House prices wilting - a little more reality creeping in?

In recent months new channels (including the BBC only yesterday) and papers have been reporting the 'return to growth' of house prices ... based on a mixture of 'hope' and 'flawed economics'.  Today, following the Halifax figures showing them falling the BBC has had to report the situation slightly differently ...

UK house prices wilting in summer

House prices are falling in part because of more properties for sale. UK house prices have fallen slightly in the early summer compared with the start of the year, a survey has found.

Property values dropped by 0.6% in June compared with May, following a 0.5% fall the previous month, the Halifax said. This meant prices in the second three months of the year were 0.1% lower than the first quarter.

More properties coming onto the market and less activity from house buyers has caused the fall, the lender said. The average home in the UK is now valued at £166,203 according to Halifax figures.

The typical property was still 6.3% higher than a year ago, although the figures point to the house price recovery faltering this year.

Martin Ellis, housing economist for the Halifax, said that the figures were not a great surprise. "This pattern is in line with our view that house prices will be broadly unchanged over 2010 as a whole," he said.

"A shortage of properties for sale in 2009 contributed to an imbalance between supply and demand and was a key factor driving up house prices last year.

"An increase in the number of properties available for sale in recent months has helped to reduce the imbalance, relieving the upward pressure on prices."

He said that the continued low level of interest rates continued to keep demand steady. The Bank of England's Monetary Policy Committee is widely expected to announce later that it is to keep the Bank rate at 0.5%."

David Smith, of property consultants Carter Jonas had previously told the BBC "where house prices go from here is difficult to predict because there are so many factors at work at the moment ... the fallout from the Budget will certainly have a major role to play in the coming months, with uncertainty surrounding impending public sector cuts and higher taxes, and of course we still have the ever-present threat of interest rate rises in the mix".

He is right, except for the predicted future for house prices (e.g. take a look at the standard curve for any 'asset' above - we are just going past the 'return to normal' point).  In fact the only thing that will slow the second decline is the realisation that supply of new property under the last Government was allowed to consistently lag well behind known demand (helping to 'inflate' prices and provide a 'feeling of wealth') ... but to everyone's cost.  If you currently feel you are a beneficiary of this, please think again ... e.g. think about the 'hand' you have dealt to your children (and grand children) and all young people today (and how long those clever enough to spot this are likely to stay in this country as a result), about how much you (and everyone else) have actually paid in your lifetime to banks (e.g. double the value of your mortgage) and bankers bonuses (and inflated estate agent fees), the fact that you only actually recover any actual 'profit' when you die and when it's of no use to you (as you still have to live somewhere), and the fact the Government plan to fund your old age care by selling your house to pay for it (as they don't have the cash to do it any other way)!  Speculation and investment in property also does nothing to improve the massive trade imbalance (and our ability to fund the nation's public services) or halt rising Government debt ...  etc etc

The new Government do not appear to be planning anything with regard to easing constraints to building new property either, which will maintain the long term imbalance between supply and demand, and will obviously reduce the speed and final level of decline.  They have also reduced the top rate of capital gains to help the 'speculators' who benefited greatly from property speculation in the past, to maintain people's interest in property, and to once again reduce the speed and final level of decline. None of these things solve any of the real problems however, and just wait until public sector jobs are slashed and interest rates start to increase (due to the rising costs of imports e.g. petrol prices up 30% to £5.30/gallon).

A little more reality still needs to creep in I'm afraid ... and 'flawed economics' (Poweromics - self interest, and greed) needs be replaced by a 'new economics' (Leanomics - based on value, values, trust, honesty, responsibility and respect). Nothing else will do ... as nothing else will work.  Where do you think the millions of jobs are going to come from to reduce the trade deficit, reduce Government debt, and pay for public services?

University education - who 'pays' ?

The Confederation of British Industry (CBI) today stepped forward to say University students in the UK should pay more for their loans and accept higher tuition fees as "inevitable".

The National Union of Students attacked their report as "gross hypocrisy" from the "fat cats at the CBI". The Association of Teachers and Lecturers attacked the proposals as "arrogant and elitist".

