Gordon Brown: The
Architect Of Britain's Housing Crisis (Taken from Gordon Is A Moron by
Vernon Coleman)
Vernon Coleman
`The way to stop financial joy-riding is to arrest the chauffeur, not
the automobile.' Woodrow Wilson
Britain's low interest rates
(excused by the falsely low inflation figures Gordon Brown has foisted on the
nation) have helped push up the stock market and house prices. As house prices
have risen so people have had more money to spend. How? Because millions have
increased their mortgage borrowing as the value of their house has gone up.
Interest rates have been so low that paying back the money has been no problem.
And since house prices are expected to go up and up, and to stay up, what's the
problem?
The rise in house prices has been so extraordinary (and so
utterly, breathtakingly barmy) that in the early summer of 2007 there were more
houses on the market at over £2 million than there were on the market at under
£100,000. A one bedroom flat in Belgravia, London was put on the market with an
asking price of £3 million. The number of property millionaires in the UK (that
is, people who have become millionaires solely because of the rise in the value
of their home) rose by a third from 2005 to 2006. The proportion of houses
fetching £1 million or more has increased tenfold since Labour came to power in
1997.
Everywhere you look there are figures which prove quite
conclusively that house prices have risen to unsustainable levels.
Under
Gordon Brown's management house ownership in Britain has been the closest thing
imaginable to a mass lottery win. House prices in Britain have risen faster and
further than anywhere else in the world and, as a result, London is now the most
expensive city on the planet. Property in central London is now more expensive
than property in Monaco.
There are several reasons for
this.
First, as a result of Labour's policies the amount of immigration
has rocketed. For every Briton who leaves at least two immigrants come in. This
has dramatically increased the demand for housing. (Naturally, Labour Party
supporters say that even mentioning this is akin to racism.)
Second, the
amount of regulation and red tape introduced by Labour has made it much harder
for building companies to get planning permission to build new houses. The
Government keeps saying that Britain needs more housing. But everything it does
makes house building more difficult, more expensive and more time consuming.
Third, Labour has done everything it can to destroy the family. There
are now real financial incentives for people to live alone. The obvious result
has been an increase in the demand for housing.
Fourth, by constantly
printing more and more money to pay for its expensive expansion of the State,
the Labour Government has dramatically decreased the value of the British pound.
When the pound goes down in value everything else goes up. That's what inflation
is. When interest rates are kept low while the amount of money produced is
dramatically increased the consequences are inevitable: house price
inflation.
Fifth, lenders have become absurdly aggressive - almost
forcing barrowloads of money on borrowers, and in so doing have laid the
foundations for a serious crash. Banks are lending 120% of the cost of a
property. Mortgages can be obtained for five times earnings - instead of the
traditional three times earnings. Mortgages can now be obtained for periods in
excess of half a century. There is now an industry of people selling fake pay
slips so that people can persuade their mortgage lender to let them have a
bigger loan than they might otherwise think wise. If you're unemployed but want
a fake pay slip to show that you have a £50,000 a year job with a blue-chip
company you just type `duplicate pay slip' into an Internet search engine and
choose your `discreet and confidential' adviser. Then, take your evidence to the
bank and come away with a loan for a quarter of a million pounds. This way lies
bankruptcy and disaster.
And finally, since Brown deliberately and
cold-bloodedly destroyed pensions for those Britons not employed by the
Government, more and more people have been putting their savings into property
rather than pension funds.
The result has been that Labour has, partly
deliberately and partly through incompetence and stupidity, forced a tremendous
increase in house prices. Gordon, being a moron, has undoubtedly welcomed the
housing bubble. It is, after all, the dramatic and rather absurd increase in
house prices which has given the nation the false growth it needs to pay for
Gordon's mania for spending.
The rapid rise and nonsensical in house
prices has, by itself, been dangerous enough. (House price rises are nonsensical
because houses don't produce more as they age. Why should their value increase
above inflation? This is unreal money.) Massive house price inflation has moved
money from the poor to the rich and from the young to the old. It has created
multimillionaires and billionaires out of property speculators. And, since much
of the house price inflation has been confined to the South East of England it
has divided the nation.
But there is worse.
The absurd and
dramatic rise in house prices has created a massive consumer boom.
