Monday 27 September 2010

Joined Up Home-Owner-Ism Of The Week

Steven_L linked to a diatribe in The Telegraph at my previous post. As the article points out:

Even before the current crisis hit, this presumed "right" to home ownership was under threat. According to the last English Housing Survey, owner occupation fell from 70.9 per cent of households in 2003 to 67.9 per cent in 2008/9.

Yup. That's Home-Owner-Ism at work for you: rabid NIMBYism; a decade of reckless lending and its aftermath (quantitative easing and artifically depressed interest rates, i.e. robbing savers to subsidise borrowers); low taxation of property income and gains combined with savage taxation of labour and enterprise; selling off councils houses at significant discounts; and to a lesser extent the massive public sector deficits that they are piling up - all have inevitably led to a decline in the level of owner-occupation, exactly as planned by those who are really behind it all.

But does the article suggest reversing any of these policies? Nope. Another survey reveals yet more DoubleThink:

According to a survey conducted by the National Housing Federation, 34% of middle class parents with kids aged between 20 and 30 would like to see house prices stabilise, while 28% would rather see values fall in real terms, in order to help their offspring get on the housing ladder... The research also revealed that 82% of middle class parents want more pressure on the banks to help first-time buyers, for example by increasing the availability of high loan-to-value mortgage loans.

Right. So 28% are clued up enough to realise that falling prices are the best way of improving their children's chances of becoming an owner-occupier without becoming over-indebted, and by subtraction, 72% aren't.

82% minus 72% = 10%, so 10% simultaneously want prices to fall and for the banks to continue reckless lending in order to prop them up again. Weird.
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Another maths point is that the majority commanded by the Home-Owner-Ist coalition appears to be crumbling: if 28% of homeowners want prices to fall, that's 67.9% x 28% = 19% of all households, to which we can add the 32.1% who by definition are renting privately, living with their parents or in social housing* who probably want prices to fall as well, or are at best indifferent, making a grand total of 51.1% who have no great interest in rising prices.

* Which is why Home-Owner-Ist politicians in New Labour and the Lib-Con coalition are so keen for the Right To Buy social housing to continue, and for their to be all manner of 'shared ownership' schemes, in order to persuade as many tenants as possible to buy into the Home-Owner-Ist ideology.

The gimmick behind shared ownership is pretty evil. What you do is 'buy' ten percent and pay a subsidised rent on the rest; as and when you have a bit more cash to spare, you 'buy' another ten per cent and so on. So in economic terms, it's in your interests for prices to fall (so that you can snap up the subsequent fractions for lower amounts), but psychologically, you want prices to go up so that you have more 'equity' in the home (without which you will not be able to borrow ever larger amounts of money to buy up the other ninety per cent).

12 comments:

Steven_L said...

The bit that made me spit my coffee out was:

Common cause in home ownership is part of the cement that holds society together. By providing a sense of middle-class belonging, it creates a powerful vested interest in the rule of law and is therefore one of the great prizes of the democratisation of credit.

I guess that's one way of putting it? Although I'd suggest:

...it creates a powerful vested interest in the continuation of ponzi-finance and is therefore destined to destroy the currency

Which brings us to your shared ownership. The amount of times I've had to explain to people that increasing the price people can BID on an asset makes it more expensive - not more affordable is getting beyond a joke now.

Mark Wadsworth said...

SL, I prefer your version. It all comes back to The Golden Rule - subsidies don't make things cheaper, they make them more expensive.

Bayard said...

Mark, I can see why you think it's evil-from the website: "Unfortunately, the funds made available by the Government for 'open market homebuy' schemes where you can generally buy any property on the open market have all been used up." So the scheme is only available for buying new houses, surprise, surprise; a slightly disguised bung in the direction of the Tories' friends in the housebuilding industry.
As far as I can see, the idea behind Shared Equity is that you borrow money to fund the deposit from the Gov't and the housebuilder. So the thinking behind it is to get even more people into debt: sub-prime anyone?
The alternative, Shared Ownership, where you and the lender buy the property together and the lender then chages you rent for the bit that they own and part of your payments go towards buying the lender out is only available to, surprise surprise, renters of social housing.*
So one part of the scheme helps the housebuilders and the other reduces the amount of social housing. How very Tory.

