19 Jan 2009

Beckett on housing

Interesting interview in today’s Times with Margaret Beckett, currently the housing minister. It seems to me that property commentators are divided into bulls and bears and that Beckett, and by inference, the government are siding with the recovery bulls.

If demand starts to turn up before supply turns up, you’re immediately back in inflationary pressures, and it’s just not economically healthy, she is quoted as saying. Well, yes that’s true, but inflation seems to be about the least of our concerns at the moment, so complaining that such a situation would be inflationary is akin to telling a cancer sufferer they would feel better if they had a haircut.

She goes on: when the upturn comes, there will probably be a mad rush. How does she know this? There wasn’t the last time, nor the time before, so is she privy to some inside knowledge that the rest of us are not? And if so, why didn’t she warn us about the crash two years ago?

Next up: We’re going through a recession when we know there’s a substantial built-in growth of householder demand in the pipeline.

Almost by definition, falling prices are a result of falling demand, so what she is saying is that this is only temporary and that it’s just a matter of time before we return to the status quo ante. Again, how does she know? And what business is it of a minister to predict the future like this?

Interviewer Isobel Oakeshott asks if we should be more like the Germans, and accept that sometimes renting is better? Beckett won’t have it.

You could turn the question on its head. Why is it that people in places like France or Germany or the Netherlands, or wherever, don’t want to, don’t care, about owning their own homes? Maybe it’s they who are the people whose attitudes are a bit surprising.

Well, yes, it’s an interesting line, but why not answer the question? Afterall, behind it is the suggestion that we had become too keen to use housing as an investment and that this became a principle cause of the bubble.

Beckett prefers this line: People do feel that if you are just paying rent for years, it’s money down the drain. It isn’t, in the sense that it’s providing a roof over your head, but a lot of British people do feel like that and I don’t really see much sign that will change.

This seems a very strange observation and one that suggests she doesn’t get out enough. There is nothing intrinsically British about owning property and the perception that it’s a sure fire winner is surely changing in front of our very eyes right now. Paying rent may be money down the drain, but it’s a much smaller drain that paying a mortgage for a depreciating asset.

So why is Beckett so bullish? Why does she appear to be so certain that in a year or two everything will back to where it was and house prices will once again start rising? She may well be right — though personally I doubt it — but that still doesn’t explain just why she is so keen to see a return to the old days. It’s not as though they were so wonderful, was it? One of the persistent problems being faced was that hardly anyone could afford to buy a house. Admittedly, this justified a huge government housebuilding programme, but the point of this was ostensibly to make housing more affordable.

Could it be that, at this point in time, the government’s entire strategy is to try and turn the clock back to 2007 when everything in the garden appeared to be rosy and under control. Hence the constant exhortations to the banks to “get lending”, even as they are being berated for lending too much a mere 18 months ago. And the panic measure of reducing interest rates to 1.5%, as if that will persuade people to go out on a borrowing binge. The problem here is that if the economy does take off, Beckett style, then the first thing that will happen is that interest rates will go back up again. And if it doesn’t, then house prices will go on falling. As it stands, these near-zero interest rates look about as enticing as a stranger offering you sweets if you get into his car.

What’s just as interesting are the comments left by readers. At time of writing there are 28 such and only the estate agent appears to think that Beckett could be right. I particularly liked this one from Michael in Tunbridge Wells (presumably disgusted!) : If she's wrong, will people who lose out by taking her advice have a claim against the government?

1 comment:

  1. I am afraid it is depressingly easy to explain. Firstly, saying the same old stuff is the easiest thing to do. Secondly, if she were to say anything else, such as 'perhaps we don't need lots of new houses after all' her advisors fear that there will be cries of 'U Turn', 'Talking down the economy', 'undermining the building industry', 'depressing house prices', 'frightening voters', 'killing of firstborn', etc.

    No, much better to look a little out of touch and 'bullish' than be caught having an open mind and thinking critically.

    In any case this is what Beckett does. She made a dreadful mess at DEFRA over the (broken) farm payment system and got the government fined millions because she was so fixated on The Plan in front of her, she couldn't deal with any one or any thing that appeared to disagree.