Should the government "cap" house values?

[bosscerbera]

thehawk said:

I have no problem with house values based on desirability and being driven by the market.

However I have very strong views that people should only be able to own a single dwelling, possible 2 if the other is a holiday home. Maybe not prevent people from owning homes but certainly have prohibitive capital gains or other disincentives.

Why?

If the market were left to normalise the bloated house prices would settle. The ownership of multiple properties - buy-to-let especially - was fueled by credit which in turn fueled speculation. There is nothing wrong with somebody with REAL money holding a portfolio of dwellings and drawing an income from renting them. Prices of things increase when several people want to buy things (excess demand) and the means to buy those things is readily available. Credit is the problem.

Many people think of bank credit as being an actual sum of real money that somebody deposited being lent. It's not. The bank only needs to sit on £100m of real money on deposit to loan £1 billion. Banks being forced to write down huge amounts of loans to adjust the ratio of deposits to lending does not mean savers lose lots of money. Most of a bank's "assets" are not cash, they are the pieces of paper that people sign saying "I will repay £100K + interest over the next 20 years". the vast majority of those pieces of paper could be shredded without affecting a single saver. Why? Because the bank didn't lend anything at all.

Google "Montgomery vs Daly".

The banks' assets are mostly made up of those "I'll pay it back" papers, not real cash. And then they lend multiples of those assets, collecting more "I'll pay it back paper". And lend on that too.... Ad nauseum.

Many people think that bank profits are made up from bank charges and interest. Stop and think about that... Do you REALLY think BILLIONS of profit can be made from the difference between interest paid to savers and interest earned from borrowers topped up by charging for processing cheques and sending nastygrams about overdrafts? Of course not! A bank with £1 billion on deposit is allowed to lend (and collect) £9 billion PLUS INTEREST. Banks make money by literally MAKING money - interest and bank charges are bunce.

They have made too much of it - it all looked great for a while, too good to be true in fact. Erm, it was... The banks had a vested interest in property prices soaring because they can make much more money. They can "make" much more if we all want to pay £200K for a house instead of the £100K it cost to build the fking thing. That's great for banks...

I think we either review the monetary system (a big ask) or leave the market to balance itself. The latter would mean bust banks. Revaluing the banks instead, essentially by writing off a large slice of debt across the board and passing that back to borrowers would:
- reduce defaults
- reduced defaults/risk of default would result in a stronger, despite smaller, bank balance sheet
- banks could lend and borrow on the basis of that balance sheet
- individuals' liquidity/disposable income would improve, stimulating the economy
- there would be no need for "bail out"
- shareholders would not lose their shares or prospect of dividends (the dividends would be smaller but that's better than nothing)
etc. etc.

Instead the government increased EVERYBODY's debt by bailing out the banks (what the government borrows, we have to pay back with interest). The government has also made saving unattractive with low interest rates and is actively encouraging MORE debt by inducing banks to lend the money the taxpayer has given them back to the taxpayers so that people further increase their indebtedness... Brown stands on stages talking of schemes to make us increase spending and for banks to increase lending... Brown's ratings actually went up in the opinion polls, aided by his missus turning up on a conference stage...

You couldn't make it up....

As for reviewing the monetary system... Fundamentally, in my opinion, money is NOT a product. It should not be sellable for profit. Charging fees for looking after money or processing transactions is fair enough - even using a % scale to do so is fair enough. But interest? No... Interest was once illegal - it was called usury. I'd like to revisit that principle.

[elster]

Fittster said:

MOTORVATOR said:

The ability to control stupid increases in prices of housing stock has always been there for the gubbernment.

Release more than sufficient land for housing development demands, and it would not escalate into fantasy levels. Secondly reduce the bureaucratic nonsense attached to actually developing that land so that it actually delivers.

Supply matches or exceeds demand and prices stabilise. Simple ain't it Gordon you prick!

There has never actually been a property shortage:

http://www.moneyweek.com/investments/property/what...

Just because a house is empty does not mean that the Government can take it off the owners hands and give to someone else.

Therefore still need to build houses.

[speedy_thrills]

bosscerbera said:

Fundamentally, in my opinion, money is NOT a product. It should not be sellable for profit. Charging fees for looking after money or processing transactions is fair enough - even using a % scale to do so is fair enough. But interest? No... Interest was once illegal - it was called usury. I'd like to revisit that principle.

So, just for entertainment, how would you get banks to lend in that situation? What about people who buy shares, without interest how will you encourage them to invest? Investing is, after all, lending really.

