From yesterday's Evening Standard:
Chris Roberts dismisses Rohan Silva's piece on housing costs by saying that "there are plenty of cheaper places to live than London" which misses the point.
Of course there are plenty of towns where the cost of living is £10,000 a year lower but in those towns wages are also £10,000 a year less. Any apparent saving in rent would be matched by a fall in wages.
To put it another way, half of all UK graduates move to London, attracted by the higher wages and better job opportunities, but landlords have simply increased their rents to soak up those extra earnings. Most of the official growth in the London economy ends up in the pockets of landlords or those who sell up and move away.
Younger people like Rohan Silva are caught between a rock and a hard place, and lucky Baby Boomers who bought their homes for a song 20 or more years ago should be thanking their lucky stars, not sneering at people who will have it so much harder.
Mark Wadsworth, Young People's Party
Showing posts with label Rents. Show all posts
Showing posts with label Rents. Show all posts
Tuesday, 6 September 2016
Wednesday, 14 May 2014
Leading Tory does "one-sided economics"
From City AM:
THE GOVERNMENT has announced plans to force letting agents to publish the fees they charge tenants, both on their websites and prominently in their branches.
In a policy designed to take the wind out of Labour’s proposal to ban the fees charged to tenants, Nick Clegg revealed that the measures would help renters to shop around and get the best deal when moving home.
"Short-term gimmicks like trying to ban any fee to tenants means higher rents by the back door," housing minister Kris Hopkins said yesterday.
"Excessive state regulation and waging war on the private rented sector would also destroy investment in new housing, push up prices and make it far harder for people to find a flat or house to rent," Hopkins added.
Typical.
If these restrictions mean that the landlord pays the fees, but recoups them via slightly higher rents, then it will make no difference to anything.
If we had proper rent controls, i.e. waged a proper "war on the private rented sector", as the UK did for most of the 20th century (which included undercutting them with social housing), then he looks at the one side (fewer landlords buying and renting houses privately) but completely ignores the other half of the equation:
- The amount of housing coming onto the market being bought by former tenants who would rather be owner-occupiers, which is probably most of them would increase to match the fall in demand from BTl 'investors'.
- With less competition from BTL 'investors', house selling prices would fall.
It's up to you decide whether the benefits of lower houses for you to buy outright outweigh the fact that there will be less accommodation to rent.
THE GOVERNMENT has announced plans to force letting agents to publish the fees they charge tenants, both on their websites and prominently in their branches.
In a policy designed to take the wind out of Labour’s proposal to ban the fees charged to tenants, Nick Clegg revealed that the measures would help renters to shop around and get the best deal when moving home.
"Short-term gimmicks like trying to ban any fee to tenants means higher rents by the back door," housing minister Kris Hopkins said yesterday.
"Excessive state regulation and waging war on the private rented sector would also destroy investment in new housing, push up prices and make it far harder for people to find a flat or house to rent," Hopkins added.
Typical.
If these restrictions mean that the landlord pays the fees, but recoups them via slightly higher rents, then it will make no difference to anything.
If we had proper rent controls, i.e. waged a proper "war on the private rented sector", as the UK did for most of the 20th century (which included undercutting them with social housing), then he looks at the one side (fewer landlords buying and renting houses privately) but completely ignores the other half of the equation:
- The amount of housing coming onto the market being bought by former tenants who would rather be owner-occupiers, which is probably most of them would increase to match the fall in demand from BTl 'investors'.
- With less competition from BTL 'investors', house selling prices would fall.
It's up to you decide whether the benefits of lower houses for you to buy outright outweigh the fact that there will be less accommodation to rent.
Monday, 12 May 2014
Tax and rent freedom day
According to the incorrectly named Adam Smith Institute, Tax Freedom Day is on 28 May 2014.
Not to be outdone, as part of the never ending effort to stampede you into taking out big mortgages, Lloyds Banking Group have calculated that rent freedom day is today 12 May 2014, according to them, "mortgage freedom day" is a whole month earlier (or twenty-five years later, depending on your point of view).
So mathematically*, tax and rent freedom day is on 12 August 2014.
Whatever crimes we've committed and are being punished for, instead of making us serve consecutive sentences, how about lumping the tax bill onto the landlord and making the sentences concurrent?
* 146/365 of your earnings are taken in tax, so your disposable income is 219/365 of gross. 130/365 of your disposable income is taken in rent, leaving you with 235/365 of your disposable after rent. Multiply those fractions, then multiply the result by 365 to convert it to days and subtract from 31/12/2014.
Not to be outdone, as part of the never ending effort to stampede you into taking out big mortgages, Lloyds Banking Group have calculated that rent freedom day is today 12 May 2014, according to them, "mortgage freedom day" is a whole month earlier (or twenty-five years later, depending on your point of view).
So mathematically*, tax and rent freedom day is on 12 August 2014.
Whatever crimes we've committed and are being punished for, instead of making us serve consecutive sentences, how about lumping the tax bill onto the landlord and making the sentences concurrent?
