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Sleepless in Fulham: Rambling and gambling by David Young
Friday, 10 August 2007
Not ready for sub-prime time.
Topic: Politics

Well I eventually figured out what the youtube link I posted below was about. If you listen long enough to Jim Cramer's rant, he says that 14 million people took out mortgages in the USA in the last three years. Half of them took advantage of so-called 'teaser' rates - introductory low interest periods for the first two or three years. Many of these borrowers were poor credit risks and many didn't understand that the low mortgage payments offered were only temporary. They could be forced to sell their homes when the bills go up.

I can understand his horror at the thought of seven million people being made homeless, but in a lot of cases the only way to have prevented this would be for them never to have had the house in the first place. I can't share his horror at the thought of investment bankers losing their jobs. As far as I'm concerned, the problems at the US investment banks are entirely of their own making. And it would be wrong for prudent people who didn't overstretch themselves to be made to bail out those who were reckless.

The fascinating thing for me is that while the US has had the same credit splurge that the UK has had, house prices have started falling, particularly in Florida. That's because, as one eminent UK economist* put it: 'In Britain we buy and sell houses, but in the US they also build them.' A friend of mine likes to send me spreadsheets showing me the average 'inventory' of US housebuilding firms. 'Inventory' in this case means the number of unsold houses on their books, divided by the average monthly sales rate. The last time he showed me the numbers, the inventory period was over eight months! Typical UK builders have no 'inventory' at all in the part of the UK where I live! He keeps asking me why I don't try to live in the US. Young Americans who have lived within their means and have saved responsibly will soon be rewarded by having a large amount of housing options to chose from. This contrast with the UK could hardly be more stark. One reader of this site recently wrote to tell me:

I thank God that I was not born three or four years later and shudder to think what it must be like to leave college today with £30,000 of debts and no prospect of ever affording a bedsit in Hackney for your trouble.  

All of this brings me back to my last piece about land use in Britain. I've had some sensible replies like the one above and some idiotic ones too, like this:

I guess you didn't hear about the flooding in the news? Spare land has important uses other than housing and farming. Flood plains

This is a pure red herring put up by people who have their own homes and who don't want more housing competing with theirs in the market. Of course I'm aware of the flooding. But if you offer someone with no home the choice of continuing to have no home or to have a home that floods for a month once every twenty years, I know what he'll take. In any case, it is not hard to get around the issue. You put a garage on the ground floor and the living quarters one storey higher. Next!

Yes, the UK can import all the food it needs. That assumes that it has the money to afford to do so in the future. It also assumes the cost of transporting globalised food doesn't go through the roof with the record oil prices. Every country in the world wants to be western. That also means importing food so that they can develop their farmland. What happens when every country wishes to import rather than grow food?

The tragedy of the underdeveloped countries is that there are barriers to them selling their food in Europe and the US. As a result they can't earn enough by farming and many of their people chose to flee to Europe as economic migrants.  The protection of the European farmer is one reason for the huge movement of people into Europe. If we bought food from overseas then we could release our land for new homes and the poorer countries wouldn't be so poor. The revenues they earn from their food exports would be used to buy our manufactured goods. It's win-win, except for European farmers who fear change. For everyone else it would be a massive gain.

This same person then described me as 'still as selfish as ever'. Incredible! Apparently it's selfish of me to want there to be more homes and more trade with the developing-world with which they could drag themselves out of poverty and give our high-tech export industries a new market! Written no doubt by someone who's got their own piece of middle England (or I suspect southern Ireland) who doesn't want anything changing now that he's on his feet.  Who's really selfish?

* Probably Roger Bootle, but it might have been Tim Congdon or Patrick Minford.

_ DY at 2:50 PM BST
Updated: Friday, 10 August 2007 3:00 PM BST
Post Comment | View Comments (4) | Permalink

Saturday, 11 August 2007 - 7:21 PM BST

Name: "anonymous"

The first half of your post is fine. Not so the second half.

The problem with building on flood plains is not that living quarters are at ground level, it's that any building is done there at all. Tarmac, concreate, foundations etc. greatly slow down the seeping of water into the water table. Water needs to be channeled to the sea quickly. Sewers under a road are not good enough everywhere. A sewer under a road on a floodplain is not a sewer.

Fine with poorer countries getting fair prices for their produce but... Are you going to clear the crooks out of those countries without oil? Aren't these poorer countries meant to be growing your future bio-fuels too? A tall order for any country to feed itself, feed the rest of the world and produce bio-fuels.

Also, urbanisation is blighting the whole world. The world loses 15 acres of farming land EVERY second. You can cram a lot of people into 15 acres but you can't feed that same number of people with 15 acres.

I read your problems with getting on the housing ladder on a regular basis. Your problem is that you have chosen to live an alternate lifestyle but without building any funds beforehand. If you had worked hard, bought a small flat, got on the ladder then you could live your chosen lifestyle.

Instead you have chosen to live on the edge, virtually from hand to mouth. You can't secure a mortgage. Your chosen lifestyle is probably not sustainable. You certainly won't be doing it for the rest of your life. You need to decide what is important in your life. Decide if it is feasible, how much money it requires and how you are going to secure that money year on year for the rest of your life.

It can be done. I know it can. It's not luck, it's just called being sensible.

Sunday, 12 August 2007 - 6:22 PM BST

Name: "David Young"

Thanks for that considered reply.

If I were talking about putting concrete over the whole of Britain, I could understand the objections. But the point I'm making is that you can fly over large parts of the UK and see no urbanisation at all. The Times article says this too. There is far more free land available than people think. Because people spend most of their time in crowded towns and cities they think the whole country is like this - it isn't. If you had sat next to me on the plane to Guernsey you'd know what I mean.We can build more and still have sufficient flood plains. 

