Post by Yellow River on Aug 16, 2010 6:29:54 GMT
Excellent article from The Independent........
House Prices Are Finally Falling. Good.
What the housing boom has done is redistribute wealth to the middle-aged and old from the young. People of my age are waking up from this baby-boomer selfishness.
Take a look at the Savills forecast for house prices, and you'll see thunderclouds with rain for this year and next, followed by sunny intervals in 2012 and then bright blue skies. It's a neat visual shorthand, and it's easy to see why an estate agent would want house prices to rise. But, for many of the rest of us, shouldn't it be the other way round?
I – like much of my generation – have spent most of my life cheering rising house prices. Each time a newspaper reported another breathtaking leap in the value of my home, I would calculate how much money I had "made" simply by contemplating the sitting-room wall. In many years, it was more than my salary. But unless I planned to sell up and live in a tent for the rest of my life, it wasn't real profit.
When I first got on the housing ladder, way back in 1982, I bought, with my brother, a four-bedroomed house on the then rather grotty Islington/Stoke Newington border. We filled it with friends, and their rent helped to pay our mortgages. Nearly 10 years later, when we sold it, it was worth three to four times what we paid for it, but that was still only enough to buy a similar four-bedroomed house on the Islington/Stoke Newington border. In other words, I was relatively no better off.
But first-time buyers were much worse off. Instead of the £72,000 that my brother and I had to raise and borrow to buy a house, they had to find £250,000. Today, there's a house for sale in the same street for a staggering £1.65m.
Admittedly the area has gone up in the world. Then it was packed with cheap hardware stores which built teetering multi-coloured displays of plastic dustbins, mops and buckets on the pavements outside. Now it's probably full of stone-baked pizzerias and shops selling scented candles. But that's still a ridiculous sum for a pretty ordinary house.
Twenty years on, people of my age have teenaged children who will soon have to make their own way in the world. So we're starting to wake up from the baby-boomer selfishness that David Willetts identified in his book The Pinch: How the Baby Boomers Stole Their Children's Future – and Why They Should Give it Back. We are recognising the need to cheer falling house prices, not rising ones. Which is why last week's survey from the Royal Institute for Chartered Surveyors showing the market weakening is surely good news.
Who is seriously hurt by falling house prices? People who bought at the peak of the boom and are now in negative equity. But unless they are forced to sell, it is only a theoretical problem. In the early 1990s, when interest rates peaked at 15 per cent, the problem was real. Many could no longer afford their mortgage payments and had their homes repossessed. If they were in negative equity as well, they still owed the bank money even after their homes had been seized. These days, with incredibly low interest rates, most people can still afford to pay their mortgages, so they can wait till the market eventually sweeps them off the rocks.
Then there are homeowners who have reached retirement age and are planning to trade down to something smaller. They will be left with less cash in a falling market, but their generation has benefited massively from rising house prices. They can hardly complain.
For what the housing boom has done is redistribute wealth to the middle-aged and old from the young. Newspapers celebrate rising house prices and deplore falls because they are edited – and often read – by middle-aged people who like the idea of the value of their home going up. They don't reflect the desperation of people in their twenties and thirties who wonder how they are ever going to be able to afford a place of their own.
Politicians, meanwhile, know that the middle-aged and elderly are more likely to vote. The burden of rising house prices falls on the young and the not-yet-born – in other words, those who either don't or can't yet vote. So governments have usually preferred to make homeowners feel richer and happier.
Look what's happened as a result. Thanks partly to the deregulation of the mortgage market, household debt in Britain rose from 105 per cent of disposable income in 2000 to 160 per cent in 2008. People borrowed money against the value of their houses to spend on holidays, cars and designer kitchens. That led to an unsustainable economic boom and a catastrophic collapse in savings.
We couldn't go on like that. The retrenchment since the credit crunch has been painful but necessary. Now people are at last paying off debt and starting to repair their savings. With any luck, if house prices fall further, they may stop seeing investment in housing as a tax-free, one-way-bet pension fund and more as a way of putting a roof over their heads. They could listen to Adam Smith, who wrote in The Wealth of Nations in 1776: "A dwelling-house, as such, contributes nothing to the revenue of its inhabitant; and though it is, no doubt, extremely useful to him, it is as his clothes and household furniture are useful to him, which, however, makes a part of his expense, and not of his revenue."
