"If we want economic growth, we must build more houses"
I actually laughed out loud when I read this headline from Neil Bentley, Deputy Director-General, CBI, in his op-ed in the Telegraph today.
Residential housebuilding Bentley argues "remains a real concern. It is still enduring a severe and protracted downturn, with little sign of improvement. Housebuilding is languishing at its lowest peacetime level for 90 years. Before the downturn hit, it accounted for around 17pc of total construction output, now it’s nearer to 12pc.
Bentley, in support of his argument that new housebuilding is at lower levels than seen in recent years, states that mortgage approvals are at "record low levels". This is mostly irrelevant to new build, as the vast majority of 'new' mortgages are just an existing homeowner with a mortgage moving house, there is no change in the demand for new homes. That can only come from 'first time buyers'. Mortgage approvals are an indicator of activity within the existing housing stock, a turnover or velocity measure, not an indicator of demand for new houses.
With the wisdom that only a modern decision-maker can display he notes that "Even with a chronic housing shortage, the lack of access to finance chokes off demand for new homes." - as I showed here there has been a reduction in demand for new homes since around 2003, there is a housing surplus, not a shortage. Finance does not choke off demand, access to money or resources has always been a limiting factor for anyone making any economic exchange. Any given person's 'ownership' of stuff has always been limited, and their ability to borrow likewise. Demand changes with price in currency (that's how the economists generally frame it anyway). When the price is perceived to be very high demand at that price falls. It is this narrative of eternal shortage that helped expand credit so greatly before 2008, and made houses unaffordable to those who didn't already have one.
The 'lack of access to finance' is not some financial crime perpetrated by nasty bankers who won't lend, it is a function of sky-high credit expansion in a reducing homeowner mortgage market which pushed house prices up 70% beyond their last peak. Finance is limited by the borrowers ability to pay, when asset prices are inflated to very high levels by expanding credit the result is that credit naturally stops expanding. Growth in credit is limited by the rules of the money system. The Central banks and finance ministers are doing what they can to change the rules, so that the limiting ones don't apply any more - but that cannot work.
Bentley talks of "fulfilling dreams" and a "property ladder" and finds it "hard to believe that the average age of an unassisted first-time buyer has climbed to 37, up from 33 in 2007" - there is no property ladder, only the perception which grew over the last 20 or so years that everyone had some kind of legal or constitutional right to buy a home. The narrative here, and we have heard it again and again, is that those without a house of their own need to buy one, because it will be worth more in the future, house prices go up, you get richer, the homeowner can trade-up to a bigger house as their career and earning go up, eventually they sell it, downsize in retirement and pocket a wad of cash - some are taking this to be their future pension, or part of it. Good luck with that. The world has changed. Property prices, in real terms, will drop for the next few decades and probably for a generation. The property ladder is now a property 'helter skelter' - not so comforting or financially-rewarding.
He talks approvingly of "stimulus" from the government - (new shared-equity schemes, including FirstBuy and HomeBuy Direct and a scheme in which 15 local authorities with Lloyds TSB "top up" first-time buyers’ deposits). The Keynsian-style funding from local and national government is a misallocation of taxpayers money. It is an encouragement of behaviour which generated the problems which Bentley is discussing. It is storing up more financial trouble for these new homeowners and for taxpayers who are lending to them via the government.
Bentley thinks this is all a good thing. And he speaks of "innovation" and "imaginative" schemes from big housebuilders to promote first time buyers to buy their homes (which I posted on here). Those corporate schemes will bankrupt the housebuilders, who will probably ask the taxpayer for a rescue - let's say within 2 years. What goes for government credit schemes goes for private schemes - it will cause greater credit problems than corporates and taxpayers have already - debt saturation cannot be cured by increasing debt.
Residential housebuilding Bentley argues "remains a real concern. It is still enduring a severe and protracted downturn, with little sign of improvement. Housebuilding is languishing at its lowest peacetime level for 90 years. Before the downturn hit, it accounted for around 17pc of total construction output, now it’s nearer to 12pc.
Bentley, in support of his argument that new housebuilding is at lower levels than seen in recent years, states that mortgage approvals are at "record low levels". This is mostly irrelevant to new build, as the vast majority of 'new' mortgages are just an existing homeowner with a mortgage moving house, there is no change in the demand for new homes. That can only come from 'first time buyers'. Mortgage approvals are an indicator of activity within the existing housing stock, a turnover or velocity measure, not an indicator of demand for new houses.
With the wisdom that only a modern decision-maker can display he notes that "Even with a chronic housing shortage, the lack of access to finance chokes off demand for new homes." - as I showed here there has been a reduction in demand for new homes since around 2003, there is a housing surplus, not a shortage. Finance does not choke off demand, access to money or resources has always been a limiting factor for anyone making any economic exchange. Any given person's 'ownership' of stuff has always been limited, and their ability to borrow likewise. Demand changes with price in currency (that's how the economists generally frame it anyway). When the price is perceived to be very high demand at that price falls. It is this narrative of eternal shortage that helped expand credit so greatly before 2008, and made houses unaffordable to those who didn't already have one.
The 'lack of access to finance' is not some financial crime perpetrated by nasty bankers who won't lend, it is a function of sky-high credit expansion in a reducing homeowner mortgage market which pushed house prices up 70% beyond their last peak. Finance is limited by the borrowers ability to pay, when asset prices are inflated to very high levels by expanding credit the result is that credit naturally stops expanding. Growth in credit is limited by the rules of the money system. The Central banks and finance ministers are doing what they can to change the rules, so that the limiting ones don't apply any more - but that cannot work.
Bentley talks of "fulfilling dreams" and a "property ladder" and finds it "hard to believe that the average age of an unassisted first-time buyer has climbed to 37, up from 33 in 2007" - there is no property ladder, only the perception which grew over the last 20 or so years that everyone had some kind of legal or constitutional right to buy a home. The narrative here, and we have heard it again and again, is that those without a house of their own need to buy one, because it will be worth more in the future, house prices go up, you get richer, the homeowner can trade-up to a bigger house as their career and earning go up, eventually they sell it, downsize in retirement and pocket a wad of cash - some are taking this to be their future pension, or part of it. Good luck with that. The world has changed. Property prices, in real terms, will drop for the next few decades and probably for a generation. The property ladder is now a property 'helter skelter' - not so comforting or financially-rewarding.
He talks approvingly of "stimulus" from the government - (new shared-equity schemes, including FirstBuy and HomeBuy Direct and a scheme in which 15 local authorities with Lloyds TSB "top up" first-time buyers’ deposits). The Keynsian-style funding from local and national government is a misallocation of taxpayers money. It is an encouragement of behaviour which generated the problems which Bentley is discussing. It is storing up more financial trouble for these new homeowners and for taxpayers who are lending to them via the government.
Bentley thinks this is all a good thing. And he speaks of "innovation" and "imaginative" schemes from big housebuilders to promote first time buyers to buy their homes (which I posted on here). Those corporate schemes will bankrupt the housebuilders, who will probably ask the taxpayer for a rescue - let's say within 2 years. What goes for government credit schemes goes for private schemes - it will cause greater credit problems than corporates and taxpayers have already - debt saturation cannot be cured by increasing debt.
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