Monday 27 July 2020

Against the Tory Age Tax

The first week of the parliamentary recess, so what is a leading Tory to do? How about kite-flying a new policy to see if it catches a violent gust of opposition, or floats languidly in a pleasant breeze of indifference or, even better, acquiescence? This is exactly what Matt Hancock, our ever-present health secretary has decided to do. According to The Graun, one policy under consideration by the government - which Hancock is favourable toward - is introducing a new tax to pay for elderly social care. With the proviso that workers over the age of 40 pay for it.

Because this government, like its predecessors, fetishises choice as a good in and of itself, we are going to be compelled to choose: either pay more tax or national insurance, or be forced to take out an insurance policy to cover later costs for later care. The models for this come from Japan, which already funds social care from a 40+ tax, and Germany where contributions begin from the point of entry into work. Great news, right? At last the boil of how to pay for social care is going to be lanced and the issue can be resolved once and for all?

Well, obviously not. The first thing worth remembering is the crisis we have in adult social care now only exists because of decisions the Tories made. Over the course of the last decade, their cuts programme has seen £16bn wiped off the budgets of councils, by far and away the biggest provider of these services. This left them in such a poor state that George Osborne allowed local authorities to add a social care precept onto council tax from 2015. Which, in true Tory fashion, came nowhere near meeting demand let alone making good the support infrastructure broken up so, for example, Osborne could dole out year-on-year corporation tax cuts. He, however, was merely one in a long line of chancellors to deliberately underfund services. Between 1997-2010, adult social care spending (i.e. inclusive of people with complex needs, as well as the elderly) increased 4.3% year on year in real terms and this was supported by care standards regulation, an inspectorate, and initiatives around personalised care. Yet this was within the tax regime inherited from the Thatcher/Major years. You'll remember it, the one where North Sea oil receipts, for example, were frittered away on lowering taxes for the rich. Even under Labour spending couldn't keep up with demand because Tony Blair and Gordon Brown were not prepared to claw back the cash imposed by the Tory tax settlement. 40 years of purposeful underspending because the capacious pockets of the wealthy mattered and matter more has brought us to the brink of the age tax.

The second point is why should workers pay for it? Over the last 20 years final salary pension schemes have closed and career average schemes are now the norm. Multiple employers, public and private, have taken holidays from paying their contributions into pension pots with the blessing of governments red and blue. And to add insult to injury, across the board employee contributions have gone up for a less generous income in retirement. We see headlines about the shrinkification of Whispa Golds and Double Deckers make the front pages and front ends of newspapers and news sites. The whittling down of pensions is never deemed as important. Workers then have already lost out when it comes to old age. And then there is the small matter of stagnant wage. Pay has been flat in real terms since August 2007. On occasion, even the Daily Mail is forced to admit the rich have gained from increased productivity since the 1980s at the expense of everyone else. Effectively, without getting into arguments about surplus value, it's obvious the rich have banked wages owed to us. It's high time they coughed them up or this extra unearned wealth was put to more socially useful purposes than a fleet of yachts. Such as getting fed into rebuilding adult social care.

This is the context of the crisis facing the elderly. It is the bitter fruit of decades of systematic looting and defunding. Therefore, the Tory framing of the problem must be challenged. It suits Hancock to simply declare a funding black hole that can only be filled if we ask everyone to contribute a little bit extra. He wants to pretend we're talking about an accident of demographics, an accident of more people living longer and that's the end of it. Something must be done. The temptation, and the danger, when it comes to criticising the proposal from a "forensic" standpoint is zeroing in on its regressive characteristics to the exclusion of all else. Is it fair the 30 year old sales executive pays nothing when their 45 year old office cleaner does? What insurance company would be crazy enough to offer a social care policy that is virtually certain to pay out large sums? Important objections certainly, but limiting them to "technical" matters takes the political sting out of repeated Tory (and Labour) failures on care. Rejecting the Tories' age tax has to involve opening up their record, how they have engineered this impasse, and who's benefited from it. After all, the first responsibility of an effective opposition is to tell the truth.


Socialism In One Bedroom said...

The Tories have always but always been the Tax and no spend party (unless that spend trasnfers wealth from bottom to top).

They tax until the pips squeak while dis-investing in anything even remotely approaching essential.

Meanwhile the Billionaire media criticise Labour for being tax and spend.

And moreover the moronic masses lap this up and all hail the tax and no spend Tories.

