Brexit contagion is spreading. Yes I know the FTSE 100 has more than recovered its losses. But the FTSE 250, which reflects British economic activity much more accurately than the 100, has not and is heading down again right now.
The pound remains seriously devalued.
And this afternoon all the signs of a property crash are developing as insurance companies have had to close withdrawals from their property funds.
I stress: this may be a blip. I hope it is. But it's clear that the Bank of England is worried and everyone else should be too.
A property crash seems like good news for many in the UK, especially for the young people not in the property market right now. But it is not. What they need is a controlled and steady fall in prices compared to incomes. What no one needs is a crash.
In a crash 85% of UK bank lending is vulnerable to not having the security within it that repayment can be paid, because that's how much of bank lending is property related in the UK. The risk of bank insolvency in this situation is very high indeed. I know that banks are much better capitalised now than in 2008, but a crash is something no stress test can really predict.
And people, maybe millions of people, will move into negative equity which means they owe more on their mortgages than their properties are worth. This means they cannot move. Their household risk rises. And the burden of debt crushes their quality of life even more than it might have already. The impact on them at a social and economic level is simply ghastly.
We also have to now factor in the buy-to-let market, whose influence was almost unknown in the past. With so much housing now owned by this sector there is a real risk of panic selling firstly exacerbating price falls and secondly leading to large numbers of people being given notice to quit without there necessarily being places to move to.
None of this may happen: I rather it would not. But I hope there is a contingency plan and equally suspect very strongly that there is not.
The risk that we are on the brink of major economic failure with massive social consequences grows by the day. In the meantime Gove, Cameron, Osborne, Farage and Johnson will all no doubt head off to make enormous gains in their future careers leaving mayhem in their wake.
And if you sense both anger and profound worry in this blog then you should. I feel both, by the bucket load.
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I’m at a loss to understand how the Nasty Party ever got a reputation for ‘being good with money’?
I believe that they are good with their own money (of which they have a lot) but not so good with other people’s – so perhaps the reputation is well deserved in the personal – not deserved in the least with respect to anything else.
‘What they need is a controlled and steady fall in prices compared to incomes. What no one needs is a crash.’
Agreed but we will need speedy Government intervention to bail out negative equities in a tapered way and protect those that are renting so that we don’t end up with a load of extra homeless people and empty houses. The notion that rentier greed is too big to fail because of the last 40 years of bank focus on almost nothing but mortgage lending unrestrained by credit controls is a moral issue in itself.
My view:
1) Bail out house buyers who are left with negative equity.
2) Protect those renting from buy-to-scrounge Landlords and support the negative equity in a tapered way depending on their other assets -if they are not leveraged to death then they must take some hit without defaulting-after all they have made money for years (in some cases) feeding off the carcass of the housing market.
3) Maybe, for the most struggling to pay mortgages a debt jubilee
Either way, the ones that stoked the problem must lose something.
Simon
Who in Labour will be working on such ideas right now?
Richard
Not you I suppose, which is a real shame. I hope that once the coup inevitably fails you will come good and help those of us working towards a better world.
Let’s see
None……….but I just trying to contribute ideas that are possible…anything wrong with that?
Not at all
I am lamenting that people may not be listening
Oh sorry, Richard -I thought you were sending me one of your ‘get real’ messages! Must be in a touchy mood at present!
Sorry
I’ve always said that when they offer to make me a dame I will have to refuse. But now that Jeremy needs to appoint some supporters to the lords to fill the vacancies in his shadow cabinet, I’m prepared to sacrifice my anti-aristocratic principles. But it will only be fake ermine for me.
🙂
But I don’t think he’s planning any peers
That’s the rumour I have heard
Does just bailing out people in negative equity not raise issues of moral hazard?
Morning,
Long time lurker first time poster – thanks for maintaining such an interesting blog Richard.
What is the justification behind the notion of bailing out homeowners left in negative equity?
