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Finding solutions to the UK’s housing crisis

Larry Elliott suggests five steps to fix the housing market (Britain’s broken housing market – and how to fix it, 9 October) which include Kate Barker’s idea of “acquiring” large sites abutting urban areas at a modest premium to their existing use. That would effectively part-nationalise development value and might help supply, although the Tories wouldn’t do it because they reversed Labour’s two attempts at taxing development value, the Land Commission Act 1967 and the Community Land Act 1975/Development Land Tax 1976. Increased housing supply doesn’t automatically lead to lower prices of course (unless builders were to build at a rate that forced them to drop their own prices, which they wouldn’t) because, as Elliott says, the housing “market” isn’t a market at all in the traditional supply-and-demand sense.

Before more of this crowded country’s open space is concreted over and its amenity value taken from those abutting urban areas, other expedients could be deployed, like penal taxation of empty property and progressive taxation of inherited property wealth, the latter of which continues to snowball for the haves and push prices further beyond the have-nots. Those two measures would do more to bring prices back closer to a manageable multiplier of local earnings and improve the rising generation’s chances of ownership. Whether the banks’ loan books could stand the strain of falling prices – and how hard the Treasury would fight to avoid them – is another question.
John Worrall
Cromer, Norfolk

 Larry Elliott’s incisive analysis of the housing market missed a trick or two. We urgently need to move jobs where the people are, not the opposite. That just inflates southern house prices. And please stop blaming planners. America realised 20 years ago that sprawl is not the answer to housing problems; it doesn’t lower prices, it just increases greenhouse gas emissions. The US smart growth movement’s growing influence demonstrates that compact urban development produces better housing and vibrant communities. Of course the big measure that would reduce house prices would be extending right to buy to the private rented sector – politically impossible, of course.
Jon Reeds
Smart Growth UK

 Analysis of possible solutions for fixing the housing market seem to overlook a key point: an understanding of what housing should be about – ie community. A home for our families, a roof over our heads and a secure base for the rest of our lives from birth to old age. We need less reliance on large builds by multimillion pound faceless corporations making huge profits, and more local planning in favour of self-builds to serve inter-generational families and communities. In France there seems to be a lot of one-unit building on the edge of villages and towns, often they appear to be small bungalows for the elderly. In the UK this is frowned upon. Second, we need to examine the way house prices soared when two full incomes became more the norm. This was a gift to those who benefitted from inflated housing values. It proved a disaster for households at the stage of raising children when (out of necessity) couples’ earnings go down to one and a half incomes or less, due to the need to meet important care responsibilities at home. It’s time to put families first and recognise that housing is a basic need. Let’s invest in construction of decent social “community” housing for young and old. Stop encouraging people to overstretch themselves. Only then will equilibrium be restored.

Elliott’s solution number five – the need to boost wages will, I fear, just mean forcing mothers and fathers to both work longer hours with no time to care for children or older relatives. This in turn means a house is no longer a home, just a place to sleep.
AM Lewis
Salisbury, Wiltshire

 Anna Minton’s concern about developers’ “artwash” is just the tip of an urban mountain of bling: “iconic”, “placemaking”, “cultural quarter”, the urban realm as theme park (Developers are using culture as a Trojan horse in their planning battles, 11 October). Meanwhile, city dwellers suffer chronic housing shortages, appalling air quality, gridlocked transport, increasing inequality and marginalisation. Why? Planners morphed into seeing cities as service centres, reflecting the shift since Margaret Thatcher to a service economy. Then Tony Blair brought the bling to the great neoliberal game, along with the expectation of remuneration. A whole generation of local politicians, responsible for taking bread-and-butter planning decisions, have grown up expecting to spread jam. They are too easily seduced by developers’ art-bling, even believing it ethical to join the revolving door of persuasively dazzling development consultancies. Perhaps the most egregious live example is at land secured for social housing at Coin St on London’s South Bank: Bjorn Ulvaeus’ application for an Abba nightclub is currently enjoying fair wind, following the collapse of the infamous garden bridge proposal on an adjacent site. The lessons from that debacle have yet to be learned.
Michael Ball
Waterloo Community Development Group

