"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.

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"?

"McVitie’s hire George Osborne to launch new ‘triple-dip’ digestives"

From News Thump:

After the Office of National Statistics revealed the UK economy had shrunk by 0.3% in the last quarter of 2012, biscuit giant McVitie’s has hired George Osborne to market their new range of ‘triple-dip’ digestives...

That looks like one long recession to me

There's a splendid interactive chart at the BBC showing how long it took GDP to recover after the five longest/deepest recessions since 1930. The previous four depressions (defined loosely as 'the time it takes for the economy to get back to where it started') lasted forty to fifty months, this time there is no end in sight.

Which is hardly surprising, we have just had the biggest global credit-land price bubble ever and it will take correspondingly long to sort out.

But look a bit more closely, according to the chart the previous three depressions were 1973 - 76, 1979 - 83 and 1990 - 93. The first and last ones were clearly also the results of credit-land price boom busts (the starting dates correlate nicely with peaks in house prices*), the middle one was just a general mess, but isn't that really just one long depression, from 1973 all the way to 1993, with a six or seven year Lawson boom in the late 1980s which came to nought?

That's certainly how I remember it when I was growing up.* There was a house price peak in 1948, but this was the result of a genuine short-term post-war housing shortage and not the result of a credit bubble. This was sorted out by actually building houses, which is good for the economy, which is why there was no recession thereafter, even though it would fit nicely into the 18-year cycle, i.e. 1930 + 18 = 1948.

Bank cuts growth forecaset to pffft

From the BBC:

The Bank of England has cut its growth forecast to close to pffft from about meh predicted in May, as the damn-and-blast. The quarterly inflation report indicated no tee hee hee for 2012, compared with yadda yadda predicted a year ago.

The data had fuelled anticipation for ahem, but Governor Sir Mervyn King dismissed calls for ahem in the near term.

He said recovery hopes had consistently been AAARGH.

"The big picture is that output's been sheesh for two years, and has continually bleurgh expectations of hooray," he told a news conference. "We are blubba blubba and rumble rumble from the achtung ola merci beaucoup," he added. "Unlike the Olympians YEAH! YEAH! our economy has not yet whoo-hoo!"

"Can we pretend the last two years didn't happen?"

From The Daily Mail:

David Cameron will today say the economy is suffering "perilous times" as he and Nick Clegg vow there can be no U-turn on running massive deficits.

The Prime Minister and his Liberal Democrat deputy will tell voters the "unvarnished truth" that the country’s finances are in a far worse state than at the time of the 2010 General Election campaign, and that they didn't even realise how bad things were then, having been too lazy to do any research on the topic – and promise to do "whatever it takes" to get voters to forget about the last two years and put all the blame onto the previous Labour government.

In their first joint appearance for nearly a year and marking the second anniversary of the Coalition, Mr Cameron and Mr Clegg will be hoping to placate critics by evoking memories of their vaguely embarrassing appearance together in the Number Ten rose garden after the election in 2010.

Today’s question-and-answer session at a recently closed factory in Essex is already being dubbed "the love-in" by Downing Street. In an echo of Nevile Chamberlain's "Peace in our time" speech, the Prime Minister will vow that the Government’s lax control over spending will encourage "prosperity in our time"...

After a month of complete voter indifference, Mr Cameron will today remind voters that the Coalition was - rather ironically as it turns out - formed to save the economy, saying: "That was and remains our guiding task, and the fact that we are still going through perilous times is a testament to our complete lack of competence or integrity. And we're getting in Stevie Wonder to curate the National Gallery."

"Skyscrapers linked with impending financial crashes"

From the BBC:

There is an "unhealthy correlation" between the building of skyscrapers and subsequent financial crashes, according to Barclays Capital. Examples include the Empire State building, built as the Great Depression was underway, and the current world's tallest, the Burj Khalifa, built just before Dubai almost went bust.

China is currently the biggest builder of skyscrapers, the bank said. India also has 14 skyscrapers under construction.

"Often the world's tallest buildings are simply the edifice of a broader skyscraper building boom, reflecting a widespread misallocation of capital and an impending economic correction," Barclays Capital analysts said. The bank noted that the world's first skyscraper, the Equitable Life building in New York, was completed in 1873 and coincided with a five-year recession. It was demolished in 1912...

That all seems perfectly plausible to me.

