How far will house prices fall [volume 4]
Discussion
p1stonhead said:
£500 a month is a huge number for a great many people to find even if they have a windfall locked up in their house. And why should anyone who paid their taxes to buy the house suffer again through nothing they have actively done? And £1m capital gains are hardly normal now are they. What if your house has lost money since you bought it such as some locations up north have done? Hit them twice or do they get a pay out from the government the opposite of the LVT?
Your very obvious bitterness at presumably not being able to afford a property is blinding you to the ludicrousness of your ideas.
As I've previously written on this thread, I am a homeowner, mortgage free. Your very obvious bitterness at presumably not being able to afford a property is blinding you to the ludicrousness of your ideas.
Edited by p1stonhead on Wednesday 9th May 16:17
Your assumptions make you look a fool. Not everyone is blinded by self interest.
Anyway, try harder. I'm amazed in your basic premise that people "deserve" their windfall property gains. Pick your own numbers if you don't like £500 / £1m. (Out of interest - do you stand to inherit any "windfall gains or have you made substantial gains yourself? Maybe you should declare that in the interests of transparency..)
btw As LVT is levied on land value, it might even be zero in "some locations up north" The concept of negative LVT might be employed to stimulate depressed locations.
edh said:
p1stonhead said:
£500 a month is a huge number for a great many people to find even if they have a windfall locked up in their house. And why should anyone who paid their taxes to buy the house suffer again through nothing they have actively done? And £1m capital gains are hardly normal now are they. What if your house has lost money since you bought it such as some locations up north have done? Hit them twice or do they get a pay out from the government the opposite of the LVT?
Your very obvious bitterness at presumably not being able to afford a property is blinding you to the ludicrousness of your ideas.
As I've previously written on this thread, I am a homeowner, mortgage free. Your very obvious bitterness at presumably not being able to afford a property is blinding you to the ludicrousness of your ideas.
Edited by p1stonhead on Wednesday 9th May 16:17
Your assumptions make you look a fool. Not everyone is blinded by self interest.
Anyway, try harder. I'm amazed in your basic premise that people "deserve" their windfall property gains. Pick your own numbers if you don't like £500 / £1m. (Out of interest - do you stand to inherit any "windfall gains or have you made substantial gains yourself? Maybe you should declare that in the interests of transparency..)
btw As LVT is levied on land value, it might even be zero in "some locations up north" The concept of negative LVT might be employed to stimulate depressed locations.
ben5575 said:
Taxing planning gain was mooted on a thread a few months ago and I remember saying that I couldn't think of a more effective way of killing the housebuilding industry stone dead. If you remove the incentive for people to sell land, then they simply won't as it is a ball ache. Besides, people like owning land.
Why would a house builder spend an extraordinary amount of time trying to find a site in a now reduced market, risk a boat load of cash on fees, surveys and a planning application which is subject to the vagaries of the the shopkeepers etc sitting on a Planning Committee, only to have the uplift in the value of the land taxed away from them? Why would you take the risk?
If there's no other choice, they either have to (a) build houses for less profit, or (b) go out of business. Their choice; others will fill the void.Why would a house builder spend an extraordinary amount of time trying to find a site in a now reduced market, risk a boat load of cash on fees, surveys and a planning application which is subject to the vagaries of the the shopkeepers etc sitting on a Planning Committee, only to have the uplift in the value of the land taxed away from them? Why would you take the risk?
After planning returns of 20% pa on investments in housebuilding are common. There is plenty of meat left on the bone. Land-banking has allowed large firms to choose when to release land; that's not the same as the scenario you describe.
In many cases, those profits are made by those putting the money in, and are separate from the developer's own profit. It is hard from the outside to understand the scale of the profits being made in housebuilding.
Let me give you an example. I've removed the actual names as this is not a name-and-shame exercise, but the numbers are quite real.
Project: permitted development conversion of office in a prosperous south east town to residential
128 residential units
50% of units pre-sold prior to project start for £15m
Equity put up by developer: 10% of project total
£35m total revenue in unit sales
£29m projected total costs to complete and market units
27 month project duration
Investment type: mezzanine loan (£5m)
The mezzanine loan will earn 20% pa before arranger fees etc, compounded monthly, over a little over 2 years. Projected return after costs and fees on the mezzanine debt 17% pa / 38% over the duration.
The way this works is that the developer and the finance provider set up the deal. The pre-sale of units fund the developer's 10% (so actually they put up no cash up-front). The bank puts up £18m, and the total cost of the senior debt finance is about £3m (about 17% over the 27 months). There's some commercial on the site that pays rent, and the left-over deposits from the pre-sale flow into the pot. The developer earns a profit no doubt on some of the construction costs (£8m of work).
At the end, the profit (£5.7m) is split between the developer, the finance provider, and the providers of the mezzanine finance (who make £2.5m on their £5m loan).
So the big money is being made on the finance, not on the development, which in turn means that the developer doesn't report especially buoyant profits.