 Your supplement Rebuilding social housing (20 September) described some of the efforts being made to fill the housing gap. All of these are to increase supply. With more than 300,000 immigrants per annum, a smaller number leaving, and with natural increase, there is no chance without addressing demand. We need more than to limit the number coming in to the country. The ideal would be a population policy with a cabinet minister responsible for population.
David Hurry
Hurstpierpoint, West Sussex

 Regarding “insulting” levels of “affordable” housing at a development in Ilford (Report, 16 October), the really insulting thing is how no one really nails the government and developers on the massive lie inherent in every definition of “affordable” they use. Rather than fig-leaf approaches based on already unaffordable levels of rent, affordability can only be properly based on average incomes and standard mortgage lending criteria. Given average nationwide incomes and typical four-x income multiples, the actual number of truly “affordable” new homes built in the UK today – and for many years – is probably zero.
Norman Miller

Source: The Guardian

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Bath Landlords Fined For Operating HMO Without Licence

Two Bath private landlords have been told that they must pay more than £16,000 due to their failure to obtain the correct House in Multiple Occupation (HMO) licensing.

Elizabeth Vowles, 48, and Hayley Book, 55, both from Weston pleaded guilty at Bath Magistrates’ Court to their licensing failure, deemed an offence under the Housing Act 2004.

The court was told that the two landlords had been caught operating a pair of HMOs in Bath’s designated Additional Licensing Area without the adequate licensing. Their flouting of the regulation was discovered in January 2017, despite the fact that it had been a legal requirement in certain locations in Bath since 2014. The licensing scheme was introduced to enable officers to know the location of HMOs and place conditions on the landlord to enforce minimum standards of safety, as well as making sure that the property’s management is maintained.

The pair of private landlords were also managing a third HMO in the Additional Licensing Area, so both landlords would have been well aware of the additional licences that were required for houses of multiple occupation licensing, the court was told.

Vowles and Book were each fined £4,000 for each property. They were also ordered pay prosecution costs of £550, as well as a victim surcharge of £170. In the Bath designated licensing area, operating a property without a licence is an offence punishable by a fine up to £20,000

Councillor Paul Myers commented on the case: ‘Our Housing Services will try to work in partnership with landlords to improve housing standards wherever possible. Additional licensing helps to ensure that occupants of HMOs are able to live in safe and well managed properties. Where landlords fail to licence their properties such as the case here, they are undermining the objectives of the additional licensing scheme.’

Source: Residential Landlord

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‘Extraordinary’ for BoE to mull rate hike as economy struggles, BCC says

LONDON (Reuters) – Britain’s economy shows little sign of improving on lacklustre growth and it seems “extraordinary” that the Bank of England is considering raising interest rates, the British Chambers of Commerce said on Friday.

The BCC’s Quarterly Economic Survey of businesses, the largest of its kind, said sales at services firms that make up the bulk of the economy were steady in the third quarter.

But there was little pick-up in pay pressures or investment, both of which the BoE expects to rise markedly next year.

Overall the BCC described the survey as “uninspiring”, with political uncertainty, currency fluctuations and Brexit clearly affecting British businesses.

Despite confounding forecasts that the 2016 vote to leave the European Union would lead to a sudden slowdown, Britain’s economy has struggled this year, posting its worst first-half performance since 2012.

The BCC said price pressures in companies, while high historically, looked likely to peak soon.

“Against this backdrop, it seems extraordinary that the Bank of England are considering raising interest rates,” said Suren Thiru, BCC head of economics.

In September the BoE said interest rates would probably rise “in the coming months” if the economy continued to grow and price pressures kept building.


The BCC survey suggested that business activity was probably strong enough to absorb slack in the economy – one of the BoE’s markers for raising rates soon, JPMorgan economist Allan Monks said in a research note.