The reason for this apparent insanity is that the Tories are more trusted to keep Britain's supremacy as a world imperialist power. And all foreign policy is supremacy.

This is why Blissex is wrong to focus on house prices, its all Rule Britannia!

Blissex said...

«This is why Blissex is wrong to focus on house prices»

There are two reasons to focus on housing cost inflation:

* It is the "button issue" that makes the Conservatives win elections, because it is huge: a southern family with a low-end 1-2 bedroom flat makes £30,000-£40,000 a year (gross) profit on it, or a 100% per yearn gross profit on cash invested (the deposit). Their living standards are utterly dependent on that redistribution in their favour.

* Such rapid inflation of housing costs has hurt the budgets of renters and buyers/upgraders *a lot* more than taxes and the falling or stationary wages, or the cuts in local council or social insurance. This has also manifested as a lot of doubling up, with many low and even middle income families who have reached the limit of what they can pay in housing costs living 2-4-6 per bedroom, and turning living rooms into bedrooms.

«its all Rule Britannia!»

The english elites have given that up in practice in 1956, and now totally rely on USA protection of their domestic and international interests (the the point that the have given up control over the UK nuclear deterrent). Still higher as a % of GDP than Italy or Spain, but still quite low, by USA standards or UK history.

Blissex said...

«either pay more tax or national insurance, or be forced to take out an insurance policy to cover later costs for later care. [...] What insurance company would be crazy enough to offer a social care policy that is virtually certain to pay out large sums?»

Obviously the policies are going to be backed by property as security, in practice they will be a roundabout and expensive way to re-mortgage, with huge profits for financial companies, the property of tory voters, so they will not pay a penny more in taxes or NI surcharges.

Compare to T May's proposal to mean-test social care, which were that people without property would not pay more in NI surcharge, but people with property would have to first sell it to fund their own care, and both probably would end up paying slightly higher general taxes.

The current proposal means extra taxes will be imposed only on people without property and on their income from working as employees (NI surcharge), while property owners would still be hit, but without paying any extra tax, and without the appearance of having to sell or remortgage their property.

In other words the whole plan pretty much is to make the renters and the buyers/upgraders pay the entire cost of social care, their own with an NI increase, and that of tory voters by paying higher property prices. Renters and buyers/upgraders will also pay the huge fees to the City that will be loaded in top of the social care policies based on property. "Everybody" wins!

This is the perfect example of a policy that New New Labour people cannot criticize because it is designed to please the affluent "aspirational" tory voters that they want to attract.

Blissex said...

«The whittling down of pensions is never deemed as important.»

This is because New Labour and the trade unions have been inept, complicit or powerless, and wage earners are desperate:

* As "The Economist" has remarked employees value deferred income a lot less than current income because they are desperate to make to the end of the month without cutting their standards of living.

* Therefore if the boss cuts the pension contrubution 25% to 10% of their wage they don't protest, but they get a lot angrier if the employer cuts their current wage by 15%, even if the pension contribution cuts means that their future pension is cut by 60%.

* Knowing that the champions of the proletarians have largely kept quiet about the huge cuts (60-70% usually) in pension contributions that have been obfuscated by a switch from final salary to investment pensions.

* Knowing that the champions of the "aspirational" property owning upper-middle classes are not bothered because the classes they champion don't need pensions, because the rapid inflation of housing costs means that the renters and buyers/upgraders will have to save not just for their own retirement, but for that of incumbent property owners too, and nobody chooses to become homeless because house cost inflation is too high, they just save more and pay more.

Anonymous said...

I really doubt that people feel rich from living in the house that they live in. I bought mine on a 3x mortgage 30 years ago, and retired after an average, not stellar career, bang on UK median household income (being comfortable as I'm single) with the house now worth somewhere between 7 and 8 times my pre-retirement income. I would never reckon up the value of the house in what I can spend, only in what I'll be worth when I'm dead. I can't spend it on anything, except on other houses if I moved.
And I don't think there is an easy line to draw from house prices to voting intention - the increase in mine has never swayed mine, and it seems reductive to assume that while I vote out of a mixture of principle and sentiment, others vote only out of greed. I can imagine voting out of greed - but my house price woudldn't feed that appetite.

Blissex said...

«extra taxes will be imposed only on people without property and on their income from working as employees (NI surcharge),»

As to that, a juicy detail is that people that have started receiving the state pensions are exempt from NI contributions (even if they work past retirement). That means that the surcharge will hit only working people between 40 and 67.

