Saturday 15 December 2007

Unintended Consequences: HIPS recession?

With the economy in very troubled waters as we near the end of the year, my hopes would be that the Government would be thinking very hard about what it can do to avoid a recession next year.

A recession is by no means guaranteed, but with inflation on the rise, lending decreasing and house prices decreasing it could easily tip over. Add to this that the government is cutting its own spending and we could see a big drop in demand.

So in the middle of this 'perfect storm' what do we have. The utterly useless and clueless Ruth Kelly promoting HIPS for all houses. These sales packs will slow the supply of housing to the house market and so lead to a greater slowdown. Whilst falling house prices are probably a necessity after a bubble, this government policy has come at exactly the wrong time.

People will no longer put their houses on the market on a whim when they need £600 (including a fatuous 'energy' report, care of the EU) to spend up front. Estate agents will struggle to fill their books at a time of year that always a slow time. We may well see the property market drop quite rapidly in the new year when the new statistics are out.

Not good policy or joined up government and a very dangerous policy to push through now of all times.


Richard Havers said...

If Ruth Kelly is the answer then the question is flawed. She is just about as useless as they come.

What's she done? Written briefly for the Guardian, had some none job at the Bank of England and then been an MP. This qualified her to be Secretary of State for Education and Skills!

Worthless woman.

Anonymous said...

You seem to be arguing that HIPS will cause a reduction in supply in the housing market which, in turn, will cause a fall in housing prices. Huh? How come the usual laws of supply and demand have been reversed?

Anonymous said...

karswell, it depends (I guess) on whether you think that potential sellers are also potential buyers. Anyway, if you look on HIPS as being essentially a particularly gormless tax on housing transactions, it's pretty clear that they simply add viscosity to the system and will therefore inhibit the market from "clearing".

CFD Ed said...

I think Derieme has nailed it.

Hips are utterly pointless and will undoubtedly inhibit sales to some extent and add to the cost of selling/purchasing properties.

Given the existence of chains it is clear that purchasers are often sellers as well.

CityUnslicker said...

Benn out all day, but Dearime has made my point.

Destroying the supply to the housing market is not the answer to reducing prices; all it means is that the whole market will be slowed.

Also, markets are built on psychology, undermining a market at the time of a recession is not a smart move.

Mark - It is Yvette Cooper you are quite right! Still, just a rubbish as Ruth Kelly...

Newmania said...

I noticed how horrible the timing was CU. I think it is Yvette that is hosuing but not the HIPs

Jeremy Jacobs said...

It's the "HIPS care of the EU" comment I like best.

UK motto for the New Year

"Let's capitulate in 2008"

Anonymous said...

The recession is a necessary part of the extended boom created but increased money supply over a long period of time. Any attempt to extend it further will only make the inevitable collapse far worse. You simply cannot continue to extend the money supply forever - the market simply will not continue to carry the costs of interest. Once the market turns it will enter a "deflationary spiral" where the very fact that prices are falling will enourage potential buyers to stay out of the market a bit longer to see if prices will fall further. There are always those that have to sell - but no-one actually NEEDs to buy.

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