“Another marker, however, was to see underlying inflation pressures building. But the pay settlements reading of the BCC remained close to a record low in (the third quarter),” Monks added.

A majority of economists polled by Reuters think the BoE will move at its next meeting in November – but most also said it would be a mistake to act now. [BOE/INT]

Unlike the larger services sector, manufacturers enjoyed both better domestic and export sales over the past three months, the BCC said.

While gauges of confidence in turnover and profitability stood at their highest levels since 2015, the survey pointed to only a marginal improvement in manufacturers’ investment intentions.

A slightly larger proportion of manufacturers said they expected to raise prices, but this was mostly down to the cost of raw materials rather than pressure from pay settlements.

In the services sector, a net 15 percent of firms reported that pay was putting pressure on prices – up just a percentage point from the five-year low struck in the second quarter.

Other surveys, including one from the BoE’s regional advisers, have pointed to similar weakness in corporate pay intentions.

Source: Yahoo News

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Strong regional growth keeps UK asking price growth more or less unchanged year on year

Strong regional market performances outside of London and the South East are supporting the national property asking price growth in the UK, the latest index shows.

Asking prices increased by 3.2% in England and Wales in October and by 3% in Scotland year on year but in Greater London they are down by 0.7% on an annual basis, according to the data from

Annual growth is led by the East Midlands with prices up 6.6% to £225,258, followed by the East of England up 5.3% to £361,073, then the West Midlands up 5.8% to £238,829 and the South West up 5% to £324,739.

Asking prices were up by 4.5% year on year in Yorkshire and the Humber and in the North West to an average of £189,535 and £195,214 respectively, up by 3.2% in the South East to £407,550, up by 2.9% in Wales to £192.133, but by just 1.4% in the North East to £157,772.

On an month on month basis it was more of a mixed picture with asking prices up 0.4% in England and Wales to an average of £307,424 but down by 0.1% in Scotland to £183,927.

The biggest monthly gain was 1% in the South West and the West Midlands while they increased by 0.9% in the East Midlands and 0.7% in the North West and the East of England.

The index report says that overall the North West and Yorkshire continue to gain additional momentum and this will help boost national figures going forward and the North East and Wales show improved confidence too, both displaying increased momentum but improvements are cautious and incremental thus far.

According to Doug Shephard, director of, overall, the UK property market is showing remarkable resilience and stability despite significant political uncertainty and a raft of costly disincentivising legislation.

He pointed out that in Oct 2016 the annualised rate of increase of home prices was 4.4% and a year on it has hardly changed at 3.2% with a third month in a row of declines in Greater London pushing the national average down.

The data also shows that the typical time on the market in England and Wales increased by two days to 89 days, two days less than in October 2016 and the total number of properties on the market in England and Wales remains down by 3% year on year.

Shephard said that the cool down in London had to happen and the process is not due to Brexit as it had begun long before the vote to leave the European Union. ‘Five years of massive house price inflation inevitably ended in the spring of 2016 with the beginning of the current corrective phase. Prices, of course, are not plummeting in the capital and surrounds, but rather sliding gently whilst monetary inflation does the rest,’ he explained.

‘Indeed, while interest rates remain ultra-low there is no panic, no rush for the exit. Supply is up on previous years but is not in any way extreme. Just enough to prevent further price rises in the immediate future. The South East and the East hit their price ceilings later than London did but the pattern is very similar and we expect prices to go sideways for some time in these regions. Supply has already risen and these markets are now slowing down from their previous feverish pace,’ he said.

‘On the other hand, the trends indicate that the northern markets look poised to put in the best performances they have shown for many years. The North West and Yorkshire are entering a boom phase, followed by the East and West Midlands which are currently the UK’s most vibrant regional property markets,’ he pointed out.

‘Looking towards 2018 it is as yet uncertain how far the London correction will go, but we do not expect major falls as the weak pound is attracting significant foreign investment in the region most favoured by international buyers. But despite this and talk of raising interest rates, the UK property market is showing remarkable robustness and looks set to continue to do so for the immediate future,’ he concluded.