I am in my late twenties and have been warning friends about the dangers of over-borrowing for the last few years – alas I see time and again people taking on far too much debt (e.g. using brokers to stretch the amount they can borrow, etc).
If we bail these people out in the event of a property crash, where is the accountability for taking on risk? I can’t help but feel this would set a precedent for similar people taking on even more debt to finance their homely desires. I for one would happily borrow 5x my income to finance a home if I knew the downside was backed by the state.
Harry
Harry your questions are relevant and of course raise the question of why we have a “property market” at all?
Why should people be encouraged to speculate, borrow, leverage, re-mortgage, etc etc on what is one of (if not the) most important possession and essential need of life – shelter and a home.
It is not the “reckless” or “foolish” borrower you should be questioning, but the incredibly profitable financialised property system that is driven by vast armies of bankers, estate agents, financial advisers, marketeers, advertisers, credit card companies etc etc etc. All of who are in my view just one thing – money driven salespeople – for a private financial system gone completely mad!
99.99% of people in this world have no real understanding of finance (my estimate but I bet I’m not far wrong) and are manipulated by very powerful forces to do what is often not in their best interest.
0.01% of people (also my estimate) know exactly what they are doing and it is in their interest to make sure everyone else keeps “following their orders” no matter what the consequences.
I know where my blame lies and who needs to be targeted if we want to stop this madness continuing for much longer.
Deep anger and profound worry indeed!
Having sold us down the river they might display a little concern for what they’ve done and for those suffering as a result.
Instead we have only ‘me culture’.
Disgusted!
This might be a picnic compared to what might happen if and when we invoke article 50. Meanwhile, a significant degree of Bregret in Wales?
http://www.independent.co.uk/news/uk/politics/wales-has-changed-its-mind-over-brexit-and-would-now-vote-to-stay-in-the-eu-poll-finds-a7120246.html
Too late
I really do not think there is any chance of reversal
people were deprived of a real choice and were fed garbage by the press with a useless Labour Party shitting themselves before the Overton Window-how could people form a reasonable view of things-this is a ghastly failure of our Party system.
Sadly Brexit is pretty much inevitable. I know in Ireland there were two referenda which were rerun and one in Denmark. I can speak to the Irish case
1) The referenda had to be run as they involved change in the written constitution; the Nice and Lisbon treaties.
2) No negotiation was done beforehand (at least in public) so the Irish could go back to the EU and address specific issues and renegotiate.
3) The Irish give the impression at least of fully committing to the EU and normally get a friendly reception so were able to successfully renegotiate and the EU was under a lot less stress.
4) In both cases there was a strong yes vote once the issues had been addressed.
In the UK
1) In the UKs case there was absolutely no need to have a referendum; Indeed some other European states are dismayed that it will set a precedent. The far right are already trumpeting this. The fact that the UK had a needless referendum worries many EU countries.
2) The strategy of renegotiating before the referendum was a mistake. (I am trying to be kind here).
3) The UK has not that many friends in the EU at present and it is scared of breaking up (no chance of the UK breaking up over this!)
4) No renegotiation on better terms is possible and there is a lot of anger within the EU
As an aside the master tactician Arthur Wellesley credited for defeating Napoleon is said to have had such a strong Irish accent his troops found it difficult to understand him.
Very good analysis
I may borrow it…..
What *exactly* did the Irish manage to re-negotiate regarding the terms of the (abandoned) European Constitution, that did not re-appear exactly as before, but buried in various parts of the subsequent Lisbon Treaty?
Genuine question.
Though by no means an expert, I think the main thing Ireland managed to do when they rejected the Lisbon treaty first time round was to get legal guarantees protecting Ireland and its peoples from certain concerns (mostly fictional and put forward by the No campaign, but don’t quote me on that! source: http://www.jcm.org.uk/blog/2009/10/irelands-undemocratic-second-lisbon-treaty-referendum/) on abortion, neutrality and minimum wage restrictions. This was pretty much the same thing that happened in the Danish referendum (Maastricht treaty) and the first Irish referendum (Nice treaty.
