Housing Minister Grant Shapps said something mildly sensible about house prices in an interview with The Observer:
Grant Shapps argues that dramatic increases in the price of property cause "enormous pain" for tens of thousands of young people not yet on the housing ladder. He wants to use government levers to help usher in a new era of "house-price stability" in which prices rise very slowly and below the rate of earnings, making property more affordable long term.
In which he is quite correct - high house prices are a transfer of wealth from young to old; from poor to rich; from free markets to monopolists etc. Anti Citizen One spotted a write up of this on Sky News, which allows comments, the third one down being this rather splendid bit of non-logic:
UNLIKE CONSERVATIVE [MPs] THE COMMON MAN ONLY HAS ONE HOME SO YES SHAPPS IT IS A HOME TO THEM AND ALSO A INVESTMENT FOR THEIR CHILDREN (WHO ACCUALY [sic] HAVE TO "WORK" FOR A LIVING) UNLIKE SOME I COULD MENTION.
So there you go - the Home-Owner-Ists even have the temerity to claim that high house prices benefit future generations, when they actually make them poorer, remembering that "investment" is being used to mean "something that increases in value" and not "something that helps increase economic output in future".
And if you look at that rant closely, what this commenter appears to be saying is that "some I could mention" (i.e. Conservative MPs) don't have to work for a living, i.e. can make money purely from house price rises. If the commenter really wanted to have an economic system which rewards people who "WORK" instead of benefitting property speculators, then surely he would want house prices to stay low and stable?
Sunday, 2 January 2011
Home-Owner-Ist DoubleThink
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14 comments:
Sorry, I have to try and wind you up as some of your anti home ownerisms can get very one track.
Taking on board that it is beneficial to have affordability and that idiotic price bubbles are no help your logic about transfering wealth from young to old is incomplete.
This is because all the young people will in their turn become old people! Hence one aspect of such a 'wealth transfer' is to force saving and investment by the young which they will benefit from in the future provided house prices grow with inflation.
Woody, but house price bubbles don't force young people to save, do they? They force them to borrow more money than would otherwise be the case, and borrowing is the opposite of saving.
Y'know, this all makes me so tired. The propoganda that's been swallowed by these poor ill-educated oiks is pitiful. In large part its another indictment of our education system, or rather an expose as to how biased it is.
Broadly, I'm a man of action. I like to have an idea and get on with it. I've been suffering all this shite for years and years, and still its going on. When, just when will it ever change?
L, probably never :-)
MW <>
Speaking as a bleeding-heart liberal/leftie,I think you're all being very mean-spirited about Grant Schapps.This is the most courageous anti-home-ownerist statement of recent times (from a Conservative Minister).He is so across the traditional Conservative grain ,he is Macmillan-like (Macmillan called for the abolition of the Stock Exchange in the late 30's).So, he wants to construct some cack-handed over-complicated system to restrain house price rises instead of the Occam's razor of LVT ? So: he's a Conservative and is following the first rule of politics, the opposition's in front of you;the enemy's behind .Tory homeownerists like Caroline Spelman will be out to have his bollocks on a bit of stick.Fortunately he must have got Cameron's backing for this or he would n't be so brave (Cameron of the very odd pronouncements on land values going up and no new housing to show for it 19.xi.10).Schapps may have come up with real game changer,if he can ride it out.
DBC, where was I being mean-spirited about Shappsy? In this instance, he is quite correct and I think he said so.
Indeed yes, the house price bubble has been excessive and does make them borrow maybe too much. But even so, as they pay back the mortgage they end up with an investment. As with any investment it may be good or poor, who can see 25 years ahead? People can make a decision, invest or not. You didn't suggest shares were too high and should be made cheaper in 2008 because there was a 'bubble' and people coudn't save for pensions.
I'm not claiming home value inflation is perfect, far from it, but it's not entirely unhelpful to society either.
However cheap land were to be made an expanding population - which rightly or wrongly we have - needs more houses, so they have to be built and made habitable, and someone through some process has to pay for that.
People who borrow to buy effectively pay the cost of providing their dwelling. So surely they should be encouraged to do so?
If people choose to rent then they don't have to borrow, and they will pay out less but get nothing back at the end. Their choice. But someone still had to pay to provide their house, and however you juggle semantics something - generally the rent or taxes - still has to ultimately cover that cost.