Source: Property Wire

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Five ways to harvest sustainable UK income

Since the financial crisis, investors and savers have seen meagre yields from cash and gilts, with rates anchored at historic lows.

For investors accessing markets to extract additional income, it is more important than ever to navigate stretched valuations across many asset classes. Furthermore, investors must carefully consider the sustainability of income generated from equity and fixed interest investments.

Despite mounting doom and gloom over the UK economy, the outlook for dividends remains sound, recently buoyed by the rapid pound depreciation, which has benefitted overseas earners. Investors should remain wary of dividend concentration, but the UK will continue to be a strong and reliable long-term source of income.

Taking a long-term, value-driven approach, here are five income opportunities in equity and fixed interest markets:

Value opportunities in unrated gems

We have maintained a large exposure to unrated and subordinated debt, mostly in the form of preference shares and Permanent Interest Bearing Shares (PIBS). Just because these types of instruments don’t have a credit rating, does not make them low quality. There are plenty of companies which have taken the decision not to pay for a credit rating and are considered robust businesses – John Lewis a good example.

Which Isa platform should you chose? We compare the different brokers

Insurance company preference shares are a neglected and under-researched area of the market. It is permanent capital for these companies and can provide a rich seam of value and additional yield – for example Royal Sun Alliance, Aviva and General Accident.

Separating the casino from the utility in UK banks

We carried a large underweight to UK banks since the crisis. UK banks entered the financial crisis with very low capital ratios, found dubious ways of complying with Basel III requirements and were, by and large, an ethics-free zone. Furthermore, many banks continue to be encumbered with high-risk investment banking operations. When investing in banks, it is important to separate the casino from the utility.

A decade on, we have seen positive developments among some UK banks, in terms of restructuring and regulatory scrutiny. Following a period of close analysis, we recently took a position in Lloyds – our first domestic UK bank since the crisis. It is a relatively low-risk bank, with 95 per cent of its lending book exposed to the UK and a 25 per cent share of the UK’s current account market. Lloyds is also trading at a historic low – well under half of its pre-crisis share price.

Rock-solid insurance companies

Most of our financial exposure is in insurance, where solvency ratios have been rock solid.  While low interest rates are a drag on performance, we can expect this to turn into a tailwind when rates slowly lift. Strong names in this space include General Accident and Legal & General.

Strong real yields in commercial property

Commercial property also looks solid value. Since the crisis we have seen low levels of property development and vacancy levels remain close to record-low levels. Yields are a very robust 4.5-5 per cent, while rental growth remains positive driven by strong tenant demand. Property rents tend to keep pace with GDP growth over the long-term, so it can be argued this is a 4.5-5 per cent real yield. Picton Property and Londonmetric Property are great ways to gain exposure to this asset class.

Look to Asia’s growth engine

China looms large in the Asia region and for good reason – it is Asia’s growth engine. Every few years we hear a scare story about China – the currency devaluation being the latest – but its economy remains resilient.

10 high yielding shares in the FTSE 100: how safe are their dividends?

The service sector is faring well and consumer sentiment is strong. GDP growth of 6-8 per cent looks achievable to support a more balanced and transitioning economy. While the obvious cheapness has evaporated, Asia remains attractive on a relative global basis. We are currently invested in the region through HSBC, which earns most of its profits in Asia – as well as local companies such as dominant telecom China Mobile. Both yield more than 5 per cent.

Source: Money Observer

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Fresh eviction fear for residents after council refuses Willenhall HMO plans

The saga over a former warehouse which has been used for housing without permission for more than two years has taken another twist after planning chiefs refused plans to make it legitimate.

Tenants have been living in the premises at 51 to 53 Wolverhampton Street, Willenhall, which is now a house of multiple occupation, since at least 2015.

Last year Walsall Council took enforcement action against the owner Jim Haliburton effectively evicting the residents, but the move was put on hold after he formally submitted an application to ‘change the use’ of the building retrospectively.

