David Cameron hopes

4th October 2011

Now David Cameron hopes to repeat that trick. For while "right to buy" has never gone away, the discount on the open market value has made it less attractive. The most recent figures on right to buy, issued by the Communities and Local Government department last month, show sales have dropped sharply. During 2010/11 there were 8,410 sales across England, compared with 88,330 in 2003/04.  The average discount in 2010/11 was 25 per cent, compared with 37 per cent in 2003/04 and 44 per cent a decade ago in 2001/02. Some discounts are as low as 10 per cent.

According to The Guardian Cameron intends to increase discounts to encourage council tenants to buy their own homes.  But unlike Thatcher, he says each property bought under the scheme will be replaced with an affordable rental home on a one for one basis. He also unveiled a plan to release government brownfield land to developers with the builders only paying for the land once they had sold the housing.

All this, he claimed, would help re-invigorate the economy, creating jobs in the depressed building sector and demand for UK goods as few elements in homebuilding are sourced overseas. And the replacement element would also dispose of the biggest criticism of the Thatcher policy – the reduction in social housing which led partly to the buy-to-let boom.

But will the recycling of right to buy prove to be another roaring success or, as Karl Marx wrote, will it be a question of  "History repeats itself, first as tragedy, second as farce?"

The National Housing Federation, which represents housing associations, has warned this could prove a significant setback for affordable house-building. The National Housing Federation chief executive David Orr said: "Previously Right to Buy was great for those lucky enough to be in the right place at the right time to take advantage of it, but disastrous for those who later needed rented home and found a desperate shortage of social homes. We cannot allow that to happen again."

According to Inside Housing, housing minister Grant Shapps has pledged that there will be no net loss of housing under the government's revamped right to buy scheme.

Inside Housing readers were less kind to the policy statement. Rick Campbell wrote "So, a home will be bought under RTB (right to buy) and Shapps will wave a magic wand and a replacement home just appears — absolute codswallop!"

Esmeralda questioned the size. "And will they be the same SIZE homes? Currently any large (4 bed plus) house gets bought under RTB because the large family occupying it has lots of hardworking children who can chip in – this then takes lots of large homes, which are acutely needed, out of the stock. Will they be replaced like-for like?"

And romin sutherland commented: "Whatever one thinks about the right-to-buy in principle, now is certainly not the right time to be pushing it forward again. Yes, Grant Shapps assures us that there will be no net losses to the housing stock but this fails to take account of the fact that affordable rent is not social rent, so does not replace like for like. Affordable rent will not only drastically reduce security of tenure, its higher rents will also act to either exclude the poor or increase the housing benefit bill."

But Conservative Wandsworth Council in London welcomed the move – but it wants to use the money raised to help non council tenants buy a home as well. Right to Buy sales in the borough fell from 274 in 2003 to just seven last year.

Wandsworth wants the ability to set the level of discount and the freedom to use receipts to create a 'deposit pool' to help others into home ownership. (see Conservative Home )

But all this ignores potential problems. The best council housing went years ago and little has since replaced it.  Potential buyers will steer clear of flats – most lenders hate them (especially above the fourth floor) while a mix of private owners and social tenants in a block can land the former with ruinous bills if major works are needed.

The biggest difficulty, however, could be persuading lenders to offer loans.  Since the right to buy's heyday, mortgages are tougher to get. Lenders look at the market value rather than the discounted price so a £100,000 home sold for £60,000 could effectively mean a 100% mortgage  on a 60% maximum loan to value product so no deposit would be required.  But this could lead to a resurgence in dodgy brokers offering loans on a door to door basis to those unable to service them over the long term. Another sub-prime disaster?

