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If you want to know when the housing market is going to recover and why this crash is different to the 90’s don’t miss this weeks instalment of news and views from the Renegade Economist.
Please keep your questions coming in – contact@renegadeeconomist.com
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Nobel Prize-winning economist Joseph Stiglitz says the US has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers.
“In the US and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview overnight in Paris. “The problems are worse than they were in 2007 before the crisis.”
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The former prime minister Tony Blair has received millions of pounds through an unusual mixture of commercial, charitable and religious income streams. Since he stepped down from office in 2007, his financial affairs have been described by observers as “Byzantine” and “opaque”. The Guardian is now launching an online competition offering a prize to the person who can shine the brightest light on those financial structures.
Blair has a commercial consultancy, called Tony Blair Associates, plus jobs advising a US bank and a Swiss insurer. He has a multimillion pound book deal. He also has a charity, the Tony Blair Africa Governance Initiative, and another called the Tony Blair Faith Foundation. But much of the income, which includes charitable donations from other sources, has been funnelled through a structure called Windrush Ventures No 3 Limited Partnership. Our contest asks: what is Windrush?
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Ross Ashcroft catches up with Britain’s Buy to Let King Fergus Wilson.
A man who bizarrely seems to be totally in the dark to the underlying mechanisms that drive the property market.
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Keep in the know with news and information from our new Podcast offering. See what we will be sharing with you in this introduction by Fred Harrison.
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The Renegade Economist team presents an opportunity to learn what’s about to happen in the domestic and global economy, and …
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Why is it that you are the only economist who is prepared to discuss that the demand in housing was credit driven? The demand was for speculative purposes, not for providing homes. Anyway, it’s a breath of fresh air!
Also, great to hear economists discussing manufacturing. An economy based 70% on financial services will prove unsustainable.
Two questions for you both:
(1) How are house prices related overall to the international competitivity of the country?
(2) Although low interest rates are having an effect on the direction of house prices, what are the negative consequences of following a zero interest rate policy and where is this policy going to lead?
Without first time buyers the market will remain dead, there’s little credit available to them and when there is they’ve got to stump up a large deposit, with falling wages and rising unemployment who’s going to have the cash required? Also a lack of job security and the knowledge that interest rates are only going to go up in the next few years makes the media/estate agent sponsored ‘green shoots’ mantra even more ridiculous.
Fred, I am confused. In your book “Boom Bust” and on one of your prior broadcasts you say that the housing market will bottom in 2010. You also said that the falls would be around 30%.
Has your forecast re timescale and/or % fall now been revised?
is there a case for saying that: “when will the house prices hit bottom?” is actually the wrong question?
Is the real question what are the set of circumstances which mean that United Kingdom has properly functioning housing market?
If there is a properly functioning an efficient market and genuine pricing between buyers and sellers then “the price will always be right”. In a poorly functioning or dysfunctional housing market “the price is always wrong”.
If I’m understanding you (Fred) correctly about changes in taxation, you mentioned taxing income and rental; was this meant to be taxing income (reducing) and taxing wealth (increasing)? Looking back at the figures, the housing market appears to have become dysfunctional around the early 1960s and went a tax on Housing wealth was removed and tax on income increased.
Above all else, the Budget red book (appendix) says that the amount of housing needed to be built built between now and 2050 musts to be equal to one third of current housing stock. This means (potentially) knocking down houses and building new ones, as well as building new ones on newly available land.
Small plots of land in south east London with PP are around 500k to 750k per acre and have not dropped during the crash.
I personally think there is the housing market more taken a long time to reach bottom, possibly 7-10 years. Housing is a illiquid asset, and sellers traditionally take a long time to drop prices in any market correction.
But, unless the United Kingdom has a fully functional housing market and a steady supply of quality social housing then the next housing bubble in 7-10 years time is likely to be even bigger than the last one.