Also that the surcharge will only start at 40 is pure hypocrisy: if the surcharge is meant to fund somebody's care costs, it needs to raise a given amount of money regardless of when and how it is raised, whether that given amount is paid at a higher rate over the age range 40-67 or at a lower rate over 18-67.

There is the possibility that the surcharge will be a generic extra tax like that for paying back student loans, but I guess that a tory government will rather go for an NI surcharge, given its big "advantages" (for their voters and sponsors).

«will have to save not just for their own retirement, but for that of incumbent property owners too»

Ooops, here I meant "for their own [social care]"; renters and buyers/upgraders *already* are paying for the retirement of incumbent property owners as they have to save for their own retirement pot and that of property owners embedded in that (southern) property's ballooning price.

And this is only year 1 out of 5 of an ultra-thatcherite/"Leaver"/"Britannia Unchained" government; we must thank for B Johnson's 5-year run the "brave whistleblowers" of New New Labour and their sponsors and instigators and their ilk who have worked ruthlessly to help B Johnson get an 80 seat majority in 2019 to get rid of J Corbyn.

For year 2 I expect at least the enactment of "Free Enterprise Zones" with no capital/profit taxes, no labour regulations, open indentured immigration from the third world. Starting with Sunderland.

Boffy said...

"It is the "button issue" that makes the Conservatives win elections, because it is huge: a southern family with a low-end 1-2 bedroom flat makes £30,000-£40,000 a year (gross) profit on it, or a 100% per yearn gross profit on cash invested (the deposit). Their living standards are utterly dependent on that redistribution in their favour."

No they don't. They may make a £30-40,000 paper capital gain, but capital gains are not profits. And, its only a paper gain, because unless they sell the flat they can't use it. If they sell the flat, there are costs involved, and then they have the question of where to live. Either an equivalent flat, in which case what was the point, or renting. Or if they want to buy a better flat, then the same capital gain they obtained, means that they suffer a larger capital loss on the value of their money, so that the rise in prices leaves them worse off, before we even begin to talk about the effect on their kids or grandkids.

Then there is the fact that a higher house price means that the costs of house insurance, maintenance go up in line with it and so on.

Their living standards are indeed affected by house prices, and rising house prices makes them fall, as with the rise in price of any other commodity.

Now, of course, you could argue that the higher price enables them to take out a bigger mortgage, and borrow more against that collateral, but that simply means that they have raised their living standard based on a delusion of debt. They have not become better off, but worse off, because they have become more enslaved to debt, as well as having to pay out larger sums in interest.

Phil said...

Anonymous, we're talking about probabilities here. People who don't own property are more likely to vote Labour, while owner occupiers do. Election survey after election survey tells us this. So while it might not have affected your voting intention, the consequences of owning property, regardless of how large or modest it is, does affect voting behaviour.

Blissex said...

«No they don't. They may make a £30-40,000 paper capital gain, but capital gains are not profits. And, its only a paper gain, because unless they sell the flat they can't use it.»

Why why, I have pointed out so many times just how incredibly stupid this point is, why why do I have to do it again? *Obviously* they can spend it, in at least two ways, which are exceptionally common, so only people who know nobody from "Middle England" or live in the desperate north (of Watford) have some excuse for not knowing it:

* "My property is my pension", and therefore property owners with some kind of income and before pension age can stop saving for a pension, and spend the entirety of their income, safe in the knowledge that somewhere a renter or prospective buyer/upgrader is saving both for their own pension and for that of a property owner.

* For those already retired and who don't have an income, they can easily extract equity via various financial means: if they still have a "flexible mortgage" they can draw it down, or they can re-mortgage.

Let's do a typical example, all in before-tax

* A family with a combined gross income of £50,000 and an after-income-NI-tax one of £38,000.

* They buy a dirty-cheap 2 bed flat for £300,000 with a "deposit" of £15,000 thanks to Help-To-Buy.

* Every year the flat gains £20,000-£30,000 in price, plus they don't pay £15,000 a year in rent; they have to pay the mortgage, that for 2%-3% over 25-30 years means means around £15,000 a year, or around £425,000, but then they get a property for it, so the real cost they are paying is the interest of £125,000 so minus £5,000 a year,

* That is a gross return of £30,000-£40,000 *per year* on a cash investment of £15,000, and it is entirely redistributive for sure (because nothing has been produced).

