I grew up with the politicians telling us ad nauseum that it was high interest rates that discouraged investment. Forgive my cynicism, but it is my observation that the rich always seem to end up richer whoever's economic system is in play. House prices will fall when they build some bloody houses that kids can afford. We used to call them council houses, and whilst not a perfect system, it was a helluva lot better than the obscenities we've got now.
One can argue that low interest rates discourage investment and spending. Low interest rates drive up asset prices since the future income streams they generate are discounted at lower rates (this can be clearly seen in property and equities in recent years) - this has been one of the clear goals of quantitative easing and it's worked.
However high prices for assets discourage new investment because entrepreneurs/speculators/investors cannot generate the rates of returns necessary to justify the (higher) outlay. This trend also generates greater inequality since assets are disproportionately owned by the rich.
This in my view would explain why so little of the money printing has reached the real economy and instead is sitting in bank reserves ie. there is as much a 'demand for credit' problem as a 'supply of credit' one.
Looked at another way and to KHA's point, whilst higher rates would no doubt cause distress for some homeowners, the likely fall in house prices would allow many more first time buyers to finally own their own home.
Or just simply families that require a roof ever their heads. Is it socially responsible to drive such a basic human requirement beyond the reach of young families while at the same time restricting a social housing alternative. Always economics must have a political imperative to make it possible, no matter how correct.
I broadly agree (hence my last paragraph) - however if you asked the average person trying to join the housing ladder if they thought higher interest rates would help them, most would probably (I think) say 'no' yet I would argue the opposite.
Don't get me wrong it was not directed only at you and certainly was not rhetorical, a genuine attempt to bring housing into the debate, I think we have a real problem with housing and it's costs. We pay more for our housing than any country in Europe and I feel it is both socially unjust and an drag on our economy. It was caused as was the crash by cheap money and loose credit, now we are in a fix with our banks balance sheets still in peril and overly reliant on a topped out housing market.
The question is what do we do about it, whatever action is taken we need to tread very carefully because the consequences of error are enormous and yet the consequences of inaction are equally enormous. There are already houses in London with three/four families living in them, some families living in sheds at the bottom of gardens etc and it is getting worse.
I agree that increased interest rates would reduce, all be it temporarily, house prices but the impact of the increased demand for rented properties by both those that are working and those that have lost their homes and jobs and go on housing benefit would probably incentivise an increase in demand from investment landlords.
Either way the ability of people to fund their own homes will not be helped in the short term as increased interest rates will increase mortgage payments and that will cause an increase in rents.
Within a short period of time the cost of housing will be the same, the difference will be that the purchase price is lower (although I very much so doubt this will happen in London) but the mortgage will be the same and the rents will rise accordingly.
Ultimately the problem is that there are just too many people living in London and the South East. There is just not enough housing, which is why the age of first time buyers is close to 40, and the cost of accommodation is the highest in Europe.
Given most BTL landlords are highly leveraged, I suspect the impact of higher i/rates would cause considerable forced selling especially from this segment (lenders meanwhile are more likely to be willing to 'work with' distressed owner-occupiers), only partially offset by opportunistic buying by more cash-rich investors. The maths barely makes sense even at current i/rates (in the absence of the capital appreciation that most now take for granted).
With regard to London and the South East, it is perfectly understandable that it has the highest costs of living in Europe - after all it is by far the largest financial centre, as well as a thriving hub for fashion, media, technology etc. (all high-earning sectors). Throw in the attraction to foreign buyers of its timezone, mild climate, racial tolerance and political stability and maybe the question should be why it isn't even more expensive?
Having lived in the US, it's noticeable (although I don't have facts to prove it) that Americans seem much more willing to be mobile within their own country, despite the greater distances involved. There are parts of the UK where employment is relatively robust yet property costs only 50% of London levels - whilst many jobs have an explicit or implicit London 'weighting' in their salaries, it doesn't come close to offsetting the impact of the higher cost of living. Quality of life outside London (commuting times, schools, access to countryside etc.) on modest incomes must surely be higher too.
