Technology, right? It gets cheaper. You get more for your money every single year. Ferocious competition to meet voracious customer demand makes things cheap.
And that’s good.
But housing? With housing, the expectation is that they’re going to get more expensive over time. In fact, your house is supposed to get more valuable. That’s the deal, right? You take on ridiculous debt and devote a significant chunk of your income and in return you get something that generates money while you do absolutely nothing.
In any other walk of life, there’s no such thing as a dead cert profit, but politicians are supposed to deliver it. Their careers depend on it – and with the help of nimbies, environmentalists and zealous planners, they’d still be delivering now if the world money supply had been able to keep pace.
It’s simple: A) Ensure housing supply never meets demand and B) Have banks lend more (which they were prepared to do so long as A was true).
Except the legacy of this almost constant increase in house prices is that, for most people, rent and mortgage payments become the single biggest drain on their incomes after taxation, and in a very real way this imposes a great deal of financial hardship – an increase in the value of a house is not an increase in wealth. It’s a reduction in the value of money. It’s a trick – and a pretty nasty one at that.
It seems to be the British disease that we insist on protecting the value of our houses. To exceed demand for housing – and therefore bring genuine competitive forces to bear on the housing market is to advocate madness. To want better and cheaper housing, not just ‘affordable’ housing is somehow a radical and controversial idea!
And “Affordable Housing”? Ugh. There’s a euphemism. In the real world it’s propertly like the tiny little peasant huts that are technically houses because they have multiple floors, and the soul-crushing and overpriced ‘luxury apartments’ that dehumanise even Yuppies. The market is flooded at the bottom end of the market with substandard, crappy properties.
These sorry excuses for housing have one thing in common – no-one, in their right mind, would buy these things unless they were desperate to get on the housing ladder to cash in on the fat profits everyone else seemed to be enjoying. Get on the ladder, that’s what matters! Sell it in a year and buy something better with your profits! Houses really do print money!
What makes me incomprehensibly angry about all this is the complete lack of understanding that when a house goes up in value from £100k to £150k, it’s not that the house is worth 50% more – it’s that money buys you 33% less. We’re all being made poorer, and yet we cheer it and welcome it as if it’s a marvellous boon to our civilisation. It’s called the “Feel Good Factor” in fact – which is apt. You feel good, while we’re actually witnessing people being empoverished by rampant inflation in the cost of roofs over heads. But it feels good, and that’s what matters, isn’t it?
So what to do? I look around Halifax, where I live, and I see those old victorian terraces, built as housing for the very poorest mill workers, and I see that even these bottom of the rung houses are actually quite desirable now – and out of my price league, despite being a fairly well paid computer programmer. That houses and flats being built more than a hundred years after these terraces are even smaller and less generously fitted. Something’s not right. In this particular market, we’re going backwards, in the opposite direction to everything else.
I say again: What to do?
Stu said...
15 Apr 09 at 9:04 pm
On a point of information…
“for most people, rent and mortgage payments become the single biggest drain on their incomes after taxation”
This isn’t actually true (or at least it wasn’t last time I checked). For most people, according to the ONS, the largest expenditure is on transport, which is to say cars. After that comes housing costs.
Also, the value of a house does change, in accordance with trends, fashion and other developments in the area – a house can become more valuable thanks to a train station or school being built nearby, or a power station decommissioned. It can lose value in exactly the opposite way. Home improvements can alter the value – £1000 spent on double glazing can change the value of the house by more than £1000. The value of the house is whatever a buyer will pay for it.
All of which is to say that buying a house is a risk just like any other investment, and anyone who’s been saying otherwise is/was lying. They should be caught and shot now. A house price bubble has been created by people lying about the fundamental nature of the investment – anyone who could see through those lies wouldn’t have bought a house in the last 3 years unless they absolutely had to.
Paul Lockett said...
15 Apr 09 at 10:49 pm
I think the answer is one of my own pet topics – Land Value Tax. After all, it’s the value of the land which increases in a bubble rather than the value of the bricks and mortar.
If you tax land more and income and sales less, the increased cost of holding land will diminish the speculative profit to be made from housing. Less scope for profit means less speculation, which means less of a bubble.
It would also diminish the pressure on the government to keep house prices high, as increasing prices would lead to an increased tax bill.
Roger Thornhill said...
15 Apr 09 at 11:09 pm
Before I kick off properly: “we’re going backwards, in the opposite direction to everything else.”