By and large, the height and density of buildings are primarily an indicator of relative land values in towns and cities. So you get the highest and densest buildings in the town centre* and then it gets lower and sparser as you move out into the suburbs.

The other thing which sky scrapers indicate is over-inflated egos, and credit bubbles inflate people's egos in the same way as they inflate the selling price of land.

So it's clear why credit bubbles mean more skyscrapers being built; credit bubbles always burst; hey presto, there's your correlation between skyscrapers and recessions.

Or the theory might be complete bunk, who knows?
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* UPDATE, prompted by JT's comment, I refer you to Jason Barr's empirical research looking at the economics of skyscrapers in Manhattan:

One also notices that within the skyline there are distinct “waves” of building heights, with height rising toward the "center". These waves reflect the endogenous relationship between strategic height, land values and agglomeration economies. Corporations need to be near each other to lower their business costs and increase demand, yet they also desire to stand out in the skyline.

Being close is valuable, which is reflected in property values in the center; large land costs, in turn, drives developers to build even higher if they are to get a return on their investment, as well as have their buildings stand out.

He explains that on the one hand, builders want to build as high as possible, to maximise rental income, fair enough. By and large, rental values decline slightly with height (longer lift journeys etc) and construction costs rise disproportionately with height. So there is a cut-off height above which it makes no sense building, but hubris (esp. during a credit boom) makes people want to add a dozen floors too many, and credit booms also lead builders to underestimate the cost of capital tied up in those extra floors.

He can thus identify the "too tall" buildings, and lists the top fifteen "too tall" buildings on page 27. As you'd expect, their construction dates match peaks of the eighteen-year credit cycles, two in 1908-13; seven in 1926 - 1933; then a bit of a gap for WW2 which threw the cycles out of kilter (or dampened the one which would have happened in the late 1940s); two in 1960 - 61; three in 1972 - 77; and an odd one out in 1987.

Fun Online Polls: Financial markets doolally and David Starkey

On a good turnout of 117 votes (thanks to everybody who took part), the results to last week's Fun Online Poll are as follows:

This whole US debt downgrade, Eurozone panic, stock market crash etc

A great buying opportunity - 20%
Nothing to worry about - 5%
Maybe there'll be a double-dip recession - 9%
We're heading into a Second Great Depression - 21%
I'm going to stock up with gold, tinned food, and a shotgun and cartridges - 38%
Other, please specify - 7%
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Oh dear, David Starkey has dared to mention what a lot of people were thinking, that the "rap culture" (music, videos and dress code - hoodies and expensive trainers) glorifies and romanticises crime, violence, misogyny and naked consumerism (weren't Run DMC synonymous with Adidas trainers?).

I'm quite sure that "rap culure" must be at least one of the many dozens of reasons for the nature of the recent 'riots', albeit not the actual trigger*, so that's this week's Fun Online Poll: Does "rap culture" glorify crime and violence?

Vote here or use the widget in the sidebar.

* IMHO, the real trigger is the something-for-nothing culture which starts at the very top (e.g. bankers' bonuses and MPs' expenses) and which newspapers like The Daily Express continuously celebrates.

Say no to growth - at any cost!

From the CPRE website:

Please ask your MP to say no to growth at any cost.

The planning system is under attack from the Government's planning reforms and the protection of precious countryside is going to be seriously weakened. We urgently need your help to fight back.

The reforms represent the biggest shake-up of planning for over 50 years. They will place the countryside under increasing threat and leave local communities and planning authorities largely powerless in the face of developer pressure.

Please write to your MP asking them to raise your concerns about the planning reforms, and in particular the draft national planning policy framework, with the Minister, Greg Clark. We've drafted a letter you can use.

All of us who care about the countryside - as well as the vitality of our towns and cities - need to stand up for what we value. Unless we act now, there will be uproar across the country as local communities discover in the months and years to come that the planning system and its ability to protect the countryside have been undermined by these reforms currently being pushed through.

Intellectual Mental Masturbation

I added an o/t comment to another thread that MW asked me to summarize. Here is the summary, courtesy of the RSA. Personally I reckon the speaker is a complete tosser, but you may think different....

Satire of the day (Bernanke edition)...

This is pretty darn good, from The Onion via HPC, enjoy:

"...While using beer bottles and pretzel sticks in an attempt to explain to the bartender the importance of infusing $650 billion into the bond market, the inebriated Fed chairman nearly fell off his stool and had to be held up by the patron sitting next to him.

