Boomer life according to the economist
Discussion
funinhounslow said:
brickwall said:
The big question is how you achieve that. The preferred option surely would be to increase supply and let the market find its new equilibrium. But if that’s not an option (too slow, or too much NIMBY opposition) then you may need to pull the tax lever.
Won’t S24 (ending mortgage interest being treated as tax deductible ) and recent interest rate increases do this by making BTL unviable for many landlords?funinhounslow said:
brickwall said:
The big question is how you achieve that. The preferred option surely would be to increase supply and let the market find its new equilibrium. But if that’s not an option (too slow, or too much NIMBY opposition) then you may need to pull the tax lever.
Won’t S24 (ending mortgage interest being treated as tax deductible ) and recent interest rate increases do this by making BTL unviable for many landlords?You can't build enough houses either, because the vast majority of people want to live in the South East or next to a big city - you can already buy isolated houses oop north for comparative peanuts.
I wonder if limiting mortgage lending by multiple of income might work - gradually drop it from the 4 times joint (or whatever it is now) year after year until it's 4 times highest income, whilst increasing LTV availability. That might take the heat out of the market.
havoc said:
For sudden / significant devaluations - your classic "crash", I agree.
For slight / steady devaluations in £-value terms (which become more significant deflation over time as wage inflation eventually bites), I'm not convinced. I still maintain that's the way we need to go. It'll get speculators out of the market quickly (removing that additional driver of price inflation), it'll improve buyer power in negotiations and remove the s
t-show that is gazumping, and over the course of e.g. 5-10 years we might get back to a sustainable long-term income multiple. It might even temper the inflatory aspect of all these new builds going up for silly money.
The issues are mainly of negative equity and default. (and market confidence, but that just affects transaction volumes)
- The first only affects owners needing to sell/move, and arguably only FTBs who bought with minimal deposit, as a second-mover will have accumulated asset-growth.
- The second again only affects those properties who were bought recently with very high LTV, and forgive me but if a bank offers a risky product then the bank needs to accept that they might have to swallow some of the risk. Did sub-prime and CDOs teach them nothing?
On a number of different levels house price inflations serves no beneficial purpose for an economy. For property speculators, which actually is what most amateur landlords are its great. A period in which house prices could be maintained even at current levels would be extremely beneficial to all except the property speculators. Allow inflation to do the heavy lifting. It would take time, but ay also cool the concept of ever increasing property prices & people seeing their house as an investment rather than a home While this notion exists in peoples minds prices will continue to push up based solely on the fear of missing out. My wife gets all excited about the value of our house. me its just not relevant.For slight / steady devaluations in £-value terms (which become more significant deflation over time as wage inflation eventually bites), I'm not convinced. I still maintain that's the way we need to go. It'll get speculators out of the market quickly (removing that additional driver of price inflation), it'll improve buyer power in negotiations and remove the s
t-show that is gazumping, and over the course of e.g. 5-10 years we might get back to a sustainable long-term income multiple. It might even temper the inflatory aspect of all these new builds going up for silly money.The issues are mainly of negative equity and default. (and market confidence, but that just affects transaction volumes)
- The first only affects owners needing to sell/move, and arguably only FTBs who bought with minimal deposit, as a second-mover will have accumulated asset-growth.
- The second again only affects those properties who were bought recently with very high LTV, and forgive me but if a bank offers a risky product then the bank needs to accept that they might have to swallow some of the risk. Did sub-prime and CDOs teach them nothing?
The BTL amateur market is a legitimate target. Most people here are a property speculators.. There is a need for rental properties, don;t get me wrong, they are an essential part of having a flexible mobile workforce, But we don't need an army of amateur Trumps
The issues of house price deflation are exactly as you note, however the people most impacted by that are likely to be the very people at the bottom of the tree. Those in their first few years of ownership with little equity & high LTV. These are the very people this thread has been arguing are struggling.
brickwall said:
funinhounslow said:
brickwall said:
The big question is how you achieve that. The preferred option surely would be to increase supply and let the market find its new equilibrium. But if that’s not an option (too slow, or too much NIMBY opposition) then you may need to pull the tax lever.
Won’t S24 (ending mortgage interest being treated as tax deductible ) and recent interest rate increases do this by making BTL unviable for many landlords?Otherwise any increase in supply will be just hoovered up by BTL landlords and/or turned into Air B&Bs…
Longer term it may also result in the quality of housing being built? If people are spending their own money on a place to live in themselves they may not be inclined to drop a quarter of a million pounds on a one bedroom “luxury apartment” with a combined kitchen and living room…
Also as mentioned above the supply of credit needs to be sorted out. I think prices really started to go nuts in the early 2000s with the increase in interest only mortgages and self certification mortgages (“liar loans”).