These funds are relatively new and have been a major driver for crazy property speculation. I would not be sad to see such people get burnt, but as you say this would not be contained.
As it is clear that the BoE is going to play a very pro-active role in trying to stabilise the financial markets during whatever Brexit turbulence occurs during the period of “adjustment” to the new situations that emerge, it raises a number of questions in my mind, including:
1) Will we see a return to greater central economic/financial planning and regulation in order to control market driven boom/bust?
2) If financial markets are unable to adapt to the new situations that emerge, will the government have to step in with large scale nationalisations of banks and other key industries?
3) If neither of the above occurs (or if it is mostly ineffective) will the mass of the people question the wisdom of relying on global financial markets even more vociferously (and perhaps forcefully) than in the period after 2008?
4) If all three of the above occurs, is this the end for the neoliberal project in the UK? And if so what will replace it? (I know you have already suggested a lot of this in your books Richard so this is just a rhetorical question!)
The central planners at the Treasury and BoE should have at least prepared for Osborne’s worst case doom and gloom scenario, if not what was the point in all the forecasts that he was relying on. If they haven’t then they clearly weren’t listening to Project Fear or thought it could never happen.
The answer is, we don’t know
Like pretty much everything else now
My house is both an asset and a place to live (something that I consume as a ‘good’).
I would rather have a place to live and not worry too much if its over-valued price goes down.
I am more concerned therefore that the Tories will choose their new leader and then continue their commitment to austerity.
And in doing so I will have to take a wage cut or lose my job altogether and be unable to pay my mortgage.
To get back on the austerity pony whilst the country is in post BREXIT decision shock is pure lunacy – but if anyone would do it, it is THIS Tory party.
I hope not but I would not be surprised.
Hi Richard. You say “a crash is something no stress test can really predict”. Perhaps I have got this wrong, but weren’t property crashes of up to 20% built into the latest round of stress tests? Or are you thinking of a worse crash than that?
I am aware that this was the parameter
My suggestion is that such things cannot be properly tested
But even if the banks survive I am making a broader point – will their customers?
A property crash on Brexit was one of the promises of the referendum campaign. One can’t be sure that it wasn’t on the cards anyway but on behalf of my children I will be delighted. “Prosperity” has only ever made them poorer so what’s not to like?
Regarding bailing out those in negative equity – this would be contrary to the free market principles which the electorate of this nation have consistently indicated a preference for. I don’t see that the downside of negative equity begins to compare with the chronic insecurity and crippling of renting in Britain, and no tears have been shed for people trapped in that situation.
It’s good news for my children too – because they are young enough to maybe benefit
But you cannot celebrate it
If a labour government was elected and had contained within its manifesto a commitment to a progressive form of economics, would this not cause a similar initial destabilisation of the stock market and the wider economy as we are experiencing at present? Surely there would be a commitment to build social and private housing on a considerable scale.
Can you see that happening from the Conservatives right now?
No, that’s why I would not be overly concerned about falling property prices as I see the conservatives doing all that can to prop them up. Their whole economic philosophy is designed around high personal debt, it ensures business has control over labour.
I accept that
But I want a transition
Not a car crash
Richard “I really do not think there is any chance of reversal [of the referendum verdict]”.
I certainly think there is a chance.
Interestingly Prof Michael Dougan has given another youtube talk – post referendum:
https://www.youtube.com/watch?v=0dosmKwrAbI&feature=youtu.be
He says the Government and Parliament have a Constitutional Requirement to protect the National Interest so they must establish how far is it in the National Interest to execute the referendum result.
He implies that, as many of the choices look as though they are going to be made FOR us rather than BY us there is a proper argument for Parliament failing to take the ‘advice’ of the referendum.
I do not dispute parliament has a role
I am not yet convinced it can overturn the referendum even if it wanted to
The social consequences might be too significant
‘Government and Parliament have a Constitutional Requirement to protect the National Interest ‘
Well that is one that has been more honoured in the breach-unless by National Interest we mean the financial interests of the owners of capital.
