Our politicians’ ideas for solving the housing crisis are staggeringly stupid

I’m reasonably convinced that the housing market lies at the heart of the vast majority of Britain’s current political woes.

We hear a lot about income inequality – but that’s nonsense. Income inequality has fallen in this country.

Property prices are a different kettle of fish. They’re the most visible indicator of economic inequality and tension in our country. You either own it, or you don’t. You either benefited from the great property accumulator bet, or you didn’t. And most of that depends on a series of arbitrary events, such as where and when you were born.

Think either of our main political parties is going to make this better?

Not a chance…

How to bring house prices down quickly

Property disparity is the only part of the economy that can make a large chunk of the middle class feel like “have-nots”. They’re the ones who swing elections.

It’s the reason that you have high-earning, white-collar professionals who want to remain in the EU, willing to vote for an ardent Brexiteer in whose socialist paradise, most of them would be the first up against the wall.   

So it’s little wonder that both parties want to be seen to be addressing the property problem. Trouble is, we’re well beyond the time for short-term fixes. And short-term fixes are all that politicians are capable of.

Here’s the basic problem: house prices are too high; renters can’t afford to buy; current owners can’t afford to upgrade because the cost per extra square foot is so high. The ability to buy is dictated far more by how much property you already own, or have owned, or that your parents own, than your income.

Our current situation is the inevitable result of encouraging people to take a series of rolling leveraged bets on the price of an income-producing asset over a period during which interest rates have been in secular decline.

Put more simply, as interest rates have fallen, the amount of money you can borrow to buy a house has soared. £500 a month will pay the interest on a lot more debt than it did 20 years ago.

That’s the fundamental reason house prices have gone up so sharply. And this is consistent across the globe. So everyone who imagines that high house prices are purely because “we’re a tiny island, stuffed full of people” really is missing the big picture.

Don’t get me wrong. I believe that there are features of the UK’s property market that make it unusually prone to bubbles and I’d like to unpack them another day when I have a spare six months to do the research.

But overall, if you really wanted to bring house prices down, the quickest way to do it is not to double the rate of house buying – it’s to push interest rates up to 7%.

Of course, you can’t do that. Banks love lending against property, because it’s a secured debt. If you don’t pay, they get your house. If you create a house price crash, bank balance sheets go bad, and you end up back where you were just after the 2008 crisis.

And that’s before you start counting the human cost in repossessions and job losses (because crashing prices and rising interest rates spell recession). However much we might want lower prices, we don’t want that.

It’s a complicated issue. It’s a right pickle. And it’s hugely damaging to our economy. Everyone becomes an interest-rate speculator. People delay starting families (mad as it seems). Labour mobility dries up. Every ounce of productive capital is diverted to an unproductive asset.

So what answers are our politicians coming up with?

Theresa May’s bright idea

The Tories have a great idea. First-time buyers can’t afford to buy houses because there’s too much money chasing houses. So why not give the first-time buyers more money to buy houses?

It really is that stupid. They’re blowing another £10bn on extending the help-to-buy scheme, which enables homebuyers to purchase a new-build property with a 5% deposit.

It’s as if they can’t grasp that if you add another £10bn-worth of property vouchers to the housing market, then all that will happen is that house prices will go up further.

They do have to be new-build houses, of course. But recent actions from house-builders suggest that they’ve used the scheme as a licence to take the proverbial out of desperate buyers and, of course, taxpayers.

In August, research from Alastair Stewart, a Stockdale Securities analyst and columnist for Property Week, revealed that help-to-buy properties had risen in price more rapidly than other properties. “Help-to-buy prices have delivered 10.6% CAGR since launch versus 7.0% for Land Registry average prices.”

Builders are increasingly dependent on the scheme. At many house-builders, help-to-buy properties account for between two-fifths and half of all sales. Overall, says Stewart, the scheme has “disproportionately inflated prices and delivered homes where they were less in demand”.

Worse still is the fact that builders have been selling many of these homes as leasehold properties. You can read all about that here: The scandal of newbuild houses sold as leasehold, here: How to buy your freehold, and here: Money-for-nothing clauses will have to go. But in short, it might look to a cynical person as though house builders see help-to-buy buyers as naive, desperate profit centres to be exploited badly for as long as they can get away with it.

Jeremy Corbyn’s bright idea

Jeremy Corbyn’s got a great idea too: rent controls. These have been tried around the world in various guises. They don’t work. No one who has even an iota of respect for evidence – regardless of whether they are to the left or right politically – disagrees with that.

I’m not even going to try to present the evidence here because a simple Google search will give you all that you need. In short, rent controls don’t help poor people – they help people who manage to secure a rent-controlled property. And they discourage investment in new property.

Such is the scale of evidence against this idea, that I have to assume that in proposing it, Corbyn is either ignorant (which I don’t believe) or deeply cynical (which I do believe, because for a man like him, the ends will always justify the means). He knows that words like “control” appeal to his base.

So what happens in the end here? The least-worst outcome is that inflation takes off and house prices stagnate for a very long period of time. That way, prices gradually become more affordable in “real” terms without swathes of people losing their homes or the banking system going bust because of a huge drop in “nominal” values.

Indeed, that seems to be what the Bank of England would like to aim for, given its various attempts to restrict mortgage lending while keeping the rest of monetary policy relatively loose.

But regardless of who’s in government, they’re going to be a hindrance rather than a help. It’s the sort of thing that might even make you feel sorry for Mark Carney.

