Leading article: Don't try to buck the housing market
Thursday, 28 August 2008
Anyone who has lived through previous ups and downs in the housing market will find nothing surprising about the pain that housebuilders such as Taylor Wimpey are feeling at the moment. Until this year, it was an unsustainable bubble. Construction firms were always going to be in the blast zone when it inevitably burst.
But to historians, there will also be nothing surprising about the fact that these companies are now lobbying for state help to deal with the fallout. The directors of these construction companies know ministers are as nervous as they are about declining house prices. Such special pleading should, though, be ignored. These housebuilders are private companies that speculated and over-expanded recklessly in the boom. If they are rescued from the consequences of their decisions now, they will have no incentive to behave more wisely in future.
Yet that is not to say ministers should be entirely inactive. There are judicious measures the Government could be taking to alleviate some of the most socially damaging effects of the turmoil in the housing market. This does not mean luring first-time buyers into a falling market by suspending stamp duty, as some have suggested, and it does not mean subsidising housebuilders. The focus should be on helping people avoid the nightmare of repossession and preventing irrational panic.
As the Liberal Democrat Treasury spokesman, Vince Cable, pointed out yesterday, the Government could establish a scheme to allow those unable to make their mortgage repayments to sell their homes to social landlords and remain as rent-paying tenants. Local authorities and housing associations could be given permission to buy unsold private properties to alleviate Britain's chronic shortage of social housing.
None of this should be done without great care. There is a fine line between state action to protect the vulnerable and bailing out the undeserving and improvident. If the Government is to have any chance of success it must be quite certain of what its purpose is. The idea that ministers can bring back the days of rising prices in short order is a dangerous fantasy. The market was grossly overvalued. An entirely natural correction is taking place. The job of the Government is to minimise the social harm of the downturn, not engage in reckless attempts to "rescue" the market.
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Comments
16 Comments
A limit of 4 times ones "verified" annual income should be made law what a Financial Institution can lend a buyer to purchase a home. That will keep Housing Prices more Stable. The prices will either come down to affordable levels or the home buyer would have to earn more money. My theory is this, if everyone stopped trying to outdo one another, the prices will come to them. An example of the Madness is the story about a year and a half ago, about a flat the size of a closet 8' x 11' selling for $385,000 ??? You serious??? I would rather pitch a tent!!!
Posted by John | 02.09.08, 03:19 GMT
So, is England a State in the Country of Europe? How the heck did this Housing Bubble happen throughout the Premier Countries of the World. Something Stinks. I cannot see how all the banks around the Globe were so blind to these lending standards. I live in the USA (Born in Cheltenham, England) and waited to purchase a house because the Price of 6 times my salary seemed completely unaffordable to me. The Normal Mortgage Standard was 3 times a households income. The greedy banks pleaded with the politicians to open up the banking guidelines and all Hell has broke loose. Now they want the taxpayers to Bail them out for their Greedy Reckless Acts. They need to fail or this corrupt system will continue.
Posted by John | 02.09.08, 02:43 GMT
The problem with all these "schemes" is that if people cannot pay the mortgage they usually cannot pay rent either. State provision of free housing then becomes very expensive and therefore severely limited in scope.
Posted by R Newton | 01.09.08, 09:34 GMT
Amazine site
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Posted by state water heaters prices | 01.09.08, 02:06 GMT
Many companies have acted rashly in the good times, housebuilders and banks to name a few. They should deal with the conseqeunces themselves.
The public needs to take resposnibility for their own actions. The credit orgy witnessed over the last few years is a phenomenan to be avoided. Living within ones means used to be "de rigeur". Now it seems to be optional. Many will feel the pain.
Posted by Haarrruuuuummmmmph | 30.08.08, 15:13 GMT
Let's face it: Nothing the government can do will stop the housing market crashing -- nor should it. House prices have bubbled up dangerously, and now they must come down. BUT, are we going to allow this to happen all over again? All the factors to start another round of house-price boom-and-slump are still in place. Do we want that? I see no inkling, even from the sainted Vince Cable of the political will to strangled house-price booms and slumps!!
Posted by Conall | 30.08.08, 10:00 GMT
The tories love housing booms, owning land and our addiction to housing capital makes people naturally conservative, if you own a house it's in your interests to oppose the building of others.The lack of capital gains tax on housing is a big problem its effectively a huge subsidy encouraging people to buy ever bigger houses in anticipation of getting an income from the surplus when they retire. Also planning law has stopped the construction of hundreds of thousands of flats and houses if they had been built housing prices would not have boomed quite so much. House prices are the one commodity a nation state can do the most to influence, the middle class and those members of the working class that buy their own houses are crippled by huge housing costs in the UK compared to Germany or most of the USA or many other countries. Also the huge gap between social housing costs and private housing costs is effectively yet another tax on those trying to escape the benefit trap.
Posted by daryoush | 29.08.08, 07:09 GMT
Pensions are such a con that people gladly flooded into residential investment that is major part of the problem. Also isn't it madness that loans that are designed to last 25 years are called in just because someone misses a few payments? Most people do get another job within a year, though payment protection should probably be compulsory.
Everyone says regulate the banks more but what about regulating them less? Shouldn't some of the banks be going to the wall, wouldn't that be the only way of making them accountable. Obviously it would mean more pain now but might mean less in the long term as banks would be way more wary in future.
PS: How come everyone but the government/MPC thought the housing bubble was a fact of life?
Posted by daryoush | 29.08.08, 06:57 GMT
Tax residential rents heavily. They're basically passive income, non-wealth-generating income, just a simple transfer of money from tenant to landlord with few positive externalities. Being a residential landlord should not be a viable alternative to working unless you have a large number of properties that require bona fide work to maintain and upgrade. By making it so easy to get money for (almost) nothing through buy to let, the property market has attracted huge amounts of speculative cash (you're basically bidding for licences that allow you to take 20% of someone else's income) and locked out ordinary people who want to be straightforward owner-occupiers in a straightforward property. If you leave gaping exploitable flaws in a capitalist system, society will suffer the consequences.
Posted by John Mack | 28.08.08, 22:27 GMT
Yeah, and another way to reduce volatility in the market is to tax capital gains, above the general rate of inflation, at the same rate as income - like 40%. Not so good eh? If that doesn't work, then how about also introducing a purchase tax of 20% instead of the wimpy stamp duty? Hey presto, there'd be absolutely no point in speculative trading in property!!! And while we're about it, we may as well turn our attention to all the other scams which those oily spivs in the know use to gain an advantage.
Posted by Morris Minor | 28.08.08, 19:33 GMT
16 Comments