Provided that people don’t lose their jobs (unlikely) negative equity is not a problem for homeowners, except, as you say, if they want to move. In which case the banks should be directed to help.
However, this whole mess is because economists wrote ‘land’, and its role in the economy, out of the textbooks a long time ago. As you say, property (which is mostly land value) is the main collateral for loans. I cannot see how you can hope to model the economy, especially the work which Steve Keen is doing on Minsky, without the land element.
When we wrote our paper on how to implement LVT we were very aware of the impact which LVT could have on house prices, but there’s a chapter on all the other factors which could affect house prices up or down. It was always likely that property values were overdue a big correction.
Richard it can’t go on!
It’s a pack of cards
At some point there must be a day of reckoning and perhaps at last we are near it.
Property prices must fall
The young must be given the chance to get on the ladder and if speculators and those that regard property as an investment rather than as a place to live, a home if you will, have to suffer, so be it.
I am in disbelief that carney actually wants to fuel the flames even more by reducing rather than increasing interest rates and let the banks relax their margin requirements.
In a mad moment this week, having stayed away from shares and resisted all government efforts, namely artificially keeping interest rates low, to get me to invest in risky investments, I bough 8000 Barclays shares.
The worry was all to much and I sold them today for round about what I paid for them
I must be mad!
Investing in bank shares
‘get on the ladder’ can we stop using that cliche? We don’t want a ladder and a snakes and ladders game in this are at all, it is highly destructive and one source of the most socially useless forms of rentier activity.
1. The referendum was advisory and Brexit will not necessarily happen. People who have given up fighting to stay in the EU should think again. Being as hopeless/helpless as some of the commenters here does no-one any good.
2. The last time there was negative equity people were fine as long as the main breadwinner(s) stayed in employment and didn’t need to move for some reason. The real problem came from unemployment, bereavement, divorce, job relocation etc. There should be no need to bail out anyone who can still afford their mortgage. The situation will resolve itself over time.
you massively understate the worry that negative equity causes and its enormous impact in behaviour when people feel their incomes are, inevitably, insecure
To be honest all these or POVs are relevant.
There are people like me who do not really care if the value of the house has gone up or down – just as long as I still have a home and that I have an income to pay it off (in 6 years I cease to be a tenant of the Nationwide Buildling Society).
I am also fortunate or even clever not have leveraged our home in order to generate more debt – we save regularly for what we want – it just takes longer to get those things. So a reduction in collateral value of the house does not effect my loan status too much – I’d say we are not big users of credit. We are still paying for a new car for example as well as a mortgage but it was a second hand car and therefore manageable.
But others DO see their house as a store of household wealth as well as means by which to raise credit for whatever else they wish to do because the asset value of housing as leverage for more spending is now part of our socio-economic culture as wages have dropped and our pensions become less secure.
I do have empathy with those people whose borrowing assets maybe reduced in value because of BREXIT – the old assets to liabilities trap.
It is all very complicated and inter-related and frankly it just shows up the folly of the EU referendum in the first place as none of this seems to have been considered at all.
I accept all you say – and I too am a prudent user of credit now old enough (and lucky and prudent enough) to have cleared my mortgage – so I have many attitudes similar to you
But most are relentlessly marketed credit, many succumb or i would not be done, and the impact on them, their families and the economy will be dire
What about the worry that being trapped in rented housing brings? Moral hazard is very important here, if people get bailed out for paying ridiculous sums for houses then the problem will only get worse.
Sensible controls on how much banks can lend are to be applauded but making the young wait many years for wage inflation (which they often don’t see) to make the current, frankly ridiculous, house prices more normal isn’t a solution.
Plus there are now more houses owned outright than have mortgages on them. A massive distortion in our economy that gives unearned wealth to the asset rich and further increases inequality.