In short, hope for the best (inflation, but not too much of it) and prepare for the worst (an awful lot of inflation and a government that thinks it can control prices). And in the meantime, chances are that the situation will get worse before it gets better.

  • Peter Edwards

    What has this got to do with the government(s), is it not the fault of central banks for setting interest rates to low?

    Housing is a global problem.

    Governments can make it worse, but this is the result when you don’t regulate free markets.

    • FriarStuck

      Are you out of your mind?

      Central banks and government intervention in the housing market, are the very definition of regulation.

      Let’s list some of the ways in which central banks and governments have regulated the housing market

      1) 0% interest rates
      2) Quantitative easing (lost count but it’s over £600 Billion)
      3) Term Funding Scheme
      4) Funding for Lending
      5) Help To Buy 1, Help to Buy 2, and now extending Help To Buy
      6) Housing Benefit, effectively a subsidy to land lords that sets minimum rents (guaranteed minimum rents allow more to be lent against housing).
      7) Support For Mortgage Interest, after 2008, people who could no longer afford their mortgages had the interest paid by the government, at up to 6% I believe, so if mortgage was only say 4%, those benefiting made a 2% profit. If this applied to pensioners this money was given out indefinitely.

      The whole market was about to correct in 2008, however the regulators, and the government stepped in to stop the market from do what it should do.

      So what would you rather have, “regulators” fixing prices and markets with your own money so that you cannot afford to participate, or markets self regulated by failure, i.e. markets not fixed and bailed out, where people that make stupid, reckless, unproductive decisions, lose their shirts, and reflect what people can really afford, rather than prices pumped up by waves of cheap money invented out of nowhere by QE and ZIRP?

      • Ben Jamin’

        You forgot the most important market distortion. Because freeholders do not pay a LVT as compensation for their right to exclude others from valuable locations, this is an implicit state subsidy worth £180bn per year.

        Not only is the value of that subsidy capitalised into selling prices and rental incomes, increasing them by 200%, it leads to an over consumption and mis-allocation of immovable property.

        For example, over 12 million bedrooms are over consumed in England/Wales alone. An efficient market would rationalise those lowering demand and the need to build any extra new stock for the foreseeable future.

        • FriarStuck

          No, you could argue that for anything, for example a hammer, or a car
          i.e. someone is monopolising the materials used to make them.

          set interest rates would do exactly the same thing without the government
          having to behave like a marxist dictator stomping over people’s rights to
          their own belongings and property.

          • Ben Jamin’

            You means like slaves? Obvs abolishing that was Marxist according to your logic.

            BTW, if something has a selling price but no cost of production, then that is a description of a perfect monopoly. ie Land.

            Hope this helps.

      • Peter Edwards

        I was talking about the root cause, namely the Americans letting wall street spread their Sub-prime debt far and wide, this has set off a chain of events which we have still not recovered to this day,

        Everything else has been to manage the situation.

  • cornishtinmine

    Surprised there’s no suggestion/mention of a Land Value Tax which would encourage developers to build more homes whilst keeping house price inflation in check.

    • Andrew Crow

      OOh! steady now. That would shift the burden of taxation onto the people who have all the wealth. Taxation was designed to extract tax from the peasants to pay the king.

  • diverphil

    The housing problem has been years in the making for loads of reasons but the bottom line is we haven’t been building enough for decades and now we don’t have the depth and numbers of skilled tradesmen to increase the rate of build anyway. Mass industrialized building to using other resources to buy and rent to suck up demand until the market finally un-clogs because the balance is being regained, similar to the end of the second world war, the only problem is we then have to look at the eyesores we created. Pip pip

    • Andrew Crow

      The ‘bottom line’ as you call it is that ‘the market’ priority is to make financial profit. Essential social infrastructure is the landscape that the market works well in. But it is not very good at creating it only in ‘exploiting’ it.

      I’m not anti market, but we need a mixed economy where central planned spending allows for the basics that are the bread upon which the private sector can spread some jam, or yeast extract. The market let’s you chose how to adorn your bread to make life pleasant.

      Essential infrastructure for the good society includes, water, electricity (because it all goes TU if the internet goes down), housing, education, health care, transport systems (communications in the wide sense) …and some other things perhaps. These things are not appropriate goods to be exploited as profit centres because you only get them if you can afford to pay. (there are spaces in here where the market operators can offer enhancements and experiment with alternative novelties which may became mainstream offerings)

      Get that fundamental structure right and the market will thrive and work its magic for everyone. Simples.

      Nationalised versus Privatised – Public sector versus Private sector is a false dichotomy. We need horses for courses. Everything else is tinkering.

  • where_from_here

    Interestingly, a Money Week promotion was an article on why NOT to buy a buy to let investment. Sadly, it did not suggest what to do if you are a single buy-to-let landlord just trying to look after his pension. If you have several properties then forming a company seems a good move tax wise, but what about folks like me with just one? Should we be in or out?

    • Andrew Crow

      This issue of buy-to-let as a pension scheme has caused much upward pressure on house prices. Although a rational strategy for the individual it is only rational in a society where the pension system/industry is failing to provide decent pensions. Thatcherite deregulation of pensions has not been followed through to provide beneficial outcomes. (Except for the financial industry)

      • sacri69

        I know, I cannot make head or tail of what an individual with savings and no formal pension is meant to do or even where to go for proper independent advice. Why are ISA returns so low? It doesn’t make sense.