It would be much better perhaps if all house values had never risen to where they are now, that I accept, but we are where we are. If you force homeowners to lose significantly on their homes then you will reduce the advantages of home buying, but you will still have to provide the same number of houses for people - who will pay for them?
W42: "The house price bubble has been excessive and does make them borrow maybe too much. But even so, as they pay back the mortgage they end up with an investment."
No, they end up with a house. A house is a very useful thing to have, like a car or a telephone, but cars and telephones do not increase in value every year, people still buy them, and cars or telephones are actual productive investments, i.e. enable people to do their jobs better.
"But someone still had to pay to provide their house, and however you juggle semantics something - generally the rent or taxes - still has to ultimately cover that cost."
The cost of providing a physical house (notional interest on bricks and mortar, repairs etc) is a couple of thousand pounds per year. That is the cost that HAS to be covered. The rest of the cost is windfall profits to monopolists, there is no need for this bit.
"f you force homeowners to lose significantly on their homes then you will reduce the advantages of home buying (1), but you will still have to provide the same number of houses for people (2) - who will pay for them?"
1) I might as well ask; if the government allowed more cars or telephones to be made and sold so that existing cars and telephones became cheaper, would that be so terrible?
2) And "I" don't have to provide any houses at all, we have most of the houses we need and builders will provide the rest. Don't tell me that the only reason people buy houses is because they hope to make an unearned profit - I thought we bought houses to live in, keep warm and dry, keep our valuables safe etc.
W42 - an 'investment' puts cash money in your pocket every day. A house you live in takes cash money out of your pocket ebery day. An 'investment' it ain't. A 'speculation' maybe.
DBC Reed - Interesting - 'abolition of the stock market'. Are you saying that joint stock limited liability companies are a bad idea?
L, it depends on how you define 'investment'.
Let's assume that people mainly use their cars for getting to work, and that the further you can travel, the more job opportunities you have. So even though running a car costs you money and cars depreciate in value, owning a car is still a good investment, because the NPV of your income with a car is greater than the cash cost of buying a car plus NPV of running costs.
So while the re-sale value of your car is falling, owning a car still has the net effect of putting more cash money in your pocket every month than it takes out. So a car is a good investment.
Or imagine that there were some freak natural disaster and all UK houses (but no commercial premises) were destroyed. It's too cold to live in tents, so we all buy static caravans to live in (and rent a bit of a field from the local council wherever we want to live/work), which cost £30,000 new but steadily depreciate in value.
Would buying a static caravan still be a good investment? If the alternative is freezing to death in a tent, then methinks yes.
MW - I agree about the need to accurately define 'investment'. For the purposes of owning a house I use the yield version. Property as an asset class is essentially a yield play (ignoring the profits from development - the change of use, or the profit from the developers 'eye') pro- tem.
Owning a house to live in - as you've often argued - has a not insignificant opportunity cost, and/or the mortgage money rent cost nets off against the alternative rent for an equivalent house. After that 'owning' a house costs you money in upkeep (ignoring property taxes). It takes money out of your pocket every day - a good examplar of this are the proliferation of DIY centres.
And as you rightly say buying car enables you to arbitrage your labour. It's classic capitalism - the application of capital to labour to increase its productivity. But unlike 'land' such capital depreciates, as to houses, in fact all property, which is where we came in.
@Lola
No idea why Macmillan proposed abolishing the Stock Exchange (according to Simon Schama in 1938; never been able to discover Macmillan's reasoning). I was using Mac as an example of how staunchly subversive people can take over the Conservative Party.
For my own part I can't see much point in the buying and selling of shares which has,in this country, allowed predators to take over Mittelstand companies . My family was given a living by a British Mittelestand company which went down in the first round (1960's)of takeovers sparked by Charles Clore's success in potting rabbits in the Northampton shoe industry.This was before the Slater /Walker era of straightforward asset stripping.
A good account of this can be found on the Net> Geoffrey Owen" Corporate governance in Britain: is incremental reform enough?"
(I now live in Northampton; I also lived in Swindon where the famous GWR hooter punctuated the day, another Mittelstand in character employer in its time.Neither town has recovered from these companies' demise IMO).
Something is clearly the matter when leveraged buy-outs via the stock-market can see Man United bought with debt and this debt charged as a cost to the company's balance sheet. The Kraft/Cadbury's debacle is no advertisement for capitalism either(as Brian Binley MP for Northampton South protested: he is a Conservative) .
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