In my view the CBI is once again promoting the wrong strategy, and Robert Peston has today done a fantastic job in challenging this position in his blog ... and points to the issue of inter-generational social justice the CBI ignores ... I've included a few of his comments below:

'... More by luck than desert, the generation of Lambert, Balls, Laidlaw and even Peston have had it pretty good ... we had free university education ... we have saved for a pension over the many years of a bull market and when companies and the public sector felt obliged to offer gold-standard final salary pension schemes ... we managed to get on the property ladder before house prices became ludicrously inflated...

... It was our generation which royally messed up the economy with the inadequate governance that led to the credit crunch and the worst global recession since the 1930s ... but we're - on the whole - alright Jack, thanks to the accident of when we happen to have been born ...

... but those leaving school and university today face an altogether bleaker future: a drought of jobs; a bewildering and unappealing set of options for saving and investing; over-priced residential property (even after the "correction"); relentless fearsome competition from India, China, and so on ...

.. and there's the costs of providing a health service and welfare state to sustain an older generation ...

... so some may well argue that as and when a new government decides to make cuts or increase taxes - to fill the hole in the public finances created by the current generation - its first instinct should probably not be to penalise students ... shouldn't the older generation bequeath them something other than debt?'

and in response to his blog I added:

'Well put - an excellent article again ... and many great comments from bloggers too. IMHO setting a target of 50% of people going to university is a joke, the CBI comments are a disgrace and the Government need to think very carefully about what they choose to do in this area ...

... for instance young people also have a choice where they live (n.b. they can move anywhere in the EU without restriction), and if hard-working young people move out of the UK to work elsewhere then there will be few value/wealth creators at all here in the future and no-one to pay the taxes necessary to subsidise any public services at all (or to pay off any of the debts) ... and the whole system will continue a downward spiral ... until widespread protest/social unrest hits the streets ...

Instead of passing more debt on to future generations, what about introducing a new tax - a 'Land Value Tax'* (which a number of other countries currently have) ... as it's known to be particularly effective at targeting rich landowners who own most of the land, assets & wealth ... as this group can more than afford it, it can't easily be 'passed on' and they also can't avoid it - unlike most/all of the other taxes aimed at them**! ...

... It would raise large amounts of tax and would allow other taxes to reduce as a result. It would also push landowners to make more land available for housing - which would partly tackle the over-priced residential property market we still have too. A small fraction of this tax revenue could be used to subsidise free tuition fees and provide maintenance grants (e.g. more 'means-tested' grants) for future generations of value/wealth creators (e.g. so long as they are UK residents and continue to stay in the country) ...

... Let's also reduce the number of students going to University from the stupidly high target of 50%, support proper vocational apprenticeships and scrap/replace all the poor quality courses we see today e.g. most of the very expensive, and yet completely flawed, MBA programmes ... which teach students 19th century management practices instead of 21st century management practices (i.e. outdated courses, which partly got us in this mess, and which are often referred to as 'Maybe Best Avoided' - even without all the debt)!

* take a look at http://poweromics.blogspot.com/2009/08/land-of-free-but-whos-paying-for-it.html for instance.

** NB the Government have allowed 'land' to be one of the very few things exempt from inheritance tax too!

Why the Prime Minister hasn't learnt a thing

Gordon Brown said today he is "appalled" that some financial firms are continuing, and even extending, their bonus culture ... so why did he present an open-cheque book to them, bail them out with £100's billions of taxpayers money, and put nothing in place to stop this from happening again? ... for instance why has he not pushed for the introduction of a new Glass-Steagall type act to separate commercial banking (supporting wealth creation) from investment banking (supporting wealth manipulation) again, given the removal of this was a key factor in the financial crisis in the first place?

Mr Brown also refused to blame Britons for their level of rising personal debt during his time as chancellor and prime minister, saying the vast majority of debt had been the result of the "legitimate aim" of people trying to buy a home ... a "legitimate aim" to have a roof over ones head - yes ... but to have to take on huge personal debts to do this - no! ... and this would not have happened if the Government had ensured a steady & sufficient supply of housing (ideally driven by a Land Value Tax too), rather than 'promoting' self interest/greed and house price inflation/speculation.

