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Bank of England
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UK Housing Solutions
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House Price Paradox
House prices are a closely followed subject in the UK, followed by everyone from the everyday person on the street right up to banks, lenders journalists and beyond. The commentary and opinion flies about from all angles yet none of it provides a solution to reinstating a relatively stable housing market.
Some say building more houses is the answer, others suggest lower lending restrictions will help. Raising or lowering taxes, incentivising builders, incentivising first time buyers, building on green belt land – the list of suggestions and ideas to stabilise the housing market appears almost infinite.
In this post, inspired in part by my fanatical attention to pointing out the flaws in many suggestions made by politicians, bankers and the public over the past few years (in particular where only one side of the problem is addressed) I am going to attempt to detect the root cause of the problem – and propose not one, but two possible solutions which you can all argue about.
In the first instance, we need to define what the general problem(s) are.
a) Houses in the UK are now unaffordable – particularly for first time buyers
b) Without first time buyers – the housing market stagnates
Then, we can take a look at the various ideas and policies implemented/suggested so far
Click to see the UK housing solutions and failings
As we all now know – none of the proposals above have had any significant impact as far as straightening out the housing market is concerned. The reasons for this are that none of them deal with the cause of the problem – they only attempt to deal with parts of the effect. In addition, several of the ideas are pretty much the same thing, just presented in a different way – in effect clarifying the definition of insanity by doing the same thing time and time again and expecting a different result.
Having defined the current problem and assessed the attempts and proposed solutions to it – the next step – which has yet to be noticed by the powers that be, or suggested by anyone with any power – is to establish exactly what the cause was of the problem we currently have.
Wind the clock back a little to the 60's and 70's when Building Societies existed in their true form (unlike the banking version that most are now). Despite flairs and bongs being all the rage – monetary sense did appear to exist at the time. According to a rather heavy research document I found here, banks were not the main providers of mortgage lending – building societies were. Building societies were structured in such a way that they could not lend more than they had, and, as interest rates moved – the building societies' liquidity was adjusted.
All was well until 1973 when interest rates went through the roof (the Bank of England's Minimum Lending Rate reached 13.5% resulting in market interest rates hitting 15%+ with the end result being that building societies could no longer manage their mortgage books profitably). Various changes and guidelines were waved about – most of which unsettled the building societies – not least the idea of a mortgage stabilisation fund that would build up when interest rates were low, and used as an offset when rates were high.
At some point in the 70's there was a monumental shift around the provision of mortgages – with banks taking over the supply from building societies. Despite significant amounts of digging to find the exact why's and wherefores as to how it happened – I am unable to nail down exactly which piece(s) of legislation caused this shift – all I do know is it happened.
The fact that it did led on to the merging and/or conversion of the major building societies into banks we all know and love loathe today.
Subsequently (I believe) herein lies the cause of the enormous debacle we are faced with now. The pattern of events leading up to the problem pan out along the following lines.
All of the proposed "solutions" going on now in the UK are doing little more than exacerbate the problem – as Japan well knows after 30 years financial failings under its belt with little sign of ever recovering.
This is where we can play the "housing paradox blame-game"!
Based on the above – it's pretty plain to see that nothing that is being done now will be the answer to the problem anytime soon (if ever).
The solutions are tough and somewhat dependant to if and what conclusion you reach with respect to whose fault it really is.
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