Whilst this does allow smaller developers to play in the pond, at the same time it pegs prices so that larger developers (those with their own money) can make really rather large profits.
It is a tough nut to crack. But clearly the profits to be made in buying land before planning are potentially much greater (for developers and financiers).
And, yes, there's a reason new-build depreciates - so much of the "value" is in finance, not substance!
p1stonhead said:
edh said:
p1stonhead said:
Have you given any price rises in your own house to charity? Presumably you have?
Ah the last refuge of a political discussion..Are you a hypocrite or an idiot - that's right isn't it..?
You might say I have foregone quite a tidy sum at my daily rate..
..and you? or do you want to stop this game before you look even more stupid?
edh said:
p1stonhead said:
edh said:
p1stonhead said:
Have you given any price rises in your own house to charity? Presumably you have?
Ah the last refuge of a political discussion..Are you a hypocrite or an idiot - that's right isn't it..?
You might say I have foregone quite a tidy sum at my daily rate..
..and you? or do you want to stop this game before you look even more stupid?
Seeing as you used the £1m example, I wonder if you are one of them. Is this borne out of guilt that you have banked that much?
p1stonhead said:
That’s a no then.
Seeing as you used the £1m example, I wonder if you are one of them. Is this borne out of guilt that you have banked that much?
Seeing as you used the £1m example, I wonder if you are one of them. Is this borne out of guilt that you have banked that much?
I thought I was a bitter & penniless renter a few mins ago?Anyway, no more personal info from me, I don't know anything about you & we haven't even been introduced...maybe you'd like to share back with an answer to my question about your skin in this game... Are you trying to protect an inheritance or your own windfall gains (or both)? if not, I won't be engaging in any more of your nonsense.
edh said:
p1stonhead said:
That’s a no then.
Seeing as you used the £1m example, I wonder if you are one of them. Is this borne out of guilt that you have banked that much?
Seeing as you used the £1m example, I wonder if you are one of them. Is this borne out of guilt that you have banked that much?
I thought I was a bitter & penniless renter a few mins ago?Anyway, no more personal info from me, I don't know anything about you & we haven't even been introduced...maybe you'd like to share back with an answer to my question about your skin in this game... Are you trying to protect an inheritance or your own windfall gains (or both)? if not, I won't be engaging in any more of your nonsense.
soxboy said:
There’s not much profit in that scheme, if values fall 5% profits halve and if values fall 10% they are wiped out (I think!).
The profit is in the financing. Which is the whole point, because a great many of these deals are now set up by the finance people. The developer takes the risk (underwrites overruns, has a PG in place too), but doesn't have to put up the money.What it does show is that developers with their own money (the big boys who bank land) have a lot of margin to play with right now. There's plenty of room for those margins to go down a bit and not have the industry stop.
Quite apart from the issue of taxing wealth that hasn't yet materialised, LVT could also tax wealth that never materialises.
There are plenty of working class people in my area living in bog standard semis in poor condition that are worth £1m+. They probably bought them for about £5 in the 1970's and haven't seen the need to move out of the area they know and can't seem to afford to update their houses or live anything like a good lifestyle.
Because the government has decided that a sustained asset bubble is the way to go and that London should be the centre of that, their houses in the suburbs are worth a fortune, but it hasn't changed their lives at all.
Moreover, if government policy changes, the value of their house could easily shrink back to much less than it is now (I agree that looks very unlikely to happen now, but that is how the market used to work). Then they'd never see the money or have it to leave in their Wills.
There are plenty of working class people in my area living in bog standard semis in poor condition that are worth £1m+. They probably bought them for about £5 in the 1970's and haven't seen the need to move out of the area they know and can't seem to afford to update their houses or live anything like a good lifestyle.
Because the government has decided that a sustained asset bubble is the way to go and that London should be the centre of that, their houses in the suburbs are worth a fortune, but it hasn't changed their lives at all.
Moreover, if government policy changes, the value of their house could easily shrink back to much less than it is now (I agree that looks very unlikely to happen now, but that is how the market used to work). Then they'd never see the money or have it to leave in their Wills.
kingston12 said:
Quite apart from the issue of taxing wealth that hasn't yet materialised, LVT could also tax wealth that never materialises.
There are plenty of working class people in my area living in bog standard semis in poor condition that are worth £1m+. They probably bought them for about £5 in the 1970's and haven't seen the need to move out of the area they know and can't seem to afford to update their houses or live anything like a good lifestyle.
Because the government has decided that a sustained asset bubble is the way to go and that London should be the centre of that, their houses in the suburbs are worth a fortune, but it hasn't changed their lives at all.
Moreover, if government policy changes, the value of their house could easily shrink back to much less than it is now (I agree that looks very unlikely to happen now, but that is how the market used to work). Then they'd never see the money or have it to leave in their Wills.