Now the authority’s planning committee has refused the proposal and is considering enforcement action once again, meaning residents face fresh eviction fears.

However it may not be the end of the lengthy dispute if Mr Haliburton contests the latest decision.

A council spokeswoman said: “This application was refused for lack of shared parking, limited bin storage and poor outlook for residents all impacting detrimentally on amenity.

“The planning file will now be passed to the Planning Enforcement team who will commence work on taking action to cease the use of the building as a HMO.

“This action though will need to be placed on hold if the applicants appeal to the Planning Inspectorate in Bristol in an effort to overturn the decision to refuse planning permission. If the appeal is dismissed, officers will press ahead with enforcement action.”

Earlier this month Mr Haliburton appealed the council’s decision to turn down planning permission for another of his properties in Butts Road, Walsall, in a very similar dispute.

Source: Express & Star

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More than 10,000 extra homes planned for Shropshire – with some on green belt land

Shropshire Council is reviewing its local plan, moving it forward by ten years.

The plan is now set to be presented to cabinet on October 18.

Although almost 19,000 homes are already set to be built in the county, the plan says a further 10,000 will be needed by 2036.

Adrian Cooper, planning policy manager at Shropshire Council, said: “Shropshire Council has got a local plan already, the job at hand is keeping it up to date.

“The current plan covers 2006 to 2026, the new plan we’re working on is moving forward by 10 years to 2016 to 2036.

“Back in January we asked the public the big questions in an eight-week consultation and we had about 400 responses from across different sectors.

“This next step is about responding to these comments and starting to take decisions about the preferred approach for the new plan.

“We’ve gone for the highest housing growth, there’s a nine year overlap between the current plan and the plan we’re doing so we’ve got quite a lot that we can count towards that 28,000.

“If you add up those houses that have already been built it comes to 18,583, so the new housing required by 2036 is 10,347.”

About 300 hectares of employment development would be earmarked under the new plans.

Mr Cooper added: “We’re looking to deliver a balance between the level of housing and employment.”

The extra 10,347 houses are mostly planned for the towns in Shropshire, with 30 per cent planned for Shrewsbury, 24.5 per cent planned for the bigger towns such as Market Drayton, and Whitchurch, 18 per cent for smaller towns such as Much Wenlock and Bishop’s Castle, and 27.5 per cent for rural areas.

Mr Cooper added: “It will focus the development in towns. About 70 per cent of the development will be in towns.”

Green belt land in Shropshire could also be released for development under the new local plan.

Mr Cooper said: “The green belt is very specific planning designation.

“Shropshire’s green belt was established in the 1970s, it includes the land east of the River Severn and south of the A5, land around Shifnal, Claverley, Alveley, Quatt.

“The planning inspector we had last time instructed us that we had to do this.

“We’ve got a specialist consultant who has done a piece of work which will be published looking at the green belt in Shropshire and has divided it up in manageable chunks.

“They have measured how well these chunks of land are performing as green belt.

“We will then look at what the impact would be if we were to release that land. It then falls to Shropshire Council to see how we want to run with that.”

The housing growth of 28,000 is equivalent to an average of 1,430 homes being built a year.

Ian Kilby, planning services manager, said: “In the recession there were about 800 houses built per year, and last year we had 1,910 delivered.

“It’s only a few years ago that next to no houses were being built.

“There was significant more development last year that what would be happening.”

But as of this year, there were more than 11,000 cases where planning permission has been granted for homes, where construction is yet to start.

Mr Cooper said: “We are to some extent dependent on our colleagues in the industry to build the houses. If they don’t build them it impacts on us.”

Mr Kilby said: “We’re trying to get the industry to raise its game on quality, so this year we’ve brought in industry awards.”

There will now be an eight-week public consultation on the plan, which will start on October 27 and close on December 22.

