UK Politics VIII

[williamjm]

Given this story, I wonder how many former election candidates are currently kicking themselves for not trying to use this seemingly previously obscure law to challenge their rival's election wins. I find it a bit hard to believe that Phil Woolas is the first politician in the past 80-odd years to have blatantly made up stuff about his opponent in his election leaflets.

I don't think much of his defence, which basically seems to boil down to saying "People standing for election should accept that their opponents will make up baseless accusations about them and if they've got a problem with that then they're just being crybabies." And politicians wonder why nobody respects them...

[Eurytus]

It's very nice that you make a lot of money. However, please don't bother to go around trying to play the sympathy card (or any of the other silliness you're flinging around, like the 'politics of envy' barrel-scraping BS) because someone suggested that perhaps they might want to dissuade you from spending it in a way that worsens a very serious social problem. Nobody's going to buy a bar of that.

As I said, the politics of envy. Unfortunately for your attempt to play "class war" I don't make a lot of money. I merely choose to invest it rather than waste it.

Its illustrative that those who are unable to do this want to bring me down their level, rather than to try and improve their lot.

[mormont]

As I said, the politics of envy.

I see... saying 'it's very nice' now means 'I am terribly envious of you'?

Look, it's a well-attested fact that virtually no-one rates their own income as 'a lot of money'. My boss, for example, looked shocked when I pointed out that he's actually in the top 10% of earners in the entire country. And that's fair enough. People tend to rate 'a lot of money' as really much higher than it is, forgetting how little most people make. The vast majority of people don't make enough to 'invest' in second homes, even if they never waste a single penny.

(I, by the way, make more than the median income, which would count as 'a lot of money' to many people too.)

'Class', by the way, has nothing to do with it. Believe me, 'class' is the last word that comes to mind when I read your posts.

[MinDonner]

If a house is priced too high it won't sell.

This would be the Mailed Fist of the Free Market argument, yes? Did you not notice this minor matter of a housing bubble that was allowed to inflate but has been forcibly prevented from popping?

I'm not sure where anyone gets the idea that the housing market is in any way "free". The very existence of a Housing Minister would seem to suggest quite the opposite. Much as you'd like to believe that your efforts in buying two houses have been all down to your own personal blood, sweat and tears, you have in fact taken advantage of a system which was manipulated at every step of the way. I notice you didn't even touch on the issue of tax-deductible mortgage interest for BTL investors, which rather screws up any sense of a level playing field for would-be house buyers.

But, as you seem to be happy with your contribution to creating a two-tier society of owners and renters, I will leave it at that.

[kiko]

Can someone explain what this is about? What is so especially evil with buying a 2nd home in the UK?

[Zoë Sumra]

Can someone explain what this is about? What is so especially evil with buying a 2nd home in the UK?

There isn't enough land space / isn't enough built-on land due to planning restrictions for homes to be plentiful enough for that stuff. Second home buying shoves up the prices for people trying to buy their first homes - and bear in mind that British pensions aren't enough to pay rent, due to the lack of legislated rent controls that used to exist in the UK and still exist in several European countries. If you haven't bought a home and paid off the mortgage by the time you retire, you're dependent upon housing benefits, which are currently being scaled back.

[mormont]

kiko: there is a serious shortage of housing in most parts of the UK. This has led to a situation where the median wage is £25,428 but the median cost of a house is £167,354 - around six and a half times median annual salary, as opposed to three and a half relatively recently. The upshot of this is that the only people who can afford to buy a home are those who either already own one, or those who have a substantial deposit (usually gifted by their family). This is particularly true of families.

At the same time, building of social rented housing in the UK more or less ground to a halt for over a decade and the stock of such housing was severely depleted by the 'right to buy' scheme introduced by the then Conservative government. While the Labour government restarted the building of social housing, the amount was not even close to adequate. The current government has said that they intend to cut the cash available for social housing, making it up by permitting councils and housing associations to charge higher rents, while at the same time cutting housing benefit (government support for rent for those on low incomes).

The natural upshot of all this is that many people who do own their own home, and so have capital to borrow against, go out and get a 'buy to let' (BTL) mortgage to buy a second home. They then use the rental income to pay off the mortgage and so increase their capital yet more. Now, this is (as Eurytus would doubtless say) a rational investment in the current climate. The irony is that the families paying this rent can't get the banks to lend them the cash for a mortgage, but wind up paying about the same in rent to the landlord as they would on a mortgage. These people are priced out of the market - to the advantage of the buy-to-let owners, who increase their capital and get an income stream to cover the costs of doing so.

