The nation as a truculent two-year-old
May. 29th, 2005 12:02 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
peterbirksAlthough not a parent myself, I am quite aware of the "terrible twos", that period where a toddler has to come to terms with the fact that there is an external reality out there, and that all our wishes and desires will not automatically be fulfilled. The initial reaction to this is, of course, to throw a tantrum. And it is all too easy for a parent to give into this (particularly if said tantrum is conducted in a public place -- say, the supermarket). However, the parent knows that, unless he or she wants to raise a child utterly incapable of coping with the uncomfortable realities of life, you just have to bear this short-term unpleasantness for greater long-term reward and a more balanced individual about 10 years down the road.
Now, think of the Chancellor of the Exchequer as a parent, and think of the great British public as a truculent two-year-old. Those not in the property-owning majority want to get there (hence Gordon's moronic desire to increase the percentage of homeowning households to 75% from 70%). And those already on the property ladder seem to think it undesirable that the value of their property fall to less than that of their mortgage. Now, let's not get into the anti-intuitive but nonetheless true point that, unless you never plan to move into a bigger house or you happen to own more than one house, a fall in property values is exactly what most householders DO want. Let's just look at Mr Brown.
Here he is, faced with a truculent two-year-old. Now, he knows that the current level of house prices is fundamentally unsupportable. But he doesn't want to be the one who presides over the decade-long house-price recession that will inevitably come. On top of that, giving the two-year-old some sweeties might shut them up, despite causing teeth decay for years to come. The difference between a Chancellor and a parent is that the Chancellor passes the parenting on to someone else before the shit hits the fan.
Thus we have this laughable public subsidy to help first-time buyers onto the "property ladder". First-time buyers are happy because it helps them "own" a property, while existing owners are happy because it provides an artificial source of new fish, I mean customers, to keep the housing merry-go-round going for another few years.
Thankfully nearly all the intelligent newspapers have spotted this as well, and have said that it might, just might, be a better idea to solve this problem on the supply side, rather than subsidising the demand side. Why not reintroduce mortgage tax relief while you are about it, Gordon?
And the banks/lenders aren't keen either, and for good reason. If house prices continue to rise then they will find themselves in the difficult situation seen by a provider of shared-ownership mortgages some years ago. After house prices doubled, the borrowers suddenly cried "foul", realizing that, by only getting half-ownership, they were even further away from owning their own house, while the lender tried to pocket 120 grand of "their" profit. Suddenly the borrowers realized that they weren't homeowners after all -- just half-owners. On the other hand, if house prices fall, then the banks/lenders risk being landed with the repossession/let them still live there until house prices recover, problem. This will play hell with the banks return on equity and, with Solvency II, could cause capitalization problems (houses with people in them might not be classifiable as liquid capital).
No, the banks are not happy with the idea at all. But, as with motor insurance in eastern Europe (where the governments often make you sell loss-making motor cover if you want to be allowed to sell more profitable commercial insurance), so with this new deal for first-time buyers. I suspect that the banks will be told to join in, or face some horrible taxes on other, much more profitable business.
It will all end in tears. But Gordon will not be the parent when it happens. And the great British nation will be like a two-year old who gets what he wants all the time. When reality bites, the pain will be all the greater.
Now, think of the Chancellor of the Exchequer as a parent, and think of the great British public as a truculent two-year-old. Those not in the property-owning majority want to get there (hence Gordon's moronic desire to increase the percentage of homeowning households to 75% from 70%). And those already on the property ladder seem to think it undesirable that the value of their property fall to less than that of their mortgage. Now, let's not get into the anti-intuitive but nonetheless true point that, unless you never plan to move into a bigger house or you happen to own more than one house, a fall in property values is exactly what most householders DO want. Let's just look at Mr Brown.
Here he is, faced with a truculent two-year-old. Now, he knows that the current level of house prices is fundamentally unsupportable. But he doesn't want to be the one who presides over the decade-long house-price recession that will inevitably come. On top of that, giving the two-year-old some sweeties might shut them up, despite causing teeth decay for years to come. The difference between a Chancellor and a parent is that the Chancellor passes the parenting on to someone else before the shit hits the fan.