Another bargoer confirmed Bernanke stood about 2 inches from her face and sprayed her with saliva, claiming inflation was going to "totally screw" consumer confidence and then asking if he could bum a smoke..."

If I'm reading my email correctly, Mr W is back tomorrow (or it could be Friday) and normal service will no doubt be resumed.

That's one way of looking at it...

... Mr K drew my attention to Tullett Prebon's lastest Strategy Note

Government and opposition alike base their thinking on the assumption that, by one means or another, growth can be restored. We see no reason whatever to assume this. To focus on the deficit is to ignore the fact that the British economy had become debt dependant long before the financial crisis.

Together, private and public borrowing has averaged 11.2% of GDP since 2003. Over the past decade, borrowing has driven up output in financial services (+123%), construction (+27%) and real estate (+26%), whilst lavish public spending has propelled expansion in health (+35%), education (+27%) and public administration and defence (+22%).

Real output in all other industries is now 5% lower than it was ten years ago.

Between them, real estate, finance, health, education, construction and public administration are six of Britain’s eight largest industries, and account for more than 58% of output. Yet the future prospects for at least five of these six sectors are grim, because:

- Public sector spending cuts are modest, but growth is now a thing of the past
- Net mortgage borrowing, critical to the real estate and construction sectors, has crashed, from £113bn in 2007-08 to a derisory £3bn last year.
- The aggregate of private (mortgage and credit) borrowing has now turned negative.

That sectors which account for 58% of output are hamstrung in this way leads us to believe that the fiscal and economic outlook is drastically worse than is generally assumed...

Falling Real Wage Fun (3)

A certain commenter over at HPC insists that using National Insurance receipts to guesstimate a ten per cent fall in total real wages during the period April 2008 to April 2011 is completely wrong, and that we should use Average Weekly Earnings (see Historical Time Series, Regular Pay tab) and the Consumer Price Index.

OK. There's no figure for April 2011, so let's use March instead.

March 2008, AWE £408, CPI 106.7
March 2009, AWE £417, CPI 109.8
March 2010, AWE £424, CPI 113.5
March 2011, AWE £433, CPI 118.1

We then adjust AWE for the CPI deflator to express AWE in terms of March 2011 prices:

March 2008, AWE £451
March 2009, AWE £448
March 2010, AWE £441
March 2011, AWE £433

That looks like a real fall of exactly four per cent, which we can further adjust for a 1.2% fall in total employment (from ONS Labour Market Statistical Bulletin) which gives us a total real fall of just over five per cent, which, intuitively, seems closer to the mark than a ten per cent fall.

Falling Real Wage Fun

I can't find actual official statistics for total wages paid out every month, so as the closest proxy, let's use monthly National Insurance receipts from April 2008 to April 2011 as published by HM Revenue & Customs, subject to one adjustment*:Ho-hum, that's as clear as mud, so I made two further adjustments:

1. I smoothed the monthly receipts, i.e. April receipts are on average 13.5% higher than in other months, so they were adjusted down by a factor of 100/113.5 and so on.

2. I downloaded the RPI figures from the ONS and rebased everything to April 2011 prices.

There, that's a lot clearer, isn't it?* I adjusted the original April 2011 figure because the effective main rate of NIC increased from 23.8% of wages to 25.8% (ignoring the very high earners, for whom it increased from 13.8% to 15.8%, and ignoring the increase in the thresholds), so I reduced the original figure of £10 billion by a factor of 23.8/25.8, so as not to overstate increase in headline wages. Employee's NIC went up from 11% to 12% of headline wages, i.e. people's net income went down from 89% of headline to 88%, so I reduced the figure by 88/89, seeing as we are only using NIC as a proxy for real wages.

Reader's Letter Of The Day

From the FT:

... it is worse than that: the economics profession is not even sure how expansionary an expansionary fiscal policy is, because of crowding out. This would be funny if the consequence were not millions of homes repossessed worldwide and lives wrecked.

I suggest that the solution to this farce is to abandon the distinction between fiscal and monetary policy, as advocated by Modern Monetary Theory. Under this regime, government simply creates new money and spends it (and/or reduces taxes) in a recession.

