Richard linked to this speech by some Bank of England bod, who was trying desperately to prove that UK house prices are not in a bubble etc. Well, he would say that wouldn't he?
Chart 8 is handy. It shows how rents have risen as a share of income over the last forty years. The chart heading, referring to rents as "costs" is misleading, because from for landlords, landowners and bankers, rental income (or potential selling price, or potential mortgage interest) has risen.
This is the important point: taking society as a whole, rents (and mortgages) paid are neither costs nor income, rents are a government-engineered transfer of wealth from producers to a self-selected narrow group of consumers, and the more the producers produce, the easier for these consumers to skim some off for themselves. It's like the "bloated welfare state" but about five times bigger and with a terrible veneer of respectability.
The steepest increases appear to be during recessions, which is probably because wages fall faster than rents during recessions, but the overall trend is clearly upwards:
Christmas Day: readings for Year C
9 hours ago
11 comments:
Inspecting the graph it seems to me that the big leap in rental costs occured in 1992 - when housing benefit was introduced. Well, quelle surprise...
L, good point, see also here:
HB was introduced under the Social Security and Housing Benefit Act 1982 to replace [the National Rent Rebate Scheme and the Rent Allowance Scheme].
It was not until 1988, however, that HB was in full operation, with the integration of in-work and out-of-work HB systems, by which time it had already begun to be amended.
The Housing Act 1988 produced massive upheaval for the HB system. The Act began the deregulation of private sector rents, reduced protection for tenants and removed the right to independent assessment of "Fair Rents".
I think chart 9 has been mis-interpreted. What is shows is people releasing equity and spending it. He says it was 'transferred'. Eh?
Being 'on the street' as it were, I can state categorically that the mortgage market became utterly bonkers betwen about 2001 and 2008. What is this bloke on?
L, basic banking rules say that extra lending on one side must mean more deposits on the other.
He then assumes that MEW proceeds were "transferred" but he must be potty if he thinks that people did MEW and then plonked the proceeds back in the bank.
But like I said, this is govt funded Homey propaganda.
Thanks, and yes, I see all that. But what does he mean by 'transferred'? The graph illustrates very clearly that people were taking MEW and spending it - which is my experience. In other words they were borrowing for consumption.
L he means this:
1. Fact - people MEW'ed.
2. Fact - deposits went up.
3. Conclusion - people MEW'ed and then "transferred" money into their own deposit accounts.
This is clearly bollocks, they MEW'ed and spent it and the money ended up in somebody else's deposit account.
Yes, that's what I thought he meant. But it's nonsense isn't it? It's just totally daft. The Emperor has no clothes. Or am I just not quite as clever as the Bank of England, seeing as how I am just a pleb?
L, it's Emperor's new clothes.
It's such a relief to have confirmed that things I thought were daft, as really genuinely daft. It shows that I am not alone.
And a Happy Christmas to you!
Accommodation costs are well out of kilter.
At this rate there won't be any room at the inn. Not affordable room anyway.
Happy Christmas to you and yours.
Kevin
Excellent stuff. Have added to my infinite evidence for propaganda purposes here:
http://gco2e.blogspot.co.uk/2011/06/who-is-getting-your-earnings-useful.html
I agree, the biggest wealth transfer occurs as mortgages default after the bubble bursts and the next tranch of BTL's or whatever buy them up very cheap ready for the next 18 year round.
The problem this time round is that the defaults have been prohibited by bail outs. The wealth transfer will still have taken place but it will be by inflation???
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