The current situation has built up over a quarter of a century and it’s going to take time to let the “air out of the system”.
Housing needs to return to being a boring asset that people buy because they need somewhere to live. If people want to speculate they can buy Bitcoin or something…
funinhounslow said:
brickwall said:
funinhounslow said:
brickwall said:
The big question is how you achieve that. The preferred option surely would be to increase supply and let the market find its new equilibrium. But if that’s not an option (too slow, or too much NIMBY opposition) then you may need to pull the tax lever.
Won’t S24 (ending mortgage interest being treated as tax deductible ) and recent interest rate increases do this by making BTL unviable for many landlords?Otherwise any increase in supply will be just hoovered up by BTL landlords and/or turned into Air B&Bs…
Longer term it may also result in the quality of housing being built? If people are spending their own money on a place to live in themselves they may not be inclined to drop a quarter of a million pounds on a one bedroom “luxury apartment” with a combined kitchen and living room…
Landlords will buy properties that people want to rent (which one would hope is vaguely correlated to “properties people want to live in”).
Doesn’t matter if it’s owner-occupiers or BTL investors, properties people want to live in command a higher price than those that people don’t want to live in.
if there’s more supply of properties there’ll be more competition for the custom of any/all buyers and prices will drop.
If there’s an increase in supply of rental properties, rent prices will drop, and that’ll reduce the price BTL investors will be willing to pay.
GT03ROB said:
My wife gets all excited about the value of our house. me its just not relevant.
I feel the other way to your wife. I view houses as like cars - an asset where you'll want to trade-up over time as income / cashflow permits. As as consequence the only thing that matters is price-to-change. And in an inflating market, price-to-change is always moving away from you, increasing the headache / pushing the nicer stuff out of reach. (Worse than cars, houses are more illiquid - it takes a lot of time and cost to sell/buy/move house, whereas the transaction costs on selling/buying a car are negligible)
This is the biggest hit of all, IMHO - the notion that our (Pre-War, Boomer, maybe Gen-X) parents had that you started with a small house then bought bigger/better/nicer area over time as your incomes improved is frankly a pipe dream now - house prices have far outshot wage inflation for over 15 years.
Unfortunately, that dynamic leads people to (over-)stretch themselves to try to get their 2nd/3rd step house straight away. Which leads to:-
GT03ROB said:
...however the people most impacted by that are likely to be the very people at the bottom of the tree. Those in their first few years of ownership with little equity & high LTV. These are the very people this thread has been arguing are struggling.
Agreed.But what do we do? We can't just maintain the status quo and hurt future generations' prospects (and cashflow, which don't forget = GDP growth - too much money going into debt servicing is a drain on the circular flow of income and a decelerator on economic growth), just to protect a few people now.
It's market intervention, but the simplest answer is probably the government agreeing to underwrite any underwater portion of a (say within the last 2-3 years) FTB's debt in the event they need to sell-up / want to move, for a period of say 3-5 years (enough time for capital repayments to outstrip asset devaluation). That removes the obstacle of said people being stuck
brickwall said:
Landlords will buy properties that people want to rent (which one would hope is vaguely correlated to “properties people want to live in”).
Given the shortage of housing in the SE especially, I think people are being (mis?)led into buying whatever they can get just to get on the market.If we ignore for a moment that the housing issue is the one that millennials always bring up while ignoring all the other things that balance it out, hasn’t it been shown in the past that building new houses only happens when prices justify it anyway?
In 2009 (and for some time afterwards) there were half built developments scattered all over that had just been mothballed rather than finished, to say nothing of new sites with permission that didn’t even get started until prices were well on the rise again.
In practical terms I don’t see how policy changes can overcome the market to fix this, certainly not within the timeframe of one generation.
If you allow more houses to be built and they sell at current prices, nothing has changed. If the prices start to drop, nobody will build. If they drop drastically the economic side effects mean nobody can afford them anyway.
Builders have costs and margins and finance to cover, those things are not going to disappear overnight just because the houses are worth £100k less to sell. If prices are on the slide, who wants to risk a 8/9 figure project that may well not pay for itself in a year or two when it comes to sell?
Meanwhile the landowners that hold the sites and potential sites won’t half their prices to meet the market; time is on their side so they will just wait.
In 2009 (and for some time afterwards) there were half built developments scattered all over that had just been mothballed rather than finished, to say nothing of new sites with permission that didn’t even get started until prices were well on the rise again.
