Clearly the housing market is subject to a variety of distortions. Some affect the entire UK, such as falsifying statements of income when making an application for a mortgage, some fairly localised, such as the propensity for purchasing second homes in rural areas. The recent introduction of Housing Information Packs (HIPS) is alleged to have caused another, possibly, very temporary distortion. However, there is I believe, a much more insidious distortion of the housing market which is having a devastating impact on the ability of young couples to get onto the housing ladder.
This is the so-called ‘buy-to-let’ phenomenon. I am not sure quite when it became fashionable to adopt the notion of safeguarding one’s retirement by investing in bricks and mortar rather than finding an appropriate pension fund. However, this is what has happened and it is having quite an impact in certain localised areas. In Llandrindod for example, on a new estate to the north of the town it is alleged that some 50% or so of the completed builds are estimated to have been bought to let on. Suddenly everybody wants to be a landlord, and with relatively cheap mortgages available and Gordon Brown’s achievement of a sustained period of financial stability, everybody, or nearly everybody, has become a landlord. And in the process there has been a steady and persistent appreciation in the value of most properties far in excess of the rise in average incomes.
This wouldn’t be a problem except that at the same time the local authorities are attempting to put in place robust policies to ensure an adequate supply of affordable housing. This is clearly the correct policy and its desirability is supported by robust evidence of need. Or is it? Surely our current preoccupation with affordable housing, especially in rural areas, is, in part, an attempt to counterbalance a huge market distortion. Rather than seeking to counterbalance this distortion ought we not seek to prevent the imbalance in the first place?
It is possible that the Northern Rock experience coupled with a slowing down in house price rises that is now clearly evident, will go some way to correcting some of the current market distortions, but if this happens it is likely to be at the expense of another dose of negative equity. No, what really needs to happen is to find a way to take out the speculative investment aspect of the housing market. This means that the credibility of pensions as the proper way to prepare for retirement has to be restored, and buy-to-let, and the fashion for second homes in rural areas, has got to be made far less attractive. Given that interest rates are an extremely blunt instrument of economic policy, perhaps this can only be done effectively through the tax system, either through the cumbersome council tax system which is rapidly running out of control, or through a system of local income tax which will be responsive to local conditions. If the distortions in the housing market cannot be countered through use of the tax system, then has anyone got a better idea?
Tuesday, 25 September 2007
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3 comments:
Didnt this trend of buying to let start with the removal of tax relief on pensions, making property a surer way of securing future financial security? If that is the case then we should start by addressing that imbalance.
The n llandrindod estate is a scam!
why was planning permission given when the forecast and the increasing acceleration of house prices outstripped the mortgage to wages ratio.
Highest and best use improvement of land deserves at least a return equal to prime for the years leading up to the improvements obsolescence. A fair initial offer compounds the return over the years before the wind farm, airport, petrol station, arcade, increase in crime, lack of utility. An easy way to manipulate the market that I have witnessed, as a way of doing business, in the United States is to create short term obsolescence by importing crime. Causing a downward shift in market value allowing the more aggressive sectors of the population to increase their stake solve the crime problem and then resell at a greater profit. It has been going on since the children of the descendants of William the Conqueror began selling off lots to the serfs to finance ski trips for their children.
Driving across the United States the homogenization is sad beyond words. Travel through Mexico, and each Coyuca retains its own food, character and sense of history, each population will extol the virtues of the neighboring pueblo’s product, no xenophobia at all.
On my website www.thekincoedhotel.com I say “Sorry no MacDonald’s”. The town council should stem the importation of crime into the town. Implement social laws, no drinking in public, no displays of pornography as common in local stores, Hold licensees to the highest standard of care. Develop the arts community, the college, the library, Local produce, restaurants, and conference facilities. However, please No MacDonald’s
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