Wrong. We are going backwards in almost every area. More violent. More corrupt. Poorer healthcare, education. Buses that won’t run. Railways that take longer to build than when manual labour was used and some journeys slower than the age of steam. But you are right. As far as housing is concerned it is like reading The Three Little Pigs backwards. We start together in bricks with a nice fire and end up alone in houses of straw with a wolf at the door who sucks.
In Hong Kong the MTR company makes a nice profit by building new lines and developing the stations into large retail and commercial centres. Add housing in the UK mix.
The ASI had a good suggestion – reforest all the greenbelt land, well not all, 90% of it and the other 10% remove limits on housing development. Throw into that mix the rail development concept and you get plenty of housing with feeder lines into the centres of employment. You know, how places like London developed until the bloody town planners got involved.
The problem with “affordable housing” is it actually means “subsidised housing” which then means the monopolistic hand of the State gets involved. They want to control who gets what, how big the homes are and even demand anyone building more than 8 units themselves MUST have such a unit in that development (bloody communists!). Then you have “duty of care” and a mission creep choreographed by Usain Bolt.
One thing that exercises my mind is how to remove the barriers to entry for self-builders or very small scale builders from being involved in house building. It is one thing that a small company is less efficient and must charge more or run at lower margins, it is another that the planning system distorts the market so that only the medium and large organisations can build their repulsive houses in the first place.
Ian B said...
16 Apr 09 at 1:31 am
A good article Charlotte, which chimes very much with things I feel like I’ve been arguing to deaf ears. The interesting thing about the persisting bubbling of housing to me is that it ought to be very recognisable to people that the whole thing is counterproductive. If house prices rise, the owners feel wealthier (though it is a strange kind of wealth) but it also makes houses less affordable for everyone including themselves. You thus get the cognitive dissonance of somebody who will one moment complain that they are suffering “negative equity” and the next that their daughter can’t afford to buy a house. And they don’t seem to connect the two things. “House prices must rise” is just assumed. It’s a strange kind of wealth anyway, because most ordinary people only own one dwelling- their own- and in order to upgrade or just move sideways, any “profit” they’ve made is imaginary- it all gets sucked up by the increased cost of the next house they want to buy. It’s a Red Queen scenario, with everyone running just as fast as they can to stay where they are.
The problem is, at a practical level, it has evolved into a mad system that cannot be stopped without people losing out, so they demand the madness continue, while trying to pretend to themselves that it makes some kind of sense.
Andrew Hickey said...
16 Apr 09 at 11:36 am
Couldn’t agree more. Linked at LibCon
john b said...
16 Apr 09 at 1:21 pm
Less violent, actually – peak was in the mid-90s.
About the same as under the last decade-plus incumbent government.
Except under every actual metric, in which case both are better.
Eh? London buses are better than they’ve ever been; nationwide buses are no worse than they were after Mrs Thatcher deregulated them.
On the other hand, thousands of people don’t die building them. Which is largely why they take longer to build. And in terms of speed and punctuality, the railways are better than they’ve ever been.
AJS said...
16 Apr 09 at 5:52 pm
This is an excellent post.
To some extent, inflation of house prices was responsible for the credit crunch. It goes like this:
1. Lend somebody £100 000 to buy a house. You know they won’t be able to pay it back.
2. Buyer defaults on payments.
3. By this time, house is now worth £150 000.
4. Even if the cost of evicting the buyer and writing-off any unrecoverable outstanding costs you £25 000, you have still made £25 000 for doing J.S.!
Of course, this is unsustainable, because a house is only worth £150 000 if you can actually find someone who will pay £150 000 for it.
We need new homes to be built, right now. They must meet (or preferably exceed) Passivhaus standards; they must be well served by public transport, yet have parking space for at least one vehicle per adult occupant; and they must be affordable by all. We also need to outlaw, or at least seriously discourage, the keeping of an empty property.
Miller 2.0 said...
16 Apr 09 at 6:08 pm
Totally agree with this post, apart from the bit about affordable housing; god help us ever getting a Lib Dem council…
Roger Thornhill said...
16 Apr 09 at 7:29 pm
John b,
“Less violent, actually – peak was in the mid-90s.”
Ask anyone who’s head is not up their own backside and you will get a different answer. People just do not bother reporting crimes these days and it is worse compared to when I first became an adult.
“About the same as under the last decade-plus incumbent government.”
I doubt it and even if it were so, so what. John B thinking (again, IIRC) that comparing this bunch to the fag-end of the Major Administration is somehow OK.
