"House prices will boom before crashing in 2026"

Spotted by TBH in The Daily Mail (of all places):

Anybody predicting the average house price would rise 10 per cent during the lockdowns would probably have been laughed out of the room as the pandemic hit... If the Bank of England and the property industry itself isn't capable of predicting the future of house prices, who then would be bold enough to do so?

Well, one man is happy to give it a try - and what's more, time and time again he has got it right.

Fred Harrison, a British author and economic commentator, successfully predicted the previous two property crashes years before they occurred - and his 18-year property cycle theory says that house prices should continue to boom before crashing in 2026...

He is able to make these predictions having identified an 18-year cycle that he has mapped out from hundreds of years' worth of data.

As much as I love Fred, that's not quite true. The oldest article I found about the 18-year boom bust cycle was circa 1905, which covered US recessions going back to before it was even the US. But he certainly rediscovered this phenomenom.

What would stop a crash from happening in 2026?

In short, Harrison believes nothing will stop the crash from happening unless dramatic government action is taken to prevent it.

'Nothing can stop the crash of 2026, other than if prices were limited to long-run affordable levels, but governments refuse to contemplate that prospect,' he says, 'If people are happy with the booms and busts, there doesn't need to be a solution.'

The best 'solution' according to Fred and many others being to tax land values a lot more and labour and enterprise a lot less, of course, but it's The Mail and they didn't report that.

'Never kill a job, mate. Never kill a job'

These words were spoken, through a just alight dog end stuck to his bottom lip,  by a labourer in a potato merchant to a friend of mine who was his foreman and was trying to hurry him up in loading the lorries.  The message is don't work too hard or fast or the job will go.

But what really kills jobs?

We all know that jobs are a cost of production, not a benefit hence the costlier you make it to employ somebody the less jobs there will be.

Which brings me on to this (which I have just re-discovered):



It seems to me that the other takeaway from Fred's analysis is that by taxing labour not land you kill production which in turn kills jobs.  Or rather the killing of jobs kills production.

Of course it gets worse.  The value of money arises from production.  Fiat money is what it says it is. Its value does not arise from production.  So without production (and yes that would include house building) money must eventually have no value.

So on top of reducing production we now have money printing to save production...

It's not going to end well is it.

Unless we change course...

Fair play to the Homey-In-Chief

From today's City AM:

GETTING IT RIGHT

Readers have been writing in to urge me to add names to my list of UK-based monetarists, Austrian and other economists, City analysts and politicians who foresaw the crash.

New entrants to my economic walk of fame include Lord (Howard) Flight, the Tory peer, City grandee and former front bencher who was disgracefully treated by his party (he warned of a coming crunch in his 2005 shadow budget), Jonathan Ruffer of the eponymous fund management firm, and Bernard Connolly, a brilliant economist who worked for AIG at the time but was ignored by his company (he now works for Hamiltonian Associates).

Writing in The Chaos Makers in 1997, Fred Harrison of the Georgist-leaning Land Research Trust, made an eerily accurate prediction:

“By 2007 Britain and most of the other industrially advanced economies will be in the throes of frenzied activity in the land market to equal what happened in 1988/9. Land prices will be near their 18-year peak, driven by an exponential growth rate, on the verge of the collapse that will presage the global depression of 2010.”

I’m not a Georgist and disagree with many of that philosophy’s tenets, but this was pretty spot on.

The HIC is definitely a Home-Owner-Ist and not a Georgist, but he's never actually said why he disagrees with it apart from the usual "attack on wealth" nonsense. Are things like taxes on output and profits, planning restrictions and recurring financial recessions not themselves "attacks on wealth"?

"My Greedy Generation"

This country (a-ha) is becoming like a ghost country

Fred Harrison's eighteen-year cycle, historic edition.

Via HPC, a reprint of an article from 1902:

Glance for a moment over the financial history of the century just closing, and see what has been the condition of the country.

During 1837 the country was in the midst of a financial panic.

Again during the year 1857—twenty years later—there was another panic. In 1837 a financial crisis struck the eastern states and the great banking house of Jay Cook & Co. was found among the financial wrecks scattered throughout that section of the country.

