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The FT this morning runs a piece about how the majority of high-end London homes coming off the market are being withdrawn rather than sold. This speaks volumes about people's perception of reality, reality itself and our reticence to accept that the value of our homes (or investment properties) is falling.

The prime central London market has been falling for months but still these presumably above-averagely educated and informed owners are still in denial - so what hope for the rest of the country to reach sanity?

The underlying question I want (as a younger, non-home owner) to ask here is when will prices normalise?

The causes of today's high prices are simple: 10 years of governmental intervention (QE and low interest rates in particular) have inflated the price of assets. Everyone who held them in 2008 have pretty much only had the option to buy each other's at increasingly expensive prices - all of them getting "richer" in this Ponzi-scheme kind of a way, but also in a real way since the value of non-assets - food, etc have stayed the same, pinned down by low wages. (This "differential inflation" has been huge in the unofficial world of assets, at the expense of low or zero inflation in the everyday items that make up the official inflation measure - mostly those things consumed by the young and relatively poor - exacerbating inequality)

What's propping it all up?

  1. Low Interest Rates (a) allowing mortgagees to stretch the amount they can borrow
  2. Low Interest Rates (b) making buy-to-let returns (initially) way better than savings accounts
  3. Help-to-buy and other ultimately unhelpful market interventions
  4. Bank of mum-and-dad, passing on equity gains to allow purchase of houses out-of-whack with wages

What's stalling it now? Over time the above factors max-out:

  1. Wages are not growing in any meaningful way, creating a limit to what any job (assuming a range between £25k and £150k for most everyone) can stretch to - properties over £600k simply cannot be purchased by income alone, regardless of job
  2. There comes a point at which rental returns come back into balance with less hassely savings products. A £1m house needs to charge £20k/yr rent just to make a 2% return (excluding costs). Rising prices further reduce yield until once again other options - even at low rates - become viable
  3. Ignoring the political sensitivities, prices eventually reach a level even help-to-buy can't boost past
  4. As mum and dad get old and their equity fails to inflate further, draining it becomes less of an option - particularly when expensive care costs start to hit (as they now are for the elder of the baby boomers)

Extra factors:

  • Homeowners with decent equity are running out of working age road - getting too old to secure a re-mortgage in order to substantially upgrade. The "remortgage wall"
  • Younger homeowners who haven't benefitted from the same explosive price inflation as their parents don't have enough equity to move. The "rungless ladder wall"
  • The even younger have given up on houses. Jobs - all of them - don't add up to houses, and they know it - so they are not even bothering

There are no magical ways to prevent these factors continuing to impact the market. The magic money tree might be shaken again, with QE boosting prices but it will also further crystalise the sales freeze. Helicopter money is out since that would also set off the inflation bomb. Property prices it transpires have a ceiling past which they cannot lift without a shift in the value of money itself. What's more, any upward change to interest rates or inflation once at the fully-inflated top will accelerate the destructive effect.

The only realistic way is down - the question is really how long can the market tread water? The answer to that is probably the same amount of time that the general public can continue to suspend belief. Or perhaps just a little bit shorter.


25 07 2017 22:07 | #1 /brokencapitalism

UK Councils spend about £1bn/yr on temporary accommodation to keep homeless families off the streets:

The answer to this is politically simple: BUILD SOME SOCIAL HOUSING.

  • It doesn't cost much (each family home c. £120k in actual bricks + labour)
  • They've got plenty of land
  • They control the planning permission

This will also help the capital poor younger generations (e.g. tax payers) because there are more houses and stops putting public money directly into the hands of (literally rent seeking) older asset wealthy classes.

They will get there eventually, even if they take 2 steps forward (ACA) and one step back (Trump) but from the UK (or any other other developed country for that matter) it is frustrating watching America catching up, but tripping over itself. It's sad.

All developed governments provide basics for their citizens:
  • freedom without prejudice (policing, judiciary, military)
  • universal education
  • healthcare - if you get sick they fix you
These core needs are rarely disputed, leaving the political arguments to focus on where to draw the (less important) line between unemployment safety net and taxation.