* That is exactly equivalent to the tories (whether Thatcher, Blair, Osborne, ...) taking £30,000-£40,000 a year, for 25-30 years, out of the savings account of a "sore loser" and putting it in their pension account, thus building a house equity "pension pot" of £750,000-£1,200,000.

* But as soon as the mortgage is paid in 25-30 years they also stop paying and their total gross profit becomes £40,000-£50,000.

The southern property owning family does not need to pay rent or save a penny for a pension account, they can spend the entirety of their income, minus the £15,000 a year for the mortgage, and still have a massive "pension pot" at the end.

Compare with the "sore loser" on the same income that has to pay £15,000 a year of rent, save around 30% of their income to build a much smaller pension pot, or £15,000 a year, and then will continue paying rent for the rest of their life.

tl;dr: A commenter on "The Guardian":
I inherited two properties in 1995 [ ... ] and the value has gone from £95,000 to £1,100,000

Blissex said...

«And I don't think there is an easy line to draw from house prices to voting intention»

Apart from "Phil"'s point (and I think few property owners are ready to confess even to themselves how much they are swayed by their getting so much money, tax free, for no work), here is the relevant tl;dr, again from a commenter on "The Guardian":

I will put it bluntly I don't want to see my home lose £100 000 in value just so someone else can afford to have a home and neither will most other people if they are honest with themselves

People in the "pushed behind" areas seem to have no idea how easy and comfortable are the living standards of southern property owners, how full of freely spending shoppers are the Waitroses and M&S there, the obvious appearance of easygoing prosperity of so many in the Home Counties and London, and how worried they are that the "lazy scroungers" of Scotland, "the north" and other "unsavoury" areas want to "steal" their property gains.

NB: there are quite a few "sore losers" even in the core tory areas, but the percentage of comfy, smug property owners making a bundle without lifting a finger is pretty high.

Blissex said...

For the edulcoration :-) of some previous commenters, who should get out more, and perhaps take the Megabus down to St. Albans or Richmond or Sevenoaks, or at least Huntingdon, or perhaps just read more the "Telegraph" or the "Daily Mail" (a painful sacrifice, of course) an all too typical story from the golden core tory areas:

Certainly, we overstretched ourselves when we bought our lovely period home for £419,000 in 2002. But with mortgage companies practically throwing loans at us in a rising property market, we slept soundly at night, smug in the knowledge the house was making us money. [ ... ] The valuer had barely been in the house for five minutes yet we were able to borrow a further £80,000. [...] We were lulled into a false sense of security about our wealth. Whenever we overspent we just remortgaged without comprehending the consequences of taking yet more equity out of the property. [...] In our defence, we weren’t spending the money on expensive designer clothes, luxurious holidays or flash cars. Much of it was going on school fees and upkeep of the house. By the beginning of 2008 we had remortgaged three times, taking out a staggering £500,000 loan on a house that wasn’t worth much more.
Our interest-only mortgage payments had soared to nearly £3,000 a month.
Which would have been just about palatable if the market hadn’t crashed. Now we were faced with the fear of living in a home we could no longer afford that would probably plummet in value.

So they could not afford to keep it, a sad ending. If they had been able, like so many who bought earlier or had higher incomes, by now they would have a fortune, that £419,000 in 2002 would have most likely ballooned to at least £1,400,000 (nominal, not inflation adjusted, but still £1,000,000 over less than 20 years of tax-free no-work upward redistribution is not insignificant).

The whole of the [southern] english economy and politics revolves around such "middle class" families, and they are part of the core target constituency of New Labour, T Hunt and C Umunna spoke of championing those «aspirational voters who shop at John Lewis and Waitrose».

Blissex said...

«People who don't own property are more likely to vote Labour, while owner occupiers do. Election survey after election survey tells us this.»

Indeed! IIRC one study found that 70% of those who usually voted Labour switched to voting Conservative when being given at a huge discount a council property with Right-To-Buy. I would imagine that most council housing residents, especially the better off ones who could afford to pay even the much reduced mortgage, were voting Labour.