In 1875 that same panic reached the Pacific Coast, closing the doors of the Bank of California of San Francisco, together with many other banking institutions, including the then popular banking house of Temple and Workman in our own Los Angeles—a bank that failed for over a million dollars and never paid a cent on the dollar to the many unfortunate depositors.

In 1893 the next panic struck the United States after having wrecked so many banking institutions in South America, Australia, and other parts of the world...

Same old, same old - there were similar credit bubbles/busts together with their inevitable flipside, peaks in land prices (i.e. house prices) in 1973, 1989, 2007...*

It strikes me that we could iron out the boom-bust cycle and do the productive economy a lot of good by shifting taxation from incomes and production onto land values, surely it must be worth a try?

* To fill in the gaps, it appears from the article that there was A Bank Panic in 1907; we all remember that there was A Big One in 1929 (unusually, this was based on a share price bubble as much as a land price bubble), the Second World War interrupted things a bit, so there was a short lived house price bubble in about 1949 in the UK (down to genuine shortage of houses) and there was a slightly longer gap between 1949 and 1973 because of reconstruction after Second World War and because the UK government allowed many more homes to be built and we had Domestic Rates and Schedule A taxation (which between them amount to a crude form of LVT).

What's everybody so scared of?

1. While the 'failed old parties' bandy about fairly similar manifestos, let's remind ourselves of the biggest immediate problem facing today's younger 'hard working families'.

They aren't just looking at the additional future publicly collected tax bill required to pay off the accumulated national debt which the current lot has run up, they also have to borrow and pay off an average of £160,000 or so to 'jump on the housing ladder', of which around half is a privately collected tax, in other words, the price of an average house in excess of the bricks and mortar value.

2. Having ploughed through Fred's new book on the way home, the most telling part is this (page 266):

Was I being paranoid?

One man knew the answer to that question: Matthew Taylor [New Labour's policy director for the 1997 General election, also charged with drawing up the manifesto for the 2005 General Election]. And, as it happens, he too was a speaker at the Warwick Economics Summit. We met in the hospitality room, and I told him about my 1997 alert to Blair, Brown, Darling, Mandelson and Campbell. Ten years, enough time for a government to prevent a house price boom that would otherwise peak in 2007, driving the economy into recession.

Taylor knew the inside of New Labour's policy-making process like no-one else. So I challenged him with a question: "What was the one policy that the government could not countenance?"

He replied without hesitation: "The Land Tax".

3. I have, on this blog and elsewhere, allowed myself to be bogged down into the finer points of land valuation, which is a secondary issue. With my simplification campaigner's hat on, here's what a Land Tax boils down to:

a) all the taxes on property occupation and ownership and wealth generally*, which could and should be replaced, amount to about £60 billion per annum.

b) There are about 4 million acres of privately-owned, developed land in the UK

So to replace the entire list below would require a tax of about £15,000 per acre or £3 per square yard per annum. So the Land Tax bill for an 'average' semi in an 'average' area would be £1,000 a year or something (slightly less than the current Council Tax bill plus TV licence fee).

If the tax is to be more proportional to actual land or property values, then round my way** it would be more like £10 per square yard per annum, and in town centres it would be much more - as much as £100 or £200 per square yard per annum in prime Central London*** (which is no more than what they currently pay in Business Rates). Conversely, the tax would only be £1 or £2 per square yard per annum for ex-council houses or industrial estates outside the South East (which is slightly less, on average, than they currently pay in Council Tax less Council Tax Benefit plus TV licence fee; or in Business Rates as the case may be).

Where we take it from there is another topic.

* From the Public Sector Finances Databank for 2009-10:
Council Tax £24.8 billion
Business rates £23.7 billion
Stamp duties £7.4 billion
Capital gains tax £2.5 billion
Inheritance tax £2.2 billion
Insurance Premium tax £2.3 billion
Then minus off Council Tax Benefit and agricultural land subsidies (about £3 billion each) and add on the TV licence fee (also about £3 billion).

** Where I live is probably in the highest quintile of areas by property value. If I multiply the area of my house by £10 per square yard, then that amounts to rather less than a quarter of the rent we pay every year, or about half of what our landlord currently has to pay in income tax on the rent, plus the Council Tax and TV licence fee we pay. So this all seems 'about right'.

*** So somebody living in a flat in Central London in a ten-storey block with no private garden or car park can divide the size of his flat by ten to work out his share of the Land Tax.