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14 thoughts on “David Cameron hopes”

  1. Drf says:

    Hi Shaun: it seems to me that what you are describing essentially in your blog today is the direct result of excessive economic interference by states, where they should have kept their snouts out of things to allow the markets to correct themselves, which they would have done, as they have always done.  The invention of camouflage terms like “Quantitative Easing” (to disguise debasement) and “disintermediation” (to disguise an inability to analyze cybernetic systems competently with all of the existent variables) indicates that central banks and governments are completely out of their depth in interfering with macro-economic parameters which they do not understand.  Of course, we know that they do these things in reality out of political motives rather than for real economic motives.  The reality is that there is at the limit no such thing as “too big to fail”.  What is really meant by that term is “too big for us to allow the natural rules of Capitalism to apply in the event of a large entity’s incompetence, if we want to be re-elected”!

    As a result Central Bankers and governments are now dragging most of us down into the gutter, to be where their own “integrity” and morals lie?  Most of all this is damaging the provident amongst us and favouring the indolent. This is already beginning to affect attitudes, and it will for example be increasingly difficult to encourage people to save for their retirement, rather than them expecting to be completely supported by the state.

    1. Justin says:

      Hi Drf

      Shaun may have a different interpretation, but my understanding in regards to the shadow banking system was that is was allowed to operate/develop due to a period of deregulation in the 1980’s – 1990’s (some would argue it was the result of the relaxing of the gold standard in 1971, but I think that’s probably overstated). Before this time there was legislation put in place to protect retail customers, and any of the shadow banking speculation was seperate so as to limit the governments liability. However, following this de-regulation firms (i.e To Big To Fail banks) were able to speculate with government backed funds in a way they couldn’t previously. Ultimately creating the Moral Hazard I think Shaun was alluding to above.

      When the financial crisis inevitably occured, the government was almost obliged to get involved. I agree that state interference has been almost a universally bad idea, but it might have been too late for them NOT to get involved. I believe it was only through actively taking a step back and allowing large banks (among plenty of others) to do whatever they wanted in pursuit of short term profitability that led to the crisis. We’ve got a system now when there’s de-regulation when its profitable, and state invention when its not.  

      I’d suggest we need either one (which would be all the banks failing, bondholder losses, sensible government spending not financing by unsustainable borrowing – liberal capitalism), or the other where the state is more heavily involved in regulation and supervision. What we’ve got is the worst of both. I certainly agree with your final point about a culture of dependency, but I think its probably more than that. When you see people (speculators) making masses of money in salaries then getting bailled out it doesn’t set the best example, particularly when it looks like policy.

      As an interesting aside, someone raised a point I’d never considered about capitalism vs state intervention as a model. Intervention only needs to be better than the inefficient model. Comparing it against theory (i.e assume markets are efficient, perfect information, etc) isn’t really accurate because we simply won’t ever have a perfect capitalist system. If I’m not explaining it very well, I apologise. The original article raising the point is here: http://www.qfinance.com/contentFiles/QF01/g956u8c7/10/0/understanding-and-forecasting-the-credit-cyclewhy-the-mainstream-paradigm-in-economics-and-finance-collapsed.pdf

      Justin.

      1. Drf says:

         Hi Justin,

        You may be correct in that Shaun might have a different interpretation; but you seem to be attempting to impute his views and blog relative to my comment, yet replying to his supposed views as you perceive them, rather than to the exact substance of my comment? I did not actually make any observation concerning the shadow banking system. I believe my comment concerned the more generic and overall aspects of the economic mismanagement; at least that was what I intended.

        Above all I was trying to make the point that no commercial or economic entity in a Capitalist system is in reality too big to fail; that is what Capitalism is supposed to be about.  You can of course argue whether or not we actually still have a Capitalist economy or not, and that is a whole other issue.  It is probable that in reality we have to come to the realization that we in the UK no longer have a Capitalist economy, but now have a centrally controlled and planned old soviet-style economy; in that case just as with the USSR it is hardly surprising that it is failing?

        1. Justin says:

          Hi Drf
           
          You’re right, I should have been clearer. I ended up getting sidetracked and mismashing a number of points, apologies.

          I was trying to suggest that the economic interference as you highlighted above was only necessary (or at least deemed necessary) because of the attempt to move towards a more capitalist system through partial deregulation of the banking system.  

          I agree that there shouldn’t be such a thing as ‘To Big to Fail’ in capitalism. However, as you pointed out this probably isn’t the case in the UK.