I'm a bit frustrated that people seem to think that I'm purely talking about this issue because of my personal circumstances. Not every position that I advocate is one that would make be better off. For example, I explained in a piece several years ago that I don't want Britain to join the euro-zone. I think it would be harmful to the UK's economic and political interests. However from a personal perspective, it would make my life easier if Britain did. I would be able to play poker across Europe - Ireland, Finland, Spain, Austria, France etc without experiencing any currency conversion issues - no more money wasted on the buy and sell spread and no need for travellers' cheques.

It's not about me. If I had got a job paying about £50k a couple of years ago, it would still not enable me to get into a house of my own in the area where I'm now based. For all I know, I might make that much this year anyway. I made just under £13k in April alone! A friend of mine's sister earns about £60k as an accountant. She's not in a position to buy. Doesn't this seem absurd?

What's happened in my part of West London is that there has been an influx of foreign money attracted by the fact that the UK is incredibly generous with its tax treatment of wealthy foreigners. They pay very little. Private Eye covers this issue quite well.

I don't really have the right to complain about this myself, as the UK doesn't tax gambling wins but if you're earning a regular salary it ought to rankle. One consequence is that much of the housing stock is empty much of the time. There's an HSBC fund manager who plays a lot at the Vic who lives around the corner from me. He tells me that he barely sees any of his neighbours. The area (roughly opposite Stamford Bridge stadium) is full of rich Americans who only come over for a few months a year. They are so rich that they don't need to let their homes out for rent the rest of the time. Go and walk around Chelsea Harbour some time. The flats are mostly sold, yet you never see a soul there. It's like something out of a science fiction film - the day after some bomb has killed everyone but left the buildings intact. Absentee millionaires who've made their money abroad have bought a bolt-hole in London but don't visit it often. It's there if Putin, Ahmedinejad or whoever makes life nasty for them back home.

Let's leave me out of it. Is it really right that people can finish school and university, get professional qualifications, get a highly paid job and yet still have to rent? I've been quite lucky with my circumstance, as my landlord has barely changed the rent in the time I've been here and he's not looking to sell any time soon. But this friend's sister I mentioned above was forced to move with only a few months notice when a previous landlord changed his plans.

I'm also thinking about the demographic breakdown of this city. One day, walk around South Kensington and look at the housing there. You'll see estate agents' windows with places for rent at a thousand a week. Next to them are council homes where people are paying little. What you don't see is anything in between. It's rich or poor. I find this tremendously unhealthy. It's like the old days in Brazil or the Philippines - no middle class. No social mobility - a dysfunctional society. Is that what we want?

I'm not asking for govt' assistance. I'm asking for the kind of 'closed-shop' busting that the Tories did against the unions in the 1980s to be applied to the housebuilding business today. Force open the cosy relationships between councils and the big housebuidlers. It may be unreasonable to expect a free market, but it could be made a lot more free.  And we'd get a more socially mobile society as a result.

Sunday, 12 August 2007 - 9:25 PM BST

Name: "anonymous"

I would say that you have a free market and external money is able to inflate prices thus keeping you out of the market.

You are going to need laws and taxes to take houses back into UK ownership. Building more houses when outside money can't be kept out of the market is not going to solve your problem.

In your case you have the problem of mobility. Your work limits you predominantly to the Sterling zone and those cities within. For liquiity reasons that means London. You have your working holidays but they are few.

I am glad to be in the Eurozone for as long as the party lasts. Things are much cheaper than in the Sterling zone. Cash is kept in the Sterling zone because I get higher interest. If the Euro economy fails then the currency could go with it.

My advantage is mobility. To do what I do, I can live almost anywhere. I don't need an urban life-support system to provide sustainance. We both have alternate lifestyles but yours is very constricting.

For those who do work in the "normal world" and can't afford a home, they are victims of uncontrolled capitalism. I'm not a fan of socialism but the basic necessities should be available to all. Food, water and a house. Uncontrolled capitalism robs people of basic necessities.

Monday, 13 August 2007 - 11:51 PM BST

Name: "David Young"

The reason I say that we don't have a free market is the simple one that if prices rise and the supply of something doesn't increase then you don't have a free market. That's what's happened. QED.

You're partly right about the mobility problem. I am not a great online player as I get irritated staring at a screen for hours and hours day after day. So I need to play in live action somewhere you get cash games not just tournaments. Now that the whole supercasino plan has been kicked into touch, I'm pretty much stuck living in the South East. It does not have to be London itself. I am thinking about going to somewhere like St Albans and commuting in. At least then I could rent a one bedroom place.

Part of my 'problem' is that I'm fairly conservative fiscally. I have no debt for instance (apart from a grand I owe a friend overseas, and that's just a currency transaction). I usually pay my credit card bill in full when it arrives. I have no hire purchase debt, no mortgage and no store card debt. I have a current account that's very much in credit. I could easily live more lavishly than I do. But I like to have money saved up.

Many of the people who've pushed the housing market up in recent years have interest-only mortgages. They are not making any contribution to the repayment of the capital they have borrowed. In effect, instead of renting a property, they have chosed to rent money. I consider their position to be similar to that of a futures trader. They are 'long' the housing market. If the market turns against them and they have to sell they are going to be in deep trouble. They are gambling, but they don't realise it yet.

Even if my work didn't hook me to the sterling zone, I would still stay in the UK for family reasons.

You may say that you don't need an urban life-support system to survive. That's nice. But if everyone went of to the countryside to grow their own food, life would be dull indeed.

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