2010: The Inquest

Fred Harrison, one of the few people who can see it all coming long before it happens, has brought out a new book.

If you've not read any of his previous books, then this is the one to buy/read. Available at Amazon.

Stupid reader's letter of the day

From The FT:

Sir,

What is the similarity between the current financial crisis and a volcano? The answer is the shape of the graph of activity levels leading up to the main event. It shows a long period of deceptive calm followed by a dramatic eruption, up or down, depending on which event is being plotted.

The main interest in both cases is to predict when the big event will happen, and it is clear that with regard to the economy, conventional statistical and economic analyses failed us almost completely. Although many analysts predicted a crisis, nobody correctly predicted the timing*.

As with the volcano, where the relevant metric is the pressure building up out of sight underground, the issue with the economic crisis must have been pressures building up, out of sight, elsewhere in the economy. With the benefit of hindsight, we can now see that we were looking at the wrong variables, as these "underground" metrics were literally invisible**.

A big prize surely awaits the identifier of these pressures and a definitive explanation of why the timing was as it turned out to be. I am surprised that it seems few attempts have been made to probe further than simply blaming irresponsible bankers and sub-prime loans, as these went on for years and do not explain the timing of the crisis.

More serious work is urgently needed by economists and statisticians if they are to remain trusted advisers. Please get to it.

Peter Vos, Littlehampton, West Sussex, UK.

* Er ... Fred Harrison predicted the 1989 and 2007 crashes/recessions many years in advance, see his Moneyweek article from August 2005, for example. As did many other Land Value Taxers, for that matter. Why do you think I sold all my investment properties and my own home in the years leading to December 2007?

** "these 'underground' metrics were literally invisible"? Wot? Rising house and commercial property prices are very well documented and have been constantly in the headlines for the past eight years or so. It's not "underground" that we need to look, it's under our noses. Or under our feet, depending on your point of view.

What's not to like?

Techieman over at HPC says, re Fred Harrison's latest video clip, "Whether you believe in LVT or not, it's good to watch."

In response to which I posted my usual mini-essay, as follows:

"It's not a question of whether you 'believe' in LVT.

Firstly you have to understand what land values ARE (or were at least year's peak). Agricultural = £1 per sq yd; typical residential £200 per sq yd; outer London £1,000 per sq yd; and inner London up to £20,000 per sq yd.

Then you think about what drives relative values. I would suggest = value of local amenities/services x generosity of planning permission + scarcity value.

Finally, think about changes over time, over the last HP cycle, for example. As land values are a residual figure (total property value minus bricks and mortar), they actually fell 75% in the early nineties, since when they have risen five or ten fold, and are now falling again disproptionately (builders' land banks are down at least 50%, for example). This is the bubble element.

Now, we all now that higher interest rates reduce house prices. Therefore, if (at the bottom of the cycle - 1994 would have been a good time, the next opportunity will be in 2011 or so) the gummint had the commonsense to replace all property/wealth related taxes (C Tax, Business Rates, Stamp Duty, Capital Gains Tax, Inheritance Tax etc) with a fiscally neutral Land Value Tax of 5% or 10% on site-only land values, there would be little impact, winners and losers would cancel out.

In £ and pence, that would mean somebody in a little croft or an ex-council flat up North would pay £100 a year, and average family home would pay £1,000 to £2,000 a year and people in villas in Hampstead would pay £10,000 a year.

And if every year, site values were recalculated based on actual sales in preceding year, the minute a bubble started arising it would be dampened off again, as there would be a few people who don't want to pay a couple of hundred £ more just because an area is now fashionable (or whatever) who would sell up, so land prices and hence house prices would remain low and stable.
LVT would also be the ideal local tax - instead of being forced to pay for the COST of local services (via general taxation allocated by central government plus a top up in the form of Council Tax) regardless of their VALUE, property owners would only pay towards the VALUE of those services.

So out go 5-a-day-advisors and in come more bobbies on the beat. Out go climate change consultants and in come more lollipop ladies. Out go vanity schemes and white elephants, and in come better bus and train services. Out go sink comprehensives and in come grammar schools. And so on.

What's not to like?"

I forgot to add the usual caveat "Pensioners would not be required to pay their LVT up front; they would be allowed to defer it to be repaid out of their estates".