          And its not really surprising its failing. Maybe the surprise is that it took until 2007-08 to do so?

           
           

      2. Anonymous says:

        Hi Justin

        I think you make the point well and it is clear. Let me add another factor to the debate we are going through an era where many aspects of government intervention are failing too! Oh and expectations of intervention spoiled the game. I worked with quite a few people who expected the types of scenarios in terms of government intervention we are seeing now…

        So it ends up complicated and we face a reform of most of our economics and quite a bit of our economies. So far we are failing but we humans can be inventive and adaptable so there is plenty of hope.

    2. Anonymous says:

      Hi Drf

      I think that we are nearing a nexus in that with the extraordinary amount of intervention which central banks have undertaken it is getting ever harder for them to claim that we need “More,more more…”. I expect when push comes to shove for most central banks to try it but I hope for more rebellions before it is too late..

      On the day there was a reversal of the usual pattern in that some were calling for the ECB to intervene in the falling Spanish bond market. But then a junkie always wants another fix and forgets that the two LTROs of the ECB provided over a trillion Euros of liquidity.

  2. Alexwild says:

    The Shadow Banking System

    Let me now catch up with events and for once agree with the Chairman
    of the US Federal Reserve Ben Bernanke. From his speech given overnight.

    However, an important lesson learned from the financial
    crisis is that the growth of what has been termed “shadow banking”
    creates additional potential channels for the propagation of shocks
    through the financial system and the economy.

    It does indeed Ben and what is really important here is the role of
    the shadow banking system in the creation of the credit crunch.

    What is/was it?

    Shadow banking refers to the intermediation of credit
    through a collection of institutions, instruments, and markets that lie
    at least partly outside of the traditional banking systemAlex writes:I guess he’s talking about Derivatives here and the implication that this is where the next line of shocks will come. I happened to have watched the film Aliens last night, where Sig Weaver sealed in the welded door shut [firewalled ?] command bunker on LV471 says ‘they must have found a way in….something we missed’….one soldier looks up into the roof space and the aliens come tumbling through the suspended ceiling.and all hell breaks loose…Ben Bernanke plays Burke in the film – a must see 😉

    1. Anonymous says:

      Hi Alex

      I enjoyed that film too one of the rare occassions of a sequel living up to a very good precessor. Let me use Newt’s line from it about all the central bank interference.

      “It wont make any difference….”

      Sadly no-one asked her about can-kicking…

  3. The_forbin_project says:

    and so it goes  and so it goes

    anyone can look at the web pages for the debasement of Roman coins and see the parallel here

    all for short term political gains that come to nowt

    we  in the west cannot pay our way

    we cannot compete with china’s wages or costs

    one solution is to chuck china out of the global economy but  lets face it the money men are making a mint and frankly think that getting away with this wholesale destruction of the western world is a good thing …. for them that is. who else matters?

    the end will not be pretty  for the European experiment or the American one

    Forbin

     

  4. JW says:

    Hi Shaun
    Great post as always
    In case some of your readers missed the BoA chart of the day;
    http://www.zerohedge.com/news/dont-show-chart-president
    The US economy (and therefore the western worlds) will not see ‘recovery’ until real jobs with real wage increases are produced. I fear this is about 10 years off.

    1. Anonymous says:

      Hi JW

      Thank you, I have to confess I am struck by the irony of the chart being produced by Bank of America!

    2. Anonymous says:

      Wages are driven by supply and demand. Globalisation allows the jobs to be moved around. Looking forward at planetary resources and population trends, it is hard to be optimistic about western living standards for the masses.

  5. Cookie Monster says:

    Aliens, an absolute classic that has and will stand the test of time.
    And as per Burke, will Ben end up being destroyed by what he is trying to save?

  6. James says:

    completely off topic, Shaun, but what do you think the effect over the next few weeks of the Greek election will be? As far as I can tell, the anti-austerity parties are going to win. If this happens, isnt that the end of the pack of cards formaerly known as the Euroezone?

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