* unless you borrow from the Muslims.

Mark Wadsworth said...

B, to be fair to the Lib Cons, it was new Labour who introduced all this (gold plating the Thatcher 'come aboard the property ladder' ideas of the 1980s). Let's not split hairs about the distinction between the various schemes, the whole things is evil, evil, evil.

At least as a tenant you can just walk away debt free.

Bayard said...

Well, to my mind, the shared ownership scheme is a better alternative to a traditional mortgage, as the lender is taking part of the risk and it is impossible to get into negative equity, at least with your mortgagor, but yes, the Government version of it is evil.
Whoever introduced the scheme, it's still very Tory.

Mark Wadsworth said...

B, do you think so?

It strikes me as totally corrupt - once they have suckered everybody on board who can stump up proper money for a proper deposit (borrowed from BOMAD, in many cases), they then have to sucker in those with only a few hundred pounds deposit to buy £10,000 or £20,000's worth of crummy ex-council flat to get them to buy into the Home-Owner-Ist dream of ever rising house prices.

Bayard said...

Mark, yes the "sub-prime here we come" scheme that the Gov't is pushing to help the housebuilders is evil and the "new right to buy, now with added subsidy" is evil, too, but proper "shared ownership with staircasing" (who thinks up these names?) schemes where you need a deposit and make payments just like an ordinary mortage, are not. But they enable you to buy a second-hand house, not in social ownership, so the Gov't isn't interested.

Mark Wadsworth said...

B, the only 'shared ownership' scheme with any intellectual merit is Land Value Tax - you pay for and own the bricks/mortar and you pay rent for the location where you want to park it.

A bit like with static caravans, only more 'static' and less 'caravan' :-)

Bayard said...

M, you don't appear to be familiar with the concept I'm describing. With an ordinary mortgage, the lender effectively "owns" part of your property and that part diminishes as you pay back the loan. With this other scheme, the lender really does own part of your property, which you are buying off them a bit at a time. He charges you rent for the bit he owns, until you own the lot. The first scheme means that house price inflation benefits the householder, the second doesn't, which is why I think it's an improvement.

Mark Wadsworth said...

B, I am perfectly familiar with it. If you buy outright with a mortgage, you want prices to go up (assuming no intention to upsize and you don't care about your kids).

If you are seduced into 'shared ownership', economically, you want prices to fall; but this wipes out the few pounds equity you might have so it is more difficult to get a mortgage for the subsequent slices; so in practical terms and psychologically you want prices to rise, but the gains are entirely illusory because all it means is that it will be all the more difficult for you to buy the subsequent slices.

So the Home-Owner-Ists have got you where they want you - heads you lose, tails they win.

Bayard said...

"B, I am perfectly familiar with it"

Er, your second para implies you are not: with the scheme I'm describing, your repayments buy you the further slices of the property, just as in a normal mortgage, your repayments pare down your debt. You don't necessarily borrow money to make the repayments in the former scheme, any more than you do with the latter.

Mark Wadsworth said...

B, maybe I've missed a trick. All the websites touting these schemes and all the articles I've read say

1. You buy (say) 25% with a mortgage and rent the other 75%.

2. When you have scraped enough together to pay the deposit to secure a mortgage on another 25%, you buy another 25% and only pay rent on 50%.

3. Of course it is theoretically possible that you have £100 left over every month and arrange to buy the house in slices of 1%, but I think the legal fees would make this prohibitively expensive - you have to buy it in chunks of at least 10% or 25%.

Anyways, there are loads of similar schemes with different names (as the website to which I link explains), if you have a better link, please advise.