Sunday, 29 September 2013

"Quick! Pour more accelerant on the fire!"

Via Ennui at HPC.

It must be clear to everybody that the Conservatives' re-election hopes are largely pinned on stoking a nice house price bubble before 2015 to create the "feel good factor" which has been key to winning more or less every UK General Election for the past few decades.

But oh no, what's this?

The August data from Land Registry's House Price Index shows an annual price increase of 1.3% which takes the average property value in England and Wales to £164,654. The monthly change from July to August shows an increase of 0.1%...

The region in England and Wales which experienced the greatest increase in its average property value over the last 12 months is London with a movement of 7.1% and the North West experienced the greatest monthly rise with a movement of 1.3%. The region with the greatest annual price fall is the North East with a decrease of 2.2%. Wales saw the most significant monthly price fall with a decrease of 2.1%.


So their votes might be looking pretty safe in London/South East for the time being, but it's ebbing away elsewhere.

But fear not, help is at hand:

Polling since Mr Miliband’s speech last Tuesday suggests that his policies are popular with voters, who have seen their energy bills rise sharply, while average wages have stalled. Mr Cameron believes that too many young professionals are being priced out of the property market because they cannot raise enough money for a deposit.

The Help to Buy mortgage guarantee scheme will be brought forward from January 2014 to next week.

Under the three-year scheme, the Government will provide up to £12 billion of “guarantees” to encourage mortgage lenders to offer more loans worth 95 per cent of the price of a property. The government guarantees are needed to reassure banks and building societies because of the risk that mortgage holders with such high loan-to-value deals will default.

The scheme is expected to enable banks to release £130 billion of loans for buyers of properties worth up to £600,000 who could not raise a larger mortgage deposit on their own. A smaller government loan scheme for people buying newly built properties began in April.


To cut a long story, the very same people can't afford to scrape together a decent deposit on an over-priced house are being expected to be able to repay a mortgage on a house where the price has been pumped up by yet another fifteen per cent or so?

9 comments:

The Stigler said...

One problem is that elections aren't won in L&SE, they're won in places like Warrington, Corby and Hastings.

I even have a suspicion that a lot of UKIPs vote is a provincial rebellion against the three pro-London parties.

Mark Wadsworth said...

TS, correct, so the Tories observe that their Help To Sell strategy is working nicely in LSE, but failing badly everywhere else.

Response: crank up Help To Sell!

Dinero said...

The Help to buy / Help to sell makes more sense if seen as Help to loan.
Enableing banks to loan and earn intererst and improve their balance sheet's Capital in the current climate with retained earnings , if in fact that is what they do with the interest.

Mark Wadsworth said...

Din, yes. I am never sure whether the landowners are useful stooges of the bankers, or the banks are useful stooges of the landowners, or whether they are effectively one bloc, i.e. people who live off land rents or land values, directly or indirectly.

But by and large, what's good for one group is good for the other.

Ralph Musgrave said...

Very few people will understand the following point, but here goes.

Daft wheezes to effect stimulus, like QE and Help to Buy have arisen because they are ways of bringing stimulus that don’t involve increasing the deficit and debt.

What is nonsensical here is that, as Keynes pointed out, the deficit and debt are a complete and total irrelevance. As to the idea that increasing the deficit means increasing the debt, that’s nonsense because the deficit can accumulate as extra money (monetary base to be exact). And as to the idea that increasing the amount of money in circulation means inflation, it doesn’t if the economy has spare capacity.

Unfortunately there are large numbers of so called “economists” at the IMF, OECD and in Britain’s civil service who just don’t understand the latter points.

The Stigler said...

"What is nonsensical here is that, as Keynes pointed out, the deficit and debt are a complete and total irrelevance."

So, why are the government holding back on spending? Why not have the government pour money into Ferrari and have them send us over lots of lovely cars, or ship over all the best kobe beef for us to enjoy?

paulc156 said...

@TS "So, why are the government holding back on spending?"

The obvious answer to that is they favour a smaller state as a matter of principle. The same reason explains why they don't directly finance the building of low price homes [never mind Ferraris] to rent or allow local councils to do likewise with borrowed monies but prefer to ramp up prices and claim this will achieve the required new builds. The former will increase the state [central or local] role in the economy whilst the latter will support the City, the place where they will all end up after they've finished enriching their future employers.

Mark Wadsworth said...

RM, we disagree on debts and deficits, but for different reasons. The MMTers make a good point on principle, but do not answer what the government should spend money on.

How would you feel if the UK government were running up a massive deficit by sending aid money to Bongo Bongo Land?

TS, the Lib Cons are not "holding back on spending" at all, they are spending even more than Labour at their worst! This is all Indian Bicycle Marketing!

PC, no they do not favour a "small state"! They take away £1 from the unemployed or disabled and give £2 to a banker or landowner.

I don't get this antipathy towards social housing.

Some days I'm in small state, low tax mood and I think "Social housing costs the taxpayer nothing and councils compete with private housing providers, thus increasing competition and driving prices down, the end goal of capitalism. So what;s wrong with it?"

Other days I feel collectivist left wing and think "We have to look after low earners and the elderly and disabled, what's wrong with providing them with cheap housing? The so-called 'free markets' have miserably failed to provide low cost cheap housing."

Either way, I can't see a problem.

The Stigler said...

Mark,

I'm not saying they're holding back on spending. I'm just puzzled by this "debt doesn't matter" idea. If it doesn't matter, why are we holding back on spending? What government would be so crazy as to not promise Ferraris and kobe beef if debt doesn't matter?