Wednesday 23 March 2011

Another day, another reckless throw of the dice (40)

When Labour were in charge, at least they had a wide, sweeping vision of how to suck money out of the productive economy and from the young, and to parcel it out to quangocrats and the already-wealthy. The Lib-Cons share these broad ideals, but instead of having the vision and courage to throw hundreds of billions at propping up banks and house prices, the Lib-Cons think they can do it for pennies:

Mr Osborne will also announce £250m to help 10,000 first-time home buyers purchase newly built flats and houses...

According to Radio 4, the scheme is a modification of schemes which local council dreamed up last week and which home builders invented years ago (see e.g. Barratts, but they were all at it), i.e. the government and homebuilder get together to lend the gullible FTB a low interest or interest free deposit of twenty per cent of the purchase price, thus taking most of the risk away from the oh-so-fragile banking sector.

Wot? Apart from being a shit idea in principle, what on earth difference is ten thousand more first time buyers (not all of whom want to buy a new build, of course) going to make? To keep the Ponzi Scheme going, the market needs at least three-quarters-of-a-million first time buyers every year, a figure which had fallen by half by 2010 and is set to fall further.

What's in it for the home builders, you may ask. Why don't they cut the price by ten per cent rather than upping it by ten per cent but then lending the buyer ten per cent of the price?

As Adam Collyer points out, there is something called a new build premium - the resale price of a new build house falls by five per cent in the first year or two, so what this does is more or less guarantee negative equity for the first time buyer.

The whole thing is so mad that sometimes you struggle to understand how thought processes are distorted in Home-Owner-Ist economics, completely different rules of logic seem to apply.

£250m divided by 10,000 = £25,000, so assuming that's the government's half-share of a twenty per cent deposit, they would cover houses up to £300,000 or more (a lot of houses are less than £250,000, of course).

7 comments:

Scott Wright said...

Brand new homes in "less affluent" areas near me are ridiculously over-priced already due to stupid first time buyer schemes. Even though the place is a shit hole the new housing estate is priced at £20,000+ more for an equivalent sized house than those a 1 minute walk away.

They have that buy for 85% scheme where you pay no interest for 5 years on the 15% and can buy that portion later (or pay it off on re-sale) such a dumb scheme.

electro-kevin said...

These schemes lend money to youngsters on up to £60k pa.

Doesn't that validate what S Wright is saying ?

- many politicians are multiple property owners

- the toxic bank debts (devalued housing)need to be made good

electro-kevin said...

The last thing they're going to do is devalue housing by building more of it ...

...especially on land that is needed to feed our growing population.

Mark Wadsworth said...

SW, that's the general idea.

EK: "The last thing they're going to do is devalue housing by building more of it, especially on land that is needed to feed our growing population."

You keep coming back to this complete and utter Home-Owner-Ist myth. Let's look at a few 'facts':

Our population is up a third since WW2; agricultural output has doubled since WW2. We are more or less self-sufficient in food and in a modern world, it's more efficient to export goods and services and to import it from elsewhere anyway.

Eighty-five or ninety per cent of the UK by surface area is farmland and 27 million homes + gardens + residential roads are crammed onto less than five per cent of the surface area. Building another ten million homes, if done properly would use up only one per cent of farmland.

We could easily increase food production even further if we abandoned EU regulations; taxed land ownership rather than subsidising it and untaxing farming income instead; used more efficient 'modern' production methods (why do you think that the Netherlands, being a much smaller country with similar population density exports food to the UK??).

Readily available 'facts' are what I base my opinions on, not Daily Mail hysteria.

Electro-Kevin said...

Oh believe me - I'd love for them to devalue housing.

But I don't think they're going to do it.

The simple reason being that so much of our domestic economy is dependent on positive equity in homes.

Mark Wadsworth said...

EK: "The simple reason being that so much of our domestic economy is dependent on positive equity in homes."

I had been meaning to debunk this myth for a while now.

It's easy to debunk the "we will starve" myth because that's mainly a factual thing - this new myth is absolutely completely meaningless and without foundation, so it can't be debunked by simply looking up the facts.

To be honest, I don't know why people even say it, or does everybody just parrot everybody else?

Bayard said...

EK, of there is widespread negative equity, who suffers? Not the borrower; his repayments don't change, and if he moves house, he just takes his negative equity with him. It's the banks who will suffer, because they can no longer hold the threat of repossession over the head of the borrower. The amount by which the borrower is in nequity has become an unsecured loan. So it is for them that the Gov't keeps pumping away trying to keep the bubble inflated, not the homeowners.