[danm]

And there it is, killed by the Hunt. Tory left and Labour right now the same party hooray.

Until the rich have their assets taxed to recoup the ongoing and vast transfer of wealth from the many to the few, house prices will continue to rise, because what else are the rich going to spend their vast hoard of cash on otherwise?

The heating bill.. Can't even burn £10 notes to stay warm anymore since they went synthetic.

More seriously. For a tax there there has to be a figure in black+white above which a tax applies, or it doesn't work. Who in your socialist utopia classes as rich? What figure do you have in mind when you say this stuff? Personally, I'd not argue with any government making owning more than two houses financial suicide. Taking the asset price inflation out of a speculative housing market would cure many ills. Would be one of the largest wealth transfers in reverse ever. But entrepreneurs growing a business (no not a buy-to-let 'business'), no way should they be over taxed imo.

It's not about a socialist utopia it's about saving society as we know it. We're in the situation now where you can work/study hard, get a decent job, and never be able to afford a house or start a family unless your wealthy family can spare you a 6 figure sum. It's crackers! We're on the cusp of moving from democracy to techno-feudalism

[mrjonathanr]

I can’t analyse of the change in uk salaries (where, what age, what sector?), nor houses (location, for whom, bracket in the market?) but to make a rough point about affordability trends this website gives some simple figures of change since 1980:

https://propertyindustryeye.com/house-prices-have-increased-by-1010-since-1980/

% increase in inflation - 255%
% increase in average salary - 43%
% increase in average house price 1010%

Put another way, if in 1980 we call the relation of house to salary a benchmark 1:1, now it’s over 20:1. Unless you are on big bucks or given sums beyond what you can reasonably earn or save, that’s a problem. The profile (and indebtedness) of first time buyers in 1980 vs 2022 will be very different. Even if these figures are quite contestable, I don’t disbelieve the core message from that data: what was affordable then is not now, has declined steeply, is on course to deteriorate further and will have massive implications for (deteriorating) quality of life through progressive generations. That should be a massive concern to all of us imo.

If anyone with a deeper grasp of economics and knowledge of where to pull data from cares to do so, thank you.

[abarro81]

The site that that link references shows average salary increasing by ~160% since 1992 so unless salaries crashed from 1980 to 1992 I suspect that 43% figure is likely to be very, very wrong.

Your broad point will still stand (house prices rising much faster than salaries over that period), but the figures look likely to be very wrong (and, as pointed out earlier, the "forecast" wasn't a forecast it was just the most basic scenario you could draw on a graph)

[mrjonathanr]

Yeah probably, I'm not going to dig deep for figures (maybe you'd like to look?), but the point, as you say, remains. As does the trend.

[abarro81]

I quickly googled but couldn't obviously see data back before the 90s. You'd need to compare methodologies to make it worth it to put the time in too... basically the data shown is terrible, the point that house prices have gone up faster than earnings will still be true, but if anyone wants to make forecasts about what will happen I'll probably only listen if they've put the groundwork in...

[Nigel]

I lived through a long period in the early nighties of using a weak currency, shaky government finances,  and having an incompetent but confident government. I do not recommend. If this were to happen to me again, I would — as a card carrying member of the citizens of nowhere — look for a job in another country.

We have a slight self inflicted problem with that as you no doubt know!

RE Pete's explanation of why the "mini-budget" caused such an upheaval in the markets, as an analysis it was spot on. The only point where I would correct it slightly would be the bit which says "price of a bond drops when its yield rises" which would be more correctly expressed as "the yield of a bond rises as the price drops" since the yield is effectively fixed at bond issuance e.g. a 10 year gilt at a 3% coupon, and changes as that existing bond changes hand for a lower price.

RE house prices there is a graphic doing the rounds atm which attempts to express house price inflation in simple terms by snapshotting 1990 vs 2020. Caveats obviously apply but it is worthwhile for illustrative purposes:

[petejh]

Thanks for the explainer. I like the idea of guilts.

Hah! Freudian slip.

[petejh]

The 'Moneyvator' site is good for most things markets and economics. They've comprehensibly answered the question of house price rises in real terms taking account of inflation. If you want the details it's here:  https://monevator.com/historical-uk-house-prices/

The TLDR is house price rises have reliably beaten inflation (and easily outstripped wage rises) over the past 30 years. The period post 2008 GFC has seen the most rapid dislocation between house price rises and wage rises. This is not news. But the data's interesting.

Inflation data for 2022 is not yet available. Let’s therefore use 2021 as our base year, given how hot inflation has been running for the past eight months.

Nationwide says the average house cost £251,133 at the end of 2021
At the same point in 2011, the average house cost £164,785
Using the Bank of England’s calculator, we can see that the 2011 house price equates to £196,776 in 2021 money. (That is, adjusting for CPI inflation.)

Play with Monevator’s compound interest calculator and you’ll see that it takes about 2.5% a year over ten years to turn £196,776 into £251,133.

Therefore house prices went up by about 2.5% a year ahead of inflation over the ten years to 2021.

This is mildly interesting for property nerds. But it gets more dramatic looking further back.