* 146/365 of your earnings are taken in tax, so your disposable income is 219/365 of gross. 130/365 of your disposable income is taken in rent, leaving you with 235/365 of your disposable after rent. Multiply those fractions, then multiply the result by 365 to convert it to days and subtract from 31/12/2014.
Monday, 5 May 2014
Rent controls: A second best solution… but not the worst
What the Labour Party proposed this week was smoke and mirrors and is not rent control in the sense of an absolute cap; all they have tentatively suggested is that there be a cap on annual increases in rents (from a high starting point).
First of all, what we are really arguing about here is the question of who should get the site premium. What this means is that the rental value of physically identical buildings around the country are vastly different, depending on where they are. So you can rent a bog standard three bed semi-detached in the cheapest areas for about £5,000 a year; in parts of London/south east you would have to pay £30,000 a year or more.
We can assume that the site premium for the £5,000 house is nil (or even negative) and the site premium of the £30,000 house is £25,000 a year.
Under the economic-political system introduced, almost inadvertently, by Thatcher and taken to extremes by Blair/Brown and subsequently Cameron/Osborne, that value is collected privately by landlords, banks and owner-occupiers, but it was not always thus, as we will see.
To rank the potential uses of the site premium in order, best-to-worst:
1. Collect as tax to replace taxes on output, earnings and profits (YPP's favoured use),
2. Allow them to accrue to tenants via rent controls,
3. Allow them to accrue to owner-occupiers,
4. Allow them to be collected by landlords,
5. Allow them to be collected by banks.
a) The right wingers play the "disappearing homes" card and say, probably correctly, that the quality and quantity of rented accommodation on offer, especially in high rent areas will decrease, but as per usual they fail to mention what will happen to current tenants and the formerly tenanted homes.
b) There is little need to speculate: all we need to do is to remember that for most of the 20th century (from 1918 at the latest to 1988 at the latest), the UK had fairly strict rent controls. So in areas with high market rental values, landlords had little incentive to keep their homes in good condition. For example, if the true market rental value is £15,000 but rents are capped at £5,000, landlords can get away with renting a homes in very grotty condition for £5,000. Instead of the tenant paying £10,000 site premium and £5,000 for maintenance of the bricks and mortar, furnishings, he pays £4,000 for the site premium and only £1,000 for the actual premises. (Which is why the horror stories about really grotty accommodation are to do with London or New York.)
c) What the right wingers don't mention is that the UK's rent controls are a large part of the explanation for the rapid growth of owner-occupation in the UK until the late 1980s (there was a further small cosmetic boost following the council house sell-offs, which has since reversed itself). A landlord will only buy a house for the capitalised value of future rents, so houses in areas where you can only get £5,000 rent for them sell for (say) £100,000, and houses which you can get £25,000 rent for sell for £500,000 (ignoring the recent bubble in some areas).
d) If the rent for all three-bed semi-detached houses were capped at £5,000, regardless of where they are in the country, no landlord would be willing to offer more than £100,000 for one. A potential owner-occupier is not so constrained, he enjoyment/use value of the house is unaffected by the rent cap, so he is prepared to pay a higher amount but is only competing against other potential owner-occupiers, thus removing a lot of the upward price pressure. So the site premium is still being privately collected, but it is spread out among a much larger group of people (pretty much everybody).
e) So what would happen to a house currently being rented for £15,000 a year (selling price approx. £300,000, or probably £400,000 in London)? The landlord can continue to rent it out for £5,000, in which case the tenant gets most of the site premium 'for free', although he will end up paying for more repairs himself. Even though the home is now in good condition again, there is little incentive for the landlord to turf him out and benefit from those repairs, because he can't charge the next tenant more than £5,000 a year either. But an owner-ocupier would benefit from improvements, because he can still sell for full value to another potential owner-occupier.
f) Or the landlord, now deprived of the hope of making massive capital gains in future, can cave in and sell the home; as long as he can sell it for at least £100,000, he is better off investing the proceeds elsewhere. If all three or four million homes currently being privately rented for more than £5,000 a year came on the market, prices would clearly fall to a level which the three or four million former tenants can afford and owner-occupation levels would rise, which is always seen as A Good Thing. So it is nigh impossible to achieve Objective 1 (allow site premium to accrue to private tenants); it will mainly accrue to those tenants who become owner-occupiers, Objective 2, but that is not A Bad Thing.
g) Something else the UK had for most of the 20th century was strict mortgage lending rules. If there is a strictly enforced cap of (say) three times the main earner's earnings and a minimum deposit of 25%, then prices would fall to four times local average earnings. So the £300,000 or £400,000 home currently being rented to a household on a good wage of £40,000 or £50,000 (from e) would end up being sold to the sitting tenant for about £200,000. By reintroducing this (a Mortgage Market Review on steroids), we could significantly reduce the amount of the site premium collected by banks as mortgage interest; if the restriction cuts in to the profit the selling owner-occupier can make, then it benefits the next owner-occupier (a former tenant, as like as not) in equal and opposite measure; the site premium continues to benefit owner-occupiers as a class.
