Friday 13 September 2013

RICS suggests limiting house price rises

..By controlling mortgage lending via the Bank of England. Where do we start, probably by noting that the RICS is hardly made up of the world's best and brightest, I doubt too many people have dream of being a property surveyor from an early age. The key issues:

1 - SUPPLY AND DEMAND - simples really isn't it. If we built more housing (social or private) there would be a better, supply and prices would fall. Or we could further restrict immigration. Reform planning, tax breaks for new build etc. It's not hard is it...

2 - MORTGAGE RESTRICTIONS - Yes, its all the fault of those horrible young people and there pathetic demands to own their own home, their sad desperation. Punish them! That's what we need to limit, aspiration. Never mind the inconvenient facts such as mortgage lending is well down from the boom of the naughties and indeed, without Government support, it would be even further down. Look at the graph above, its not mortgage lending that is causing the nascent property bubble is it?  It's more likely overseas equity investors into London and a trickle down from there.

3 - INTEREST RATES - Terribly old-fashioned, but hey ho. Raising rates will help savers, make mortgages more expensive and take the heat out of any boom. This is a good idea, along with running down or stopping QE.

4  - HELP TO BUY - Why not just stop this or recommend this is stopped. It's a much easier way to cool demand as this policy is pure politics and does indeed risk stoking a bubble. Better to end this subsidy than to restrict mortgages.

It's rare for me to agree with George Osborne, but he said some looking at the facts rather than the Vince Cable populist approach would be a good idea. He is right in this case for once.


Electro-Kevin said...

The only reason I contemplated becoming a surveyor was because my 'A' levels were crap, liked the foppish wax jacket look and had a raging fetish for frustrated house wives in Surbiton.

Help-to-Buy is a bonkers idea. What would help starters most is a correction in prices.

As they can't afford deposits then a correction on the basic value of property is exactly what should have followed.

Ultimately it's to protect the banks. Not to give kids a leg up.

hovis said...

"...had a raging fetish for frustrated house wives in Surbiton"

So what did put youoff becoming a surveyor EK? :-)

Demetrius said...

But five per cent a year is still persistent and continuing inflation especially if it is compound. Actually, there is not a real shortage of housing space in the UK. What has happened is that what should be a market has been grossly distorted for a number of reasons largely government interventions in several fields.

Electro-Kevin said...

Hovis - The husbands put me off.

Anonymous said...

I think Reagan had it about right. Governments view of markets; "If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it."

Blue Eyes said...

CU, spot on. RICS might be right that a housing bubble is not what we need. They might even be right that using their new "macro-prudential" powers the Bank could set house-price inflation targets. But would that help or hinder the Bank's wider remit to manage the wider economy?

An obvious question: will this be a 5% upper limit nationwide? A figure I saw today noted that only London house prices are growing faster than general inflation - the rest of the country is still stagnant or deflating. How much of a London bubble has to occur before the average hits 5%?

And I would rather that chartered surveyors stuck to, err, surveying. We have people like Flanders and Peston to tell the Bank how it should set policy.

Ryan said...

I have said it many times but the average family home costs about £50,000 to build new. After 100 years the building will be worth nothing, so the average family house (bricks and mortar) is worth about £25,000.

The fact that it costs a lot more than that is because:

1] land is kept in artificially short supply by planning permission

2] there is a lot of scope fpor burying profit in the apparent high price of land as a mark-up on the completed build (i.e. there is no real competition because the existing housing stock is already traded at high prices)

3] real demand easily exceeds real supply not just becxause we don't have enough houses but because the quality of much of our housing is positively embarrassing for a top-notch nation like the UK.

So we end up paying £250,000 over 25 years costing us £500,000.

But here's the real scarey question. If we built more houses to oversupply and get prices down to £50,000 what on earth woul dwe do with the £500,000 we saved? That would pay for an awful lot of consumption and I'm not sure we can afford to go that way.