America - you will eventually have a government funded system because the natural, moral progression of a society is to help people with ill health, but it is also cheaper. Republicanism may principally be about helping oneself over other "less deserving" people - but as the various Trump-supporters-with-illnesses articles show, that's only until Rs are themselves sick.
Not much in the way of actual economic improvement? Drop interest rates. It's an easy way of kicking the economic can down the proverbial road - forcing the price of debt to be set centrally rather than based on a free market between those who wish to borrow and those who wish to lend. This has a slew of benefits:
  • Big business can borrow a ton more money for the same annual outlay (though I note from experience that small/medium businesses do not share in this bonanza)
  • Governments spend less of their money on repayments (as indeed do other debtors)
  • Monthly mortgage costs drop, the maximum amount people can borrow rises and house prices go up
What's more, everyone gets excited at asset prices (esp those generating returns) going UP, as some of that extra business cash goes into share buy-backs, and dividends charge downward to find some sort of equilibrium with the reduced returns from savings.

The only negative politically is disgruntlement from savers - whose "asset" does not grow with other asset inflation (and is thus devalued, relatively) and non-home owners (who do not realise it is interest rates causing the run-away asset inflation, as they mostly get gaslighted by talk of supply and demand).

HOWEVER - here's the big kicker. You can't ever raise them again. Once you've used this wonder drug, a dependency quickly develops and to take it away means almost certain re-devaluation in asset prices (including stocks and housing) which in turn produce an inescapable economic collapse. Why? Think of it this way:

Imagine interest rates go back up to 5%. Why would you hold risky shares that pay dividends of 2%? Why would you cling to a £500k buy-to-let property that returns less than £25k/yr before expenses (& which is also falling in value)?

Of course, you don't. So the likely political move is to KEEP 0% rates indefinitely. The consequence of that? Nothing; so long as we can think up another wheeze for simulating economic "growth" and keeping us developed nations looking relatively wealthy compared to the rest of the world.
Globalisation and free-market capitalism has led (as James Goldsmith foresaw out in the 9/politicss) to the deprecation of the western worker. Unfathomably cheap goods and rising asset prices (particularly property) have dulled the effect, enriching the baby boomer generations beyond what they could have ever imagined - but this mask cannot hold forever.

As the east continues to make ever more labour available, and automation increasingly makes labour irrelevant, the near-monarchistic financial glory felt by the majority in the western world will begin to crack. Indeed, it has - with resurgent inflation and the law of diminishing returns from money printing & debt overheating the powerful but fragile economic engine.

And what happens when things go wrong? Unless we are smart, we blame others. Are those baby-boomers who sit on £5/politics/politics,/politics/politics/politics of assets going to feel favourably about anyone that points out their part-time job as a postman shouldn't really have reaped such rewards? No, they will listen to the strong voice that blames the polish coming in, or the chinese for manipulating us (with all their pesky cheap goods), or liberals for forcing change when things used to be good.

Optimistically I hope that Trump is the last death-throes of a dying historical convervatism built on protection from other races/genders/sexualities. But thinking about it, this bizarre sociopath marks but the start.

/politics /globalisation

One of the most unexpected and fascinating outcomes of John Calhoun's experiments with rats is the separate class of "Beautiful Ones" which emerges as chaos and despair engulf an increasingly overcrowded rat colony that started as a utopia. These Beautiful Ones refrain from sex, and do not enter the fighting fray, instead retreating to immaculately groom themselves. The outlast the mobs, and their emergence in repeat studies is the pre-cursor to the population dwindling, eventually dying out altogether since the beautiful remaining rats never revert to fighting or reproduction.

This came immediately to mind when I read this story about the decline of sexual activity in Silicon Valley - who seem destined to form one of the last groups to be replaced by the powers of automation / globalisation.