h) Another thing to note is that rent caps and mortgage lending restrictions did not discourage new construction to any great extent; as long as builders can sell a new home for more than it costs to build, they will do so. The current opposition to new construction is based on the probably unfounded belief that new construction in an area reduces the overall amenity of existing homes and thus depresses prices; that is the root of most NIMBY opposition. But with rent controls and lending restrictions in place, a home will not longer be something from which people hope to derive speculative gains.
i) Although difficult to quantify, there has also been a cultural shift in the UK over the past ten or fifteen years. Until the 1990s, private landlords were seen as a bit sleazy, as people who preyed on the weakest members of society; in social terms, they were only a rung or two above doorstep lenders or brothel keepers; people who didn't have a 'proper job'. Nobody boasted about his rental 'empire'. Nowadays, buy-to-let landlords are seen as astute investors who can hold their heads up high at the golf club, and if they collect enough rent to be able to pack in working, they earn a grudging respect.
Similarly, renting was just something you did for a few years after you'd left home, while you were studying, when you moved town to get a better job, down to London for a few years of 'high life', sharing a house with mates for a year or two until you earned enough to buy your own place. You can put up with grotty in your late teens or early twenties; the joke started to wear a bit thin after that, but so what? Most people in their mid-twenties could afford to buy.
j) The other good thing about rent controls is that it would halve the amount of Housing Benefit being paid to private landlords, currently about £10 billion a year.
----------------------------------
k) So why would YPP prefer to leave market rents as they are and collect the site premium in tax (call it Land Value Tax or Domestic Rates)? Why does this lead to even better outcomes?
Briefly:
1. Because of the way incomes and land ownership is distributed, every £1 in LVT which a working household has to pay would save about £2 in taxes on their earnings. This does not just make the vast majority of people better off, it would also be really good for the productive economy.
2. LVT pushes down the price of housing, and hence the size of mortgages, which end up costing as much again in interest payments, so every £1 LVT a first time buyer household pays saves that household £2 in mortgage repayments.
3. LVT leads to a better allocation of housing. With rent controls, there is no incentive for older, smaller households to downsize.
4. LVT encourages people, landlords and owner-occupiers alike, to keep their homes in the best possible condition; there is no tax disincentive to doing so. Once a landlord has paid the LVT, he gets to keep every penny of the extra rental value for himself.
5. Lower house prices and smaller mortgages would significantly dampen the credit/house price fuelled boom-bust cycle, thus minimising the impact of financial recessions.
6. LVT is completely neutral between landlord/tenant homes and owner-occupied homes. It is only if there is a completely level playing field that we will reach the optimum mix between rented and owner-occupied housing.
---------------------------------
l) Is it possible to have both: rent controls and LVT? Sort of...
1. If all housing were owner-occupied, then yes, we could have a national cap. The purchase price would be just the bricks and mortar value; owner-occupiers would then pay the site premium as tax (instead of paying tax on their earnings and spending). But this would pretty much wipe out the availability of rented housing in all but the cheapest areas (the capped rent minus the LVT would mean negative profits for landlords). We do not believe that this is a desirable outcome; the only accommodation available to rent would be spare rooms in privately owned houses (i.e. of those who want to stay put but can't otherwise cover the LVT), it would be nigh impossible to impose rent controls on such private agreements.
2. If lack of affordable rented accommodation is an issue, then there's always council housing as a fall back. We can still have some free market elements to this; low-cost short term halls of residence for students; low-cost long term council housing; mid-price Housing Association housing; and upmarket Crown Estates housing, for example. The fact that waiting lists for low-cost Council Housing are so long (years or decades in expensive areas) could mean one of two things: the rents are 'too low' or 'there isn't enough of it'. As ever, the solution lies somewhere between nudging up rents in prime areas and increasing supply. Any excess of rents collected over bricks and mortar cost all goes into the common fund and is a saving for 'the taxpayer'.
3. Again, assuming most or all housing is owner-occupied, we could achieve a half way house by the back door if private banks were forbidden from offering purchase mortgages; all purchase mortgages would be via a state-run bank; instead of formally collecting LVT, it would collect a large chunk of the site premium as mortgage interest; the longer the repayment period, the more it would collect.
4. Returning to the first diagram, a compromise position could be to 'split the difference'. This would mean that the capped rent is set differently for different areas. In those areas where market rent is currently £5,000, the cap on the rent for a house would be £5,000 and the LVT would be £nil; in those areas where market rent is currently £30,000, the rent cap would be £17,500 and the LVT would be £12,500; the net return to landlords would be £5,000 in all areas and the capitalised amount of rent which subsequent owner-occupiers pay to current owner-occupiers (or to the bank as mortgage interest) would be halved:
5. Following this logic, by setting the rent cap at a different fraction of bricks and mortar rent+site premium and the LVT at anything less than the remaining site premium, we could achieve a fan shape, whereby the residual balance continues to be collected by landlords, banks or current owner-occupiers. It is a question of fact and degree.
