The Guardian has a headline this morning suggesting that house prices might fall by 18% if the UK votes Brexit.
I have all sorts of problems with this claim. First, the Guardian is wrong to suggest that is what George Osborne is going to say. He will say house prices might be 18% less than what he thinks they might be with no Brexit. That is very different from an 18% price fall.
Second, whilst there is no doubt that Brexit would create an immediate sterling crisis (the sort of thing David Cameron suggested I might create last year, but where his own track record seems much more serious) there is no evidence this would necessarily last in a downward direction, or that interest rates would have to rise significantly.
That is because I rather strongly suspect that Brexit would be the precursor for the creation of tax haven UK where a relaxation in regulation and tax rules would bring hot money to London. After all, why else are hedge funds so keen on Brexit? And if that happened exchange rates might as easily rise, at cost to real jobs and wealth creation in the UK, but with a resulting increase in pressure on house prices.
Now, of course, I am speculating. So is George Osborne. All I am really saying is that to extrapolate his assumptions to the claim made is pushing economic logic beyond what is reasonable. And that is irresponsible on such an important issue.
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Also, it’s not a good look: the Chancellor of the Exchequer making up numbers on the fly to suit the political causes of the day.
A cynic – Heaven forbid that I be so slandered! – would remark that this looks like the Chancellor’s job.
An amateur economist would offer the opinion that Britain’s problems with asset prices, and the ‘crowding out’ of industry by unproductive speculation, will become an order of magnitude worse when the foreign players – and the Wealthy Britons – play the game in hard currency, and ordinary citizens are paid in Sterling.
The UK housing market is totally screwed, either IN or OUT.
According to Osborne’s logic all non-property owners should vote Leave to stand a better chance of getting on the ladder. So that’s the young voters heading for the exit then!
The banality, irrelevance and sheer speculation from both sides in this campaign is just another great example to me of the total economic and political facade that underlies both the EU and the UK.
Let’s face it, the vast majority of us will still be screwed financially whether we stay in or get out. It is like deciding whether we’d prefer thumbscrews or the rack as our chosen method of torture, or being allowed to choose the red jailor or blue jailor when all we really want is to get out of jail!
I’d rather have the choice of financial freedom for all instead of the current financial prison for the majority that lies at the heart of the philosophy underpinning the EU and the UK.
The housing market here is the key to almost everything and symbol of the ‘rentier’ debt peonage economy ‘sans pareil’.
The banality and lack of real, worthwhile information is a sign of panic all round as both Tories and Labour will be wrenched apart by it.
40 years of being screwed financially and it’s coming to an end and will be messy -but the ‘mess’ is already there.
Unaffordable housing, unaffordable education, secular stagnation, and a migrant issue whilst running austerity-how more insane can it be?
No-on, absolutely no-one will discuss the housing issue properly because the house prices are built in to the personal ‘wealth cake’ in such a manner that to tamper with it would cause middle Britain to throw a tizzy. My own view is after 40 years of bubbling unhindered it must take a hit with some sort of sovereign money calibrated bail out .
For some reason, the ‘remain’ camp seem to think that we’ll have war if we leave. But we’ve got it already , literally and via the ‘banks not tanks’ appraoch.
As for the hedge funds Richard mentions-they seem to be batting both ways:
1) http://www.theguardian.com/business/2015/nov/06/why-are-hedge-funds-supporting-brexit
2)http://www.ft.com/cms/s/0/d682c838-8953-11e5-90de-f44762bf9896.html#axzz49IGznuE0
It’s all over the place! ‘Don’t panic Captain Mainwaring! Don’t panic!’
The rise of the right is happening in (and because of) the EU:
1) Front National in France getting the votes that should go the the Left.
2) Alternative fur Deutschland in Germany and far worse.
3) Lega Nord in Italy, a vile racist group who are racist towards the south of their own country!
4) Vlaams Belang in Belgium
5) Freedom Party in Austria
not to mention similar phenomena in ‘tolerant’ Scandinavia.
I am note convinced by the ‘because of’
If it is not ‘because of’ then combining a migrant crisis with ‘internal devaluation’ must have by-passed their attention -at the very least it is a grotesquely inenpt sin of omission.
But, you might have a point which needs elucidation I see it like this:
There has been a MASSIVE disconnect between the economic forces at work and historic notions of a liberal class and this disconnect, leaving a grand canyon-sized gap like the tectonic shifting of continents seems to have happened unnoticed by the EU itself!
Utterly bizarre, which is why we now have a failed Left with nostaglic visions of a social Europe and making the mistake, in my view, that the failed institution can be reformed.
I appreciate your sagacity here Richard.
Osbourne could be right but I think in that only initially might there be drop in prices as people/markets adjust to the ‘shock’ of the change. So this might only be a brief blip.
Housing is both an asset and a good but from what I observe it is chiefly priced as an asset first.
Therefore, the amount of money swimming around after BREXIT in the UK would probably re-fuel house prices rises once again – and who knows – to even more insane levels than before.
Thanks for the crucial Osborne contention clarificatiion.
This no doubt bolsters the Brexiters as it does not state prices
will fall from their current levels merely rise less than projected.
On the other hand if he triggers a hyperinflation by accident or error, prices may rocket even further. At the same time existing house owners may not be able to afford to live in their own homes. So Osborne’s gift to history might be a market where there is a glut for sale at prices nobody can meet. OK many experts are talking deflation and if they are right prices will go down. What is the marker for him talking nonsense is that he puts a precise figure when all the relevant factors are notoriously imprecise in either monetary or real value.
If he was right, I completely fail to see why that would be a bad thing. 18% is too small a fall, if anything
I agree, the housing disaster needs to be debated nationally and a solution found (probably involving a bail out of negative equity if a fall is engineered for the public good) -now that WOULD be a worthwhile referendum -but I can see herds of pigs flying by as I type.
I don’t believe there can be any form of decent recovery while this 40 bubble is allowed to persist. I don’t believe any political Party will do it, even Labour, although ‘they have got to the ‘sticking plaster’ point. The introduction of a Land Tax will take years to work through, so we’re talking about another generation of mortgage indebtedness to the hilt+ Landlordism for years to come.
You would need to remove the “market” and private finance completely from land and housing in order to get any sense of sanity back into what is after all an essential public good, in limited supply and ultimately now trending towards monopolistic behavior by private financial capital.
That I would welcome, together with putting sanity back into the relationship between incomes and land/property values. That can of course be achieved by two ways, or a combination of, reducing land/property values and increasing average wages (from the bottom up, not top down).
As neither of those is likely under the current economic/political hegemony in the UK (or the EU/US consensus) then it is time to seek real alternatives who will “think the unthinkable” and act in the best interests of those at the bottom and middle of the food chain instead of constantly pandering to those at the top.