Jul 11 2007
More houses, more debt
I am glad Gordon Brown wants to expand home ownership, and backs shared ownership as a ladder to full ownership. That is a cross party aim.
Where he is less convincing is in his explanation of why houses are so dear. He just insists that it is because we are building too few houses. There are two other reasons he does not acknowledge.
The first is we have been living through an era of easy money. In part this has been fuelled in the UK by his decision to switch the target for the Bank fo England from the RPI to the CPI which gave them the green light to keep interest rates too low before the last election, leading to a further boost??to inflationary ??mortgage lending?? and higher house prices. The obvious way to limit house price rises is to raise interest rates, to??stop a further increase in inflationary??mortgage supply.The government is now going in this direction, which in turn puts pressure on those who have borrowed large sums to pay the inflated prices of homes. There are no easy options once you have allowed this kind of home price explosion. The US shows how over expansion of credit can lead to a nasty retrenchment, with major wobbles in?? the financial markets and shattered dreams for overstretched mortgage holders.
??The second is the big increase in people coming to live in the Uk from abroad, creating more demand for homes. Whilst we should welcome in people fleeing persecution, and invite in those joining their families or coming with skills we need, there should be some control over the totals to acknowledge there are limits to our capacity to supply the homes, health care and school places new arrivals need.
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
I think it’s more to do with too much money chasing to few houses than too many people chasing them. I guess, with the likes of Tesco keeping retail prices down, faster technological advance in today’s world, global competition and so many of the nations we import from pegged to a weakening dollar the only things that can really inflate are houses. There might be too many people chasing a few exclusive properties in some areas, and the last few years has seen a multi-tude of new-builts sold off-plan to landlords. Up here though it’s the same houses in the estate agents windows week in week out asking the same silly money.
I still hear people occasionally talking about buying their first house, seemingly convinced it will appreciate at 10% per year forever. I can’t see us losing our obsession with homeownership, but I can see hardcore investors jumping ship at more interest rate rises, and first-timers having second thoughts as soon as the mainstream media starts screaming ‘crash’ at them.
An increasing number of people think it’s a silly time to buy though. Gordon Brown doesn’t have a good record on financial advice really does he? First he helped trash the pensions system, I think you said something about them being told buy assets that went down on his watch a while back, then sold out gold off at rock bottom. Now he’s telling young people to buy houses, hmmmm? What should I do?
He’s managing to get some decent spin around, a rather silly woman at work, who must have been in her forties, proudly annouced to me today in the canteen that ‘Our new Prime Minister is pulling out [of the EU] he’s going stop all this so no more of them can get in and attack us’ (talking about the annoucement on Sky News of the 40 year minimum tariffs. I asked her where she was getting this from as politely as I could but she couldn’t really elaborate. I just told her not to believe a word he says and left it at that.
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Good points, its a shame we don’t hear more of them coming from the wider party ! I get the feeling that Gordon Brown knows that nasty crash is coming and is manoeuvring to escape the blame (25 yr fixed rate mortgages etc - Mr Darling was out with that one so fast after greeting into office you have to assume its instructions from Brown himself as part of his master plan.)
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