First of all, what we are really arguing about here is the question of who should get the site premium. What this means is that the rental value of physically identical buildings around the country are vastly different, depending on where they are. So you can rent a bog standard three bed semi-detached in the cheapest areas for about £5,000 a year; in parts of London/south east you would have to pay £30,000 a year or more.
We can assume that the site premium for the £5,000 house is nil (or even negative) and the site premium of the £30,000 house is £25,000 a year.
Under the economic-political system introduced, almost inadvertently, by Thatcher and taken to extremes by Blair/Brown and subsequently Cameron/Osborne, that value is collected privately by landlords, banks and owner-occupiers, but it was not always thus, as we will see.
To rank the potential uses of the site premium in order, best-to-worst:
1. Collect as tax to replace taxes on output, earnings and profits (YPP's favoured use),
2. Allow them to accrue to tenants via rent controls,
3. Allow them to accrue to owner-occupiers,
4. Allow them to be collected by landlords,
5. Allow them to be collected by banks.
a) The right wingers play the "disappearing homes" card and say, probably correctly, that the quality and quantity of rented accommodation on offer, especially in high rent areas will decrease, but as per usual they fail to mention what will happen to current tenants and the formerly tenanted homes.
b) There is little need to speculate: all we need to do is to remember that for most of the 20th century (from 1918 at the latest to 1988 at the latest), the UK had fairly strict rent controls. So in areas with high market rental values, landlords had little incentive to keep their homes in good condition. For example, if the true market rental value is £15,000 but rents are capped at £5,000, landlords can get away with renting a homes in very grotty condition for £5,000. Instead of the tenant paying £10,000 site premium and £5,000 for maintenance of the bricks and mortar, furnishings, he pays £4,000 for the site premium and only £1,000 for the actual premises. (Which is why the horror stories about really grotty accommodation are to do with London or New York.)
c) What the right wingers don't mention is that the UK's rent controls are a large part of the explanation for the rapid growth of owner-occupation in the UK until the late 1980s (there was a further small cosmetic boost following the council house sell-offs, which has since reversed itself). A landlord will only buy a house for the capitalised value of future rents, so houses in areas where you can only get £5,000 rent for them sell for (say) £100,000, and houses which you can get £25,000 rent for sell for £500,000 (ignoring the recent bubble in some areas).
d) If the rent for all three-bed semi-detached houses were capped at £5,000, regardless of where they are in the country, no landlord would be willing to offer more than £100,000 for one. A potential owner-occupier is not so constrained, he enjoyment/use value of the house is unaffected by the rent cap, so he is prepared to pay a higher amount but is only competing against other potential owner-occupiers, thus removing a lot of the upward price pressure. So the site premium is still being privately collected, but it is spread out among a much larger group of people (pretty much everybody).
e) So what would happen to a house currently being rented for £15,000 a year (selling price approx. £300,000, or probably £400,000 in London)? The landlord can continue to rent it out for £5,000, in which case the tenant gets most of the site premium 'for free', although he will end up paying for more repairs himself. Even though the home is now in good condition again, there is little incentive for the landlord to turf him out and benefit from those repairs, because he can't charge the next tenant more than £5,000 a year either. But an owner-ocupier would benefit from improvements, because he can still sell for full value to another potential owner-occupier.
f) Or the landlord, now deprived of the hope of making massive capital gains in future, can cave in and sell the home; as long as he can sell it for at least £100,000, he is better off investing the proceeds elsewhere. If all three or four million homes currently being privately rented for more than £5,000 a year came on the market, prices would clearly fall to a level which the three or four million former tenants can afford and owner-occupation levels would rise, which is always seen as A Good Thing. So it is nigh impossible to achieve Objective 1 (allow site premium to accrue to private tenants); it will mainly accrue to those tenants who become owner-occupiers, Objective 2, but that is not A Bad Thing.
g) Something else the UK had for most of the 20th century was strict mortgage lending rules. If there is a strictly enforced cap of (say) three times the main earner's earnings and a minimum deposit of 25%, then prices would fall to four times local average earnings. So the £300,000 or £400,000 home currently being rented to a household on a good wage of £40,000 or £50,000 (from e) would end up being sold to the sitting tenant for about £200,000. By reintroducing this (a Mortgage Market Review on steroids), we could significantly reduce the amount of the site premium collected by banks as mortgage interest; if the restriction cuts in to the profit the selling owner-occupier can make, then it benefits the next owner-occupier (a former tenant, as like as not) in equal and opposite measure; the site premium continues to benefit owner-occupiers as a class.
h) Another thing to note is that rent caps and mortgage lending restrictions did not discourage new construction to any great extent; as long as builders can sell a new home for more than it costs to build, they will do so. The current opposition to new construction is based on the probably unfounded belief that new construction in an area reduces the overall amenity of existing homes and thus depresses prices; that is the root of most NIMBY opposition. But with rent controls and lending restrictions in place, a home will not longer be something from which people hope to derive speculative gains.
i) Although difficult to quantify, there has also been a cultural shift in the UK over the past ten or fifteen years. Until the 1990s, private landlords were seen as a bit sleazy, as people who preyed on the weakest members of society; in social terms, they were only a rung or two above doorstep lenders or brothel keepers; people who didn't have a 'proper job'. Nobody boasted about his rental 'empire'. Nowadays, buy-to-let landlords are seen as astute investors who can hold their heads up high at the golf club, and if they collect enough rent to be able to pack in working, they earn a grudging respect.