Conversely, when inflation looms, government reins in money via extra tax (and/or reduced public spending) and “unprints” it, or extinguishes it. As to government debt, that becomes near irrelevant: it can gradually be whittled down to near zero and be left at that level.

Ralph Musgrave, Durham.
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Phew! So it's not just me who thinks that the distinction between 'fiscal policy'* and 'monetary policy'** is completely artificial.

Ralph's longer summary of Modern Monetary Theory is here.

* Which in turn relates to two barely related areas, i.e. tax decisions and spending decisions.

** Setting interest rates in order to control money supply and/or controlling the money supply to influence interest rates, with a vague hope of controlling inflation.

Property boom and bust presentation - enjoy...

House price crash presentation

View more presentations from TheSqueeze.

Potemkin Villages in the UK

1. From The Daily Mail, "Developers stun residents by erecting fake building overnight after recession halts two block construction":
2. From The Metro "Recession-hit Redcar sets up fake shops" (OK, this is a fake house) :
3. From Sandwell MBC's website: "Empty Sandwell Shops Get A Facelift":
Cue Robin Smith who will explain why this is a symptom of landlords deliberately withholding premises from the market in order to drive up the rents of surrounding shops, which seems a bit self-defeating to me.

I'm surprised people still fall for this New Labour clap trap

Rather surprisingly, a Tory sympathiser over at HPC said this:

Check the numbers Mark - yes, spending under Labour continued to climb steadily, despite the recession; but the sudden and dramatic budget deficit was largely down to an implosion in tax receipts, well in excess of the amount you would expect; were the collection of tax revenues proportionate to GDP.

I always check the numbers before I say anything, but just for clarity, total tax revenues according to the Public Sector Finances Databank (Excel, Tab C4) were as follows:
2007-08 £516.0 billion
2008-09 £508.0 billion
2009-10 £479.7 billion

That's a reduction of seven per cent over two years. Out of that £36.3 billion fall in revenues, nearly half relates to the fall in corporation tax receipts of £10.6 billion (a fall of 22%, i.e. the amount that banks used to pay) and the fall in Stamp Duty Land Tax receipts of £6.2 billion (a fall of 44%, which is what you'd expect if the number of property transactions falls by nearly half).

According to The Guardian, GDP fell by six and a half per cent in the first year of the recession and has barely picked up since, so the fall in tax revenues was more or less exactly proportional to the fall in GDP.

So the idea that the £150 billion-odd annual deficits they are running is all down to the recession is nonsense (OK, stick on £5 or £10 billion for additional unemployment benefits if you really must) and I'd say that tax revenues held up surprisingly well.

Fun Online Poll Results: What are we missing?

Last weekend's Fun Online Poll asked "Which is the better way to help businesses?". I normally wait until a hundred people have voted, but so far 73 have chose "Cut Taxes" and nobody has chosen "Bail out the banks, in the hope they'll increase lending", so I'm going to call it early.

Which begs the question, why on earth does our government insist on bailing out the banks time and time again? I would assume that this is a desperate measure to prop up house prices, or possibly because our government is so dumb they think that the banks are important, or maybe even because the members of this government are hoping for well-paid non-jobs with UK banks after they get voted out next year.

Sure, the existence of a banking system (payments, direct debits, cash machines) is vitally important, as is the general idea that banks match savings with borrowing to the mutual benefit of all concerned. But banks are just middlemen, and have very little capital of their own. So if one lot go out of business, the staff, the branches, computer networks etc are still there; and the savings and the mortgages are still there, so why not let somebody else come and have a go?

For a real life example, see the transfer of most of B&B's assets/liabilities to Santander a year ago. Sure, somebody has to face up to the losses (which are already there), but they can be divvied up between reckless borrowers, bondholders and shareholders, there's no point burying our heads in the sand.
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Moving on, this week's Fun Online Poll asks "What should income-related benefit withdrawal try to achieve?"

In case that sounds a bit technical, what I mean is the fact that somebody on Income Support etc loses £1 in benefits for every £1 he earns; and households on Tax Credits lose around 70p in Tax Credits/PAYE for every £1 they earn. Those are "income-related benefits withdrawal" rates of 100% and 70% respectively.

For a graphic representation of what I mean, see here.

Vote here or use the widget in the sidebar.

Will this really get the car industry back on its feet?

If they build two new Minis, doesn't that equate to about one-tenth of a job?