Source: Shropshire Star

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Bank of England under pressure for interest rate rise after ONS error

The UK’s official statistics agency has added to the pressure on the Bank of England over whether to raise interest rates as soon as next month after admitting it underestimated the pace of rising labour costs.

The Office for National Statistics said on Monday it made a mistake in its original calculations for the growth in unit labour costs, which is the price paid by employers to produce a given amount of economic output. The measure stood at an annual 2.4% in the three months to June, as opposed to the 1.6% initially published by the country’s official statistics body on Friday.

The revision could indicate momentum for wages in the UK, which is a factor under close observation from Threadneedle Street, as it looks to raise interest rates for the first time in more than a decade. Rising labour costs could indicate economic strength and justify a rate hike.

Howard Archer, the chief economic adviser to the EY Item Club, said the change “may facilitate” a November rate hike by the Bank. The cost of borrowing could increase from 0.25% to 0.5% should the monetary policy committee decide the economy is able to withstand the increase.

Despite the positive signal for the economy, there have been numerous readings to paint a much weaker picture. The construction sector is reporting signs of a slump, while the Organisation for Economic Co-operation and Development – a thinktank for developed economies – has warned that UK growth will slow next year.

Analysts at the Swiss bank UBS said on Monday a rate hike could also “exacerbate” potential headwinds for the UK economy generated by the Brexit process. “We think there is a strong case for erring on the side of caution,” they wrote.

Despite the lowest levels of unemployment since the mid-1970s, wages for British workers have failed to rise above the rate of inflation. Pay growth is rising nonetheless, although it lags behind a spike in the cost of living from the increasing cost of imports linked to the weak pound.

While the increase in unit labour costs potentially indicate an increase in wages for British workers, the increase could have been driven by non-wage elements such as taxes and pensions contributions paid by employers. This would weaken the ground for increasing rates, according to economists at Barclays.

However Mark Carney, the Bank of England governor, has previously said that rising labour costs could pave the way for a rate rise. Speaking over the summer, he justified the reluctance of the monetary policy committee to increase rates due to “subdued” wages and labour costs.

The ONS apologised for the error, saying it was a consequence of income data from the second estimate of GDP being using instead of data from the quarterly national accounts. “We have corrected this error,” the organisation said.

Source: The Guardian

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The UK housing market’s perfect storm, and five steps to avoid it

Britain’s housing market is dysfunctional. The rate of home ownership is plummeting, and the average age at which people become owner-occupiers is rising. In London and other property hotspots, the rents are unaffordable for those working at the sharp end of the service sector. Homelessness is on the up.

William Beveridge identified housing as a postwar challenge for Britain back in 1942 when he named squalor as one of the “giant evils” that barred the way to progress. Three-quarters of a century later, the giant still is alive and well.

One curious thing about the housing market is that it is not really a market at all, at least not in the classic sense. As every student learns on their first day of economics, markets work through the law of supply and demand. Low prices act as a disincentive to produce but as prices rise so supply increases. Conversely, demand falls as prices rise because buyers consider products too expensive. There is a point where there is neither too little nor too much supply, but just the right amount to satisfy demand.

The world of real estate, however, is a million miles away from the textbooks. Economic theory suggests that homeowners would be encouraged to put their homes on the market when prices are rising, and that potential buyers would lose interest until prices start to fall.

This is not what tends to happen. Homeowners hold on to their homes because they assume that their property will continue to go up in price. Nor do rising prices dampen demand. Rather, people think they had better scramble on to the ladder before it is too late.

Policy decisions also matter. Britain is a small country with strict planning laws, which makes it harder for the supply of new homes to respond to rising demand than it would, for example, in the United States. The tax treatment of domestic property is generous, meanwhile, with no capital gains tax on prime residences and a ludicrously outdated council tax system.

The mismatch between supply and demand has been made worse still in recent years by the government’s help to buy scheme, whereby people can top up a 5% deposit on a new-build home with a 40% state loan in London and 20% elsewhere in the country.