Meantime, almost everyone agrees that housing is overpriced and some of the demand needs to be taken out of the market. It's logical, therefore, to discourage buy-to-let and have investors put their cash into something else. This would deflate the market gently, as everyone with any knowledge of housing and social policy agrees is necessary before the whole market crashes down around our ears. Sadly, many investors react as Eurytus does above to the suggestion that this should happen - outrage at the loss of what they (probably correctly) see as a can't-lose method of enriching themselves.

ETA - I omitted the issue of rural depopulation, which is what Hereward was talking about. Apart from BTL, many people buy holiday homes in rural villages in which they spend maybe six weeks a year. The villages then become rather unviable: young locals can't buy homes because prices are too high so they leave the area, businesses lose out because there's less local custom, and so on. Many local authorities have resorted to charging high taxes on these properties already.

[MinDonner]

The "lack of available land" premise is a bit of a red herring, though much beloved of developers - actually there was plenty of house-building during the boom, but most of it was in the form of small city flats, aimed mainly at BTL landlords, cos they were initially where the money was, and eventually the only people who could afford to buy anyway. Opening up more land is not necessarily going to benefit anyone except to bolster the developers' land banks.

Kiko, we have a peculiar attitude to home ownership here which is quite different from on the continent - renting is rarely seen as a long-term option (if you can possibly avoid it), largely because there are few protections for tenants. If your landlord goes bankrupt, or just decides it's time to retire and collect the money from their "investment" by selling up, or dies... you get evicted, that's it. Not much security. Rents are also of a similar rate to monthly mortgage payments, so rent is viewed as "dead money" - you keep paying out all your life and get nothing at the end of it.

Here's an article from 2006 (before the crash!) that goes into some of the detail. (not by me, though it's on my blog, I just nicked it from somewhere else)

ETA: It's a touchy subject here now cos so much of the population have a vested interest in keeping the value of their "investment". I nearly had a major falling out with a good friend over the subject, when he and his wife continued renting out her old flat. It's now one of those subjects that just Is Not Mentioned for the sake of harmony in the pub.

[Pebble thats Stubby]

When Hubby and I started dating we both had our own house. We where both unusal in our peer group (we both did the same apprenticeship with the same company so we got the same money as about 100 people of out own age in our respective years) Both of us are natural saver's and right from starting work at 16 we put a healthy chunk of our wages into our savings. this let us buy our each of our house's with a healthy deposit. (other people in the same income group where not able to do this because they had different spending paterens)

We also got on the housing market before price's became ridiculous. my 3 bed house cost £98,000 my brothers 1 bed flat (just round the corner) cost £110,000 1.5 years later. when we moved in togther I attempted to sell my house. Infact I "sold" it to a BTL investor (no chain) but diddled arround for 7 months then backed out cos he got scared of the housing boom. This left us with 2 houses and 2 mortgauges and a house we could not sell because no-one was buying and northern rock had long ques of people outside its doors. We did have several people begging us to let them rent from us.

(yes I prop could have sold if I had dropped the price to a ridiculous level, but then we would not be able to afford the house we want when we planned to move in a (then) couple of years time)

We let my house out for a tad less than current market value because we only wanted a very short term let (so we could attempt to sell again in 6 months time if the people started buying) It did however comfortable cover the mortgage on the property. Lets just say things went great for a couple of years but I now have squatters and my "agent" is on police bail awaiting trail for fraud and embezzlement.

So we did have 2 properties, 2 mortgauges (both occupied) and no rental income. (luckily our natural saver tenancies have allowed us to pay off one of the mortgauges)

I suppose this is not the thread to mention my tenant woe's :leaving:

Given my personal situation I would not be happy paying extra tax because I was unable to sell my house and is now inhabited by squatters. If I had a rental income from it then I would prob just put the rent up to cover the loss in income - so I don't see it as solving the housig crissis. It may however help with holiday homes.

I can agree with some sort of rent price control but I have no idea how you could effectively implement it fairly.

[Lummel]

It wasn't that tenants were given the right to buy that was the problem, but rather that councils were not allowed to reinvest the proceeds of sales into building new housing and were instead obliged to use the money to repay their debts instead. The housing stock lost to the public rented sector wasn't in free circulation, the discount given to the purchase price was proportional to the length of residency (ie encouraging long term residents to buy, people who were unlikely to move in any case) and as tenancy in the social sector can be (still - just about - at the current moment) inherited most of those properties would have remained with the same people in any case. However one does need to sit back and just savour the thought that we had a stock of housing built or bought at public expense, that were then sold at a discount and with heavy public subsidy and some of which are still being bought back by housing associations (HAs) and councils using money from central government (some of which properties then are subject to right to acquire by the new tenants - so continues the circulation of capital) so we end up with properties whose repeated change of ownership have all been paid for out of the public purse. There's an effective use of money for you.