But isn't that the very "problem" that LVT is designed to solve? I've heard plenty opine that such people should use equity release (which will put more money into the economy) or downsize (adding some movement to the housing market) in order to free up cash.There are plenty of working class people in my area living in bog standard semis in poor condition that are worth £1m+. They probably bought them for about £5 in the 1970's and haven't seen the need to move out of the area they know and can't seem to afford to update their houses or live anything like a good lifestyle.
Because the government has decided that a sustained asset bubble is the way to go and that London should be the centre of that, their houses in the suburbs are worth a fortune, but it hasn't changed their lives at all.
Moreover, if government policy changes, the value of their house could easily shrink back to much less than it is now (I agree that looks very unlikely to happen now, but that is how the market used to work). Then they'd never see the money or have it to leave in their Wills.
LVT is a tax on wealth, not on whether or not you choose ever to realise it.
The other option, of course, would be an increase in IHT, but that of course would prevent the wealth from being pushed down to the younger generations who need it to ever be able to buy property...
There are so very few right answers. A property crash at least has the benefit of affecting most people (in value terms) somewhat fairly, provided that regulation is put in place to ensure that negative equity doesn't have to be an impenetrable barrier to moving.
In fact, making mortgages a risk-reward equation (keep interest rates low, but mortgage company gets a share of the upside but takes a share of any losses) seems quite attractive from where I sit...
skwdenyer said:
kingston12 said:
Quite apart from the issue of taxing wealth that hasn't yet materialised, LVT could also tax wealth that never materialises.
There are plenty of working class people in my area living in bog standard semis in poor condition that are worth £1m+. They probably bought them for about £5 in the 1970's and haven't seen the need to move out of the area they know and can't seem to afford to update their houses or live anything like a good lifestyle.
Because the government has decided that a sustained asset bubble is the way to go and that London should be the centre of that, their houses in the suburbs are worth a fortune, but it hasn't changed their lives at all.
Moreover, if government policy changes, the value of their house could easily shrink back to much less than it is now (I agree that looks very unlikely to happen now, but that is how the market used to work). Then they'd never see the money or have it to leave in their Wills.
But isn't that the very "problem" that LVT is designed to solve? I've heard plenty opine that such people should use equity release (which will put more money into the economy) or downsize (adding some movement to the housing market) in order to free up cash.There are plenty of working class people in my area living in bog standard semis in poor condition that are worth £1m+. They probably bought them for about £5 in the 1970's and haven't seen the need to move out of the area they know and can't seem to afford to update their houses or live anything like a good lifestyle.
Because the government has decided that a sustained asset bubble is the way to go and that London should be the centre of that, their houses in the suburbs are worth a fortune, but it hasn't changed their lives at all.
Moreover, if government policy changes, the value of their house could easily shrink back to much less than it is now (I agree that looks very unlikely to happen now, but that is how the market used to work). Then they'd never see the money or have it to leave in their Wills.
LVT is a tax on wealth, not on whether or not you choose ever to realise it.
Edited by kingston12 on Wednesday 9th May 23:03
skwdenyer said:
In fact, making mortgages a risk-reward equation (keep interest rates low, but mortgage company gets a share of the upside but takes a share of any losses) seems quite attractive from where I sit...
I quite like that idea, but the downside might be that the banking lobby would then be leaning on the government to provide new Help to Buy-style schemes to support the market on top of the developer lobby and everybody else who has a modicum of power and an interest in keeping house prices high.Rovinghawk said:
Or we could stop trying to interfere & let the market sort itself out.
Maybe just some extra SDLT for foreign nationals.
I think we are a bit past that now - can the market sort itself out without interference? Emergency interest rates, QE, Help to Buy etc are all just interference and if they were quickly withdrawn what would happen then?Maybe just some extra SDLT for foreign nationals.
kingston12 said:
Rovinghawk said:
Or we could stop trying to interfere & let the market sort itself out.
Maybe just some extra SDLT for foreign nationals.
I think we are a bit past that now - can the market sort itself out without interference? Emergency interest rates, QE, Help to Buy etc are all just interference and if they were quickly withdrawn what would happen then?Maybe just some extra SDLT for foreign nationals.
It’s the reality of the situation. Punitive taxes on homeowners is a vote loser for pretty much any party. It’s a huge political move which is why they will not do anything.
p1stonhead said:
kingston12 said:
Rovinghawk said:
Or we could stop trying to interfere & let the market sort itself out.
Maybe just some extra SDLT for foreign nationals.
I think we are a bit past that now - can the market sort itself out without interference? Emergency interest rates, QE, Help to Buy etc are all just interference and if they were quickly withdrawn what would happen then?Maybe just some extra SDLT for foreign nationals.
It’s the reality of the situation. Punitive taxes on homeowners is a vote loser for pretty much any party. It’s a huge political move which is why they will not do anything.
This housing bubble goes right back to the last Labour government, even if the majority of it is down to the Tories. I don't think that Corbyn would have any problem blaming either of them.
It's all a bit hypothetical, as we'd have a lot more than a housing crash to worry about if he did get in.
Gassing Station | News, Politics & Economics | Top of Page | What's New | My Stuff