The scheme has led to still higher prices without doing much to boost supply, but that didn’t stop Philip Hammond from announcing last week that he was putting another £10bn into it. This dwarfed the £2bn the prime minister announced for the building of new affordable homes.

Help to buy exists because the combination of rising prices and stagnant wages has made life tougher for buyers. In 2002, the median house price in England was 5.11 times average earnings, according to the Office for National Statistics. The ratio had risen to 7.14 by the time the financial crisis put an end to the noughties property boom, after which it slipped back to 6.39 during the recession. It then started rising again and hit 7.72 last year. The trend has been even more marked in London, where the house price to earnings ratio rose from 6.9 to 12.88 between 2002 and 2016.

Those on the lowest incomes in London have fared worst of all. In 2016, someone among the bottom 25% of earners looking to buy a property in the cheapest 25% band would expected to pay 13.52 times their annual earnings. In 2002, the figure was 7.11.

These figures give rise to two questions. How has it been possible for house price increases to outpace wage rises to such an extent? And how are people managing to keep up the payments on the mortgages required for such expensive homes?

The answer to both questions is the same. The monetary stimulus provided by the Bank of England – ultra-low interest rates and quantitative easing – has put a rocket under prices, but slashed the cost of servicing a mortgage. Although the price of the average home in London has increased from £174,000 to £435,000 in the past 15 years, the fact that official interest rates have been 0.5% or lower for getting on for nine years has meant that the share of income spent on the mortgage has not risen. It has been a different story for those in the private rented sector, who pay almost twice the housing costs of those buying a home. It is estimated that a quarter of households who rent privately in London spend more than half of their income on rent.

Anyone who imagines that this state of affairs can continue indefinitely is kidding themselves. There comes a point when prices become so hot that buyers find their monthly payments too much of a stretch even with interest rates at rock bottom levels. The fizzling out of house price inflation during the course of 2017 suggests that moment has arrived.

There comes a point too when pressure starts to build for interest rates to rise. That moment is also upon us, with the Bank of England gearing up to tighten policy next month. In reality, the Bank’s freedom of movement is limited and it is inconceivable that interest rates will return to their pre-recession level of 5%, or anything like it, but the very high ratio of house prices to earnings means that even a modest increase in borrowing costs will reduce discretionary household spending at a time when it is already being squeezed. All that stands between Britain and a rip-roaring housing crash is Threadneedle Street’s willingness to spare borrowers from chunky increases in mortgage rates.

The alternative to yet another boom-bust is to try to construct a saner housing market. There are five steps to this. The first is to stop doing more harm through counter-productive policies such as help to buy. The second is to change the tax system, starting with council tax reform and action to prevent land hoarding. The third is to increase supply, and the housing expert Kate Barker has suggested ways the government could do so, such as identifying large sites abutting urban areas and acquiring them at a modest premium to the value of their existing use.

Step four is for the Bank of England to adopt a kid-glove approach to raising interest rates. The idea is to engineer a gradual fall in real – inflation-adjusted – house prices, not a recession that leads to a sharp increase in unemployment.

Step five is to find a way of boosting wages, because there are two ways in which houses can become more affordable. Earnings can rise or house prices can fall. The housing market will only become less dysfunctional when Britain becomes more productive.

Source: The Guardian

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Don’t count on our independent Bank to stop Brexit disaster

In common with Sir John Major, Denis Healey, the Bank of England’s historian David Kynaston, and former governor (1983-93) Robin Leigh-Pemberton, I had great reservations about the granting of independence to the Bank.

By independence – more precisely “operational independence” – was meant control of monetary policy: giving the Bank the power to change interest rates, as opposed to merely offering advice to chancellors and prime ministers that could be ignored.

We doubters were mindful of the excessively deflationary bent of the Bank during the interwar years. When the Bank was nationalised by the Attlee government in 1946 – a reaction to Labour’s problems with the economy and the Bank’s influence in the 1920s – the Labour peer Lord Passfield said, recalling those troubled interwar years: “Nobody told us we could do that.”