Shortage of land isn't a problem either. There's plenty of land, even allowing for the green belt, and planning restrictions aren't really that onerous - most countries have some kind of planning restrictions afterall without producing housing shortages and crisises. Even 2nd home ownership isn't, of itself, a terrible evil - although I do say - woe, WOE, unto the closers of pubs. More of a problem is who owns land (we don't know precisely - the last comprehensive survey was in 1086, there was an attempt to do a follow up in the 19th century but it was given up on) and who is, or isn't allowed to build and what is allowed to be built.

The core issue in my opinion is that in the UK we don't have a traditional, and possibly don't even have a legal or a financial structure to support good quality provision of flats whether through private, co-operative, charitable, professional or what ever else form of organisation. Or to put it another way, most British towns and cities have housing that sprawls and luxuriates itself across the landscape and this isn't the most efficient use of the land we have availiable. An Englishman's home is his castle (and what's an Englishwoman's home I wonder?) afterall and God forbid that it should be anything else than a semi, howsoeverso small it may have to be, and irrespective of the fact that it is going to loose the thermal benefit of being mid terrace or that one is going to have to commute for three hours every day travelling back and forth to work.

And lacking that tradition of good quality flat provision, we don't have a vocal consistency that political parties want to appeal to either. Instead we have a political system with a large amount of personal investment in poor quality housing. Lucky us.

I don't think that the units released through the housing benefit cap are going to make much if any impact, some will need investment and others are at market rates going to be expensive. There's a slither of not bad news in allowing HAs to charge non-social rents given that most HAs own properties which could attract a higher rent because of their location or intrinsic value (listed or period properties) and this will attract a limited amount of investment (debt funded courtesty of canadian pension funds and the like) in properties to rent at market or sub-market levels at a responable quality (HAs and councils are obliged to build to higher quality levels than private developments). But short of massive devestation and rebuilding or the kind of political upheaval required to allow the seizure of the landed estates of the Dukes of Bedford and Westminister we're not going to see the kind of housing solutions that we can find over in mainland Europe.

[mormont]

Pebs: nasty mess, I hope it gets sorted soon. :( But your situation is not quite the same as Eurytus': you're not buying the second property in order to let it, in fact you'd happily get shot of it if you could do so without a loss. That's very different from investing in buy-to-let instead of, say, buying shares; and it would actually be fairly simple to exempt cases such as yours.

The point is that at the moment, it's insanely easy and (for most people) profitable to get into BTL if they have the capital. The returns are high, and although there are regulations to comply with (HMO rules and so forth) the fact is - and I speak from professional knowledge, since I employ a housing adviser - local authorities do not have the resources to actually make landlords live up to these if they don't want to. That's something of a digression, though: the point is, you can discourage BTL quite easily by taxing at the point of purchase (so cases like yours would be exempt), and to do so would be a legitimate social policy move.

As Lummel says, that alone would not sort out the housing problem, but it would let a little air out of the bubble, particularly in certain 'hotspots' around the country. Whether any political party will ever have the balls to do it is another question. I'm doubtful. Mostly their approach to the housing issue is to stick with the status quo and a hefty dose of blind hope.

[Jaerv]

As a continental person, I don't quite get the extremely positive image of house ownership in the UK. "Paying rent is dead money" is a dubious argument IMHO because the alternative involves high ineterest rates for the mortgage, i.e. money that goes to the bank that you could have invested in stocks or whatever if you had rented. All this money that goes to the bank for giving you a credit that you would not have needed had you rented could also be seen as "dead money". Furthermore, owning a house makes you highly unflexible as regards your career. Each time you want to change the job (and probably the city) you have to sell a house and buy a new one. Jesus! That would honestly be too much inconvenience for my taste...

EDIT: Maybe its mainly a cultural thing? "My home is my impregnable Gibraltar"? ;)

[MinDonner]

A lot of this is definitely to do with the lack of rights or protections for tenants - for example, tenants are unlikely to be allowed to decorate how they like, or do what they want to the garden, or whatever, quite beside the (very real) risk of getting turfed out at the landlord's whim. No-one wants to be worrying about that in their old age when they are no longer earning.

[Lummel]

Exactly. It is a cultural thing. My home is my castle as the old saying goes. Though not as impregnable as Gibralter nor swarming with barbary apes neither.