“Except under every actual metric, in which case both are better.”
Metrics? Please. Targets are a busted flush and only a fool would try and hide behind them. GCSEs are a joke. Literacy, numeracy, comprehension, spelling and grammar and general behaviour and you call it better? If you think healthcare is going forwards…
“Eh? London buses are better than they’ve ever been”
In snow they are incapable by design. You trot out Thatcher as if that will save you. No it will not. They scrapped Trolleybuses and now they build overweight, uneconomical and ugly converted truck chassis that only last 10-15 years. Progress? No. That said, the “natural monopoly” of TfL in commissioning routes is the least worst way so far. Alas, they could easily sack half of head office.
And for trains we have massive mechanisation in the really dangerous bits – the manual labour of digging and hauling and still things take an age. You talk as if countless people died, which is disingenuous.
John B, it is quite clear you are very happy with entropy and mediocrity and your timeline clearly only begins at Thatcher.
NB. said...
16 Apr 09 at 9:12 pm
Quite surprised Roger fell for the ‘more violent’ tripe. A common misconception, local anecdotes aside (although give me Newcastle in 2009 over Newcastle in 1979 any day).
And Charlotte, if you’re attracting the attention of IanB, you must be doing something right. I was floored by the recent exchange between him and Patrick Vessey (kill him when you see him) on the Devil’s Kitchen a few weeks ago.
Mark Reed said...
16 Apr 09 at 9:36 pm
You are exactly right. More expensive housing = less money for life.
Charlotte Gore said...
17 Apr 09 at 1:05 am
Hmm yes Ian’s brilliant.
The crime thing.. well since the establishment of the welfare state crimes been rising, except for the mid 90s when it does indeed begin to drop. The same thing happens in America, and I’ve read convincing analysis that attributes this to Roe Versus Wade a generation earlier – but in America the effect was more pronounced and happened quicker. It could be that our Welfare state lessened the effect and made it take longer, or it could just be a spooky coincidence.
Ian B said...
17 Apr 09 at 1:30 am
My comment box haunting is getting me a reputation? Ooer.
Charlotte, did I read you correctly that you’re suggesting that crime has fallen because criminals are being aborted?!
Charlotte Gore said...
17 Apr 09 at 1:41 am
Hmm. Well it’s not an uncontroversial opinion. Bunch of economists studied it and pinned the drop in crime on Roe Versus Wade – quite what conclusions one is supposed to draw from this I don’t know.
Women having babies when they’re ready for them (doesn’t cut the birth rate – women just have the babies later) does seem to have had a major impact on crime rates.
But yes, I know how it sounds.
Freakonomics
Charlotte Gore said...
17 Apr 09 at 1:45 am
And also whilst they’ve made the case for this in America (the drop in crime applies across america with the exact time it starts depending on when abortion was made legal), no such studies have been done in the UK so to assume there’s a parallel would be inadvisable anyway. I just mention it because I’d been looking at the stats and was actually surprised to see what looks like a rather large reversal of an otherwise constant upward trend in crimes per thousand of population
Charlotte Gore said...
17 Apr 09 at 1:57 am
AND.. (last one!)
“crime has fallen because criminals being aborted”
If it’s true, it’s not because ‘criminals are being aborted’ – it’s that children are not being born into environments which make becoming criminal more likely. It’s a subtle distinction, perhaps, but the former makes me sound like I’m into eugenics, which isn’t the case.
Ian B said...
17 Apr 09 at 2:10 am
Well, it’s at least possible. Such stuff makes me a trifle queasy though.
john b said...
17 Apr 09 at 4:24 pm
I’m not convinced by Levitt on abortion, not least because abortion skews middle-class while career crime skews working-class (ie the women who’re having abortions are not the one whose kids would have turned out to be criminals).
On Victorian railway building, countless people *did* die. Read the history of the Settle & Carlisle railway – too many people died to even count, including 80 at just one work site.
Roger Thornhill said...
18 Apr 09 at 12:07 am
JohnB,
Those 80 people died of SMALLPOX. 400+ out of 6000 died in a particularly harsh environment, but it is hardly comparable to constructing an underground tube line…
NB.
Do not presume I fall for ‘tripe’. I don’t swallow the pap produced by the State either.
My Loan Mod Story said...
13 Jan 10 at 4:06 pm
I’ve been waiting for several months to get my loan modification off the ground. It seems they take forever and I wish I had better prepared myself by reading more blogs and articles like this…I think I coulda done better.