Economic Myths: "those who have worked hard all their lives to buy a home"

Sayid Javid was doing a fine job of playing both ends against the middle, as reported in The Daily Mail:

Mr Javid, a frequent critic of so-called Nimbys, said it was time to deliver 'moral justice' for the young – and warned older people they would not be permitted to stand in the way of a massive house building drive.

"What we need now is a giant leap … I still hear from those who say that there isn't a problem with housing... that affordability is only a problem for millennials that spend too much on nights out and smashed avocados.

"It's nonsense. The people who tell me this – usually baby boomers who have long-since paid off their own mortgage – they are living in a different world. They're not facing up to the reality of modern daily life and have no understanding of the modern market."

He's trying to claw back a few of the under-30 votes for the Tories with a couple of well-aimed blows at the NIMBYs and Boomers while ensuring that his party's major donors find it even easier to get planning permission.

He must know that you can give the land bankers as much planning permission as you like; it will not change their profit maximising level of output one iota - why would it? Even if they did increase output, it would only have a very short term and marginal downwards effect on prices.

But hey, he's a politician.

Here's the Economic Myth:

Lib Dem housing spokesman Wera Hobhouse last night criticised Mr Javid for his attack on baby boomers. She said: "This kind of language is divisive and unnecessarily sets one generation against another. It is patronising to tell those who have worked hard all their lives to buy a home and raise their children that they don't understand the housing market."

This "worked hard all your life" to buy a house is complete and utter bollocks (except for the very few people who bought something that was far too expensive). From the 1950s to the late 1990s, you could (if you wanted) have paid off the mortgage in ten or fifteen years and still been paying less per month than you would have been paying in rent for the same home; after that you are living rent free. All these Homeys have paid considerably less than tenants have.

For sure, there were a couple of nasty years in the mid-1970s when interest rates were very high; but inflation was even higher, so in exchange for two or three years of pain you effectively had half your mortgage eroded by inflation. My mum admitted to me that they paid off the rest of the mortgage they took out in 1964 with petty cash sometime in the mid-1970s. I bought a nice house in 1998 with a 20% deposit and paid off the mortgage in ten years (because that was the longest fixed rate period on offer).

There were another couple of fairly nasty years in the early 1990s as well, but so what, it was still cheaper than renting for nine out of ten mortgage borrowers. We note that these two high interest rate periods followed a house price bust; they took a different approach after the last one and pushed interest rates to zero instead.

It is true that some people with mortgages lose their jobs and struggle, but that is irrelevant, they'd have struggled to pay the rent as well. It's your "Losing your job" bit that causes the pain, not the fact that you chose to save money by buying not renting.

And even if it were true, are the Boomers saying that this is a good thing? That they want the all future generations to suffer as well? If that is a good way of deciding policy, then we would have to start another world war every twenty or so years.



But hey, she's a politician as well.