Housing wealth is widely accepted as not being real-world by economists, but, I suspect that ordinary people will never accept this. Rises in house prices do not feed into GDP, they suck money out of GDP and help accelerate any economic market corrections when they happen.
Perhaps the UK could increase the amount of land available for housing? Maybe leap from 7% to 9%? Maybe maybe be arcane planning regulations will be dropped and building regulations will be strengthened and enforced? This would improve the quality of housing stock in the future? Maybe property could be taxed so that commercial property owners do not profit from turning a redundant warehouse into a pile of rubble and calling it an ‘asset under development’?
And finally, although I think the housing market has a lot further to go before it reaches bottom, there is still something to be said that for the mantra of estate agents in insofar as “the further house prices fall, the closer they are getting to a rise in prices.”
Do not underestimate Estate Agents, there is much method in their madness!
We’re still due to bottom out on house prices next year judging by that interview. At the moment we are seeing the phantom growth he was talking about. The impatient, ill-educated or well endowed see the lowered prices and take a punt that now’s the time.
As the prices haven’t reduced to the level that matches wages and first time mortgage provision this won’t last. More unemployment to come and the inevitable rise in interest rates will see to that.
Side note – Fred, lose the pen. As one of the leading players in the land reform movement we need to see you giving out the positive message that you’ve got a plan to fix things rather looking to the pen in resignation that it’ll never come to pass.
Any more mention of ‘Green Shoots’ and I might begin to believe I’m living in a vegetable store
OH! But hang on. The British people are vegetables aren’t they? They think that high house prices are the universal panacea that’ll keep them in clover and pay for their retirements, all despite the fact that the UK is technically insolvent and has been for decades. The only difference this time is that the situation is sooooo bad, no amount of clever book keeping and creative accountancy can disguise the enormous fraud that has taken place.
Whilst I agree with Fred’s general analysis of the economy, I’m afraid his solution simply doesn’t make sense.
He suggests switching tax from income to rents which will effectively redistribute wealth from property developers, speculators and landlords to workers. Whilst I applaud such a change in principal, in practice it leaves questions unanswered.
Currently, property developers, speculators and landlords are going to the wall and finding it increasingly harder to derive significant profits from their assets. This is because of a combination of:
1 oversupply of similar commercial units
2 oversupply of expensive 1 or 2 person residential units
3 increasing supply of residential units that would have been offered for sale
4 pressure of oversupply of said units pushing rental incomes downward
To tax rental income in this economic climate will simply stagnate an already faltering rental economy, forcing developers to sell properties at cheaper prices, (i.e. the true market price), andhomeowners to default on mortgages (because the rental income they would hav received will be reduced through the proposed tax on rents).
The upside of this is that it will force more affordable properties on hte market for purchase not rent and end the property speculation industry.
However,it will deepen and increase the speed of the property crash, sending more property related businesses into bankruptcy, and more families into repossessions.
It could be argued that the increase in disposable income will create an increase in real demand for family housing (and potentially smal business space)and there”l be an incentive for developers to provide affordable housing for sale.
However, even this advantageous outcome is predicated on the banking sector making mortgages more widely available to people in a time when job security and wages are falling and unemployment rising.
The banking sector would only do this with large increase in base interest rates, however high interest rates in general are not good for the business sector.
Fred claims that the changing of the taxation system is the panacaea for the UK’s economy. But on it’s own it simply is not.
If we had a more diversified economy that was not 90% solely dependant upon the finance sector then his policy might have more legs.
What I’d be more interested in hearing from Fred is how the UK economy moves forward from its dependance on the banking sector (i.e. the production, buying and selling of debt), to a more diversified economy with other services worthy of export.
House prices in the NW where I am remain depressed. Beware the vested interests talking the market up in an attempt to spark interest. They probably have large property portfolios they need to protect.
“We’re still due to bottom out on house prices next year judging by that interview”
But Fred says in the interview that it will be “several years” before house prices recover. Several years means a bottom in 2011.