But there is still a long way to go until that happens. Despite the price falls of the couple of years after the credit crunch, property is still overvalued. For the first-time buyer, the house-price-to-earnings ratio is now 4.6: down from the 5.4 peak it hit in 2007, but still more than twice the 2.2 we saw in 1995 and 1996.
Meanwhile, lenders are demanding more from first-time buyers. They are asking for deposits of up to 25 per cent of the value of the house. No wonder the average age of a first-time buyer who has had no financial help is now 37. And no wonder a survey by Shelter has found that 38 per cent of parents believe their children will never be able to afford a decent home.
Those of us who have had decades of gain from the housing boom ought to redress some of the generational unfairness by helping our children with a hefty deposit. But what about those who can't raid the Bank of Mum and Dad?
One thing we can do to help them is to be less selfish about the building of new homes. One minister I spoke to yesterday said that his local residents' association meetings are all made up of over-50s complaining about new development. His constituency surgeries, meanwhile, are full of under-30s who can't afford to buy or even rent.
The Government's proposal to allow local communities to decide if they want new, affordable housing will only work if the older owner-occupiers don't exercise a selfish right of veto. Meanwhile, maybe David Cameron is right to suggest that older people rattling around in large council houses should trade down to allow young families to move in.
Apart from encouraging more houses to be built, there is not much the Government can do to help prices fall further. But there are encouraging trends for the younger generation. Unemployment is likely to rise as public-spending cuts kick in. Banks are no longer prepared to lend mad multiples of salary. More homes are now coming on to the market. All these should have a dampening effect.
In other words, sunny skies ahead! I can't imagine the Daily Express, Mail or Telegraph ever clearing their front pages to celebrate the good news that house prices have fallen. But with the average age of the first-time buyer increasing, it may not be too long before this newspaper does.
House Prices Are Finally Falling. Good.
What the housing boom has done is redistribute wealth to the middle-aged and old from the young. People of my age are waking up from this baby-boomer selfishness.
Take a look at the Savills forecast for house prices, and you'll see thunderclouds with rain for this year and next, followed by sunny intervals in 2012 and then bright blue skies. It's a neat visual shorthand, and it's easy to see why an estate agent would want house prices to rise. But, for many of the rest of us, shouldn't it be the other way round?
I – like much of my generation – have spent most of my life cheering rising house prices. Each time a newspaper reported another breathtaking leap in the value of my home, I would calculate how much money I had "made" simply by contemplating the sitting-room wall. In many years, it was more than my salary. But unless I planned to sell up and live in a tent for the rest of my life, it wasn't real profit.
When I first got on the housing ladder, way back in 1982, I bought, with my brother, a four-bedroomed house on the then rather grotty Islington/Stoke Newington border. We filled it with friends, and their rent helped to pay our mortgages. Nearly 10 years later, when we sold it, it was worth three to four times what we paid for it, but that was still only enough to buy a similar four-bedroomed house on the Islington/Stoke Newington border. In other words, I was relatively no better off.
But first-time buyers were much worse off. Instead of the £72,000 that my brother and I had to raise and borrow to buy a house, they had to find £250,000. Today, there's a house for sale in the same street for a staggering £1.65m.
Admittedly the area has gone up in the world. Then it was packed with cheap hardware stores which built teetering multi-coloured displays of plastic dustbins, mops and buckets on the pavements outside. Now it's probably full of stone-baked pizzerias and shops selling scented candles. But that's still a ridiculous sum for a pretty ordinary house.
Twenty years on, people of my age have teenaged children who will soon have to make their own way in the world. So we're starting to wake up from the baby-boomer selfishness that David Willetts identified in his book The Pinch: How the Baby Boomers Stole Their Children's Future – and Why They Should Give it Back. We are recognising the need to cheer falling house prices, not rising ones. Which is why last week's survey from the Royal Institute for Chartered Surveyors showing the market weakening is surely good news.