Similarly, renting was just something you did for a few years after you'd left home, while you were studying, when you moved town to get a better job, down to London for a few years of 'high life', sharing a house with mates for a year or two until you earned enough to buy your own place. You can put up with grotty in your late teens or early twenties; the joke started to wear a bit thin after that, but so what? Most people in their mid-twenties could afford to buy.
j) The other good thing about rent controls is that it would halve the amount of Housing Benefit being paid to private landlords, currently about £10 billion a year.
----------------------------------
k) So why would YPP prefer to leave market rents as they are and collect the site premium in tax (call it Land Value Tax or Domestic Rates)? Why does this lead to even better outcomes?
Briefly:
1. Because of the way incomes and land ownership is distributed, every £1 in LVT which a working household has to pay would save about £2 in taxes on their earnings. This does not just make the vast majority of people better off, it would also be really good for the productive economy.
2. LVT pushes down the price of housing, and hence the size of mortgages, which end up costing as much again in interest payments, so every £1 LVT a first time buyer household pays saves that household £2 in mortgage repayments.
3. LVT leads to a better allocation of housing. With rent controls, there is no incentive for older, smaller households to downsize.
4. LVT encourages people, landlords and owner-occupiers alike, to keep their homes in the best possible condition; there is no tax disincentive to doing so. Once a landlord has paid the LVT, he gets to keep every penny of the extra rental value for himself.
5. Lower house prices and smaller mortgages would significantly dampen the credit/house price fuelled boom-bust cycle, thus minimising the impact of financial recessions.
6. LVT is completely neutral between landlord/tenant homes and owner-occupied homes. It is only if there is a completely level playing field that we will reach the optimum mix between rented and owner-occupied housing.
---------------------------------
l) Is it possible to have both: rent controls and LVT? Sort of...
1. If all housing were owner-occupied, then yes, we could have a national cap. The purchase price would be just the bricks and mortar value; owner-occupiers would then pay the site premium as tax (instead of paying tax on their earnings and spending). But this would pretty much wipe out the availability of rented housing in all but the cheapest areas (the capped rent minus the LVT would mean negative profits for landlords). We do not believe that this is a desirable outcome; the only accommodation available to rent would be spare rooms in privately owned houses (i.e. of those who want to stay put but can't otherwise cover the LVT), it would be nigh impossible to impose rent controls on such private agreements.
2. If lack of affordable rented accommodation is an issue, then there's always council housing as a fall back. We can still have some free market elements to this; low-cost short term halls of residence for students; low-cost long term council housing; mid-price Housing Association housing; and upmarket Crown Estates housing, for example. The fact that waiting lists for low-cost Council Housing are so long (years or decades in expensive areas) could mean one of two things: the rents are 'too low' or 'there isn't enough of it'. As ever, the solution lies somewhere between nudging up rents in prime areas and increasing supply. Any excess of rents collected over bricks and mortar cost all goes into the common fund and is a saving for 'the taxpayer'.
3. Again, assuming most or all housing is owner-occupied, we could achieve a half way house by the back door if private banks were forbidden from offering purchase mortgages; all purchase mortgages would be via a state-run bank; instead of formally collecting LVT, it would collect a large chunk of the site premium as mortgage interest; the longer the repayment period, the more it would collect.
4. Returning to the first diagram, a compromise position could be to 'split the difference'. This would mean that the capped rent is set differently for different areas. In those areas where market rent is currently £5,000, the cap on the rent for a house would be £5,000 and the LVT would be £nil; in those areas where market rent is currently £30,000, the rent cap would be £17,500 and the LVT would be £12,500; the net return to landlords would be £5,000 in all areas and the capitalised amount of rent which subsequent owner-occupiers pay to current owner-occupiers (or to the bank as mortgage interest) would be halved:
5. Following this logic, by setting the rent cap at a different fraction of bricks and mortar rent+site premium and the LVT at anything less than the remaining site premium, we could achieve a fan shape, whereby the residual balance continues to be collected by landlords, banks or current owner-occupiers. It is a question of fact and degree.
Thursday, 27 February 2014
Back to the future
From the BBC:
The weekly earnings of full-time workers in the UK fell, in real terms, each year between 2008 and 2013, official figures show.
The Office for National Statistics (ONS) says in cash terms earnings grew, by only 2% a year, from 2009 to 2013. But after taking inflation into account the purchasing power of those earnings suffered an overall fall of 8%.