Don't get me wrong it was not directed only at you and certainly was not rhetorical, a genuine attempt to bring housing into the debate, I think we have a real problem with housing and it's costs. We pay more for our housing than any country in Europe and I feel it is both socially unjust and an drag on our economy. It was caused as was the crash by cheap money and loose credit, now we are in a fix with our banks balance sheets still in peril and overly reliant on a topped out housing market.
The question is what do we do about it, whatever action is taken we need to tread very carefully because the consequences of error are enormous and yet the consequences of inaction are equally enormous. There are already houses in London with three/four families living in them, some families living in sheds at the bottom of gardens etc and it is getting worse.
This isn't borne out from the latest OECD report (which admittedly is based on data from 2009). We have a lower than average number of families living in overcrowded accommodation, a higher than average number of rooms per person and a higher than average number of people satsified with their housing acccommodation. We do spend the fourth highest amount of our disposable income on housing however (behind Greece, Germany and Denmark - Germany is surprising since there are low levels of owner-occupancy).
Of course, this looks at the whole of the UK. I agree that London may well be its own special case.
Don't get me wrong it was not directed only at you and certainly was not rhetorical, a genuine attempt to bring housing into the debate, I think we have a real problem with housing and it's costs. We pay more for our housing than any country in Europe and I feel it is both socially unjust and an drag on our economy. It was caused as was the crash by cheap money and loose credit, now we are in a fix with our banks balance sheets still in peril and overly reliant on a topped out housing market.
The question is what do we do about it, whatever action is taken we need to tread very carefully because the consequences of error are enormous and yet the consequences of inaction are equally enormous. There are already houses in London with three/four families living in them, some families living in sheds at the bottom of gardens etc and it is getting worse.
This isn't borne out from the latest OECD report (which admittedly is based on data from 2009). We have a lower than average number of families living in overcrowded accommodation, a higher than average number of rooms per person and a higher than average number of people satsified with their housing acccommodation. We do spend the fourth highest amount of our disposable income on housing however (behind Greece, Germany and Denmark - Germany is surprising since there are low levels of owner-occupancy).
Of course, this looks at the whole of the UK. I agree that London may well be its own special case.
London is clearly a special case - not a single doubt about it.
Central London is being used as a 'money parking' zone by the Russians, Chinese and Arabs and the prices in the capital are being pushed up by a crazy amount every quarter as the actual population gets pushed further out.
My work colleague told me last week that her family - middle-class but not rich - were brought up on Baker Street in the 1980's but said that they have now been scattered to all four corners of London as they cannot afford to be anywhere near town.
Funnily enough exactly the same thing is happening in Singapore, with the mainland Chinese and Chinese Indonesians and Malaysians pumping all their money into Singapore real estate because it is very safe investment wise - just like Central London.
Do people genuinely believe that HS2 will make a positive effect on the economy if it happens?
If it was a new motorway that was proposed, it would be pushed through regardless of opposition. In principal, of course we should have HS2.
The French have built several TGV routes in recent years, which has revolutionised links between major cities, cutting journey times hugely. Japan has their purpose built high speed routes and other major nations also.
In the UK, we have the Folkestone to London St Pancras Eurostar route. That's it. The rest of the rail network was built 150 years ago or more.
Okay, people will ask who pays for it - but there would be no shortage of companies wanting a share of the pie.
It's true France have built several TGV routes in recent years but you will find most big companies have re-located their headquarters from Lyon and Marseille to Paris and a lot of comuters in France are now going over to Paris to work because there a lot more jobs avaliable. So this has been a reverse effect and you will find it's happend to Countries like Spain as well.
We are skint enough as is it to afford anything like the HS2 so we got to borrow that money and pay a lot of interest over many years. We was told originally it was going cost £30 billion and now it is estimated at £70 billion and will more likely increase further once we start building the railway line.