Thus we have this laughable public subsidy to help first-time buyers onto the "property ladder". First-time buyers are happy because it helps them "own" a property, while existing owners are happy because it provides an artificial source of new fish, I mean customers, to keep the housing merry-go-round going for another few years.
Thankfully nearly all the intelligent newspapers have spotted this as well, and have said that it might, just might, be a better idea to solve this problem on the supply side, rather than subsidising the demand side. Why not reintroduce mortgage tax relief while you are about it, Gordon?
And the banks/lenders aren't keen either, and for good reason. If house prices continue to rise then they will find themselves in the difficult situation seen by a provider of shared-ownership mortgages some years ago. After house prices doubled, the borrowers suddenly cried "foul", realizing that, by only getting half-ownership, they were even further away from owning their own house, while the lender tried to pocket 120 grand of "their" profit. Suddenly the borrowers realized that they weren't homeowners after all -- just half-owners. On the other hand, if house prices fall, then the banks/lenders risk being landed with the repossession/let them still live there until house prices recover, problem. This will play hell with the banks return on equity and, with Solvency II, could cause capitalization problems (houses with people in them might not be classifiable as liquid capital).
No, the banks are not happy with the idea at all. But, as with motor insurance in eastern Europe (where the governments often make you sell loss-making motor cover if you want to be allowed to sell more profitable commercial insurance), so with this new deal for first-time buyers. I suspect that the banks will be told to join in, or face some horrible taxes on other, much more profitable business.
It will all end in tears. But Gordon will not be the parent when it happens. And the great British nation will be like a two-year old who gets what he wants all the time. When reality bites, the pain will be all the greater.
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A good metaphor,
Date: 2005-05-29 03:58 pm (UTC)A Thorny Problem...
Date: 2005-05-29 10:42 pm (UTC)There is the prospect that "fat cats" with decent jobs will have subsidised rents. One can imagine that Mr. Brown (who was incensed that Laura Spence couldn't get into Oxford, remember) might get a little upset if a trainee merchant banker (say) were the beneficiary of one of these deals.
And one point you missed is that Brown is proposing that the government itself participate in 80,000 of these deals. That would mean that any action of the government that affects the housing market would be insider trading!
Re: A Thorny Problem...
Date: 2005-05-30 04:37 pm (UTC)I hope that the opposition spots this. "When will the chancellor admit that he cannot take this action solely to support his own misguided lending decisions three years ago".
Chancellor Balls: "I wish to point out that I wasn't Chancellor three years ago and that I will take no responsibility for the actions taken by the now-Prime Minister. "
I mean, the whole thing really is, absolutely irrepressibly, insane on so many levels that the only reason I am not aghast is that I am sure Gordon Brown is aware of this. Perhaps its one saving grace is that it will affect in total only about 20,000 extra households. OK, just one of those households getting into difficulties is enough to make the front page of The Sun, but at least the macroeconomic impact will be minimal.
Re: A Thorny Problem...
Date: 2005-05-30 08:07 pm (UTC)Without any evidence, I suspect that the "key worker" stuff is so much rhetoric. The south east provides the biggest tax take, and receives the least in government spending. Brown's initiative is a way of re-attaching the toddlers of the South East to the nipple of government spending.
I wonder how minimal the macreconomic impact of this measure will be. If there is a significant number of chain-breakers introduced into the market (and 20,000 extra chain-breakers a year is quite a few), surely that will result in large second-order effects? Those will include furnishing-type spending brought forward, and the "wealth effect" of people not thinking that they are sliding into negative equity.
Re: A Thorny Problem...(Key Workers)
Date: 2005-05-30 10:07 pm (UTC)Of course, the other solution
Date: 2005-05-30 08:04 pm (UTC)Given Pete's recent forecast for an inflationary bubble in the next decade, maybe putting off the property collapse until then is good strategy.