This means that the real value of the UK's average weekly earnings are now back to the level of 2002.
From the BBC:
The Department for Communities and Local Government (DCLG), which publishes the [English Housing Survey] each year, said:
"The proportion of all households in owner occupation increased steadily from the 1980s to 2003 when it reached a peak of 71%. Since then, there has been a gradual decline in owner occupation to the current 65%."
It pointed out that private renting in England had been steady at about 10% of all households during the 1980s and 1990s, but had since grown sharply, nearly doubling in size.
From the BBC:
The number of tenants in England and Wales forcibly evicted from their homes last year after court action reached a record high.
Some 37,739 private and public sector tenants had their homes repossessed by court bailiffs in 2013, according to figures from the Ministry of Justice. That is the highest number since records began in the year 2000.
However...
However, the number of homes being repossessed by mortgage lenders at the end of 2013 was the lowest in a decade.
In cases that involved court action, 12,147 people had to hand back the keys to their home between October and December last year. The Ministry of Justice put that down to low interest rates and a "proactive approach from lenders in managing consumers in financial difficulty".
The weekly earnings of full-time workers in the UK fell, in real terms, each year between 2008 and 2013, official figures show.
The Office for National Statistics (ONS) says in cash terms earnings grew, by only 2% a year, from 2009 to 2013. But after taking inflation into account the purchasing power of those earnings suffered an overall fall of 8%.
This means that the real value of the UK's average weekly earnings are now back to the level of 2002.
From the BBC:
The Department for Communities and Local Government (DCLG), which publishes the [English Housing Survey] each year, said:
"The proportion of all households in owner occupation increased steadily from the 1980s to 2003 when it reached a peak of 71%. Since then, there has been a gradual decline in owner occupation to the current 65%."
It pointed out that private renting in England had been steady at about 10% of all households during the 1980s and 1990s, but had since grown sharply, nearly doubling in size.
From the BBC:
The number of tenants in England and Wales forcibly evicted from their homes last year after court action reached a record high.
Some 37,739 private and public sector tenants had their homes repossessed by court bailiffs in 2013, according to figures from the Ministry of Justice. That is the highest number since records began in the year 2000.
However...
However, the number of homes being repossessed by mortgage lenders at the end of 2013 was the lowest in a decade.
In cases that involved court action, 12,147 people had to hand back the keys to their home between October and December last year. The Ministry of Justice put that down to low interest rates and a "proactive approach from lenders in managing consumers in financial difficulty".
Wednesday, 16 October 2013
Reader's Letter Of The Day
In today's Evening Standard (page 49, 16 October 2013):
The read scandal about school places for me is that homeowners and landlords near sought-after schools can charge so much for access to a public service, without contributing towards its funding.
Joe Momber, Young People's Party
The read scandal about school places for me is that homeowners and landlords near sought-after schools can charge so much for access to a public service, without contributing towards its funding.
Joe Momber, Young People's Party
Wednesday, 21 November 2012
Forbidden Knowledge 1 - A Policy to Return Croydon to Prosperity
What all successful politicians are not allowed to talk about. Well the Young People's Party are talking about it... very loudly... very clearly.
What's in it for Croydon. This forbidden knowledge speaks about how the economy really works everywhere. Croydon is where we propose radical change commences, making it the envy of the rest of the country within 10 years. Work and business will flood in. Everyone who prefers freedom and justice will want to be here.
Raw Economic 101 vox pop. Apologies for the mic hum. I had external power plugged in.
What's in it for Croydon. This forbidden knowledge speaks about how the economy really works everywhere. Croydon is where we propose radical change commences, making it the envy of the rest of the country within 10 years. Work and business will flood in. Everyone who prefers freedom and justice will want to be here.
Raw Economic 101 vox pop. Apologies for the mic hum. I had external power plugged in.
QE & FLS: Rubbing our noses in it
From City AM:
Under QE the Bank prints money to buy government debt, to push down interest rates. This is meant to stimulate the economy, but it also drives up inflation. In addition, QE has been criticised as it reduces the value of the annuity retirees can buy with their pension pots, attracting the ire of the older generation.(1)
Weale yesterday defended the policy, arguing that young people have been particularly badly hit by the downturn(2) and so need support from the central bank.(3) In particular he noted that almost 10 per cent of young men have been unemployed for more than six months, compared with just over three per cent for men aged 31 to 64.
As a result he feels hitting the old with QE has been justified because it helps the young.(4)
1) The first paragraph is a fair summary, apart from the bit about QE being intended to "stimulate the economy", there is absolutely no reason to assume that it will achieve anything of the sort, like just about everything else the UK government has been doing for the last five years, it's about propping up banks and house prices.
2) Yes, just about everything the government is doing - propping up rents and house prices, taking away benefits, hiking tuition fees, increasing taxes on labour which destroys jobs and makes it disproportionately harder to get a job in the first place, massive deficit spending etc - is designed to fob off as much of the burden onto the young and future generations, so the end result is hardly surprising.