        • Andrew Crow

          GK Chesterton pointed out that more wisdom is required to profit from good advice than to give it.
          Education is helpful and much of what you need to know is available free on the internet and in your local library (if you still have one). If you don’t understand why ISA returns are so low you need to find out. It isn’t rocket science and it doesn’t require a lot of maths. It all has to do with the way governments run the economy and at present they aren’t looking after the ‘little people’. This is a ‘Money Week’ blog. If it’s not telling you what you need to know look at other sources of information. There is no one right way to save and invest. If there was we’d all be doing it and we’d all be doing the same thing. Get interested. It’s your money. If you don’t look after it someone else will – and some of them will make off with most of it. I recommend you start with Richard Murphy. Most of us don’t understand money and even what it is, let alone how to do anything with it. (Technically I’m not qualified to give financial advice, but my advice is become your own independent adviser. Because currently it sounds as if you aren’t qualified to understand any advice you might receive – paid for, or free.)

          • sacri69

            yes, I know, and that is what I do, thanks. I didn’t quite mean that literally, I mean that ISAs are the product that we are pushed towards but as a product they don’t actually make much sense beyond the tax benefits.

            What I did mean is that buy to let just becomes the easiest option for many investors with enough savings simply because of the lack of other easy to understand and transact options.

            • Andrew Crow

              “….ISAs pushed towards us.” So who was pushing them and what was in it for them?
              The big push now is various forms of tracker funds. Who benefits? Personally I believe they are inherently inflationary as all bench-marked processes tend to be – when the Bull gets Bearish for whatever reason trackers have the potential to turn a correction into a rout. (look at the VIX and be very, very frightened, but it could stay down there for a long time.)

              Identify the fashionable push – and look somewhere else for sanity. My own strategic objective is not to find the market, but to identify a guru. Some are very good, but they don’t match my asset level, time-frame, objectives or risk appetite. Gurus are a very personal preference.
              Most of the traditional reliable ‘safe’ investments seem to be offering negative (real) yields.
              It’s a hoot innit? Good luck and good huntin’.

            • Andrew Crow

              The problem with buy-to-let is it’s making a mess of the housing market. The fact that it has been (and still is) a rational investment option for many individuals is largely down to the complete shambles caused by deregulating the pensions industry.
              Income yield from BTL is frequently not great and a collapse in house prices will cause havoc wiping out people’s pension savings. Fingers crossed it won’t happen, but ‘fingers crossed’ is not a very secure pension strategy.

  • Kevin Hoque

    Low interest rates will increase house prices. That is obvious. However, low interest rates do not explain the very large increase in 35 year mortgages.


    This phenomenon can be somewhat explained by the rising of the pension age. The main driver I believe is demand versus supply.

    Also low interest rates do not explain why young people are spending a higher share of their incomes (+300%) on housing costs than two generations ago.


    This, I also believe, is simply due to lack of supply.

    What do other people think?

    • Kevin Hoque

      Additionally, in the past, high initial mortgages would be reduced over time by high inflation. We live now in times of secular stagnation. Mortgages are not inflated away as they were in the past. This situation is a ticking time bomb just waiting to explode.

      People need affordable housing. Eventually the calls for this will be too loud to be ignored, as they are affectively right now.

      • Bearded Warrior

        Also remember that most people under 30 have never known interest rates above 1% their entire adult life. Also the old wisdom of only borrowing 2-3 times your salary for you mortgage is just not realistic today. The financial advice of pre 2007 no longer apply to today’s housing market. Also remember that people were complaining about house price inflation pre 2007. Many blaming Kirsty and Phil as well as Sarah Beeny!

        • Kevin Hoque

          The important attributes to determine affordability seem to me to be:

          – percentage of income required to buy a house, over the entire duration of the mortgage
          – the length of time of the mortgage
          – lastly, what quality/size of accommodation can be purchased for a given percentage of income

          People have always complained about housing costs, but in the past I believe these issues were less dire, for the reasons that I gave in my original post.

          Ultimately, everything of import comes down to demand and supply. Housing is a very inelastic good and so even just a little over-subscription results in very high prices. Similarly for other inelastic goods, such as oil. Witness how prices have collapsed as the world has just a little more oil than is actually needed. The same would I am sure happen with housing. We need a slight surplus for prices to revert back to fair levels, I think…?

          • FriarStuck

            People use the money that banks are willing to lend them to buy houses, if bank lending is lax, people can borrow lots more money for houses purchases, therefore prices increase, and money spent on servicing ever larger mortgages increase with it.

          • Sarah Carter

            I think this is so true, but then why are we not building more? You would think that if there was such a lack of supply that high demand would lead to massive building, especially with the high prices that can be obtained at the moment. What I don’t get is why this isn’t happening. Houses are certainly being built but never, it seems, enough to satisfy… or maybe we just haven’t hit that point yet – but then how many houses do we need to get there?!

        • Kevin Hoque

          I would much rather spend my income on productive goods and services in the economy, rather than feeding the dead weight of bricks and mortar!

          • FriarStuck

            Another part of the problem is that the government heavily tax income and productive activities, whereas assets are lightly taxed, therefore people are incentivised to speculate rather than work hard.

            The will come a day of reckoning for this, because as more people are drawn into speculation there are less people to do useful productive things, in other words everyone becomes poorer, eventually even the speculators.

