The dragon in our mythology is characterised by many things.  But perhaps most interesting is that they’ll sit on a hoard of gold, jealously guarding it but gaining no benefit from it.  Tolkien’s Smaug is one of my earliest memories: my parents read me The Hobbit when I was just three[1].  Wagner’s Fafner, even more tellingly, turns himself into a dragon only when he has the ill-gotten hoard and his life turns to the sole task of possessing it.

The housing crash has revealed dragons in our society.  People who might’ve sold their house in a rising market, but resolutely refuse to accept less than some hypothetical peak price when it’s falling.  Fair enough when someone has no reason to move, but as sad as any dragon when they have a good reason to move, and would even be buying in the same market conditions.  For example, the true dragon is revealed in comments like:

Paul’s comment explains why so few decent houses are on the market. I would never accept 25% less than what I know my house is worth in a normal market, so it will stay off the market until it picks up again.

Many such dragons will retreat in the face of reality.  But perhaps not for some time.

[1] They refused to read me Lord of the Rings.  So I had no choice: I had to learn to read.

The amount of money being paid by the taxpayertreasury to bail out the banking system as a whole is spiraling rapidly. Though it’s not targeted at a particular institution, it’s looking like the early weeks of the Northern Rock bailout last year. That is to say, the taxpayertreasury is underwriting debts that the market won’t touch, but everyone currently insists they’re good and we’ll be repaid.

Today it’s reported that the taxpayertreasury, through the Bank of England, will buy up dodgysound mortgage debt that the banks can’t shift.  So the banks can lend more, and keep the bubble inflated.  The pyramid must be supported!

Once again, this smells of throwing good money after bad.  The mortgages that they can’t shift in the open market are by definition the most dodgy ones.  They may be better than US subprime, but speaking as a taxpayer, if I’m forced to buy this debt at anything more than 40% of its face value, I shall be seriously pissed off.  Again.

What’s happening now is a correction to the housing market.  This is great news for the poor, who are currently paying three times over, but more likely to be able to afford a place when the prices have fallen.  It is neutral news for the comfortably-off, who are both buyers and sellers if they move house.  It is bad news only for the seriously rich who have wealth tied up in property over and above their own homes.

So we can’t allow that - the long-suffering taxpayer has to bail them out as usual.  No correction!  The bubble must be sustained!

If chickens can’t come home to roost now for property millionaires and bankers, we’re transferring yet more burden onto the productive economy.  And that’s tilted towards the young (because fewer of them own property) and high-earners (who pay more tax).  That’s precisely the people who will be most welcome in other countries, when the burden of subsidising our fat-cats gets too much for them.   If we drive too many of them out, the economy is basically gone!

Can one, these days, get a mortgage on something like the following terms?  Since I’ve lost the tax-flexibility of self-employment, I need to find some way to avoid getting the worst of all worlds.

• Regular payments of interest only.
• Tax-efficient saving to repay, using a self-invested personal pension (augmented by my company pension if necessary).
• Repayment on taking my pension, using the tax-free lump sum.
• Offset account to enable early partial payments on a flexible basis.
• Offset amount to include, or at least account for, existing ISA savings.
• Flexible final repayment date.

Not, of course, that I want a mortgage in a falling market.  Except … property available to rent in the UK leaves something to be desired, and I’m not getting any younger.

(I expect the “M” word will collect spambots to this article, like flies to a corpse.  So any comment that shows no sign of having read my words will not be given the benefit of the doubt).

The BBC news just told us the latest amount of taxpayers money that’s gone to prop up Northern Rock, and calculated it as £730 per taxpayer in the UK.  That’s to date: it’s increasing without limit!

The effect of Northern Rock’s over-generous lending that got it into trouble was to inflate property prices artificially. Other financial institutions are doing it (albeit to a lesser extent), and the long-suffering taxpayer pushes up prices directly too, by putting money into social housing. All that money in the system inflates both prices and rents.

Non-property-owners are paying for this twice over: once through our rents, and again through our taxes. And of course a third time if we ever get rich enough to buy.

I want my money back!

The folks who contacted me a couple of weeks ago about shared ownership houses had an open day today. A small apartment block (six flats), and several separate houses. All on one of the two huge new estates being built in Tavistock.

From the details, the most interesting-looking options were two 2-bed houses, at a respectable-looking 76 square metres plus garage (for the bikes, of course) and postage-stamp garden. But the houses themselves were disappointing: they’d wasted much of that space, leaving horribly cramped kitchen-diners, slightly pokey lounges, and barely adequate bedrooms. Plus the general flimsiness of new houses, and a lot of rather uninspired fittings. Bah.

On the end was a slightly different house. The total area of 81 sq m is only fractionally more, but what a difference! The lounge felt much more comfortable, the kitchen-diner was hugely better (apart from the horrible fitted oven, which was the same as in all the houses). The staircase was efficiently placed off the lounge, so the effective difference was well above the nominal 5 sq m. But upstairs, they’d spoilt it by splitting the space into three small rather than two decent bedrooms. Bah.

On the end, what they call a “coach house”: a one-storey house above a block of garages. At 54 sq m it’s small, but there’s the garage for storage. Nice lounge-diner with kitchenette off: better than the 2-bed places. And one decent bedroom. But the other bed was more a cupboard, without even a real window (a high skylight let in little light, and would tend to let in more rain than air if opened). Bah.

