Friday, 14 September 2007

"Northern Rock gets bank bail out"

The most relevant measure of house prices is the ratio of average house prices to average earnings. Here's a summary of a graph produced by the Nationwide available here

1953 4.0 (peak)
1960 3.0 (trough)
1973 4.8 (peak)
1982 3.4 (trough)
1990 4.9 (peak)
1995 2.8 (trough)
2007 6.0 (peak)

Conclusion: House prices go up and down in cycles of about 18 years.

Nobody really knows why, human nature I suppose. I consider it to be A Bad Thing, all-in-all, because it leads to stories like the Northern Rock bail-out (bale-out?). Won't people with savings at Northern Rock just panic* and withdraw everything? They'd be daft not to, really.

All very worrying.

And how do we prevent these house-price (actually, land-price) bubbles? By having an annual tax on land values. If values go up, the tax goes up, so values go down again.

And I'm not saying this because I want to tax people more, I think taxes are far too high, the point is that Land Value Tax does have a lot of positive knock-on effects, unlike taxes on turnover and income that only have negative knock-on effects.
*UPDATE (10.00 am) there was a huge queue outside the Northern Rock branch round the corner from where I work, TV crews and everything.


CityUnslicker said...

NR are really fucked, whatever the press say. They don't have any deposits of note and borrow all their money in the market to re-lend as mortgages.

I don't see how they can be getting any new customers in at the moment and all their loans will be shooting up thanks to the libor.

Even with BOE help their profits will be gone, if it gets really bad then they will go under. No doubt some VC/PE will take them on which will hide the mess to some extent.

Mark Wadsworth said...

As at yesterday, their deposits were £24 bn, (about 20% of assets/mortgage book) By the close of today they'll be about ... oooh, £537.26?

Astoundingly stupid comments about, some cow from BBA said "depositers and mortage borrowers have nothing to worry about", well the former clearly do, and why would the latter worry anyway?

Anyway, what's your new job?