            • Andrew Crow

              Friar, that is the nub of the issue. We’ve become accustomed to income tax as if it is the only way to raise revenue. We do it because it’s an easy way to collect tax and government gets employers to do most of the work.

          • Andrew Crow

            Ah! but that’s only because you aren’t fixated that money is the be all and end all of existence. Do you realise that makes you an oddity? Congratulations!

            • Kevin Hoque

              Haha! Thanks Andrew! 😀

              I am probably a little different. But really I think that our economy would be so much stronger if we all spent less of our incomes on housing and more on goods and services that create and keep people in useful jobs.

              • Andrew Crow

                You are not wrong.
                Robert Graves writing ….’Goodbye to all that’ WW1 memoirs into post war civilian life reckoned at that time an unfurnished rented abode should equate to approx 10% of income.

                I think that speaks volumes. And they wonder why the economy is a mess.

                Furthermore the ‘security in old age’ mantra is patently BS when you hear the squeals of anguish from those needing to actually release that capital to pay for elderly care. (or more likely from their children who by implication would rather see their parents dead than lose the equity on the house(?)

                Hey it’s good ‘ere innit? Makes you proud to be ‘uman.

                A definition for you from the Uxbridge English Dictionary:
                Democrassy (n) – government of the stupid, by the stupid and for the stupid.

                best wishes

    • FriarStuck

      Interest rates are the price of money, if interest rates are set at 0%, money is cheap and lending standards become extremely lax, especially if lenders know that the government will bail them out at the first sign of any market correction.

      Therefore risky lending practices like 35 year mortgages, high loan to value mortgages, or interest only mortgages, become common place, because lenders perceive very little risk.

      If you combine high house prices (underwritten and fixed with tax payer money and central bank policy) with dreadful policy like housing benefit which sets minimum prices for rents, then housing becomes extremely expensive (in other words requires a large chunk of income) for new entrants to the market, whether they rent or they buy.

      • Kevin Hoque

        Interest rates are the price of money. We all agree on that. Low interest rates do not allow for a greater percentage of income to be spent on housing. That amount that can be afforded for the monthly payment is broadly speaking fixed. Therefore low interest rates allow everyone to borrow increased sums of capital, as the interest is proportionately less. Borrowers can in effect pay more. This effect is affordability neutral. Monthly payments stay the same.

        Low interest rates do not explain borrowers over extending themselves to 35 year mortgages. This can only be explained by the increased competitive buying pressures due to an inbalance between demand and supply.

        This can’t be a surprise given huge population increases matched with similar decreases in house building, over the past two decades.

        Both the main political parties have thusly proposed massive house building programmes.

        We will have to see how these play out given the strong nimby sentiment in the country at large. However, in the long run, it is obvious that housing pressures cannot be bottled up indefinitely.

    • Ben Jamin’

      Blaming affordability issues on a lack of supply is like blaming the cause of a headache on a lack of aspirin.

      It is a brute fact that housing can only ever be optimally affordable/allocated with a 100% Land Value Tax.

      Increasing supply solves nothing while adding to existing inefficiencies in the housing market.

      • Kevin Hoque

        Ben, I agree that a land tax would be a good idea to help tame the large speculative elements in the housing market.

        However it seems that you believe that an increase in supply would not help? If that is your position, I have to disagree with you on this point.

        The U.K’s population has massively increased over the past two decades. At the same time we have been building ever fewer homes..there is a huge housing shortage.

        The housing deficit is now said to be close to two millions. That is why so many large homes have been converted into flats. That is why we have a huge number of homeless in our streets. That is why homes are unaffordable for many. Notwithstanding, the increase in house prices due to cheap money, which in itself does not affect affordability.

        • Ben Jamin’

          1. Since 1984 the UK has built 7 million new homes and added 9 million to the population. The last census confirm every region has more dwellings per capita than ever.

          2. In England/Wales, 12 million bedrooms are over consumed by owner occupiers on a pro-rata basis compared to those that rent ie a perfect market.

          That is, the UK already has a chronic over consumption/supply of housing

          3. Housing is only unaffordable because when land values are capitalised into rental incomes and selling prices, they can then act to transfer incomes from those that own relatively little land by value compared to the taxes they pay, to those where the opposite is true. Typically from the young/poor to the elderly/rich.

          Therefore the only way to make housing optimally affordable for typical UK household is to end that transfer payment.

          That can only be done by taxing the rental value of land at 100%.

          Increasing the supply of housing may help somewhat in reducing selling prices. However, if supply is added to where demand is highest, then due to agglomeration effects, GDP goes up and so does aggregate land values and house prices.

          This is an easily observable fact. Everywhere we look around the world, house prices are highest and most unaffordable where populations in cities are at their highest and densest.

          That is, high aggregate land values are a very good thing as they show a healthy economy that has the correct balance of exploiting agglomeration effects on one hand and the preservation and enhancement of our shared environment on the other. They are the best economic indicator we have.

          Unfortunately things only go wrong when those values are not shared equally, as the excessive inequality this causes is the reason housing is unaffordable for some parts of our society. They are in fact two sides of the same coin.

          Thus these issues cannot be solved by supply side measures. Doing so may help in some areas but will add costs to others, like adding to excessive vacancy, under occupation, urban sprawl and North/South divide.

          • Andrew Crow

            I’m not arguing with that, Ben Jamin.

            It needs a helluva lot of people to understand that before the current stranglehold on property/land assets can be broken. And I’m not hearing this coming from the politicians because I don’t think they understand it. (Except of course the ones who hold the assets and they are keeping very quiet about it !)