It was with this history in mind that I was so shocked when Gordon Brown, encouraged, indeed ably assisted, by Ed Balls, granted the Bank independence in a first dramatic act after the 1997 general election.

This year sees the 20th anniversary of the granting of independence and, given the depth of the economic problems facing this country, it was a good moment recently for the Bank to hold a public conference, at which Brown, Balls and others were able to reflect on the record of their creation.

It is also good timing that Kynaston’s magnificent Till Time’s Last Sand: A History of The Bank of England 1694-2013 has recently been published.

At the conference, most of the media coverage concentrated on a speech by Theresa May that had little to do with the Bank, but was billed as a defence of capitalism at the end of a week when most of the press had done its best to pillory Jeremy Corbyn and John McDonnell for their leftwing programme.

But the high spot of the conference was a brilliant presentation by Brown, in which he acknowledged what had gone wrong with the original concept.

Few were in doubt that the monetary policy committee had done a pretty good job. The problem had been with the independent Bank’s approach to financial stability, or the lack of it. Inflation has hardly been a problem these past 20 years. It is an open question to what extent this has been due to the central Bank, as opposed to the impact of globalisation and competitive forces emanating from China. Nevertheless, operational independence in monetary policy has worked better than some of us feared; the point was made at the conference that knowledge of the inflation target has probably had a beneficent influence on wage bargainers who, in the past, would assume the worst of the prospect for inflation, and bargain everyone into the kind of wage-price spiral that only ends in disaster.

The governor of the Bank of England, Mark Carney, is threatening a rise in interest rates.
 The governor of the Bank of England, Mark Carney, is threatening a rise in interest rates. Photograph: Afolabi Sotunde/Reuters

But back to financial stability. It was a theme of the 20th anniversary conferencethat the newly independent Bank had been asleep at the wheel, both in the run-up to the onset of the financial crisis in 2007 and the immediate aftermath. In particular, the blame fell on the then governor Mervyn, now Lord, King, for allegedly having placed all the emphasis on monetary policy, at the expense of the Bank’s overall responsibility for the financial system; for the Bank still possessed this function, even though day-to-day supervision had been hived off to the Financial Services Authority.

Brown was scathing about the behaviour of the governor he had appointed, not only for going on about “moral hazard” – ie being reluctant at first to bail out banks for fear it would set a bad example, but also for publicly offering advice on fiscal policy. The deal was supposed to be that the chancellor would not intervene in monetary matters, nor the Bank in matters of public expenditure and taxation– which King did, negatively, when the economy was nowhere near enjoying sustained recovery from the crisis.

All in all, the independent Bank did not emerge well from the crisis, as Kynaston underlines in his book, although he goes out of his way to be fair, noting that some senior officials were not unaware of mounting problems at Northern Rock and elsewhere. Anyway, both Brown and Balls have concluded that lessons have to be learned, and that there needs to be more cooperation between Bank and government in future.

One of the ironies they concede is that, by removing decisions on interest rates, which used to take up a lot of ministerial and Treasury time, the hope was that the Treasury would be able to concentrate more on wider economic policy.

Well, to judge from the state of the economy now, there is a lot left to be desired when it comes to the achievement of a successful economic policy. This was all too apparent last Monday when, at that bizarre Conservative party conference in Manchester, chancellor Philip Hammond devoted his main thrust to attacking Labour, in the face of whose success with the younger generation the Tories are running scared.

But the problems of the economy now are nothing compared with what is to come if our leaders, and the people they are supposed to lead, do not come to their senses and recognise that Brexit has to be stopped. The present Bank governor Mark Carney is well aware of the absurdity of Brexit, but his powers are reduced to damage limitation. Which makes me wonder why a manifest slowdown in the economy now is being met by threats of a rise in interest rates.

This Brexit business is an unmitigated disaster. As a senior European politician recently observed of the British: “It was heroic of you in 1940 to stand on your own against your enemies; it is ridiculous in 2017 to stand on your own against your friends.”

Source: The Guardian