From John Redwood's blog
Conservatives want more people to be homeowners. We are the homeowning party. We have a proud record of extending ownership to many more. We have done this in the past by Council house sales, by creating conditions for affordable mortgages, and by tax breaks.(1)
Some write into this site to say we need to get house prices down, so more homes are affordable. Labour tried this(2) – inadvertently no doubt – with a big house price fall at the end of the last decade. It did not price more people into home ownership(3), because there was too little mortgage money available to buy the cheaper homes(4). The number of new homes built slumped to new lows.(5)
The sharp downward adjustment may help in the future, but whilst it is happening it puts people off wanting to buy, plunges people into negative equity and undermines the banks who have lent against homes at higher prices(6). Why would people want to buy a home if they thought it could be 10% cheaper in a year or two?(7) At some point the authorities have to say enough, and stabilise the position.(8) That is happening now.
The overall fall in real and in many cases cash house prices has also changed relative prices a lot. The most desirable districts of central London, Sandbanks, parts of Oxford and Cambridge and a few other hotspots have risen whilst elsewhere there have been falls. In the northern towns most damaged by the Big Recession of 2007-9 there are more empty homes and larger price falls were experienced. The big movements in relative prices might help in due course rebalance the economy. When more people see that homes are better value out of London, and see there can be lifestyle improvements for them by moving, the market may start to assist the areas with more and cheaper homes.
It is far too early to call an end to this housing “boom” which a few commentators already claim is happening. They should get out of Belgravia and Chelsea more. There is no boom in much of the country. We need to see more housing transactions(9). They generate income for those involved, and usually lead on to work for builders, decorators, home improvers, furniture suppliers and the like.(10)
Some who want lower house prices bemoan how much money and activity the UK expends on housing. I think it is good we do, and want to see more spent in the years ahead(11). A person’s home is a vital part of their lifestyle and their comforts, an important determinant of whether they can enjoy their lives or not. Modern technology can transform a home. Many more will want to reach for the better heating installations, better insulation, improved labour saving devices, more stylish bathrooms and kitchens that money can now buy(12). There is plenty of room for more home improvement, to cut running costs, to make life easier and cheer people up. This also creates plenty of work for the many trades and professions involved in housing activity.
We have to live with the fact that expensive flats and houses in the centre of London are now largely the preserve of the international rich set. It would be stupid to try to stop them coming to London, spending their money with us and setting up businesses and investments here. As they drive the price of prime central London to ever giddier heights(13), the rest of us can see the charms and attractions of cheaper locations which need our money and our support.
1. Maybe in the past, but the Conservatives are now the party of homeownerism more than any other party and this doesn't mean increasing the number of owners, but looking after those who already own.
2. Labour never did anything to try to lower house prices. They relied on the bubble to sustain the economy. The fall was just the result of the bubble bursting, not deliberate.
3. Wrong. Falling house prices are very good for homeownership as people who were priced out can now afford them. The bubble bursting adjusts from madness to something closer to sanity.
4. At worst, the building societies and banks became more conservative about lending, but at the same time, prices fell enough to cover how much less there was.
5. Number of new homes not the same thing as home ownership.
6. No, it doesn't. The banks lent on mortgages, which are unaffected by the price of the house they lent on.
7. Maybe because the average mortgage is around 7 years. So, for people who are buying a home to have a home, rather than speculating, a fall of 10% over 2 years is an irrelevance.
8. The market will stabilise itself. Thought Redwood claimed to be a free-marketeer?
9. If you want more mortgage transactions, scrap stamp duty.
10. But the biggest gainers are the government (collecting stamp duty) and estate agents. Both of whom gain from higher house prices, taking money from people to spend on home improvements.
11. Imagine that same statement being said about food or petrol by Redwood.
12. And what's the effect of mortgage costs on how much disposable income people have on that.
13. Anyone seriously think that it's a few foreign billionaires driving up the cost of millions of houses in London?
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8 comments:
6. Well it does worry the banks, because people can default and the banks will lose money, so for the Bankers' Party, negative equity is definitely a Bad Thing.
Good one.
I got as far as your bullet 3 and gave in. There is a clear correlation between rising prices and falling levels of owner-occupation. You can't argue with people like that. Pure distilled Home-Owner-Ism.
And 5 is even worse, coming from the über NIMBY, the Tories campaign flat out for less new construction, that's one of their core beliefs. Labour members/voters are probably just as NIMBY on a personal level but not as a matter of party policy.
And there is no such thing as an "empty home", that's what we politely refer to as "a building".
"Why would people want to buy a home if they thought it could be 10% cheaper in a year or two?(7)"
That's fucking bollocks as well.
Back in the early/mid 1990s, houses were cheap and expected - incorrectly as it turns out - to get cheaper.
But the reasonably sane tenant/FTB calculated thusly:
"My rent is £7,000 a year but I could buy a house for £70,000.
Even if prices fall by ten per cent next year, I'm not actually much worse off because what I "lost" in selling price I saved in rent, and I can still easily trade up.
Further, even if my house is worth £zero in ten years' time - which is highly bloody unlikely, to say the least - I'm still no worse off than I would have beeb renting and I can live rent free for the rest of my life."
Otherwise why would anybody buy a car? You know they are going to fall in value, but it's still cheaper owning a car than hiring one every day.
MW - Quite. But a lot of the comments on the thread folowing JR's post are critical - which must be a good sign. Mustn't it? Please?
Why would people want to buy a home if they thought it could be 10% cheaper in a year or two?
True socialist coming out there, that´s the Keynesian argument for inflation. Everyone would suddenly stop buying goods if it became apparent that they would be cheaper and better in a year. Kind of like how it should be and has been with consumer durables for the last century or so.
Kj/Mark/Lola,
Exactly.
There is the neg eq problem, but if you consider a cap and int mortgage, you'd have paid off some of the capital anyway. And on top of that, if your house falls 10%, so does the one above it. So, you've paid off maybe a couple of grand. You then have to find maybe £5K to cover the neg eq, BUT, you save £10K on the £110K house that is now worth around £100K.
And if we went back to the sanity of 25yr 80% cap and int mortgages for FTBs as the norm, we wouldn't have this problem in the first place.
TS?Kj, following the numbering
7) yes, if houses are wildly overpriced then people are scared of a 10% drop. If they are cheap, then nobody cares.
Nequity is, in the grander scheme of things, not an issue.
e.g. you bought a £200,000 house with a 25 year 4% mortgage and it falls in value to £100,000.
The govt can tell the bank to replace it with a £100,000 25 year 8% mortgage, sorted.
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