          • Kevin Hoque

            Ben, those are interesting numbers that you have presented.

            I have a few for you to think about too. Perhaps we can get to the bottom of things..

            House building peaked around 1970 at over 400,000 homes per year. Since then house building has dropped to around 150,000 homes per year.


            See bottom of this article for the graph. The article is slightly old so the figures cover 1950-2010. Afaik, things have not changed dramatically since 2010 regarding house building in the UK.

            During this time of decline in house building, our population has risen substantially.


            Much of which, in the past two decades, is down to net UK migration.


            So, from my experiences:

            * seeing more and more young people stay at home until their late 20’s or even late 30’s.
            * The number of large homes being chopped up into small flats
            * and the dearth of house building.

            House building does of course happen, but as I have shown, the scale of it is so much less than it was decades ago. Mainly due to the fact that councils have not built a substantial number of homes for many decades.

            So that’s my take on this. How does this fit in with what you were saying?

      • Andrew Crow

        “…blaming the cause of a headache on a lack of aspirin….”

        A faulty simile I think, but the land value is certainly the key to property prices and may well, as you suggest, be the underlying cause of the lack of supply that in turn causes the affordability issue.

    • Andrew Crow

      “…explain the very large increase in 35 year mortgages.” ?
      Incomes won’t repay in the traditional 25 years. That’s not complicated.

      “The main driver I believe is demand versus supply.” ?
      Yes, naturally. We have consistently built too few houses for decades.
      People are living longer so not vacating as soon. Families are splitting and requiring two houses where one used to suffice. Single old people are supported to live in unsuitably large family houses. We haven’t allowed for changing social behaviour. It’s not mysterious.

      “… why young people are spending a higher share of their incomes (+300%) on housing costs…”
      If they want a roof over their heads (other than living with their parents – god help them all!) they have no alternative to paying the currently inflated market prices.

      • Kevin Hoque

        Really good points Andrew. I hadn’t considered old people living longer and so housing turnover then slows. That’s an astute observation! 🙂

        I guess that this pressure will only increase as future medical advances allow us to live longer and hopefully in decent health..?

        Households too also seem to be smaller. There’s lots of single person households. I can’t remember that being as big thing in the past either…

  • Ken Neal

    If the government had put that money into social house building we might stand a chance of holding the increase in house prices for a few years. They would have to juggle the supply to ensure that they only hold prices and don’t depress them but this needs to be done until the ridiculous level of house prices in the UK drops to somewhere near the level against earnings that it was 40 years ago.
    Hopefully this might discourage foreign buyers from investment purchases and builders from hoarding land to keep the house price up.

    • marylyn ford

      Social housing is horrible and foreign investors should not be allowed to own residential property or change the use to get round the law.

      • Andrew Crow

        Social housing is not horrible. Some of it is poor. Many estates were built without including any necessary social infrastructure – launderettes, PUBS, shops, etc etc.
        Some of the social housing stock is way better than modern new build. But a lot of the best of it was sold off below value through ‘Right to Buy’ which didn’t allow local authorities to enough income to replenish social housing and besides they were forbidden to do so by effective sequestration of the funds.

        Deliberate political policy to gerrymander votes – ‘homeowners vote Conservative’ was the theory. Thatcherism attempted to buy Tory votes by bribing the electorate by giving away public estate at bargain basement prices. (Which was not theirs to give away). It worked.

        Which just goes to show how many people you can fool how much of the time. Time’s up!

        • marylyn ford

          Horrible/poor, what kind if nit picking hair splitting is this? Paper thin walls, dangerous construction, escape in emergency doubtful, nosey overpayed officials, inspecting you or your property all the time, while major repairs are left forever, substandard fittings that break all the time, rents almost as high as private rents in many places. What joy! and only 6 months tenancy and eviction in 6 weeks flat if you fall on hard times. While homeowners have mortgages fixed for ten years, tenants get a rent increase every year, even during negative inflation

  • Hugh Jarsse

    Help to Buy is as we all know Help to Sell. It basically provides a direct subsidy to house builders, going straight into their profit by enabling them to sell their products at a higher price. It is an utterly criminal misue of taxpayers money and grossly market distorting. And Tories talk about free markets? With the BoE goosing interest rates and the government further distorting the price-setting mechanism the housing market is completely rigge – and becoming every more of a liability for the country. Because prices have been pushed up so much by all the manipulation, banks lend far more as a proportion of their total lending against property than they did 30 years ago. If you’re wondering why productivity is low, amongst other things look at the amount of loaned money that is sitting in the form of bricks – hardly productive – instead of being loaned into growing businesses. Housing is undoubtedly a chief contributary cause for Brexit – the government incapable of getting houses built for the expanding population – so if you can’t address this side of the equation, you have to look at the other – limiting the number of people coming into the country – undoubtedly this prompted numerous people to vote for exit. Don’t get me started on the increase to housing demand that is stoked by buy-to-let……….