As far as I can see that might work but you would have very little liquidity because all wealth would be owned as assets. Governments would have to back the money they issued with an asset as well. The positive side is it would be very stable but the negative side would be that there would be very little flexibility in the system and growth, even in a fantastic company would be very slow.

[Plotloss]

bosscerbera said:

thehawk said:

I have no problem with house values based on desirability and being driven by the market.

However I have very strong views that people should only be able to own a single dwelling, possible 2 if the other is a holiday home. Maybe not prevent people from owning homes but certainly have prohibitive capital gains or other disincentives.

Why?

If the market were left to normalise the bloated house prices would settle. The ownership of multiple properties - buy-to-let especially - was fueled by credit which in turn fueled speculation. There is nothing wrong with somebody with REAL money holding a portfolio of dwellings and drawing an income from renting them. Prices of things increase when several people want to buy things (excess demand) and the means to buy those things is readily available. Credit is the problem.

Many people think of bank credit as being an actual sum of real money that somebody deposited being lent. It's not. The bank only needs to sit on £100m of real money on deposit to loan £1 billion. Banks being forced to write down huge amounts of loans to adjust the ratio of deposits to lending does not mean savers lose lots of money. Most of a bank's "assets" are not cash, they are the pieces of paper that people sign saying "I will repay £100K + interest over the next 20 years". the vast majority of those pieces of paper could be shredded without affecting a single saver. Why? Because the bank didn't lend anything at all.

Google "Montgomery vs Daly".

The banks' assets are mostly made up of those "I'll pay it back" papers, not real cash. And then they lend multiples of those assets, collecting more "I'll pay it back paper". And lend on that too.... Ad nauseum.

Many people think that bank profits are made up from bank charges and interest. Stop and think about that... Do you REALLY think BILLIONS of profit can be made from the difference between interest paid to savers and interest earned from borrowers topped up by charging for processing cheques and sending nastygrams about overdrafts? Of course not! A bank with £1 billion on deposit is allowed to lend (and collect) £9 billion PLUS INTEREST. Banks make money by literally MAKING money - interest and bank charges are bunce.

They have made too much of it - it all looked great for a while, too good to be true in fact. Erm, it was... The banks had a vested interest in property prices soaring because they can make much more money. They can "make" much more if we all want to pay £200K for a house instead of the £100K it cost to build the fking thing. That's great for banks...

I think we either review the monetary system (a big ask) or leave the market to balance itself. The latter would mean bust banks. Revaluing the banks instead, essentially by writing off a large slice of debt across the board and passing that back to borrowers would:
- reduce defaults
- reduced defaults/risk of default would result in a stronger, despite smaller, bank balance sheet
- banks could lend and borrow on the basis of that balance sheet
- individuals' liquidity/disposable income would improve, stimulating the economy
- there would be no need for "bail out"
- shareholders would not lose their shares or prospect of dividends (the dividends would be smaller but that's better than nothing)
etc. etc.

Instead the government increased EVERYBODY's debt by bailing out the banks (what the government borrows, we have to pay back with interest). The government has also made saving unattractive with low interest rates and is actively encouraging MORE debt by inducing banks to lend the money the taxpayer has given them back to the taxpayers so that people further increase their indebtedness... Brown stands on stages talking of schemes to make us increase spending and for banks to increase lending... Brown's ratings actually went up in the opinion polls, aided by his missus turning up on a conference stage...

You couldn't make it up....

As for reviewing the monetary system... Fundamentally, in my opinion, money is NOT a product. It should not be sellable for profit. Charging fees for looking after money or processing transactions is fair enough - even using a % scale to do so is fair enough. But interest? No... Interest was once illegal - it was called usury. I'd like to revisit that principle.

Financial system liquidity should be underpinned by endeavour and toil not by hope and sentiment.

[bosscerbera]

speedy_thrills said:

bosscerbera said:

Fundamentally, in my opinion, money is NOT a product. It should not be sellable for profit. Charging fees for looking after money or processing transactions is fair enough - even using a % scale to do so is fair enough. But interest? No... Interest was once illegal - it was called usury. I'd like to revisit that principle.

So, just for entertainment, how would you get banks to lend in that situation? What about people who buy shares, without interest how will you encourage them to invest? Investing is, after all, lending really.

As far as I can see that might work but you would have very little liquidity because all wealth would be owned as assets. Governments would have to back the money they issued with an asset as well. The positive side is it would be very stable but the negative side would be that there would be very little flexibility in the system and growth, even in a fantastic company would be very slow.

I think you're hanging on to a lot of dogma - in particular that interest is essential and fast growth is a good thing.