The flats were a non-starter. Of course they all had parking spaces, but for bikes, they’d just provided a row of wheelbenders under a bus shelter. Nothing secure, nor any possibility of indoor space. So that’ll be another case of “look, we provided bike facilities, but noone uses them”. Bah.

The lady in charge confirmed the general terms: no surprises there. What you gain: half the value at 2.7%, and the opportunity to buy out more. What you lose: you accept their valuation (potentially more than once - if you buy out), and you have to ask their permission to make changes (the example I asked about was “if I want to install a solar panel”). She also confirmed the taxpayer funding that gets poured into such schemes, driving up the general prices of housing.

Conclusion: as expected, it’s financially somewhat attractive, but the houses are horrible. And the taxpayer money going into this helps inflate the price of anything nice, by lifting the market in general.

Well, speak of the devil!

No sooner have I posted a rant about housing here, than another letter arrives in my mailbox, about “shared ownership”.

This one is a different scheme to last time[1], and the terms are less generous.  Specifically, pay 50%, own 50%, rent the other half.  It is a good deal, insofar as the rental part is equivalent to a 2.7% interest rate on a mortgage for half the property’s value.  That is, if the notional values they’re using are realistic market values: in the open market, one would expect to make an offer well below the asking price.

As for other terms, such as restrictions on your rights, no details of that are provided.  But there is once again a lot of paperwork to fill, and disqualify those of us who fail on Political Correctness tests.

[1] Followup to last time?  I sent in the forms, and tried phoning several times.  No response whatsoever.

The US housing market is in some trouble.  And with it, one big american mortgage lender, and who knows how much more.

In the UK, no such thing has happened yet[1].  If it does happen, it could be a bigger problem than the US, because the bubble is bigger (as a proportion of the national economy, of course).  Meanwhile, we continue to stoke the bubble, with tax breaks and public money.

The current crazes are building more houses, and “shared ownership”.  The first makes sense (within the narrow focus of meeting housing needs).  The second is just stoking the bubble, by pouring more money in.  A few people benefit from it; a lot of homeowners benefit slightly from house price inflation due to the extra money.  Meanwhile the taxpayers pay, and those of us with neither a house nor the politically-correct points to qualify for subsidised housing are pushed ever further out.  Result as usual: hardworking people get to subsidise much richer people.

We have a history of building “low cost” housing.  The results are poor-quality housing that noone wants to live in - hence the relentless pressure on older houses: even the tiny, very basic cottages the Victorians built for their poor.  A useful contrast is Germany since 1945, where they built to a much higher quality, and in consequence have much less of a housing problem than we do.  By far the best-quality place I’ve rented was my flat when I lived in Germany: I could never have afforded something like that in the UK.

Now we have a new phenomenon: a growing number of letting agencies are qualifying tenants by saying your annual income must be at least 30 months rent (so rent cannot be more than 40% of salary).  Now a cheap rental apartment is £5-600 a month, so to qualify for anywhere you have to earn £15-18k: not a high income, but by no means low, either.  If that spreads, it’ll push a lot of people who can well afford a rent into the public sector, or for those without PC-points, right out.

The fix they’ll never dare apply here is to fix up the tax system.  Whereas earned income is heavily taxed[2], unearned income (such as house price increases and rental income) is taxed at less than half the rate, and sometimes not at all.  A tax regime to benefit ‘old wealth’ but penalise hard work.  If that were changed, a lot of investment money could perhaps be diverted into the productive economy.  Like the money that fled out of pension scheme investments after 1997.

Or more radically, do as the Italians do, and impose an additional luxury tax on second homes.  As opposed to the tax discount we now offer owners of homes that are left intentionally unoccupied.

[1] Reports of a number of apartments in Essex being sold for £250K in 2005 and at an average of £70K less this year indicate that locally, bubbles may have started to burst, in spite of public money.

[2] 44% on incomes between about £6000 and 43000/year, comprising Income Tax at 20%, plus “National Insurance” at 24% including both employers and employees components.

In early 2005 I had to move house, when my then-landlady decided she wanted to sell the place and gave me notice to quit. Flat-hunting under pressure of time is a very bad idea, and the place I found has turned out to be miserable due to noise from all around.

At that point I put myself on the council’s list for social housing. Not with any expectation of getting it (I lack “politically correct” points to give me priority), but more to make my little contribution to their statistics. Being a rural area, the actual numbers are low enough for another one person to make a significant difference.

Anyway, I’ve just got a letter and application form for what they call “shared equity” housing. It means you get to buy a share - like half - of a property, with the other half being owned by the social housing people. In effect it’s a large interest-free loan. And it’s transferable to a future owner.

Now, in part it’s like real ownership. You get a share of house price changes. You’re allowed to do the place up as you want it. But there are strings attached. You can’t let it out if, for example, you go away for a few months or a year (so that’ll be more empty properties and pressure on housing - though only marginally). You can’t sell your stake in the open market: if you want to sell, they set the value, and they find a buyer. Worst, you don’t get a ‘normal’ choice of where to live: these properties are all on a dreary new estate. Housing in the UK built in the past 100 years is worth avoiding.

The main attraction: it probably will be quite a lot quieter than the present place. That’s really worthwhile. And at a price that’ll enable me to survive a bad year. Against that is the location, soullessness, and being tied to an institutionalised set of expectations about one’s lifestyle. For instance, I don’t expect they’d let me convert the inevitable parking space into something useful like a secure bike shed and a vegetable patch.

And I expect the question is academic, anyway. I have an application form to fill in, and a bunch of questions that’ll disqualify me. So I can just go on paying taxes and getting nothing back as usual.