We need rising transactions in housing, not rising prices I imagine that most people are wishing these days for a return to the robust growth in the values of houses and land of the early years of the last decade. However whilst there is a need for more liquidity to improve the volume of transactions, which are at less than half of their historic volumes, we surely should not be wishing for values to increase aggressively. We have all seen how destructive a housing bubble can be. |
Rising house prices cause inflation The buying power of our wages is being eroded by inflation and forcing housing costs up adds to inflation, as we have seen. Far better to have a low inflation, lean economy where housing is not seen as a way to get rich at the expense of future generations.
The Irish response The present system of bank lending produced the excess liquidity, the cheap, easy money which caused the property bubble. We should be watching and learning from the Irish now, who experienced an extreme version of our own plight, because their response is to introduce a new bill to the Senate called the Mortgage Credit (Loans and Bonds) Bill 2012 based on the centuries old Danish Balance Principal model.
The Danish model The Danish model was developed after a devastating fire in 1797 destroyed much of Copenhagen. Special banks issued debt for rebuilding which was exactly balanced by bonds sold for investment. The interest and principal on the bonds is tied to the interest and principal paid by the borrowers/house purchasers. The bank sits in the middle earning a mere administration fee. The plan involves a rigid 80% maximum loan-to-value ratio.
Take residential property out of the casino The system has proven robust and the bonds would be a safe investment for our pension funds. The Danish system separates the issue of property finance from property investment and in Denmark has had a damping effect on the market. It tends to remove residential property from the investment casino and treat it as more of a utility, and we all do need a roof over our heads.
Improve national competitiveness As a nation the UK is not as competitive as it needs to be because so much of our capital is tied up in the unproductive housing market. Going forward we need to redress this in order to get our focus where it should be- on wealth creation. Far from acting as a good store of weath our fixation with property is ruining our international competitiveness by shackling people with negative equity, high housing costs, poor liquidity and blocking the mobility of labour.
Restore the Building Societies Our Building Societies did a fine job until they were allowed to turn themselves into banks; there is nothing wrong with mutual ownership. We should be looking to get back to their old lending values and to figure out how best to bring the Danish values back to our market so that we can refocus the British population on wealth creation, which our Victorian forbears excelled at.
New Legislation needed We should legislate to restore our Building Societies as the only lenders to the housing market, giving them restricted powers and taking the loan books away from the banks. UKFI the rump of the Northern Rock was in state hands and we have thrown away one opportunity to take housing out of the casino by selling it to the bearded one. What is left of our Building Societies should be rebuilt around the solid core that is left and the profit motive removed from our housing finance.
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