Housing Mania Continues

There is a saying that “if you do what you have always done, you will get what you have always got”.

It seems that the Government hasn’t noticed that we are in a financial mess brought about in the main by our borrowing money mostly to buy houses that we can’t afford. So what do they do? They make it easier to buy homes and build up more debt. The mind boggles, well mine does anyway.

House prices on average have fallen by around 10% over the last year. If you bought a house in the expectation that it’s value would increase above inflation indefinitely you’re in trouble or could be. If you bought your house as a home to live in then apart from a likely rise in the mortgage rate, you’re OK. Housing values falling back to a more realistic level is a good thing bringing some sanity back into the market. Today’s announcements of stopping Stamp Duty for twelve months, interest free loans for five years on new houses will indeed stimulate in some degree the building industry and the housing market. It will also reinvigorate the rise in house prices and back on the treadmill we go. In addition ‘rescuing’ defaulting home buyers by local authorities part buying their homes and renting that part back to them only serves to trap the occupants in debt.

Yes people need homes and yes, the building industry needs stimulation particularly as so many other industries depend on it’s activity. The huge sums of money that Government is about spend is a short term, short sighted, fix and will, in the long term be largley wasted. This money should be spent by building homes for rent (see) and thus adding the same stimulation to the builders, providing homes and thereby avoiding yet another debt spiral resulting in yet another ‘credit crunch.’

Credit Crunch & Housing

Due to the shortage of finance within the banking and building society sector and the rising interest rates, the building of new homes is slowing dramatically. The big building companies such as Barrett and Bovis are cutting back on developments and even leaving the interior completion of homes until sales are agreed.

Many people will soon have their mortgage rates raised dramatically when their fixed term agreements come to an end. Coupled with the down-turn in the economy and the general feeling of financial unease it is inevitable that a lot of distressed home buyers will find their houses repossessed, a fact confirmed by the Bank of England yesterday. The plan and hope of the Government to build 3million new homes by 2020 begins to fade.

However, if the Government could but see it, this can be a moment of opportunity. Land is the biggest cost for homes but the Government holds an enormous amount, particularly the Ministry of Defence, that just lies unused. If they gave (yes, gave) some of this land, where appropriate, via local authorities, to build homes for rent and not for buying then several things would result. Firstly and most obvious, there would be more homes for people to live in rather than a make money investment and with more home buyers becoming dispossessed there will be an even greater need for rentable homes. It will keep the building industry in a healthy condition providing employment and training ready for the inevitable but eventual upturn. A huge amount of employment depends on new housing, not just the suppliers of building materials but furniture, white goods, carpeting, decorating products and so on. Another benefit is that a vibrant public rented sector would put the brakes on rampant house prices in the future making for a more stable market.

Yes the Government would have to give financial assistance to the local authorities but this would be a lot cheaper in the long run than coping with the costs of unemployment, family break-ups, paying for people in hostels, B & B’s etc. and in addition keep on target for 2020.