Monday, 24 March 2014

Boris on Pension Changes

From the Torygraph

This pensions change is not a social disaster, but a wonderful opportunity. It is a chance for the older generation to find that sudden wodge of dosh that will enable them to help their children or grandchildren find a deposit and get on the ladder; and the existence of those new deposits will give developers even greater confidence to build more homes – and faster than they are now. I am not saying all pensioners will follow such a path of enlightened self-interest; but many will.

So, let's follow the money here. Forget the "homes for their kids". People won't have income from pensions if they do that.

What we're talking here is people sticking their pensions into buy-to-let empires, because rather than doing something sensible like sticking their pensions into a variety of stocks, the brainwashed masses of homies will put it into something they see as safe and simple, and that will be buy-to-let homes. Along comes a bubble, maybe during this parliament, probably the next, and everything will kick off again. It'll be seen as easy money, like all housing bubbles - stick your money in houses as they'll rise plus you'll get an income (ha ha).

And then a decade from now it'll all come crashing down again, and a load of pensioners that should have stuck their money into various tracker funds will find themselves holding onto a couple of worthless apartments.

That's not to say that the current annuities thing isn't bad, but this is going to happen, and I'm not sure it's going to be any better.

Any tips on an estate agency that I should buy some shares in?


CornCrake said...

Just a little observation Mark from oop north.
I am currently buying a seven year old three bedroomed semi detached house for £99k.
When it was built in 2007 it cost the seller (one lady owner etc ...) £140K.
Not a bad housing bubble investment loosing £41K in that time and I believe she had a mortgage to pay as well.
Yet with the help of Noddy Osborne there are estates full of new houses going up all around oop north. All advertizing the help available to get one.
I can't help but think of the chant: "Here we go, Here we go ..."

The Stigler said...


Whereabouts up north? That's a very good price for a 3 bed house.

I wouldn't be surprised if there's houses going up in all sorts of places that aren't going to annoy the Tory heartlands, especially if it means they can say they've had lots of homes built.

CornCrake said...

Just to the east of Leeds Stigler, Castleford.

It's a crazy market here, good second hand stuff is not moving, being reduced to shift it.
Yet we have five new estates of private housing going up with-in five miles of me.
Plus more in the pipeline!


The Stigler said...


And what's it like?

I remember going to Leeds and thinking it seemed like a good place but I don't know much else around there.

Kj said...

TS: To put on my paternalism hat on, what's on for when lump sums are spent/wasted in a BTL-collapse? Means tested benefits or basic state pension only?

Lola said...

Well. the View from the Street is that it is already happening. I am starting to get the phone calls and emails...

What none of them have figured out yet is that all this 'liberalisation' will raise lots of extra tax for the Gummint.

And, at the same time as the 'liberalisation', the FCA is making Draconian bans on what you can actually invest in.

The Stigler said...


Knowing most of the dickheads running the country - means tested benefits.


I don't have a problem with liberalising the pension market, but I know that lots of people will fuel the housing market, which is probably what this is really about.

I have talked myself to the point of shaking my head and walking away from homies. People who I generally consider to be intelligent just can't grasp that housing isn't a magic money tree and something eventually has to give.

Mark Wadsworth said...

TS, at first I dismissed this notion that they'd all pile into buy to let, but if what Lola says is true, it appears they are doing so.

Ah well. That's some more ammo used up before they can no longer stave off the crash...

@ CC, but if I moved back to Leeds I'd want to live in Headingley or Roundhay, prices for normal houses there seem to be between £150,000 and £450,000 i.e. one heck of a range between the grotty bits and the nice bits.

Physiocrat said...

If the crash is on schedule it will be in 2026.

The Stigler said...


It was only Boris' article that made me think about it.

People like houses because they're simple to understand. It's really simple to see the return, and on the surface, the returns are regular.

Bayard said...

"It's a crazy market here, good second hand stuff is not moving, being reduced to shift it.
Yet we have five new estates of private housing going up with-in five miles of me.
Plus more in the pipeline!"

Sounds like Ireland, and we all know that that ended well, didn't it just?

Steven_L said...

Now that I'm read up on this '18 year land price cycle' thing, I do find it fascinating to watch.

As for stock tips, have you considered the battered supermarkets should labour get in and start spraying the cash?

Steven_L said...


I make it 2022-25 with a mid cycle stock market crash coming 2015?

If/when the fed raise rates?

Lola said...

TS, Yes. Quite. People like 'investing in housing' for exactly the reasons you say.

And, from my little corner of The Street, they are already thinking of taking their pension fund, paying the tax and spending it on BtL.

In truth, before pensions, people often sought to acquire a post working for a living income stream from property ownership and rentals. Think of all the ladies running 'digs'.

Bayard said...

L, Yes, the aristocratic connotations of "landlord" make you forget that, in the days when many more people rented, a lot of the landlords were working class. AFAICS, there's nothing wrong with buying houses as a pension, so long as 1. you don't buy at the top of the market and 2. you buy for income and don't expect growth.

Lola said...

B Yep. But most BtL deals I have seen have an entirely inadequate yield and rely on that being boosted by land price rises and compensatory increases in housing benefits of one kind or another. The yield may turn positive on the initial capital cost over time, but the real gain is in land price rises which is usually exploited by the landowner by additional borrowing - gearing up.

It's going to end in tears, but when?

The Stigler said...


How could it be anything else?

Buying land is mostly just buying a location. As an investment, it's a speculative purchase of an asset, like buying antiques. Now, it might be that you get into old Wedgwood just before it becomes fashionable and make some money, but if that happens it also means that Spode has probably gone out of fashion and is now falling in price.

And the only thing keeping land prices as high as they are is the state pouring money into it. And over some term, that's unsustainable.

Bayard said...

Also, when the interest rates eventually rise and house prices fall, all the better-off tenants will move out of rented accommodation to become owner occupiers as they can afford to do so, so rents will fall and the BtLers who came late into the game will be stuck with a depreciating capital value and a depreciating yield.