But let's also trust for once what the Conservatives say themselves:
«Is it true that when Clegg suggested there needed to be more social housing, Cameron told him it only turned people away from the Tories? “It would have been in a Quad meeting [the committee of Cameron, George Osborne, Clegg and Danny Alexander], so either Cameron or Osborne. One of them – I honestly can’t remember whom – looked genuinely nonplussed and said, ‘I don’t understand why you keep going on about the need for more social housing – it just creates Labour voters.’ They genuinely saw housing as a Petri dish for voters. It was unbelievable.”»
«There were even prophetic council house sales by local Tories in the drive to create voters with a Conservative political mentality. As a Tory councillor in Leeds defiantly told Labour opponents in 1926, ‘it is a good thing for people to buy their own houses. They turn Tory directly. We shall go on making Tories and you will be wiped out.’ There is much of the Party history of the twentieth century in that remark.»

And then there is the critical, most important political study of the past 100 years, the one in the 1970s which showed that even *at the same income/status level* people who owned cars, property, a share account pension voted far more often for the Conservatives than people who used public transport, rented a home, had a final salary pension.
Thus the Conservative and New Labour policies to shrink (Conservatives) or merely undermine (New Labour) public transport, social housing, final salary pensions.
Unfortunately I cannot find the citation for it, but it was from a right-wing think-tank.

Blissex said...

Also, on the overwhelming importance of re-mortgaging to turn capital gains into readily spendable cash, with the spending pumping up GDP:
Another of Thatcher’s magic potions was ‘home equity withdrawal’ or remortgaging – drawing down the equity in the borrowers home for (mainly) consumption purposes – new cars, holidays, and so forth. Under the two Prime Ministers that preceded her, James Callaghan and Ted Heath, home equity withdrawal as a percentage of GDP growth was around 36% for both. Under Thatcher, this exploded to over £250bn across her premiership – a staggering 104% of GDP growth. To a significant extent, Thatcher grew the economy by unleashing easy credit, asset inflation (including house prices) and equity draw downs – ‘wealth creation’ indeed.
As an economic programme this is evidently unsustainable – oil runs out, assets run out (add the NHS to the list) and relying on rising house prices is, as the world has so painfully learnt, not exactly a model of financial prudence. The critical point is that without these asset sales and home equity it is questionable whether the economy would have been growing at all.
The story of Blair’s New Labour is eerily familiar. Under Major, such withdrawals amounted to only 8% of GDP growth, perhaps reflecting the wider economic climate.
But Blair did his homework and let loose – as did Thatcher – a wave of cheap credit, financial deregulation, house price inflation and an equity withdrawal-led consumption boom. Withdrawals under Blair’s leadership totalled around £365bn, that’s a full 103% of GDP growth over the same period.

All of it redistributed away from renters and buyers/upgraders. Rah! Rah! :-(

Richard said...

Blissex wrote:
People in the "pushed behind" areas seem to have no idea how easy and comfortable are the living standards of southern property owners, how full of freely spending shoppers are the Waitroses and M&S there, the obvious appearance of easygoing prosperity of so many in the Home Counties and London, and how worried they are that the "lazy scroungers"

Blissex is absolutely right. I have been in Stoke a number of times recently and all I can say is that Hanley looks nothing on earth like Henley on Thames, the endless cruisers moored on the Thames from their to London, the large 4x4s blocking the exit to Waitrose. I'm sorry Boffy, you are quite wrong about this Blissex is telling you exactly how it is for working class householders (always bought with a mortgage else the purchasers would not be working class). Every one of my outer M25 relatives has exactly the conversation Blissex reports. It is their material position in the (world) class structure that is the basis of their views and some of them know that, that overseas demand for London property keeps their prices high and Boffy, they have every intention of cashing in when they move to a retirement home as a cash buyer.

Boffy said...


First of all, your calculations are wrong.

If someone buys a £300,000 flat with a 30 year mortgage. Then on average they must repay £10,000 of capital sum, plus if the rate of interest is 2%, £6,000 of interest, or at 3% £9,000 of interest, meaning between £16,000 - £19,000 per year. But, you assume, here, that mortgage rates are at 2-3% for the whole 30 years, which is unlikely. Ask anyone who bought a house in the late 80's when a similar bubble was inflated, and then found rates doubling to 15%!

Your "pension pot" analogy is a good one for illustrating the illusion contained in your argument. It is the same illusion that leads to the idea that if a pension pot is inflated in value, the revenue from it increases proportionally, which of course it doesn't. If the value of shares or bonds on a pension is inflated, as with house prices, then it simply means the yield falls, because the basis of the revenue, profits, has not changed. As Marx puts it, you have deluded yourself into the idea that interest on this pot is its natural fruit like pears on a pear tree.