Further reading/viewing:

This is a rant, yes - but I'm cross with my (soon to be ex) bank. We've all been there, I know.

HSBC (who I have used for business for 1/hsbc years, and longer personally) have become more and more de-personalised over the last few years. I no longer even know if I have a bank manager, let alone what their name might be - and my businesses channel a not inconsequential amount of money through them annually (that sounded awful - sorry, I don't mean look at how much money we have - more give you understanding that we're not just talking about a few 1/hsbc,/hsbc/hsbc/hsbcs here).

They won't lend. Ever. Despite growing at a reasonable pace over the years, and having a fantastic credit history and strong invoices going forward they have NEVER wanted to help my wonderful, small / medium tech business. Anecdotally from friends, that is not reflective of us. They simply do not give a shit about small / medium businesses. Or tech. PERIOD.

/hsbc /economics

Quantitative Easing gave money back to the wealthy by buying bonds they held with made up money. Money which ended up not pushed into exciting new investments and interesting new jobs, but re-invested into other assets whose prices all went up like overstuffed geese.

Traditional economic theory explains that giving in to the age-old governmental temptation to simply print money leads to inflation. More of anything sloshing around makes that thing less valuable. But an interesting thing happened with QE - no inflation (and even deflation in some countries) - it's a miracle cure! But that says more about how inflation is measured. The prices of many things - houses, classic cars, art, stocks - skyrocketed, but they aren't generally measured in official inflation figures. At the same time, wages stagnated and food & oil prices dropped. So we had differential inflation - the top 2/economics% of the population (the non-wage earners generally) experiencing huge, positive inflation of things they own - and the bottom 6/economics% (those with jobs) benefitting only if they were already home/stock owners and having no effect on the rest. When I say no-effect, what is actually happening is that in-relation to the cost of property etc they have got considerable poorer, but using a pernicious type of inflation that also keeps salaries low.


Money printing has caused inflation. It's just that so precious little of that wealth has trickled past the highly wealthy, the working population saw no pay rises, and supermarkets could not up their prices consequenty. I predict: food and consumer goods inflation has to come soon, leading to even measured inflation rising. Some supermarkets will go bust as they can no longer hold back the force of £ devaluation and rising input prices vs consumer's ability to pay higher prices.

/economics /inflation

When he feels bad, /Trump accuses someone else of the exact sin. Adam Schiff gets it in the neck for being sleazy here: when it's hard to imagine anyone less sleazy than the upstanding, measured Schiff whereas Trump has proved himself consistently awful to women in a creepy, sexual way. He accuses Hillary of illegality when under pressure himself for money laundering; calls out the NYT as "Failing" when he is the least popular president ever; and finally (and most perniciously for democracies) decries Fake News Media whilst repeatedly lying - quite possibly the biggest overall liar in terms of volume and impact in political history.


  • "Let me be clear..."
  • "Believe me, ..."
  • "This I can tell you..."
  • "This I know..."

I know...

02 05 2017 23:05 | #1 /brokencapitalism

...let's get loads of rich, white men to decide whether poor people get healthcare OR they get tax cuts

Those goals clash wildly, as even noted by Convervatives:

Trumpism is a Cult

25 02 2017 22:02 | #1 /brokencapitalism

...whose followers do not care for facts that don't fit with what they want to hear. They are no different to flat-earthers (or other extreme religious followers) who are already used to accepting lies and rebutting truth that would cause their world view or concept of self to break.
So why do we still pursue high-score wealth, over and above pretty much everything else?

Bang on the money...

20 01 2017 13:01 | #1 /brokencapitalism
In other words, flying /cars won't be here until self-driving has been solved. I'm betting that Average people aren't safe enough pilots; and wider adoption of autonomous vehicles will drive up expectations of safety.

Tim Cook's focus on making lots of money over making great products is short-termism writ large. Alienating those people who original evangelised Apple products is a long term strategic misjudgement - cementing Apple's decline (started even before Jobs' death with the bungled iCloud)?