In practical terms I don’t see how policy changes can overcome the market to fix this, certainly not within the timeframe of one generation.
If you allow more houses to be built and they sell at current prices, nothing has changed. If the prices start to drop, nobody will build. If they drop drastically the economic side effects mean nobody can afford them anyway.
Builders have costs and margins and finance to cover, those things are not going to disappear overnight just because the houses are worth £100k less to sell. If prices are on the slide, who wants to risk a 8/9 figure project that may well not pay for itself in a year or two when it comes to sell?
Meanwhile the landowners that hold the sites and potential sites won’t half their prices to meet the market; time is on their side so they will just wait.
brickwall said:
I’m in agreement with you both. There has to be a level of gradual real-terms asset price deflation that does not lead to systemic collapse. There are legitimate arguments as to what that rate is.
In the residential real estate market (which is where a lot of Boomer wealth is stored), I’m of the opinion that the UK could sustain nominal falls of 2-3% p.a. without enormous consequence. Most levered owners (mortgaged homeowners) will have years of equity buffer at that rate, and will be repaying capital fast enough to keep up.
With inflation at 3%, it wouldn’t take long to re-base income multiples.
The big question is how you achieve that. The preferred option surely would be to increase supply and let the market find its new equilibrium. But if that’s not an option (too slow, or too much NIMBY opposition) then you may need to pull the tax lever.
Hmmm, Boomers are protected, but what about people who saved (for years) to get on the ladder? I accept you always get collateral damage in these scenarios / ideas - but seems this approach hits those who can least afford it the most - in fact you've disincentivised savings and promoted renting. In the residential real estate market (which is where a lot of Boomer wealth is stored), I’m of the opinion that the UK could sustain nominal falls of 2-3% p.a. without enormous consequence. Most levered owners (mortgaged homeowners) will have years of equity buffer at that rate, and will be repaying capital fast enough to keep up.
With inflation at 3%, it wouldn’t take long to re-base income multiples.
The big question is how you achieve that. The preferred option surely would be to increase supply and let the market find its new equilibrium. But if that’s not an option (too slow, or too much NIMBY opposition) then you may need to pull the tax lever.
On to renting - if I was younger and not a home owner, I'd be really vexed by that. Annual rate of rental inflation in the UK (released yesterday) - 9.2%. Thats outrageous - although can see why as geared landlords get whacked by rate rises. With the potential for those rises, we should do everything possible to promote ownership and not price gouging landlords - be them corporates or amateurs living the Rachman dream.
brickwall said:
I’m in agreement with you both. There has to be a level of gradual real-terms asset price deflation that does not lead to systemic collapse. There are legitimate arguments as to what that rate is.
In the residential real estate market (which is where a lot of Boomer wealth is stored), I’m of the opinion that the UK could sustain nominal falls of 2-3% p.a. without enormous consequence. Most levered owners (mortgaged homeowners) will have years of equity buffer at that rate, and will be repaying capital fast enough to keep up.
With inflation at 3%, it wouldn’t take long to re-base income multiples.
The big question is how you achieve that. The preferred option surely would be to increase supply and let the market find its new equilibrium. But if that’s not an option (too slow, or too much NIMBY opposition) then you may need to pull the tax lever.
Tax?!In the residential real estate market (which is where a lot of Boomer wealth is stored), I’m of the opinion that the UK could sustain nominal falls of 2-3% p.a. without enormous consequence. Most levered owners (mortgaged homeowners) will have years of equity buffer at that rate, and will be repaying capital fast enough to keep up.
With inflation at 3%, it wouldn’t take long to re-base income multiples.
The big question is how you achieve that. The preferred option surely would be to increase supply and let the market find its new equilibrium. But if that’s not an option (too slow, or too much NIMBY opposition) then you may need to pull the tax lever.
Fortunately the signs are that such a crop of interfering meddling ^ ripe as it is for the law of unintended consequences to get busy, will remain in fantasy land.
Can we 're-base' food and energy prices too? The same reality of expectation management applies.
turbobloke said:
Tax?!
Fortunately the signs are that such a crop of interfering meddling ^ ripe as it is for the law of unintended consequences to get busy, will remain in fantasy land.
Can we 're-base' food and energy prices too? The same reality of expectation management applies.
You are going to be so angry when Labour get in. They don't even have a manifesto yet - but the chances of them going into wealth tax mode very early on are very, very high. The Tories are toast for at least a decade, they have 10 years to make wealth tax an accepted norm.Fortunately the signs are that such a crop of interfering meddling ^ ripe as it is for the law of unintended consequences to get busy, will remain in fantasy land.