And, you still haven't explained how the home owner is able to access this pension pot to spend to fund consumption without selling the house. Your example shows why home ownership may be preferable to renting given the figures for mortgage costs and rent you chose, it does not show how inflated house prices make homeowners and their children any better off, because they don't.

Boffy said...

"“I inherited two properties in 1995 [ ... ] and the value has gone from £95,000 to £1,100,000”"

Fine in the case of someone in that position, but what about where someone has two children, so that each child only gets half the price of the house they inherit, but both have to pay the full amount of the inflated house prices? And, that gets worse where more children are involved.

Anonymous said...

«People who don't own property are more likely to vote Labour, while owner occupiers do. Election survey after election survey tells us this.»

Maybe so, but I bet they are less likely to vote, too. The whole of recent UK election history is in that one fact.

Boffy said...

I'm not denying that many, elderly homeowners who have seen the paper price of their houses rise astronomically, think this means they have become richer, or that this affects the way they see themselves, and encourages them to vote Tory. What I am saying is that its a delusion, and one that will be all the more shattered when price crash as they inevitably will.

What I am denying is that for the majority this rise in prices is advantageous, and that it is not a profit, but merely a paper capital gain.

Let me give you a contra example from real life. Blissex says he assumes that people bought using mortgages, because otherwise the buyers would not be workers. That is probably true down South, but not here. I bought my first house in 1977 for cash - £5,000. Me and my wife were definitely young workers on less than even average wages. We did it by renting a flat for three years and saving half our income. That would not have been possible down South with higher rents and much higher house prices.

As a result, we paid neither rent nor mortgage interest. That meant we could continue saving half our income. It also meant we could pay cash for cars etc, again saving on interest payments. When we sold the house in 1988 we got £22,500. In the meantime, we had saved another £10,000 plus. It meant we could buy a better house, which cost us £32,000. But, here is the thing. In 1977, the house I bought was priced at £7,500. If prices had not budged, the £5,000 of my first house, plus the £10,000 saved would have bought my new house twice over, but now even with my old house having risen to £22,500, I could only afford the price of the new house with the addition of the £10,000 of savings.

Even so, the low price of houses in North Staffordshire has meant that I could buy houses for cash and so live rent and mortgage free for the last 40 plus years, which I could not have done down South. There's more, as I will set out separately.

Boffy said...

In 2009, I sold my house for £150,000, meaning that compared to the £15,000 it had actually cost me (£5,000 paid for the first house, plus £10,000 savings to top up for the second house) it had risen tenfold. Still, not much good, because I needed a bigger house, and these now costed more like £300,000. At, 1977 prices, they would only have been around £15,000, easily affordable with the savings accumulated.

Fortunately, since 2010, house prices in North Staffordshire have fallen by around 25-30%. So, last year, I bought a 15 year old house that is twice the size of the house I sold in 2009. But, it cost me only £225,000, or only about 50% more than I got for the house I sold in 2009. Of course, I again paid cash. That would not have been possible down South. Its why my standard of living here is much higher than if I lived down South.

And, incidentally, the higher levels of affluence in Henley existed long before any inflation of house prices. Its down to higher wages, and the fact that many of the people there are capitalists of one form or another.

Even so, it has never changed my class affiliation or the way I vote. The affluent worker studies of Goldthorpe et al of the 1960's, appear still to have relevance. After all many of those militant car workers in Cowley and elsewhere they studied were also some of the first breed of workers homeowners, that emerged in the late 1930's, and expanded considerably in the 50's and 60's.

And, bear in mind that London has had the largest price rises, but has become a bastion of Labour support, whilst its in areas of falling house prices like Stoke that the Tories have gained strength.

Blissex said...

«that overseas demand for London property keeps their prices high»

And B Johnson himself supports that, another of my usual quotes:
«Johnson said: "I don't think it is sensible to say to keep down property values we should keep people out, or investors out, in order to allow property values to decline. That would lead to a fall in the equity of everyone and, for the life of me, I cannot see the logic."»

SIDE NOTE: look at the telling use of “everyone”: in tory social circles “everyone” is an owner-occupier (and often also a BTL landlord) and only "nobodies" from the servant classes aren't, and to include them in “everyone” simply does not occur to them, those ignorable "nobodies" are like the squirrels or the moles in their gardens, just there in the background.

