Monday, 21 January 2008

A seven point plan to save housing

When I saw the title of this article from the Scottish Herald, I cringed; a seven point plan to saving housing? There is nothing that can save the housing market. However, I was pleasantly surprised. The article contained much that I could agree with.

Here is the plan:

1. Restore the old building-society benchmarks limiting loans to three or three-and-a-half times income, with deposits of 15%.

2. Interest-only mortgages should be outlawed, as should "suicide" loans which are higher than the value of the property.

3. End self-certification. It is unacceptable for brokers to connive with mortgage-seekers in misrepresenting the borrower's earnings so that the banks can give them loans they cannot afford.

4. End the securitisation of mortgage debt.

5. Make housing an economic objective of the planning laws. At present you can build any number of out-of-town shopping centres, because they create jobs, but you can't build houses.

6. End right-to-buy and restore council housing.

7. End tax breaks for buy-to-let landlords. Why should people who buy houses as investments be allowed to set their mortgages against tax, while people who buy to live can't?

The article ends with a promise:

"Introduce these measures and, within five years, house prices would be stable and affordable. People would no longer have to live in fear of their debts and would be able to turn their attention to more productive activities than house-price speculation."

Seems reasonable to me.


traderboy said...

i think you are wrong with the majority of your points. we need the free market to sort everything out, not lay on a bunch of regulations. so 1,2,3,4 are out.

6: i don't know much about right to buy, but i gather you can get houses for a steal...i know my grandad bought his place back in the 80s (i think it had just come in, when thatcher was flogging all the council houses), despite not having the money, it was crazy NOT to buy your council house, as the government was practically giving them away. i think it is still the same today.

7. pretty much the only one that makes sense. why should a landlord get to offset his rental income against a mortgage, when i can't set off bank interest i get on my savings against anything?

ukhousingbubble said...

trader boy,

In principle, I agree with you about the need for markets to operate freely. However, financial markets need to be regulated and supervised. This markets are riven with moral hazard, asymmetric information and perverse incentives.

I strongly believe that one of the major drivers behind today's crisis was a failure of regulation and supervision.

Glad to hear about your Granddad.


ukhousingbubble said...
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Anonymous said...

ukhousingbubble: "In principle, I agree with you about the need for markets to operate freely. However, financial markets need to be regulated and supervised."

But if you think there is something to be said for supply and demand, you must realize the [housing] supply is restricted. After all, there is plenty of land. But the restriction stems from the planning laws, which is to say regluation and supervision of what and where you can build. So in the case of the supply of housing, I think regulation and supervision has contributed to the strangulation of supply which has led in turn to the escellation in prices.

More regulation or supervision will not address the underlying problem. Rather make it worse.

And as to the Heralds 7 point plan, it is as you would expect from the Herald, socialist command economy drivel. said...
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midway said...

There is a housing market.

But it is not free.

There is demand, but limited supply.

If the market was "free", then there would be companies offering cheap living in all sorts of places. This isn't happening. Why?

Political restrictions imho.

It is a highly regulated market.

The used car market is a considerably more "free" market. No shortage of supply there.

But curb the supply of used cars and you will quickly see the prices of used cars skyrocket as well.