From the BBC series about the 1970s, the first 13 minutes of the first programme explains how the rot set in and covers the first boom and bust. As the presenter explains, "A lot of people think that Thatcher created Home-Owner-Ism, but they're wrong, it didn't. Home-Owner-Ism created her." Although of course he doesn't call it "Home-Owner-Ism", he just calls it "it".
But the Lawyers are Happy
2 hours ago
13 comments:
someone else removed "Schedule A tax".
SB, sure, that was a few years earlier, and the bust didn't happen until 1974 or 1975, but hey. Thatcher had been championing HOism for ten years before she summoned the nerve to scrap Dom Rates to give the 1980s price bubble a last little kick etc.
The flip side was a massive tsunami of investment in run-down inner city housing or was that just a coincidence? Or was that because of the later rent decontrol? Or was it just because the country actually decided to stop being a craphole in the 80s? Unsure.
Interesting to note that it all goes pear shaped when the banks- with their ability to generate money from thin air- get involved in the financing.
BE, me too.
IB, banks and landowners are the driving force(s) behind Home-Owner-Ism. You didn't think that it was for the benefit of actual normal people, did you?
Ian B, AFAIK and contrary to what the presenter implies, the change in the rules wasn't so much to allow the banks to be involved, but to allow a purchaser to offer as security for a loan, something that he didn't actually possess, yet. Up until that time, mortagages were generally taken out on property you already owned, or privately arranged with the vendor. I suspect, the world being what it is, that the banks saw which way the housing market was going and bought pressure to bear on the BoE to change the rules, though.
B, the actual change was that banks were allowed to offer resi mortgages, but building societies had always done so. The point was that BS's had stricter rules on how they are financed, no share capital, no bonus culture and stricter rules on loan-to-value and loan-to-income ratios etc. BS's had been behind earlier price bubbles but nowhere near to the same degree as banks.
I can't find anything on Google to suggest that the greater involvement of the banks in the residential mortgage business wasn't simply a by-product of the credit control changes introduced by the BoE.
However, the programme emphasises that there was a lot of money sloshing about at the start of the 70's which would suggest that a rise in rents and/or property prices was imminent, as is borne out by history. What is also apparent is that price inflation (70% in two years) was entirely due to the availability of money and nothing to do with the availability of houses as hundreds of thousands were built during that period.
B, agreed, the difference between BS and B is not as huge as some imagine, but it does appear that BS's stick to the rules more than B's. For example, the UK banks which did worst during current 'financial crisis' were all ex-BS's, i.e. Halifax, B&B, Northern Rock, i.e. their new 'freedom' completely went to their heads.
"there was a lot of money sloshing about at the start of the 70's"
Well no. Banks (or BS's for that matter) don't sit around patiently, waiting to take cash from depositors and make loans to borrowers, they split the zero and make the loan out of thin air.
They gamble on the recipient of the money (i.e. the vendor) putting the money back on deposit in the banking system, so at the end of the day (literally), loans and deposits have both gone up by an equal and opposite amount.
The position at the end of the day is indistinguishable from what the position would have looked like had people deposited the cash first and the bank then lent it out.
"there was a lot of money sloshing about at the start of the 70's"
Sorry, I didn't literally mean that. I was referring to the statement that people were getting wealthier, although my googling about banks rules did uncover the fact that M3 sterling increased enormously during the first few years of the 70's (not that I am 100% sure what M3 sterling is, it was implied it was ready money).
B, measures of money supply like M3 are the result of willingness to borrow and lend and not the cause of it. It's not an external thing, like weather good = more and cheaper food. More and cheaper food doesn't make the weather better.
So the rise in M3 was due to additional willingness to borrow and lend, and that willingness was the result of people "getting on the property ladder" once the bubble started, i.e. the first dawn of Home-Owner-Ism.
If, for example, everybody had just rented a council house then incomes and so on would have been the same, but M3 growth would have been negligible because there's nothing to borrow for or lend on.
Indeed and I find it amazing how many people (in positions of power) still think that the BoE dictates money supply.
QP, the BoE can influence 'money supply' by shuffling bits of paper around and/or depressing interest rates, but this in itself has no particular impact on the real economy.
Post a Comment