[Night Watchman]

As a continental person, I don't quite get the extremely positive image of house ownership in the UK. "Paying rent is dead money" is a dubious argument IMHO because the alternative involves high ineterest rates for the mortgage, i.e. money that goes to the bank that you could have invested in stocks or whatever if you had rented. All this money that goes to the bank for giving you a credit that you would not have needed had you rented could also be seen as "dead money". Furthermore, owning a house makes you highly unflexible as regards your career. Each time you want to change the job (and probably the city) you have to sell a house and buy a new one. Jesus! That would honestly be too much inconvenience for my taste...

EDIT: Maybe its mainly a cultural thing? "My home is my impregnable Gibraltar"? ;)

I think the difference is, as someone mentioned upthread, is that the continent tends to have better protection for tennants, while in Britain it's all about the landlord.

[mormont]

Don't know how it is anywhere else, but around here private rents are pretty comparable with what you'll pay on a mortgage anyway.

But the cultural thing is definitely true also: for most Britons, a home is seen as your primary financial asset.

[Jaerv]

A lot of this is definitely to do with the lack of rights or protections for tenants - for example, tenants are unlikely to be allowed to decorate how they like, or do what they want to the garden, or whatever, quite beside the (very real) risk of getting turfed out at the landlord's whim. No-one wants to be worrying about that in their old age when they are no longer earning.

I think the difference is, as someone mentioned upthread, is that the continent tends to have better protection for tennants, while in Britain it's all about the landlord.

Okay, but protection for tenants (interesting word btw, didn't know it until an hour ago :) ) doesn't come out of the blue. Parliaments decide whether and how much protection tenants get. Here in Germany we would have an outcry if the parliament decided to abolish renters' rights, which is probably a results of a lower estimation of house ownership in our culture...

(don't get me wrong, most Germans would prefer to live in their own house if affordable. However, renting is also seen as okay. It usually depends on your life circumstances what you do, and there are also many academics and above-average-earning persons who rent.)

EDIT: Mormont, how is the demographic development in the UK? Is it similar to Germany, (i.e. a probably shrinking population, depending on the future amount of immigration)? If so, it could be dangerous to put all the eggs in one basket, i.e. your house...

[Lummel]

Don't know how it is anywhere else, but around here private rents are pretty comparable with what you'll pay on a mortgage anyway.

Down south where I am mortage payments are on the whole cheaper than renting an equivelent sized property. Could be that this is the result of buy to let, as they've all got their own mortgages to pay as well, rather than a long term trend though.

[Eurytus]

I see... saying 'it's very nice' now means 'I am terribly envious of you'?

Look, it's a well-attested fact that virtually no-one rates their own income as 'a lot of money'. My boss, for example, looked shocked when I pointed out that he's actually in the top 10% of earners in the entire country. And that's fair enough. People tend to rate 'a lot of money' as really much higher than it is, forgetting how little most people make. The vast majority of people don't make enough to 'invest' in second homes, even if they never waste a single penny.

(I, by the way, make more than the median income, which would count as 'a lot of money' to many people too.)

The bottom line is that I chose to invest in paying off my mortgage. Others chose to spend on non essential products or holidays.

Both me and the other person got taxed on the income we earned.

I should not be taxed a second time because I choose to use my money differently (and more wisely) than they.

'Class', by the way, has nothing to do with it. Believe me, 'class' is the last word that comes to mind when I read your posts.

Not setting a very good example as a mod are we? Quick to break out the snide insults.

[Eurytus]

The natural upshot of all this is that many people who do own their own home, and so have capital to borrow against, go out and get a 'buy to let' (BTL) mortgage to buy a second home. They then use the rental income to pay off the mortgage and so increase their capital yet more. Now, this is (as Eurytus would doubtless say) a rational investment in the current climate. The irony is that the families paying this rent can't get the banks to lend them the cash for a mortgage, but wind up paying about the same in rent to the landlord as they would on a mortgage. These people are priced out of the market - to the advantage of the buy-to-let owners, who increase their capital and get an income stream to cover the costs of doing so.

Meantime, almost everyone agrees that housing is overpriced and some of the demand needs to be taken out of the market. It's logical, therefore, to discourage buy-to-let and have investors put their cash into something else. This would deflate the market gently, as everyone with any knowledge of housing and social policy agrees is necessary before the whole market crashes down around our ears. Sadly, many investors react as Eurytus does above to the suggestion that this should happen - outrage at the loss of what they (probably correctly) see as a can't-lose method of enriching themselves.

Absolutely and utterly incorrect.

I scrimped and saved to pay off my houses mortgage myself, when I was living in it. I used no rental income to pay off the mortgage AT ALL. I did it myself.

My second house I will also pay for myself.

Its typical of the subject that people would choose to portray all landlords as corrupt vultures.