Can we 're-base' food and energy prices too? The same reality of expectation management applies.
OoopsVoss said:
brickwall said:
I’m in agreement with you both. There has to be a level of gradual real-terms asset price deflation that does not lead to systemic collapse. There are legitimate arguments as to what that rate is.
In the residential real estate market (which is where a lot of Boomer wealth is stored), I’m of the opinion that the UK could sustain nominal falls of 2-3% p.a. without enormous consequence. Most levered owners (mortgaged homeowners) will have years of equity buffer at that rate, and will be repaying capital fast enough to keep up.
With inflation at 3%, it wouldn’t take long to re-base income multiples.
The big question is how you achieve that. The preferred option surely would be to increase supply and let the market find its new equilibrium. But if that’s not an option (too slow, or too much NIMBY opposition) then you may need to pull the tax lever.
Hmmm, Boomers are protected, but what about people who saved (for years) to get on the ladder? I accept you always get collateral damage in these scenarios / ideas - but seems this approach hits those who can least afford it the most - in fact you've disincentivised savings and promoted renting. In the residential real estate market (which is where a lot of Boomer wealth is stored), I’m of the opinion that the UK could sustain nominal falls of 2-3% p.a. without enormous consequence. Most levered owners (mortgaged homeowners) will have years of equity buffer at that rate, and will be repaying capital fast enough to keep up.
With inflation at 3%, it wouldn’t take long to re-base income multiples.
The big question is how you achieve that. The preferred option surely would be to increase supply and let the market find its new equilibrium. But if that’s not an option (too slow, or too much NIMBY opposition) then you may need to pull the tax lever.
On to renting - if I was younger and not a home owner, I'd be really vexed by that. Annual rate of rental inflation in the UK (released yesterday) - 9.2%. Thats outrageous - although can see why as geared landlords get whacked by rate rises. With the potential for those rises, we should do everything possible to promote ownership and not price gouging landlords - be them corporates or amateurs living the Rachman dream.
I’m in the camp of
- Prices need to fall relative to income (that’s what “more affordable” means)
- We should avoid a big fall in nominal values that would drive a lot of levered owners into negative equity, because that would just freeze up any liquidity in the market
- The least painful route is to let inflation do most of the work
- High inflation is itself costly - so to get affordability improvements in a sensible timeframe you need to combine inflation at c3% with nominal price falls of 2-3% pa.
Who knows, maybe the economy performs and we’ll even get some real terms income growth too, wouldn’t that be nice.
Edited by brickwall on Thursday 18th April 10:45
Edited by brickwall on Thursday 18th April 10:46
There is a lot of house price inequality across the country. Perhaps more effort needs to be applied to resolving some of that? Understandably, people want to all live in the nice areas, but at the same time they complain about them becoming increasingly unaffordable. Cake and eat it springs to mind.
brickwall said:
if there’s more supply of properties there’ll be more competition for the custom of any/all buyers and prices will drop.
If there’s an increase in supply of rental properties, rent prices will drop,
Yes!! Yes!! If there’s an increase in supply of rental properties, rent prices will drop,
And now, the big question.....HOW can the supply of rental properties be increased?
(hint....it's not difficult)
Portia5 said:
brickwall said:
if there’s more supply of properties there’ll be more competition for the custom of any/all buyers and prices will drop.
If there’s an increase in supply of rental properties, rent prices will drop,
Yes!! Yes!! If there’s an increase in supply of rental properties, rent prices will drop,
And now, the big question.....HOW can the supply of rental properties be increased?
(hint....it's not difficult)
brickwall said:
Portia5 said:
brickwall said:
if there’s more supply of properties there’ll be more competition for the custom of any/all buyers and prices will drop.
If there’s an increase in supply of rental properties, rent prices will drop,
Yes!! Yes!! If there’s an increase in supply of rental properties, rent prices will drop,
And now, the big question.....HOW can the supply of rental properties be increased?
(hint....it's not difficult)
BAMoFo said:
There is a lot of house price inequality across the country. Perhaps more effort needs to be applied to resolving some of that? Understandably, people want to all live in the nice areas, but at the same time they complain about them becoming increasingly unaffordable. Cake and eat it springs to mind.
The weather/daylight is a large part of why a lot of people want to live in the South. Scotland is lovely,but I could never live there due to the cold/wet/short winter days.Gassing Station | Finance | Top of Page | What's New | My Stuff