House
owners have been borrowing money against the rising value of their homes. They
have then been spending that money and pushing up the price of shares, art and
just about everything else they can lay their hands on. And the Government has
regarded all that spending as a sign of growth in the economy. It isn't growth,
of course. It's debt. And it has partly explained the apparent boom that has
taken place under Labour.
This hasn't just happened in the UK. It's been
a global phenomenon. In America there has been an identical boom. Average wages
haven't risen in the USA for a staggering 30 years. The consumer boom there, has
been entirely led by the rise in house prices. In Japan, banks have been lending
money at interest rates as low as 0%. They have, in other words, been giving
money away to encourage spending.
Every time the Bank of England pushes
up interest rates (in a belated attempt to cool the economy, dampen spending and
weaken the over-heated housing market) the pound rises on the international
markets. As a direct result, foreign money floods into Britain because investors
in other countries want to take advantage of our higher interest rates. This new
money has to be put to work. And so the bankers who have taken it lend it out.
And so there is more money available for people wanting to buy houses. And so
house prices continue to rocket.
During 2007, as interest rates rose,
some so-called experts claimed that high interests were good for landlords
because first time buyers would be forced out of the market, making them rent
instead. This nonsense comforted the idiots continuing to purchase overpriced
properties. By June 2007, the typical residential property in the UK was
producing a gross yield of around 5.5%. After costs, this meant the landlords
were receiving around 3.5% on their investments. Since most buy-to-let mortgages
were costing 6%, this meant that the average buy-to-let house owner was losing
2.5% on their investment every year. That's hardly the way to riches but, for
the poor devils whose pensions had been utterly devastated by Brown's policies,
a flat that is losing a bit of money a year is a darned sight better than a
pension fund that is disappearing before your very eyes.
Before Brown
destroyed pensions, the buy-to-let market was about 1% of the whole housing
market. After Brown destroyed pensions, the buy-to-let market shot up to 10% of
the whole market. A tenfold increase in the number of people buying houses and
flats as an investment (rather than to live in themselves) has inevitably had a
dramatic influence on house prices. Indeed, there is proof of this in that
rental prices have remained stable throughout this price whereas house prices
have soared and are, compared to rental prices, now at least 50%
overvalued.
The only sensible conclusion is that there is no real housing
shortage. There is, on the other hand, a shortage of housing to buy because
buy-to-let investors, putting their savings into property rather than pensions,
have snapped up huge swathes of what is available.
The housing market is
like a mass lottery win. Everyone who buys a house wins a huge prize. For much
of the 21st century most home owners were earning less through their work than
their houses were earning for them. Even quite ordinary houses were increasing
in value by £50,000 a year - tax free.
When the bottom is reached (and
most things that go up have a habit of coming down eventually) people will
dismiss the idea of buying a house as lunacy. No one will want to buy houses.
Property will be the worst asset to consider if you have some spare money. Young
couples will talk only of renting and never of buying. When house prices start
to collapse they will go down much further than seems sensible or logical. House
prices have gone up too far. They will go down too far. They will go down too
far because people will panic and they will sell at any price. And just as they
lost touch with reality when prices were going up, so they will lose touch with
reality as prices come down. Greed took house prices up. (Though there was also
the fear that if they didn't buy now then they would never be able to buy).
Fear, and nothing but fear, will take prices down.
To those who consider
their house as a home and not an investment then none of this matters. The value
of their home is irrelevant. They bought it and they live in it. That's fine.
But people who consider their houses to be an investment or pension - are going
to worry a good deal. People who like to talk about the value of their houses
and boast about how their house is earning more than they are, are going to
panic. People who bought at the top, with a massive bank loan, aren't going to
have much choice. They will be lucky to get out with their coats.
Looking at the figures dispassionately it seems that by mid 2007,
property in Britain was at least 25% overvalued by every possible sensible
criteria.
But this doesn't mean that if house prices fall they will fall
by 25%.
When markets get out of kilter, as they do from time to time, and
as they have under Gordon Brown's direction, the correction which invariably
ensues always goes as far in the other direction.
So, if house prices are
overvalued by (say) 25% then the chances are that house prices will fall not by
25% but by 50%. And it means, just to rub it in, that if a house is currently
worth £300,000 then it will, when the crash finally teeters to a conclusion, be
worth £150,000. If a buyer can be found.
By then, of course, no one will
be buying houses.