As for buy to let. It was a bad idea from start to finish and protecting those who got into it is a terrible idea. The only problem would be if there were masses of panic sales but even then, that’s only a problem if the sales go through and, for a given market rate for the rental income, the yield would increase as the prices crashed. Someone would surely step in no? If that someone was the local authority replacing social housing then all the better.
People losing their homes is sad but what that really means is losing their deposits. The outcome of which is, what, going into rented accommodation? If so then they merely join the huge numbers of private renters priced out of the housing market. As one of those private renters I have limited sympathy.
I, too, am debt averse, and this is only as a result of personal experience gained during the early 1990s recession.
Perhaps another generation needs to witness first hand the downsides of unbridled capitalism and property speculation, so that they recognise the symptoms at an early enough stage, and don’t overextend themselves the next time.
My late grandfather, whose family lost pretty much everything in the New York crash of 1929, used to say, “Every bust is preceded by a boom!”
We only learn from our mistakes, and those who fail to learn the lessons of history etc, are doomed to repeat them.
A regular trope in the British press (comments sections mainly, but not exclusively) is that the Irish were spanked and told to vote again after they rejectec the Lisbon treaty (and the Nice one previously). Needless to say, it’s as true as the £350m/week for the NHS.
Last time around the Irish declined to accept the loss of their commissioner (small countries were due to share commissioners on a rotating basis, to improve decision-making). They required specific assurances on their neutrality and on a couple other issues. No treaty changes were required to make the requisite accommodations. Now all small countries retain their commissioner.
The decision to hold a second vote was always one for the Irish govt, which would emphatically not have held a vote without securing visible concessions.
The EU has been hugely beneficial to Ireland and only the deranged or clueless would dispute it (think East Germany before and West Germany afterwards) but nevertheless there was a degree of selfishness in the vote (not wanting to expand the EU). 2nd time around there was a more pragmatic attitude — a recognition of both moral obligation and of interdependence.
We had our own property crash, notoriously. The EU Commission tried to warn that things were overheated and they were told to take a hike by the appalling Charlie McCreevy who exacerbated things with pro-cyclical policies. Just as the Germans have a folk memory of inflation the Irish will not forget their first property bust and the bank crash that triggered it. The EU-hating British press blamed the euro, wrongly. The problem, as at RBS, HBOS, Northern Rock and Lloyds was inadequate bank regulation.
The experience has been painful enough that most would listen to “experts” if warned of a possible economic crash. (A chancer like M. Gove would not be confused with one).
We’d prefer the UK not to have a crash as it will affect exports worth c.15% of GDP. Currently the UK exports more to Ireland than to the Commonwealth or to the BRIC countries. As of now future trade in both directions will be governed by EU rules not bilateral terms. Let’s hope Humpty Dumpty can be patched up.
‘The EU has been hugely beneficial to Ireland ‘
I assume you don’t include the recent ‘help’ provided by the Troika?
Simon
Tut tut.
Can I direct you to Mark Blyth’s book ‘Austerity: the history of a dangerous idea’?
As I understand it, the Irish government decided in its wisdom to bail out its private banks with its store of Euros because essentially they panicked.
They put the banks before the country. And then had to do austerity for the public again.
Then, they went to the ECB to ask for more Euros. The ECB – charged at that time with governing money supply (Euros) to control inflation, had no real mechanism just to give them more Euros. Great.
What I see here in your comment about there being a troika is this misconception of some form of sovereignty of the EU (or even ECB) over the member states. I do not think that is correct.
But this neglects the fact that the member states themselves (including Ireland Simon) could have insisted/agreed/whatever that the ECB was charged with helping to bail out states in the event of such a meltdown – and lets be honest there have been quite a few financial crises even before 2008.
The EU/ECB workings/processes are made up of what each state agrees it should do or not. In other words the sovereignty of each member state informs EU workings.