  • Kit Allen

    This is a really good article as it gets to the nub of the problem – supply and demand but not just the supply of houses which is limited, also the supply of money. Help to Buy adds to the supply of money and is like the proverbial pouring of petrol on a fire.
    Interest rates are a key issue; ( if only we could have a separate base lending rate for mortgage borrowers) but the other problem are the distortions in the market.
    The older half of the country are sitting on huge asset inflated equity rich properties; the younger half’s average salary puts them out of reach of even starting on the ladder. The whole economic system is predicated on new immigration annually to add to the tax take to pay for the retirees; in turn this adds to housing demand. The older half will not sell down because the government is in effect skimming too much so the system is log jammed. On top of this, investors/pension savers, because they naturally distrust the UK pension industry, and bonds and interest rates no longer provide savers with appropriate returns, have hoovered huge numbers of ‘buy to lets’, as replacement for pensions. Thus, a lot of the homes that the young would like to buy are held by landlords who will not sell because this would trigger a Capital Gain that they don’t want or need to pay – they mostly just want the income.
    It would seem to me that one solution to all this is to give landlords a capital gain tax free window to sell if they wish, and for downsizers to be able to buy without incurring large amounts of stamp duty on the new purchase. This would free up the supply. The other thing would be to increase the annual taxation on property (reviewable annually by say BofE) when interest rates fall below the long term average, and reduce it when interest rates rise above the long term average, in order to smooth out the cost of financing and control the money supply in to the market.

  • Triple H

    ‘He knows that words like “control” appeal to his base.’ OK. Wasn’t “control” the very reason you guys so vehemently supported Brexit?
    Low interest rates are not the real problem. Corrupt and bloodthirsty Friends of Maybot are. Tell me who owns most of London? Yea it is Qataris, Saudis, heck even’ poor’ Pakistani politicians.
    How exactly is it helping the poor or less well off if they instead of paying more towards a property (a real asset), you propose they should instead pay off the cash rich by paying them high interest rate for doing Jack all?

    • FriarStuck

      No, low interest rates are still the problem, because low interest rates are a worldwide problem now (just have a look at the number of central banks running interest rates close to 0% and money printing programmes in addition to this).

      There is lots of money sloshing around the world looking for a return, causing speculative bubbles every place it touches.

      High interest rate would make many of the rich speculators lose their shirts because they also carry lot of debt, debt that they used to speculate on things like property, debt that wouldn’t exist if interest rates were at a sensible level;.

      • Andrew Crow

        Central bankers have built such a precarious structure through devices such as ZIRP and QE that they are acutely aware that increasing the base interest rate has the potential to create havoc on a global scale.

        There is potential for a pincer collapse. Many of, even the largest, corporates won’t survive increased interest rates, and at the other end consumer borrowing default rates will cripple the finance sector upwards.

        Seriously, Yellen, Carney and Draghi don’t know how to unwind the situation they have created. (without it bringing down the whole shebang)
        They are scared witless.

        Welcome to The World According to Goldman Sachs.

    • FriarStuck

      p.s. The housing bubble took off when Gordon Brown was chancellor by the way, George Osbourne continued it, and Hammond shows no sign of backing off either.

      The point is, this isn’t a party political problem. This is the problem with allowing the government and central banks to fix prices, when the market should be setting them instead (i.e. the actions in aggregate of uncoerced buyers and sellers)

      • Triple H

        Do you really think Bliar was any different than a Tory? How policies of sleeping with despots was exactly the same as Maybot’s.
        As for interest rates, no it is not the rich who will lose their shirts. It is the poor and the ordinary working people and the middle class that will lose their jobs and homes when they’ll be asked to pay ridiculous sums back in interest. If a Saudi billionaire loses a few million in the London property market, how exactly will it make him lose his shirt(or robe)?
        Let’s stop defending the same old mechanism used to enrich the few who have cash without having them do anything by rewarding them with interest. Instead, they should be made to invest in real businesses and businesses should be made to pay out more in terms of dividends instead of making the business pay out more interest.

      • Andrew Crow

        Valid Point, Friar.
        Gordon’s bubble burst in 2008 and wasn’t allowed to correct.
        Some politicians don’t differentiate between regulating a market and deliberately distorting it.

  • marylyn ford

    Remove all subsidies, allow private landlords to charge no more than local social housing rent in return for no tax on the proceeds. Allow a sale to tenant with 10% discount in return for no CGT. Let renters of five years with no arrears have an interest only mortgage, if monthly payments do not exceed current rent. Include people on benefits and you take away the snob value of owning property. Convert obsolete out of town shopping centres to housing and small business use. Equality of opportunity is all anyone wants. Instead of having unattractive housing administered to them by overpaid patronising quangocrats. Let the fat cats earn their keep by housing the truly difficult and vulnerable cases.

  • Ben Jamin’

    A 100% tax on the rental value of land would reduce its selling and rental incomes derived from it to zero. Thus reducing house prices by 2/3rds on average.

    This also has the benefit of increasing the disposable incomes of typical working households by around £10K per year, making housing optimally affordable, as measured by ratios of discretionary incomes to selling prices/rents.

    Furthermore, it would allow the market to rationalise our existing housing stock by eliminating excessive vacancy and under occupation, while optimally allocating immovable property in the future.

    Housing issues are symptomatic of economic injustice. If we try to put the blame elsewhere, like under supply, immigration or interest rates then they will never be solved.

    • Andrew Crow

      Serious consideration of shifting taxation from incomes (particularly the tax on productive work) and making Land values the subject of taxation is long overdue.

      In the current climate, where it is obvious, to all except the willfully blind, that the neoliberal consensus is seriously wrong maybe this can be included in the wider political discourse.

      TINA is now clearly in terminal decline. May she rest in peace. Soon.