The interest you earn from a bank is a 'cut' of the interest they charge. It's presented to you as you getting the bigger cut as it's your money right? You deposit £100, you earn 3%, they lend at 5%. Good eggs eh? No... they take your £100 and make up to £900 for themselves. You earn £3. The presence of interest in the equation is of little consequence.

Interest isn't' what you earn from buying shares anyway, you get a pro rata share of a profit.

As Plotloss just said:

liquidity should be underpinned by endeavour and toil not by hope and sentiment

You want it all to grow faster? Work harder/smarter and stop looking for the fast crooked buck.

[NoelWatson]

Fittster said:

The conventional wisdom is there is/was a housing shortage but maybe its not so clear cut.

Was this the wisdom of a vested interest?

[NoelWatson]

speedy_thrills said:

Fittster said:

speedy_thrills said:

Fittster said:

Where is the evidence there was ever a shortage of supply?

The demand increased with the availability of cheap money but supply did not, therefore there was a lack of supply which drive prices up.

Does that make sense?

From my pervious link...

There is a shortage is people won't sell, regardless of if those properties are occupied or not.

Edited by speedy_thrills on Monday 1st December 23:09

People will be willing to sell as the market continues to fall, either because they capitulate, or because they can't fund the mortgage(s), either through exhorbitant funding costs or job loss (or both)

[speedy_thrills]

bosscerbera said:

I think you're hanging on to a lot of dogma - in particular that interest is essential and fast growth is a good thing.

Fast growth can be a good thing, as long as it's sustainable in the long term.

I'm still struggling to see how you are going to encourage people to make financial transactions when it comes to facilitating lending and borrowing without them having to earn/pay a rate of interest, am I being thick here?

One good thing about fractional reserve banking is that it's very stable because effectivly money is lent into the economy to represent assets of all kinds. A crash in house prices alone for instance will only have a slight deflationary effect.

[NoelWatson]

speedy_thrills said:

A crash in house prices alone for instance will only have a slight deflationary effect.

Unfortunately I think when the housing market crashes, it pulls everything down with it

[Marf]

Nyet, comrade

[speedy_thrills]

I've been thinking about this however and I'm starting to wonder if one of the problems with our banking system isn't that it's dominated by just a few really big companies? If more financial entities could offer lending services would it force the banking industry into more prudent lending practises/analysis and away from bundling debt as a model?

[/socialist]

[speedy_thrills]

NoelWatson said:

speedy_thrills said:

A crash in house prices alone for instance will only have a slight deflationary effect.

Unfortunately I think when the housing market crashes, it pulls everything down with it

True but it could be more volatile is backed by a single "standard".

In the end no currency system is any better than we are as humans.

[NoelWatson]

speedy_thrills said:

I've been thinking about this however and I'm starting to wonder if one of the problems with our banking system isn't that it's dominated by just a few really big companies? If more financial entities could offer lending services would it force the banking industry into more prudent lending practises/analysis and away from bundling debt as a model?

[/socialist]

IIRC it was the smaller companies that were doing the more risky lending and that have now gone under.

[bosscerbera]

speedy_thrills said:

bosscerbera said:

I think you're hanging on to a lot of dogma - in particular that interest is essential and fast growth is a good thing.

Fast growth can be a good thing, as long as it's sustainable in the long term.

I'm still struggling to see how you are going to encourage people to make financial transactions when it comes to facilitating lending and borrowing without them having to earn/pay a rate of interest, am I being thick here?

One good thing about fractional reserve banking is that it's very stable because effectivly money is lent into the economy to represent assets of all kinds. A crash in house prices alone for instance will only have a slight deflationary effect.

Fast growth ISN'T sustainable. Real growth is producing more "stuff" not growing the prices of everything and pumping more money (debt) into the system.

I don't think you're being thick, I think you're "stuck" on dogma. Why are you hung up on interest?

Investment in enterprises is what one does to exceed the returns likely to be earned from interest anyway. What's the point of dropping £1000 in a bank to earn, say, £50 a year when you could invest a £1000 in an enterprise to secure a proportion of its profits? If interest didn't exist making your money work would require INVESTING it. The very notion that sinking it in assets to appreciate (in particular, property) or in a bank to earn interest is laziness and it's inflationary - it's not real growth, it's just devaluation of the currency. A house bought 15 years ago at £150K that's now worth £450K isn't a £300K profit, it's a devaluation of what £150K can buy.

