Am I in Narnia or has a broadsheets economics’ editor really decided to type some rather fanciful wand waving “5 Steps to Avoid the Housing Market’s Perfect Storm”?
The article is long winded and relates heavily to the dysfunctional London market and whilst many of us are aware there is an affordability issue and rents are increasing too fast in some areas the ‘avoidance steps’ sadly have little substance.
The 5 steps are below and our response is below each step.
The first is to stop doing more harm through counter-productive policies such as help to buy.
- Like what? Yes, Help to Buy has potentially created an inflated negotiation free new build market but it is one that has benefited the larger PLC type developers but not the majority of the independent house builders.
The second is to change the tax system, starting with council tax reform and action to prevent land hoarding.
- Much land is not hoarded but merely unable to developer as a high proportion of independent house builders cannot secure flexible competitive lending. The high street lenders talk a good show but don’t want to lend unless it is at a hugely beneficial loan to value basis, so the independent often has had to rely upon the specialist bringing finance companies that are often not competitive enough, have strong controls and lend for limited periods.
The third is to increase supply, and the housing expert Kate Barker has suggested ways the government could do so, such as identifying large sites abutting urban areas and acquiring them at a modest premium to the value of their existing use.
- Is this some sort of compulsory purchase style suggestion? How would this sit with landowners, many of which have no wish to sell in the first place? If we take the second point (above) in mind maybe this wouldn’t be necessary if competitive flexible lending was readily available for the independent house builder.
Step four is for the Bank of England to adopt a kid-glove approach to raising interest rates. The idea is to engineer a gradual fall in real – inflation-adjusted – house prices, not a recession that leads to a sharp increase in unemployment.
- What is the point here? The Bank of England is being cautious and must consider global pressures not just those concerns at home as there is an overall connected consideration and an increase, marginal or not is on the way.
Step five is to find a way of boosting wages, because there are two ways in which houses can become more affordable. Earnings can rise or house prices can fall. The housing market will only become less dysfunctional when Britain becomes more productive.
- Sadly, this is close to being fanciful or at least a very long-term statement on a hopeful level. Simply to increase wages has a far wider effect on the economy.
Stay away from the wardrobe people. When the fur coats become fir trees there may be trouble ahead. OK I’m being a little cruel but the 5 Action Steps are pretty general and not really a defined recommendation.
Thoughts?
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