    • marylyn ford

      100% of the rental means confiscate all property, no one would bother with it, you would have ghost towns falling down, no repairs and people fighting over the best squat

      • Ben Jamin’

        LVT=rent. There is no economic difference. Only who collects.

        Those who rent property make the best use of it. So that leads to the very opposite of the scenario you’ve just imagined.

        Furthermore, in order to confiscate property, one first has to establish moral ownership. For example those who opposed the abolition of slavery said that amounted to the the confiscation of private property, legally owned and bought out of “earned income”.

        So, what gives you a property right over land? Land being everything not created by human effort.

        You should also consider that property rights are fundamental to economic efficiency, not only to a just society ie the best way to allocate resources.

        • marylyn ford

          In Ghana there used to be a system where nobody paid rent and when they vacated, someone else took over, so your family could have occupied the same piece of land for generations. This only works where there is not huge demand and the population remains fairly stable, but these days everywhere in the world is bursting at the seams, but security of tenure is vital if you want a stress free life, and no one wants to discover after many years that new taxes have made their home unaffordable. I do not know why some people want to rattle around on their own in a property that is far too large to heat or clean properly, but that is exactly what people were demanding when they called having to pay for excess rooms a bedroom tax when they are renting and other people are paying their rent.

  • anyoldirony

    For once I agree entirely with the author.

    • Andrew Crow

      A pity because he’s not entirely correct IMO.

  • Alice Simpson

    The problem needs to be addressed at the supply end, but that doesn’t necessarily mean waiting two or three decades for the required number of properties to be built; if there was a genuine shortage of physical properties, then there would be hundreds of thousands of people living on the streets. There are physical properties, but they’re not available for sale. Make it financially unappealing for landlords to hold on to properties and they will divest themselves of those properties, addressing the supply problem relatively quickly. Similar measures could be wheeled out to make foreign investors sell up.

    • marylyn ford

      You are quite right, and an incentive to landlords to drop their rent, and the chance for renters with no arrears to have a fixed rate lifetime mortgage on a property of their choice would go a long way to help. This is why such a scheme should be open to benefit claimants, over time the cost of housing benefit would come down and if no resident family member was prepared to take over the mortgage on the death of the mortgagee, it could revert to the council to pay it and rent to homeless families or sell the property.

  • alexblackka

    @Peter Edwards – YOU really need to read/research …who do you think owns the GOV?

    RE” What has this got to do with the government(s), is it not the fault of central banks for setting interest rates to low?

    Governments can make it worse, but this is the result when you don’t regulate free markets.”

    ^^ Are you out of your mind?

    Central banks and government intervention in the housing market, are the very definition of regulation.

    Let’s list some of the ways in which central banks and governments have regulated the housing market

    1) 0% interest rates
    2) Quantitative easing (lost count but it’s over £600 Billion)
    3) Term Funding Scheme
    4) Funding for Lending
    5) Help To Buy 1, Help to Buy 2, and now extending Help To Buy
    Housing Benefit, effectively a subsidy to land lords that sets minimum
    rents (guaranteed minimum rents allow more to be lent against housing).
    Support For Mortgage Interest, after 2008, people who could no longer
    afford their mortgages had the interest paid by the government, at up to
    6% I believe, so if mortgage was only say 4%, those benefiting made a
    2% profit. If this applied to pensioners this money was given out

    The whole market was about to correct in 2008,
    however the regulators, and the government stepped in to stop the market
    from do what it should do.

    So what would you rather have,
    “regulators” fixing prices and markets with your own money so that you
    cannot afford to participate, or markets self regulated by failure, i.e.
    markets not fixed and bailed out, where people that make stupid,
    reckless, unproductive decisions, lose their shirts, and reflect what
    people can really afford, rather than prices pumped up by waves of cheap
    money invented out of nowhere by QE and ZIRP?


    • Andrew Crow

      Government and central banks are joined at the hip despite protestations of central bank independence. To believe otherwise is naive.

      Otherwise I agree with the general tenor, and most of the points you make about a rigged housing market which benefits owners and rentiers.

      QE has protected, and inflated asset prices. I find it difficult to believe the architects of QE didn’t realise this would be the outcome.

      • Alice Simpson

        Does it benefit owners, or just a fraction of owners (those who own more than one property)? Anyone owning just the property they live in and selling up might be able to do so at an inflated price, but the property that they subsequently buy will also have an inflated price tag, so they’ll only benefit if they can get out the system. People have been so busy counting the illusory gains (‘my home earned more than me last year!’) that they don’t realize it’s fool’s gold, and that the political parties have wasted a decade pandering to their confirmation bias.

        • Andrew Crow

          I think you have it.

          Your home is not in financial terms an asset. It’s a liability because it takes money to maintain it and it yields no financial gain. Irrespective of the increase in its price tag it remains of the same value over time ie. it is a house – it’s possible to increase its value by upgrading the property but until you don’t need it to live in, it remains a liability. If you can downsize or move to a cheaper area you can get some equity out of it.
          The pretence that house price inflation is good for us and the obsession with homes as ‘an investment’ has skewed the entire economy of the country.
          A second property which brings in a rental income is an asset as long as the market remains favourable. A sudden increase in mortgage interest rates could see many buy-to-let landlords in difficulty if they have borrowed too heavily.