[hugoagogo]

how about if the government (if they weren't incompetent) built a whole load of good quality but quite basic houses for decent lower income people to rent on long term secure leases (ie not sink estates)

all those people in those houses wouldn't need to rent privately, there would be a massive drop in buy to let, with a corresponding drop in demand for, and therefore price of, all houses
the government saves money in paying out rent to private landlords too

I appreciate this is a bit of a pipe dream, I was born in one of these utopian wonderlands that they built in the 60s in Glasgow (the one that's just been knocked down) - but surely it is within human ability to do this properly?

there again, it's probably quite within human nature to fk it up royally from every angle, not just building it, but the people living in these house too

[NoelWatson]

hugoagogo said:

how about if the government (if they weren't incompetent) built a whole load of good quality but quite basic houses for decent lower income people to rent on long term secure leases (ie not sink estates)

all those people in those houses wouldn't need to rent privately, there would be a massive drop in buy to let, with a corresponding drop in demand for, and therefore price of, all houses
the government saves money in paying out rent to private landlords too

I appreciate this is a bit of a pipe dream, I was born in one of these utopian wonderlands that they built in the 60s in Glasgow (the one that's just been knocked down) - but surely it is within human ability to do this properly?

there again, it's probably quite within human nature to fk it up royally from every angle, not just building it, but the people living in these house too

How about if houses fall another 30% and become affordable again.

[hugoagogo]

then the cycle starts again

[crofty1984]

Mike400 said:

you lot seem a touch tetchy this evening! I just think there must be some system that would better prevent massive over inflation re house prices

Yes, if people weren't stupid enough to take out 8x salary 120% mortgages, and the banks weren't so keen to lend, then the market will find its true value. This house price crash/credit crunch (god I hate that phrase) will be good in the long term.

[bosscerbera]

crofty1984 said:

Mike400 said:

you lot seem a touch tetchy this evening! I just think there must be some system that would better prevent massive over inflation re house prices

Yes, if people weren't stupid enough to take out 8x salary 120% mortgages, and the banks weren't so keen to lend, then the market will find its true value. This house price crash/credit crunch (god I hate that phrase) will be good in the long term.

I don't see those who took mega-multiple/>100% mortgages as all being stupid. Doubtless there are examples of people who've used these mortgages to fund never-never lifestyles but one way or another they were bound to come unstuck some day.

The tragedy is that for many people these ridiculous finance deals were the ONLY way for them to buy a home. And it became the only way to buy a home because some people had accepted the terms which forced up house prices. House prices should have leveled out, or even fallen, years ago. The price of anything is limited by competition for it (multiple buyers) and the ability to pay for it. When 'conventional' mortgage ratios were no longer adequate for there to be buyers for homes, that should ordinarily have been the tipping point for a price correction. Instead the banks devised new 'mortgage products' with Brown-endorsed 'creativity' to keep the market moving up.

The monetary system we have is entirely debt-based. The more debt the better for banks. Once you've signed that piece of paper saying "I'll repay the money with interest", that's your arse handed to them on a plate - job done. That bit of paper now gets added to their balance sheet and they can lend 90% of that to somebody else. Less than 5% of the "money" in the economy exists as cash, the rest is just a number on a bit of paper, no more no less.

The collusion between the government and banks to create this mess is disgusting. Enabling/creating all this debt made the economy look good for Brown, and all his ilk are interested in is looking good in the media and staying in power. They have no morals, no consideration of the common good.

In order to keep "looking good", Brown has just indebted the population in a bid to perpetuate the problem his fingerprints are already all over - he wants to see MORE debt taken on by the population to keep the economy rising. But there is no tangible basis for it to rise, nor has there been for years. Britain has not created "more" of anything - we're a nation of borrowers and shoppers with the majority of the population either on hand-outs or employed by the government. The minority of the population picking up the tab is getting smaller and producing less.

[fluffnik]

bosscerbera said:

The collusion between the government and banks to create this mess is disgusting. Enabling/creating all this debt made the economy look good for Brown, and all his ilk are interested in is looking good in the media and staying in power. They have no morals, no consideration of the common good.

In order to keep "looking good", Brown has just indebted the population in a bid to perpetuate the problem his fingerprints are already all over - he wants to see MORE debt taken on by the population to keep the economy rising. But there is no tangible basis for it to rise, nor has there been for years. Britain has not created "more" of anything - we're a nation of borrowers and shoppers with the majority of the population either on hand-outs or employed by the government. The minority of the population picking up the tab is getting smaller and producing less.

Unfortunately the Loyal Opposition are players in the same scam.

The whole bloody lot needs to go.

Since times are interesting they might as well be properly interesting.