Who is seriously hurt by falling house prices? People who bought at the peak of the boom and are now in negative equity. But unless they are forced to sell, it is only a theoretical problem. In the early 1990s, when interest rates peaked at 15 per cent, the problem was real. Many could no longer afford their mortgage payments and had their homes repossessed. If they were in negative equity as well, they still owed the bank money even after their homes had been seized. These days, with incredibly low interest rates, most people can still afford to pay their mortgages, so they can wait till the market eventually sweeps them off the rocks.
Then there are homeowners who have reached retirement age and are planning to trade down to something smaller. They will be left with less cash in a falling market, but their generation has benefited massively from rising house prices. They can hardly complain.
For what the housing boom has done is redistribute wealth to the middle-aged and old from the young. Newspapers celebrate rising house prices and deplore falls because they are edited – and often read – by middle-aged people who like the idea of the value of their home going up. They don't reflect the desperation of people in their twenties and thirties who wonder how they are ever going to be able to afford a place of their own.
Politicians, meanwhile, know that the middle-aged and elderly are more likely to vote. The burden of rising house prices falls on the young and the not-yet-born – in other words, those who either don't or can't yet vote. So governments have usually preferred to make homeowners feel richer and happier.
Look what's happened as a result. Thanks partly to the deregulation of the mortgage market, household debt in Britain rose from 105 per cent of disposable income in 2000 to 160 per cent in 2008. People borrowed money against the value of their houses to spend on holidays, cars and designer kitchens. That led to an unsustainable economic boom and a catastrophic collapse in savings.
We couldn't go on like that. The retrenchment since the credit crunch has been painful but necessary. Now people are at last paying off debt and starting to repair their savings. With any luck, if house prices fall further, they may stop seeing investment in housing as a tax-free, one-way-bet pension fund and more as a way of putting a roof over their heads. They could listen to Adam Smith, who wrote in The Wealth of Nations in 1776: "A dwelling-house, as such, contributes nothing to the revenue of its inhabitant; and though it is, no doubt, extremely useful to him, it is as his clothes and household furniture are useful to him, which, however, makes a part of his expense, and not of his revenue."
But there is still a long way to go until that happens. Despite the price falls of the couple of years after the credit crunch, property is still overvalued. For the first-time buyer, the house-price-to-earnings ratio is now 4.6: down from the 5.4 peak it hit in 2007, but still more than twice the 2.2 we saw in 1995 and 1996.
Meanwhile, lenders are demanding more from first-time buyers. They are asking for deposits of up to 25 per cent of the value of the house. No wonder the average age of a first-time buyer who has had no financial help is now 37. And no wonder a survey by Shelter has found that 38 per cent of parents believe their children will never be able to afford a decent home.
Those of us who have had decades of gain from the housing boom ought to redress some of the generational unfairness by helping our children with a hefty deposit. But what about those who can't raid the Bank of Mum and Dad?
One thing we can do to help them is to be less selfish about the building of new homes. One minister I spoke to yesterday said that his local residents' association meetings are all made up of over-50s complaining about new development. His constituency surgeries, meanwhile, are full of under-30s who can't afford to buy or even rent.
The Government's proposal to allow local communities to decide if they want new, affordable housing will only work if the older owner-occupiers don't exercise a selfish right of veto. Meanwhile, maybe David Cameron is right to suggest that older people rattling around in large council houses should trade down to allow young families to move in.
Apart from encouraging more houses to be built, there is not much the Government can do to help prices fall further. But there are encouraging trends for the younger generation. Unemployment is likely to rise as public-spending cuts kick in. Banks are no longer prepared to lend mad multiples of salary. More homes are now coming on to the market. All these should have a dampening effect.
In other words, sunny skies ahead! I can't imagine the Daily Express, Mail or Telegraph ever clearing their front pages to celebrate the good news that house prices have fallen. But with the average age of the first-time buyer increasing, it may not be too long before this newspaper does.