3) The central bank is part of the government, if it wanted to "support" the young , it would be doing pretty much the opposite of what it is actually doing (see long list in 2).
4) Woah! False choice there! This is not a question of sharing a dwindling cake between the under-40s and the over-65s, what's happening here is that the usual suspects are f-ing over both groups simultaneously, the only winners here are the bankers, insurance companies and landowners.
Just to illustrate the point, also from City AM:
MORTGAGE lending climbed to an 11-month high in October, according to data out yesterday, as the Funding for Lending Scheme (FLS) entered its third full month of activity...
Mark Harris, boss of SPF Private Clients, a mortgage broker, said he expected the mortgage market to ease further and further over the coming year. "This bodes well for next year – as lenders saturate the low loan-to-value (LTV) market with a plethora of rock-bottom rates, they will be forced to turn to the higher LTV bracket," he predicted.
The FLS is out of the same stable as QE, it's about reducing interest rates for the benefit of the already wealthy and the Baby Boomers. Apart from the fact that easy credit and high house prices are what got us into this mess in the first place, the only people to benefit from FLS are people who are selling land (because they can sell them for higher prices) and people with a lot of equity who can double on their mortgages and expand their BTL empires.
Under QE the Bank prints money to buy government debt, to push down interest rates. This is meant to stimulate the economy, but it also drives up inflation. In addition, QE has been criticised as it reduces the value of the annuity retirees can buy with their pension pots, attracting the ire of the older generation.(1)
Weale yesterday defended the policy, arguing that young people have been particularly badly hit by the downturn(2) and so need support from the central bank.(3) In particular he noted that almost 10 per cent of young men have been unemployed for more than six months, compared with just over three per cent for men aged 31 to 64.
As a result he feels hitting the old with QE has been justified because it helps the young.(4)
1) The first paragraph is a fair summary, apart from the bit about QE being intended to "stimulate the economy", there is absolutely no reason to assume that it will achieve anything of the sort, like just about everything else the UK government has been doing for the last five years, it's about propping up banks and house prices.
2) Yes, just about everything the government is doing - propping up rents and house prices, taking away benefits, hiking tuition fees, increasing taxes on labour which destroys jobs and makes it disproportionately harder to get a job in the first place, massive deficit spending etc - is designed to fob off as much of the burden onto the young and future generations, so the end result is hardly surprising.
3) The central bank is part of the government, if it wanted to "support" the young , it would be doing pretty much the opposite of what it is actually doing (see long list in 2).
4) Woah! False choice there! This is not a question of sharing a dwindling cake between the under-40s and the over-65s, what's happening here is that the usual suspects are f-ing over both groups simultaneously, the only winners here are the bankers, insurance companies and landowners.
Just to illustrate the point, also from City AM:
MORTGAGE lending climbed to an 11-month high in October, according to data out yesterday, as the Funding for Lending Scheme (FLS) entered its third full month of activity...
Mark Harris, boss of SPF Private Clients, a mortgage broker, said he expected the mortgage market to ease further and further over the coming year. "This bodes well for next year – as lenders saturate the low loan-to-value (LTV) market with a plethora of rock-bottom rates, they will be forced to turn to the higher LTV bracket," he predicted.
The FLS is out of the same stable as QE, it's about reducing interest rates for the benefit of the already wealthy and the Baby Boomers. Apart from the fact that easy credit and high house prices are what got us into this mess in the first place, the only people to benefit from FLS are people who are selling land (because they can sell them for higher prices) and people with a lot of equity who can double on their mortgages and expand their BTL empires.
Wednesday, 24 October 2012
Wednesday, 10 October 2012
Reader's Letter Of The Day
From the FT:
Sir, I agree with Charles Fairhurst that higher taxes on private sector landlords will drive many of them out of the property market (Letters, September 26). If that creates a declining market, it will have the hugely beneficial effect of enabling many of those now paying extortionate rents to buy their own homes.
Nigel Wilkins, London SW7.
This is not idle theory of course.
Two main reasons why owner-occupation rates in the UK increased so rapidly between 1945 and the 1970s (something we are proud of) was strict rent controls and high taxation of rental income; it just wasn't worth it being a landlord.
The other reasons for low and stable house prices and rising levels of owner-occupation were: mortgage rationing (high deposits were required and very low income multiples); lots of new construction; Domestic Rates and Schedule A (which between them acted like Land Value Tax) and the downward pressure exerted on rents by social housing (at its peak, about thirty per cent of households were in low-rent social housing).
Unfortunately, owner-occupation mutated into Home-Owner-Ism in the early 1970s once owner-occupation rates climbed over 50%. There were then more votes in abandoning rent controls; reducing taxes on rental income; NIMBYism; abolishing Domestic Rates and Schedule A; and selling off social housing.
Sir, I agree with Charles Fairhurst that higher taxes on private sector landlords will drive many of them out of the property market (Letters, September 26). If that creates a declining market, it will have the hugely beneficial effect of enabling many of those now paying extortionate rents to buy their own homes.