I put it to you that the sovereign states of the EU have not enabled the EU/ECB to do its job properly because many of the states are infected with neo-liberalism themselves. Neo-liberalism therefore Simon is inculcated into the EU/ECBN by the sovereign states who are its members and creators.
It does make you wonder what MEPs like Farage and Dan Hamman have been up to all these years.
The rot starts in the sovereign state members of the EU. Not the EU itself. The BREXIT British public have taken out their frustration with their own Government on the EU.
Hi Paul
I’ve never understood the “banks too large to fail” problem. Ireland has a fundamentally very strong economy and at the time of the economic crash had a national debt to GDP of about 25%. The government had to bail out the banks and Anglo Irish in particular was a basket case. In fact the monies needed were of the order of an entire years GDP. I would be keen to read a proper analysis. My naive answer would
be to lock up the crooked bankers; throw away the key and go after their assets.
Instead the Taxpayers had to foot the bill and it took till 2015 to get the country back on track. Regarding the Troika I agree with Simon that it was appalling behaviour, but unlike Greece the underlying economy was strong enough to cope.
The bankers were reckless
So were Irish politicians in agreeing to bail out the entire system
One of my sons has worked in recruitment for some years, specialising in ‘the property industry’ (estate agents?!). Last week he and several colleagues were made redundant. Major contracts had been cancelled by some of the biggest companies in London and the South East with agents putting a hold on all recruitment. Now of course that might simply be a series of knee-jerk reactions…or it could be the first gust in a series of chill winds.
I hope he finds more work soon
Thank you Richard. It was, as you can imagine, something of a shock to be so personally affected by the consequences of Brexit so soon after the result. I can at least commiserate with a clear conscience, having been persuaded by the arguments you (and others – Paul Mason and George Monbiot among them) made in favour of staying in and pursuing reform. Oh well, what’s that Chinese curse about living in interesting times?!
No one should hold commercial property through unit trusts, there are perfectly good investment trusts which do not have the same liquidity problems. I suspect the problem goes back to the pre RDR days when IFAs got commission on unit trusts but not investment trusts.
If these were not structured in this way the share price could take the hit, not the fund
As you say: bad decision making
We were told Brexit would lead to a decline in property values of up to 20%. Day1 – the big property developers saw up to 40% wiped off their value before picking up to “only” 23% losses.
But of course those at the bottom of the social ladder and who voted leave won’t worry – they’ve nothing to lose.
Which leaves me somewhat conflicted.
But the big residential property developers were all valued at around double (and a lot more in some cases) their stated assets before 23rd June.
As I write, Persimmon plc is valued by the market at £4.24bn. Yet its accounts dated 31/12/2015 state it has net assets of £2.46bn.
One reason for this is that investors are betting that the government will write cheques in the form on planning permission on their land banks.
It costs £100k or less to build a family sized home. The other £100k+ is simply the value of the planning permission, given by the state, almost free of charge, to these FTSE350 companies.
If the state started charging a market rate for planning permission, their share prices would fall at least half again. And it would be a good thing.
Quote “millions of people, will move into negative equity …. the burden of debt crushes their quality of life even more than it might have already.”
Why? Why should negative equity “crush my quality of life”? I continue to pay the same amount of mortgage, and continue to live in the same house. Nothing has changed. If I’m paying the same amount for the same house, why does it matter what the house is “worth”?
Quote ‘This means they cannot move.”
True. But it needn’t mean that if only we had enlightened lenders. If I currently have a £275,000 mortgage on a £250,000 house, why should the lender object to me having a £375,000 mortgage on a £350,000 house? Or a £225,000 mortgage on a £200,000 house?
Because bank lending rules do not allow it
Because banks fail when they do that
We learned from Northern Rock
Richard, I didn’t realise you were such a passionate Home-Owner-Ist (“Land prices must stay high or something terrible will happen!”).
No wonder you are so lukewarm on Land Value Tax, it goes against your core beliefs.