It is not just or even principally foreign immigrants (at the lower end) and investors (at the upper end), it is also extremely loose credit policy for mortgages (including Help-to-Buy), but principally a set of government policies and huge spending that ensure that the "good jobs" (and many not so good ones) tend to be concentrated in the M25 area, creating a surplus of demand for property in areas where incumbent property owning tory voters have effectively cornered the housing market and can thus extract enormous rents and prices from incomers attracted by the jobs, from the "pushed behind" areas and further away.

Boffy said...

Those who are deluded into thinking they have become more affluent, or even richer as a result of rapidly inflated house prices, whilst they have only been invited to go into more debt via remortgaging, are a minority, compared to the numbers who either a) have become mortgagees in the last twenty years, and find they cannot move up the property ladder, because the price of better houses has run away from them, b) bought more recently near the top of the bubble, and are crippled with debt even with artificially low mortgage rates, before the problems they will face as a result of the economic damage caused by the government lockdown, and rising interest rates now inevitable c) the 40% of the population who do not own or have mortgages, and have seen the reality that rapidly rising prices be it of houses or cheese represent a reduction in living standards not an improvement.

So, whilst rising prices might appeal to that minority of elderly mail and Express readers, it is a losing electoral strategy, as indeed London shows. Surveys continually show a majority of voters see high house prices as a bad thing. But, the Tory failure to protect the 20% of the population at serious risk from COVID19, and instead to go for the insane lockdown of the economy, means that a) a lot of those elderly home owners are likely to die, indeed many who were in care homes already have. That not only means a loss of Tory voters/Brexit voters, but also a large number of forced sales of properties of the deceased, as the assets are liquidated in probate to be distributed to their estate.

Large numbers of such forced sales, means an inevitable fall in house prices, as supply increases relative to demand. That is exacerbated by Brexit, as large numbers of EU workers go back, and either sell the houses they bought or no longer require rentals hitting all of the shaky BTL's. It comes at a time when commercial property prices are collapsing with the death of the high street and move online. It comes at a time when unemployment caused by the lockdown will cause a lot of forced sales as happened when the 1980's bubble burst, and prices crashed by 40% in 1990. It comes when all of the borrowing already undertaken and in the pieline following the lockdown means that interest rates are going to rise inexorably, causing capitalised asset prices to fall sharply, and house prices along with it.

Hence the flight to gold, but that is now a bubble too, a lot like in 2011. As Minsky says, people always tend to do this. They buy near the top and sell near the bottom. By contrast, I started buying gold in 2003 (sovereigns) when it was still around $250 an ounce. After I sold my house in 2009, I used the proceeds to buy a load more. As I wrote at the time, I had a target of $2000 an ounce, and would sell as soon as the world and his dog were buying gold. That came in 2011, and I sold when prices were just below $2000 an ounce, right before they dropped back to around $1200, which is about its price of production. Gold is in a bubble again not as bad as Bitcoin, but still a bubble, but it idnicates the flight from other assets in even bigger bubbles.

BCFG said...

It is interesting reading the arguments of Blissex and Boffy in relation to housing costs. I am tempted to say Dumb and Dumber spring to mind, except Blissex is no Dummy! Boffy is definitely dumber!

At least Blissex recognises the political affects, though how those economic illusions persist over decades is a question that needs an answer.

The problem with both Blissex and Boffy is that the true cost of buying the house cannot be viewed from a single individual (so Boffy bought an house, millions of others are crammed into a single room), just as the true cost of a business decision cannot be ascertained just by looking at the affect on the business, and even this affect on the business can only be limited.

From the narrow and blinkered perspective of the individual you factor in the cost of the house, the value over time, etc etc etc but what about the cost of building new homes, how they were built and who for. What about cost itself? How is that derived? What if those resources had been used differently, what if society had decided to build flats for everyone, instead of feeding the fantasy of the MTV style crib?

Boffy says falling house prices allow people to move to better homes, but this is absolute poppycock. It depends how many homes have been built. Not everyone has the luxury of moving to a better home and movement in house prices will not allow everyone to move to a better house.

This is why Boffy is the Dumber one, he attacks an illusion and replaces it with another illusion. How stupid is that?

This is typical of Boffy, a pure bourgeois fantasist. Delivering bourgeois propaganda.

Ultra Ultra rightist indeed!