Blowing bubbles

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.

Posted on August 9, 2007, in housing, rants, uk. Bookmark the permalink. 3 Comments.

  1. I think you’re spot on about the house-building being at the low-end in general. When I was looking for a house, I received unsolicited advice to move the new-build houses because of their low quality. I wasn’t looking at the new-builds anyway, simply because none of them met my search terms, but it seems they’re widely disliked.

    Presumably the old council house-building minimum standards don’t apply any more because councils don’t build houses much. They were low, but still better in some ways to commercial tweaked-identikit house-building minimum standards today AFAICT.

  1. Pingback: Half-owned housing again « niq’s soapbox

  2. Pingback: Poor Prudence! « niq’s soapbox

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