Oh come on Mark: I gave all my reasoning and you have chosen to abstract a few in isolation
I argued for price readjustment but no chaotically
Stop discrediting yourself by ignoring the reality of what I said
Richard
Can I just repeat that I do genuinely empathise with people who may suffer because of a prospective property crash.
Even though my family is more credit averse than average I can tell you that sometimes even I get the feeling that I am being left behind by not buying my children the latest iPhone or Apple Mac or buying a new BMW instead of a second hand Mondeo.
Living at a time of conspicuous consumption is hard for every one in some form or other. It is hard to resist trying to keep up with what seems like everyone else.
I know
To my surprise, my children seem to have accepted the idea
There is time for them to reject it as yet
I hope they don’t: realising that the latest gizmo does not buy happiness is a foundation for real happiness
Capitalism is based on forever selling more stuff via 24/7 advertising to people who don’t need it, are made to think they want it, can’t really afford it but with the majic of never ending free credit are convinced that they must gave it.
The wise ones see through the foolishness of this never ending race.
I question how many wise ones there are
Not enough as yet
I believe that this craze for gizmos and, more on the girlie side, beauty products and treatments, is something much more miserable. Younger people find they have a small excess from incomes or a few credit cards, which they use to ‘treat themselves’. But this is a poor substitute for what they really want and need, which is good housing – and that is totally beyond their dreams.
Hardly a sustainable rate of house price growth currently, so I’m not sure property crash is quite the right term at the moment. Necessary correction maybe?
“Annual house price growth eased to 8.4% in the month of June, the lowest rate in a year, according to the Halifax, the UK’s largest mortgage lender.”
http://www.bbc.co.uk/news/business-36733209
This is an interesting article from Canada, not normally associated with sky rocketing property speculation and hot money from overseas investors.
Not sure whether this says more about the problem with free movement of capital or the rampant inequality within capitalist-communist China (probably both!)
https://www.theguardian.com/cities/2016/jul/07/vancouver-chinese-city-racism-meets-real-estate-british-columbia
“Over the past year, the price of a single family house in Vancouver increased by an incredible 30%, to an average of $1.4m. It’s just the latest, most dramatic jump in an already dramatic long-term trend that has turned the beautiful but unassuming Canadian city into one of the world’s least affordable, with a housing price-to-income ratio of 10.8. That’s third after Hong Kong and Sydney, and well ahead of London, which ranks eighth at 8.5. “
Richard,
I understand your preference for an ‘orderly transition’ but think it may be unreasonably optimistic.
It seems that lessons are are not sufficiently well learnt in the absence of crisis and despair. With that being the case, the more salient point may be that we should not let a good crisis go to waste.
Niall Ferguson is a well-known quasi-conservative fruit cake that nonetheless deserves some credit for a few good insights. The flawed but interesting (post-GFC) article that I have linked below raises some very interesting technical points on the exact topic that you have raised with this blog.
http://www.businessinsider.com.au/niall-ferguson-the-world-is-in-denial-the-great-repression-lives-on-2009-12?r=US&IR=T
http://www.debtdeflation.com/blogs/2009/02/28/bravo-niall-ferguson/
We may not get the smooth transition anyway
Synthetic fear to protect your own house price mad-gainz housing wealth in my opinion.
Banks can handle hpc. They need higher natural levels of transactions, and churn.
Only 1 in 4 owners is under 45 years of age.
1 in 5 homes has been claimed by housing financialisation greedy BTL investors.
Fewer than 2 in 5 homeowners have a mortgage on primary residence. (Guardian)
Guess what. Banks don’t suffer when you outright owners lose value in your houses in a hpc. You’re the actual ones carrying all the downside risk in your hyperbubbled house prices.
BTL landlords ARE the housing crisis. Main reason people can’t afford homes, is the extra demand from landlords.
Demand for rental accommodation is created by landlords. They outbid owner-occupiers. Every time LL buys a house they create a tenant.
We want to become homeowners, and need HPC to do so. You need to give up your mad-gainz, in a HPC. Eat it.