  • marylyn ford

    As I pay to subsidise your government, so that you get benefits that I don’t, I am amazed you want to stay in the EU minus any dosh from Britain. Good luck with that, they don’t want skint members and have already given Scotland the knock back.
    I am equally amazed that you think housing done to you by a third party with huge wage bills and rents that go up every year, is better than an interest only mortgage fixed for ten years. Is financial illiteracy endemic where you live? Because financial services in Scotland aside from banking, are usually very good.

  • marylyn ford

    I think your latest reply to me was moderated, so I will expand on what you think is stupid. Obviously, if you are going to introduce interest only mortgages for all, including benefit tenants and freelancers with five years of no arrears, they would be lifetime mortgages in property you have chosen, and the weekly cost would never go up, unlike rent, unless you had major repairs which would be the only reason allowed for further borrowing. Only a resident family member could take over the mortgage upon your death, and if you went into care the same rules would apply as for anyone else, the council would either sell the house for your care fees, or rent it to a homeless family. This would put poor people on an equal footing to rich people in a monetary way. I suppose some people would prefer to be pushed around by a housing association, and pay ten times or more the amount, over a lifetime, that a richer person pays for the same accommodation, and others love the idea of helping themselves to ever increasing amounts of other people’s property. The main advantage is that it could start tomorrow without any taxpayers money being spent, or council tax going up.
    I also think that any region that wants independence should have it.

    • Andrew Crow

      I think you might be right about my last reply having been moderated. I can’t see it anywhere. It wasn’t abusive or personally offensive so I don’t know why.

      Could be because my opinion of tracker funds doesn’t comply with editorial policy. But I’m not sure I even ‘went there’.

      It made two main points. 1) Nobody knows which way financial advantage flows between Scotland and the rest of the UK. It may well be that ‘my’ government is subsidising ‘yours’.
      Government data capture/accounting doesn’t allow the information to be extracted from the figures.

      My second point related to the potential dangers to the public of interest only mortgages. I have anecdotal evidence (BBC Money Programme) that these are sometimes missold to people who don’t understand them and end up homeless.

      I’ll have look at your latest post now. This is merely a very short digest of my previous reply. Which begins: As I pay to subsidise…

    • Andrew Crow

      “…mortgages in property you have chosen, and the weekly cost would never go up, unlike rent,…”

      False unfortunately, but it would be nice. Fixed rate mortgages are a rarity and only temporary. Mortgage rates are dependent on central bank base interest rates. These happen to have been lower in the past ten years than they have ever been (at any time in the last 5,000 years according to some commentators) These are not normal times and they won’t last indefinitely.

      I don’t think your proposed system would work, (though I’m not entirely clear why not.) but there is no reason why it would have to be financed by ‘banks’. If you are financing via a bank you are paying ‘rent’ on the money you borrow. You can’t just get away from paying rent by calling it something else.

      Also don’t forget (you do mention it here) that some of the difference in price between rent and mortgage payments is quite legitimately taking account of repair costs. Somebody has to pay and it is appropriate that it is the beneficiary – which in real terms means the person who lives in the property.

      (This gets more complicated when the landlord is using the property as a cash cow (or less pejoratively an income source) and s/he wants some benefit too. That is a return on capital and that is ‘rent’. As we operate currently that is entirely legitimate as long as the return is not extortionate)

      Poor people will never be on the same footing as rich people. Being on a different footing is what rich and poor mean.

      I think I’ll stop now. My head hurts.

      • marylyn ford

        Ten year fixes are quite common now, but I will explain my thought processes. A friend of mine had a council flat which she swapped for a housing association flat, unfortunately for her, the rent on her previous flat has gone up half as much as the one she exchanged. Some other friends signed up for temporary accommodation with a housing association that was a bit rough and ready, but very cheap, one of them was rehoused cheaply, another helped form a self help group, while another had her temporary accommodation sold over her head to a rival association. The first friends rent is still affordable, the self help group is still going strong and the mortgages on their properties is guaranteed by what was the housing corporation, so they had lots of free money in grants etc. and their rents are still negligible. The third friend’s rent started at twenty pounds a week, the same amount as a mortgage on a similar property, over the years some very expensive work was done on the drains and subsidence, probably costing as much as thirty k, the original mortgage plus thirty k would now cost about £30 a week, but her rent is now five times that, even if interest rates doubled, her rent would still be twice as much. This is why renters of permanent homes are more disadvantaged every year than owners.

        • Andrew Crow

          Interesting, but I’ll want to look at that again. Later.

          One of the things I find endlessly tiresome about the ‘market’ economy is the amount of time we all have to spend thinking about this stuff. Before your example tenants got into their several schemes they needed to assess (if they had the luxury of time to think about it) which strategy was going to pan out favourably in a volatile housing market. We aren’t taught to do this – even the basics.

          When you sign a utility supply contract you become by default a futures trader. Hoping the price will stay steady or move in your favour. Even experienced professional commodity traders can’t reliably tell what the oil price (for example) will be next week never mind twelve months hence.

          It really is insane. And ‘they’ wonder why there is pressure on mental health services |?

          • marylyn ford

            The self help group discussed all their options endlessly before embarking on their co op, the friend who exchanged was not aware how much better it is to be a council tenant, than renting from an association with a fat cat at the helm, because at the time, the rents were the same, and the friend whose flat was sold over her head, being freelance, did not qualify for a mortgage and had no choice. Another friend had a mortgage of £34 a week with bills and council tax, but drank it away and has preferred to rent at £60 a week, and obviously taking out a mortgage would not be compulsory under my scheme, but would free all the reliable poor people.