Why do we need to spend billions on HS2 when we can upgrade the current lines? That sounds like a cheaper alternative. What about quicker train journey's to Penzance, Newcastle, Cardiff, Norwich, Glasgow etc etc - basically places that won't be affected by the HS2 plan. Surely we should think about other places as well as Liverpool and Birmingham???
I said a little further up the page that JP Morgan were on the brink of a further settlement - $9BN - for their packaging and sales of mortgage bonds.
They've actually just settled this afternoon, with the Fed announcing that the bank will pay $13BN!! $9BN to the authorities and $4BN to go towards relief for homeowners.
The Fed have also refused to rule out criminal proceedings against the bank or officials, which was something JPM had been trying to negotiate out.
The sad thing is that these figures were expected and have had little effect on JP Morgan's share price.
Comments
The question is what do we do about it, whatever action is taken we need to tread very carefully because the consequences of error are enormous and yet the consequences of inaction are equally enormous. There are already houses in London with three/four families living in them, some families living in sheds at the bottom of gardens etc and it is getting worse.
Either way the ability of people to fund their own homes will not be helped in the short term as increased interest rates will increase mortgage payments and that will cause an increase in rents.
Within a short period of time the cost of housing will be the same, the difference will be that the purchase price is lower (although I very much so doubt this will happen in London) but the mortgage will be the same and the rents will rise accordingly.
Ultimately the problem is that there are just too many people living in London and the South East. There is just not enough housing, which is why the age of first time buyers is close to 40, and the cost of accommodation is the highest in Europe.
With regard to London and the South East, it is perfectly understandable that it has the highest costs of living in Europe - after all it is by far the largest financial centre, as well as a thriving hub for fashion, media, technology etc. (all high-earning sectors). Throw in the attraction to foreign buyers of its timezone, mild climate, racial tolerance and political stability and maybe the question should be why it isn't even more expensive?
Having lived in the US, it's noticeable (although I don't have facts to prove it) that Americans seem much more willing to be mobile within their own country, despite the greater distances involved. There are parts of the UK where employment is relatively robust yet property costs only 50% of London levels - whilst many jobs have an explicit or implicit London 'weighting' in their salaries, it doesn't come close to offsetting the impact of the higher cost of living. Quality of life outside London (commuting times, schools, access to countryside etc.) on modest incomes must surely be higher too.
Of course, this looks at the whole of the UK. I agree that London may well be its own special case.
Central London is being used as a 'money parking' zone by the Russians, Chinese and Arabs and the prices in the capital are being pushed up by a crazy amount every quarter as the actual population gets pushed further out.
My work colleague told me last week that her family - middle-class but not rich - were brought up on Baker Street in the 1980's but said that they have now been scattered to all four corners of London as they cannot afford to be anywhere near town.
Funnily enough exactly the same thing is happening in Singapore, with the mainland Chinese and Chinese Indonesians and Malaysians pumping all their money into Singapore real estate because it is very safe investment wise - just like Central London.
We are skint enough as is it to afford anything like the HS2 so we got to borrow that money and pay a lot of interest over many years. We was told originally it was going cost £30 billion and now it is estimated at £70 billion and will more likely increase further once we start building the railway line.
Why do we need to spend billions on HS2 when we can upgrade the current lines? That sounds like a cheaper alternative. What about quicker train journey's to Penzance, Newcastle, Cardiff, Norwich, Glasgow etc etc - basically places that won't be affected by the HS2 plan. Surely we should think about other places as well as Liverpool and Birmingham???
"Bill Clinton's " extreme socialist" administrator!"
Laughable!
They've actually just settled this afternoon, with the Fed announcing that the bank will pay $13BN!! $9BN to the authorities and $4BN to go towards relief for homeowners.
The Fed have also refused to rule out criminal proceedings against the bank or officials, which was something JPM had been trying to negotiate out.
The sad thing is that these figures were expected and have had little effect on JP Morgan's share price.
http://www.nydailynews.com/news/national/jpmorgan-chase-reaches-record-13-billion-settlement-u-s-government-article-1.1522362