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Archive for the tag “inflation”

UK Housing Prices & Inheritance

The Governor of The Bank of England has again warned of the risk to our faltering small recovery and of the need to build more houses or the increasing likely hood of raising interest rates to dampen down house price inflation. Also in the news is the widening gap between the rich and the relatively poor.

Political attention is likely to focus on the house price boom because for politicians this is the easy option but this is allied to increasing inequality of not just wealth but also inequality of opportunity. The main cause of inequality is inheritance and if this were tackled the housing inflation problem would largely solve itself. Many of the last generation bought homes at more or less sensible prices and have seen their value increase many times over the general inflation rates, an increase that is not earned. When they perhaps down size or die they can pass on to their children large sums which their offspring can use to buy their own homes; homes that without this unearned windfall they could not otherwise contemplate. This of course helps to both maintain and fan the fires of house inflation.

In addition to passing on their inflated homes, the wealthy also can afford to give their children the best start in life with all the advantages that money can bring and bequeath their accumulated funds that enable the offspring to acquire even more and so the cycle continues. Apart from a few exceptional individuals the poor will remain poor and indeed, become even more deprived as wealth becomes more concentrated in the hands of a small minority. The result of this imbalance is that the nation as a whole will lose out on ideas, businesses and social benefits due to the suppression of the less well off who cannot make or even recognise the best use of their talents or from lack of capital to advance their ideas.

What we need, but is at present anyway, unlikely to be done, is a strong inheritance tax which some may say is even punitive. If someone builds up huge wealth there is no reason that he/she should not enjoy a rich lifestyle for as long as they live but equally there is no reason why their children should continue to enjoy that lifestyle simply by being born into that family. Money raised from this taxation could then be used to improve the conditions of the many and provide start up funding for brilliant new ideas and enterprises.

There would be many arguments against a firm inheritance tax and it’s implementation would be difficult but not impossible. How it could be done is what we pay politicians for.

 

 

Housing, it’s not all bad news.

House prices continue to fall in the UK with London showing it’s first fall in over eight years. Bad news if you’ve bought a house expecting it to increase in value, above the rate of inflation, indefinitely. If though, you bought a house to be your home to live in, which is what they are really for, what difference does it make? If you need to move then the cost of the house you wish to buy will also have gone down by approximately the same percentage rate as yours. If the current financial crisis continues and it looks set to do so for a year or two at least, then house prices may stabilise at a sensible and sustainable level. It’s not likely, unfortunately, that the current government will accept my suggestion and nationalise all land (see).

Perhaps and I won’t hold my breath, regulations will be brought in requiring a hefty deposit to be put down when buying a home and a limit on lending of say, three times annual income. In the case of a couple buying, based on the highest single earner only, thus removing the financial block on having babies. These regulations would have the added benefit of keeping prices on a more even keel.

The talks currently still under way in the USA, as to how to prop up the banks with how many $billions are going to do little for mortgaged to the hilt buyers in the US and in the wider world. ‘Trickle down’ has never worked as we all know too well after the Thatcher years. How about at least some of these now almost countless billions going to the mortgage payers who are in trouble, by way of installment interest relief. It would help them and help the wider economy and if the greedy bankers could possibly learn the lesson it would help to stabilise the banks as well.

Oh well, dream on.

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