The problem is the Government do not know how to create real wealth ... they only know how to manipulate wealth, and letting landowners profit from land whilst bankers profit from loans ... and what's even more worrying is that the Prime Minister's comments today show he hasn't learnt anything from this crisis! ... so how could we ever believe he is the right man to fix it?

'Cutting' your way to 'success' is flawed

Supporting enterprise that creates value for others (and wealth for the nation) would be a good idea - as the revenues, and hence the taxes paid for by corporations / workforce, is what's actually needed to fund any public services in the future ... yet little mention / action by politicians with regard to this ... they all show they have no real policy/ideas on this at all ... hence their focus on cutting costs ... and they haven't really got a clue about that either.

What we see is current 'leaders' failing to 'lead' ... the government gave hundreds of billions of taxpayers money to financial institutions ... who prefer to i) make money from money (i.e. wealth manipulation'), to ii) gamble using other peoples' money, and to iii) profit from the good times and get bailed out by us in the bad ... nothing has changed, and we are continuing down this road again ... but with very little to show for it, except a massive debt to pay off, higher taxes and less & less cash to pay for public services.

Investment in entrepreneurship and real enterprise is needed to rebuild a sustainable economy and to fund future public services ... instead of trying to get investment to return into property again (alongside gambling) in the hope that international markets believe people in the UK will be prepared to take on more debt so that they can take a disproportionate chunk of people's salary in the process (for adding little/no value at all) once again ...

If the UK still plans to go for the latter, don't expect it to last for very long, as debt will continue to spiral out of control, more unemployed will need to be supported by the state due to the lack of enterprise, and many more enterprising/hard-working people will make a different choice on where they would like to live (e.g. remember EU borders are all open now)- and they will be unlikely to choose here (e.g. because of high property prices, high taxation and imploding public services ...)

Simply 'cutting' your way to 'success' is a flawed strategy. Innovation and value-added enterprise, supported by freeing up more resources to allow more value to be created, is far better (e.g. robust & sustainable) ... but current 'leaders' haven't got a clue ... fail to understand this ... and unfortunately the chicken's will eventually coming home to roost.

Posted on the Stephanomics blog (Post 17), and links to chapter 1 (page 9) of my book!

For evil to flourish ...

Whilst commenting on Stephanie Flanders blog "The Global Property Scene" (Post 25), I was struck by a fellow contributor (ishkander) who made the following observation (Post 75) 

'In English, there is a saying - For evil to flourish, all it need is for good men to do nothing'

This brought an additional meaning to me for the definition of Poweromics, and Ignoromics, and provided a more spiritual dimension to the 'battle of values' ahead too.

Leanomics vs Poweromics & Ignoromics

where 

* Leanomics = People taking responsibility for adding value and continuously improving the situation for others (e.g. customers, communities, overall environment), based upon fundamental values such as trust, honor, responsibility and respect.

* Poweromics = People using position and power for their own personal gain, based on poor moral values, self interest and greed. Take a look at http://poweromics.blogspot.com for more information/examples of Poweromics.

* Ignoromics = People are either effectively ignorant of the situation (e.g. the overall environment) or not prepared to take responsibility to make sure it changes for the better.

Until the Government stops trying hard to make us believe that Property = Wealth .... and focuses on improving community well-being, jobs and sustainable enterprise instead ... underpinned by strong moral values such a trust, honor, responsibility, respect ... the UK is going to continue its rapid downward spiral into oblivion.

Jobs are continuing to be lost and job security is at an all time low. The Government is now worried about unrest too ... perhaps because "The Devil makes use of idle hands" ...

... but rather than using this as an excuse to increase police/security and reduce civil liberties, why don't they 'listen' to the people and focus on solving the right problems, rather than the wrong ones (e.g. trying to make property prices ramp up quickly again, so young people and future generations have to be saddled with huge debt once again to get a roof over their head, and so banks, using our money, can make money from them again) ... 

... I'm afraid it comes down to more Poweromics I'm afraid (or should I be calling it 'evil' ?) ... and as my fellow contributor also pointed out ... our 'listening PM' has 'wooden ears"!  

Ishkandar - Thanks for your posts, and your insight. They have been referred to on the Poweromics blog too ... 

Comment added to Post 94 of the blog.