by restricting BTL. You can only fix it by building more houses and getting the banks lending again.

Trying to solve this by penalising existing property owners would be like trying to cure a broken leg by breaking the other leg...

I think the only way to address this is to take it piece by piece.

1) I think it’s very difficult to use the “free market” argument in the context of UK housing. We live in a world where in the last few years we’ve had schemes like funding for lending and now HTB, which exist precisely because the free market was not producing the outcomes that the powers that be wanted. These are measures that you support, so it’s not really on to use the “free market” argument against measures that change the rules of the game in a way that you don’t like.

2) Personally, I’m not convinced that an ufettered free market is the right way to go in the case of housing anyway. It’s already understood that in a number of key social areas, leaving the free market to its own devices will have unacceptable social consequences. Health and education are good examples of where the public sector steps in to provide outcomes that would not be provided by the free market. And for all the problems with the NHS and our education system, few would argue against the principle that this approach is correct. I think a much more public sector driven approach to housing (and particularly house building), would be a huge social benefit. The “market” will imho never deliver the level of housebuilding required, and only direct public sector involvement will do so. Indeed, the only time that we have built enough homes in the post war period has been when the public sector steps in

3) The property rights issue is an important one yes, which is why outright confiscation of property is clearly a no no. But, there are plenty of UK examples of limited restriction of property rights where there is a bigger issue to consider. Competition laws and planning permission (to name but two) are both restrictions on the ability of people to exercise absolute discretion over their assets, and while people will disagree about the extent to which these powers are used, few would argue against the principle. Clearly any change around taxation of property investments would need to happen gradually, but the principle of changing BTL taxation to reflect the social harm caused is in line with my examples above, rather than being “something out of Mugabe’s Zimbabwe”

4) Another way of addressing the BTL issue (and for me, the question is very much, “what is the best way to address it, rather than “should it be addressed”), would be strengthening of tenant protection. The issue in terms of people being properly housed (and personally, I’m far more concerned about that than I am about ownership in itself) in the private rented sector isn’t about their being anything wrong with renting in itself, it’s about the poor terms of tenancy for private tenants in the UK. Give private tenants similar security of tenure to social ones, and regulate to gradually bring private sector rents in line with social ones, and I’d have no problem at all with people buying houses to rent as they wished. Of course, in practice, many private landlords would probably decide that the economics of such an arrangement didn’t work for them, and that’s fine too.

5) With the best will in the world, the idea that Banks “aren’t lending enough” at the moment is a long way wide of the mark. 95% mortgages are now freely available, and borrowers with decent credit history’s and deposits can access mortgages at income multiples some way above historical norms. If take up is limited, there are other factors at play (high prices and increasingly insecure employment for young people are two obvious ones), but if one thing above all else can be ruled out as a problem in the current market, it is the idea that there is insufficient lending.

This really is a two pronged problem. We need to build more houses, and we need to make socially better use of the properties that already exist. At the moment, we’re failing dismally on both counts. And in both cases, leaving the free market to its own devices is unlikely to lead to improvement. To stretch your analogy, expecting the free market to sort out the current mess on its own is a bit like expecting heart surgery to fix the broken leg.

Cornucopia

If I think back to my school economics classes, there was a Price-Supply-Demand curve.

Whilst the housing market is hugely complicated (not least the porous division between renting and buying). However, at the heart of it there is such a curve.

The basic principle is that when demand exceeds supply, prices will rise. There are two ways to tackle that - increase supply (build more) and reduce demand (restricting credit achieves that, in part). The only issue with reducing credit is whether it achieves the desired aim fairly. Is it fair that someone on basic earnings in the SW gets outpriced by a cash buyer wanting a holiday home.

Because new housing can to an extent be targeted, I think it makes a better, fairer, more sustainable answer to high house prices. And it gives a boost to the economy, employment, etc., whilst it is happening too.

Graham_Devon

antrobus wrote: »

Just as well then, that credit is currently not being ramped up then, isn't it?

What is HTB (specifically the 2nd programme) if it's not increasing credit and therefore demand?

CLAPTON

Graham_Devon wrote: »

I'm not Hamish, and I wish you didn't have to stoop to these levels, making things up to bolster your argument.

You can create a good debate. You can argue your point succinctly. But you undo all of that when you revert to making things up to somehow create your argument.

I would like ot see maybe 4x income multiples applied (it's going to hurt some people, but I really don't know how else you can control things effectively otherwise and whaytsmore, historically this multiple, considering dual incomes is still very high). Decent deposits asked for (10%) and the removal of all policies which only create demand and no supply (HTB2, FFL). BTL reigned in through various measures.

I do not want to see 2008 all over again, which is precisely why I believe the government should implement stuff now....to avoid the inevitable bust and therefore avoid the conditions we faced in 2008.

There is no evidence (not even from the well respected IMF) that UK domestic mortgages caused the GFC.

That doesn't means we shouldn't have restrictions on lending ratios etc but it does mean that the only effective solution to a housing shortage is building more houses.

There is scope for demand management, e.g. stopping immigration, reducing housing standards for social tenants, kicking out foreigners, forcing Uni students to attend local Unis etc.
However whilst the demand side management have some merit, the internal growth in the UK population still requires more housing.

MFW_ASAP

Graham_Devon wrote: »

I would like ot see maybe 4x income multiples applied (it's going to hurt some people, but I really don't know how else you can control things effectively otherwise and whaytsmore, historically this multiple, considering dual incomes is still very high).

Using salary multiples has to be the worst way to control borrowing as it has zero reference to affordability. If you have two people earning £40k, one who has car loans, credit card debts and an expensive lifestyle and another who has zero debts and lives well within his means, both can borrow £160k. However, the financial realities of these two individuals could mean that the former could really only afford a 3x salary mortgage and the latter could easily afford a 5x salary.

Much better to look at someone's income and outgoings to determine how much someone could afford to borrow.