And renting will be quite cheap.
That's the
chaos Gordon Brown has created.
Signs of a house price collapse are
already in evidence. In June 2007, it was reported that there were more than 200
companies which had been set up specifically to buy houses at discounted prices
from distressed home owners. In some instances the companies were renting the
houses back to the sellers. Many of the companies were buying homes at 70-80% of
their market value, and then renting back the houses at less than the previous
monthly payments. A year earlier there were just 20 or so such
companies.
But even the professionals are making mistakes. Property
dealers recently spent $39 billion buying a large and impressive looking
building. They bought it with money costing them 6.5%. The yield on the
properties was capped (for the foreseeable future) at 3.75%. This was as daft as
any investment by a buy-to-let investor. Both are gambling that the capital gain
will cover the difference between income and the outgoings.
In the
sensible old days people bought investment property only when they could
guarantee an income greater than the cost. Any capital gain was a bonus. Today
the deals are being driven solely by the idea of massive capital gains.
***
Over half of London's multimillion pound homes are
now bought not by Britons but by non-domiciled foreigners using Britain as a tax
haven. And over two thirds of properties sold for more than £5 million were sold
to foreign buyers. London is the world's most attractive tax haven. (It is also
the money laundering capital of the world.)
Thanks to Gordon Brown,
foreigners have an added advantage over British buyers when buying houses. If
they buy shares in an offshore firm that owns the London property, rather than
buying the house directly, they pay stamp duty of 0.5% (the rate due on share
purchases) rather than at 4% (the rate due on the purchase of houses costing
more than £500,000). This cuts the tax bill on a £5 million house from £200,000
to £25,000.
The flood of foreign money coming into the London property
market has driven the rest of the market up. Rich London buyers are forced out
of the most desirable areas into less desirable parts of London, thereby pushing
the price up in the area where they do buy. The successful British couple who
have a couple of million to spend and thought they would quite like a place in
Knightsbridge have to settle for Notting Hill because everything in
Knightsbridge is being bought by foreigners who, because of Britain's generous
tax deals, are at a huge advantage. And the couple who thought they could buy a
nice place in Notting Hill for one and a half million can now only afford a
place in Paddington. And the people who thought they would buy somewhere in
Paddington can only afford somewhere in Isleworth. And the couple who were going
to buy in Isleworth are forced out to Reading. And so it goes. Property prices
are being pushed up from below (because of all those people putting their
pension money into flats instead of pension funds) and they are being pulled up
from above by all the foreigners buying expensive properties in
London.
Gordon Brown (who used the housing rise as a money making
exercise by putting the stamp duty on houses up to 4%) is personally responsible
for this bizarre state of affairs.
Another reason why Gordon is a
moron.
Incidentally, it is a myth that house prices always go up and down
with interest rates. In Japan, interest rates have been zero (or thereabouts)
for years but house prices have fallen steadily.
Nor is it true that
there is a link between house prices and the availability of property. Spanish
builders built 800,000 flats and houses in 2006 (in comparison, strict planning
regulations meant that less than 200,000 were built in Britain - many of those
being, with the Government's encouragement, deliberately built on flood plains)
but Spanish house prices continued to rocket.
Property prices are
determined by location.
That's why estate agents talk about location,
location and location being the three most important influences on house
prices.
Residential property is cheap in Poland because no one wants to
live there. (Seemingly, not even the Polish). But houses are expensive in London
because Britain is a tax haven for foreigners.
***
When house prices collapse the real losers will be
the people who have stretched their budgets, and borrowed up to their eyeballs,
in order to get onto the house buying ladder. The homes that are repossessed
won't be the multimillion pound mansions but will be the homes of the poor, the
disfavoured, the underprivileged, the elderly and the disabled; the people
struggling to survive on minimum wages in bad neighbourhoods. The losers will be
the people who thought they'd managed to touch the hem of the property-owning
dream. The winners will, as they always have been under Gordon Brown, the
crafty, the sneaky and the mega-rich.
Copyright Vernon
Coleman 2008Taken from `Gordon is a Moron' by Vernon Coleman. `Gordon is a
Moron' is available from the shop on this website and from all good bookshops
everywhere. Taken from Gordon is a Moron by Vernon Coleman. Gordon is a
Moron is available from the shop on this website and from all good bookshops
everywhere.