Nigel Wilkins, London SW7.
This is not idle theory of course.
Two main reasons why owner-occupation rates in the UK increased so rapidly between 1945 and the 1970s (something we are proud of) was strict rent controls and high taxation of rental income; it just wasn't worth it being a landlord.
The other reasons for low and stable house prices and rising levels of owner-occupation were: mortgage rationing (high deposits were required and very low income multiples); lots of new construction; Domestic Rates and Schedule A (which between them acted like Land Value Tax) and the downward pressure exerted on rents by social housing (at its peak, about thirty per cent of households were in low-rent social housing).
Unfortunately, owner-occupation mutated into Home-Owner-Ism in the early 1970s once owner-occupation rates climbed over 50%. There were then more votes in abandoning rent controls; reducing taxes on rental income; NIMBYism; abolishing Domestic Rates and Schedule A; and selling off social housing.
Wednesday, 3 October 2012
Actual rental growth verses [sic] regular pay growth
Here's a nice chart from the September Halifax house price report:
What this boils down to is that rents act exactly the same as income tax; when wages go up, rental values go up accordingly. So we could save ourselves the faff of taxing earned income and just tax rental values instead, it would be a far less economically damaging way of collecting exactly the same revenue.
What this boils down to is that rents act exactly the same as income tax; when wages go up, rental values go up accordingly. So we could save ourselves the faff of taxing earned income and just tax rental values instead, it would be a far less economically damaging way of collecting exactly the same revenue.
Saturday, 2 June 2012
Nationwide nearly joins the dots
In their May 2012 house price report, they include a couple of interesting charts.
i) The chart at the bottom of page 1 shows that since 1952, the Retail Price Index has risen from 100 to about 2,500 but their house price index has risen from 100 to nearly 9,000:
It would be more meaningful to compare house prices with earnings (which themselves rise a couple of per cent a year faster than the RPI) but the general observation stands that as the economy advances, house prices grow super-proportionately, i.e. they increase as a share of the economy, i.e. compared to normal shop prices (which gradually fall relative to wages), houses are three-and-a-half times as expensive as sixty years ago.
For sure, some of this extra increase has to do with the credit bubble and supply restrictions, but only some of it.
ii) The chart at the bottom of page 2 shows housing affordability in the ten English regions:
We observe that there is a more or less straight line between the dots - in the North, rents are 20% of earnings and houses cost three times earnings; and in London, rents are nearly 40% of earnings and houses cost over six times earnings, with all the other regions in a straight line in between. The explanation for this, which appears to elude Nationwide, is exactly the same as in i).
You just have to remember that a) average earnings are very low in the North and very high in London (with the other regions in a straight line in between), which draws people towards regions with higher earnings; b) these earnings differentials cannot be competed away (in the short or medium term); and c) actual day to day living costs are much the same anywhere.
As a result, that surplus which higher earners in higher earning regions have available - after paying for living costs - is not competed away by new arrivals (there is only so much space, and in any event, higher population density would push up average earnings yet further) and is simply soaked up in higher rents and house prices.
So we could assume that the economy is the North is less advanced and in London it is more advanced; so comparing London with the North is like comparing 2012 with 1952. The observation that rents as a share of earnings increases when/where the economy is more advanced holds either on a temporal or spatial basis.
i) The chart at the bottom of page 1 shows that since 1952, the Retail Price Index has risen from 100 to about 2,500 but their house price index has risen from 100 to nearly 9,000:
It would be more meaningful to compare house prices with earnings (which themselves rise a couple of per cent a year faster than the RPI) but the general observation stands that as the economy advances, house prices grow super-proportionately, i.e. they increase as a share of the economy, i.e. compared to normal shop prices (which gradually fall relative to wages), houses are three-and-a-half times as expensive as sixty years ago.
For sure, some of this extra increase has to do with the credit bubble and supply restrictions, but only some of it.
ii) The chart at the bottom of page 2 shows housing affordability in the ten English regions:
We observe that there is a more or less straight line between the dots - in the North, rents are 20% of earnings and houses cost three times earnings; and in London, rents are nearly 40% of earnings and houses cost over six times earnings, with all the other regions in a straight line in between. The explanation for this, which appears to elude Nationwide, is exactly the same as in i).
You just have to remember that a) average earnings are very low in the North and very high in London (with the other regions in a straight line in between), which draws people towards regions with higher earnings; b) these earnings differentials cannot be competed away (in the short or medium term); and c) actual day to day living costs are much the same anywhere.
As a result, that surplus which higher earners in higher earning regions have available - after paying for living costs - is not competed away by new arrivals (there is only so much space, and in any event, higher population density would push up average earnings yet further) and is simply soaked up in higher rents and house prices.
So we could assume that the economy is the North is less advanced and in London it is more advanced; so comparing London with the North is like comparing 2012 with 1952. The observation that rents as a share of earnings increases when/where the economy is more advanced holds either on a temporal or spatial basis.
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