Consider that by the end of 1991 the average house cost £53,635. That’s £99,618 in 2021 money.

In nominal terms, house price growth was about 5.3% a year over the 30 years from 1991 – or 368% overall.
But in real terms – after-inflation – annual growth was only a little over 3%, or 152% in total.
Clearly 152% is a lot less vertigo-inducing than a 368% nominal terms price rise.

Although as we’ll see later on, it’s still a lot faster than wages have grown. Which is why we keep hearing about a housing crisis!

(It’s also a reminder of how property has protected you against inflation).

They go on to make a very good point that, while house prices are outstripping both wages and inflation, it doesn't make complete sense to look at an asset such as a house has compared in the same inflationary frame of reference as a basket of goods including food, fuel and cinema tickets. One is daily/weekly living costs. The other is a (potentially) lifetime investment. Hence long term low cost loans for houses, not cinema tickets. The problem (imo) is houses have been turned not into lifetime investments but speculative assets and inflation hedges by over-cautious over-moneyed middle classes. Hi UKB(oomers). At the expense of younger generations more so than ever before. One sphere of life where I'm definitely very socialist and redistributive is housing as it's so important to society but so potentially expensive and out of reach once it gets beyond a certain point - where we are now. Unlike other essentials where the affordability gap between poor-wealthy is important still but not as terminally unbridgeable as housing threatens to become imo. Anyway, looking at a real crash if rates don't toe the party line.


Longer term:

Academics have made various stabs at estimating the returns from property over more than a century.

For example, in the paper The Rate of Return on Everything: 1870-2015, the authors calculate that the very long-run return on property across 16 countries was just over 7%, in real terms.

Interestingly that’s very similar to the long-term real return from equities.

However this 7% annual return isn’t comparable to the house price series we’ve been looking at. That’s because its property values also incorporate the return from rent, to come up with a total return. In contrast, the house price data series only track prices.

But a bit later on the same paper estimates UK capital gains on housing since 1895 at 5.4% in nominal terms, or 1.25% real.

Which would indeed suggest the past 30 years have been a bit frothy, historically-speaking.

Meanwhile a more recent paper, The Best Strategies for Inflationary Times, pins UK annualised real housing returns from 1926-2020 at 3%. And as best we can tell that’s capital gains only. (It’s based on ONS data, which uses Land Registry house prices.)

My interpretation of these studies – together with the data from Nationwide and Halifax – is that property prices in the UK have been going up for over a century, but that growth has accelerated in the past few generations.

This would correlate with the popular notion that an increasingly egalitarian Britain has steadily transformed from a nation of renters to homeowners. At least until the past decade or so, when sluggish wage growth hurt affordability.

Two visual representations of the ratio of house price to average earnings. You can see it's gone from 2x average earnings in 1995 to 6x average earnings today. Or 3x to 9x average earnings if you're in London.

[Will Hunt]

My dad's political outlook has not changed since some time in the 1980s. He doesn't pay much attention anymore. He defends the Tories as the party of budget responsibility and wouldn't trust Labour with the public finances.

Today he said that it was time for a Labour government.

That is incredible.

[James Malloch]

Not my view at all, but a question from a friend which I couldn’t answer…

Any decent rationale to the below question?

“Bond markets were fine with us being 2.3 trillion in debt. So why did this extra 40bn nearly caused a meltdown.”?

That has the relationship a bit wrong. The bond market *is * the debt. In this case government debt is paid for by the DMO selling government bonds (guilts) to pay for government spending.

The cost of that debt is the yield on the bond. And the yield on the bond goes up when confidence in the ability of the government to adequately finance said debt goes down.

It wasn't £40Bn that tipped anything. The cost of the Energy Price Guarantee was/in £60Bn in the first 6 months, and it was going to last for up to 2 years. Then the tax cuts amounted to around another £45Bn in tax take not coming in.

Without details forthcoming of how this could be afforded,  market participants in bond markets demanded a higher yield to compensate for the perceived higher risk of investing in UK bonds. So bond yields rose as market confidence lowered.

In reality there's far more to it than that - not least the market taking advantage of the government putting itself into the position of being a forced seller of bonds by the way it positioned itself with its timing and language when announcing the 'mini budget'. Ineptness. 'Laying the pitch' and all that bollocks is partly preparing the market participants to accept (by believing its a good investment) what you want to sell, in this case guilts.

But compounding the situation was the unintended consequence of defined benefit pension funds having their dirty secrets unearthed by an unlikely set of events, in that to juice their balance sheets a bit they'd been using more leverage than widely supposed, via a sequence of hedges which normally wouldn't be an issue except in a highly unlikely scenario of rapidly rising bond yields... This forced some funds into forced selling of assets to cover balance sheet losses because guilt prices had suddenly dropped (price of a bond drops when its yield rises). Forced selling of guilts dropped guilt prices further, doom price spiral ensues as more funds' balance sheets start to turn red. BoE step in as buyer of last resort.

Bigger picture again is the fact the west cannot, following 12 years of ultra low borrowing costs and imaginary money pumped in to bond markets to provide liquidity in the wake of the GFC leading to repress interest rates, cannot afford rates to rise higher than 5-6% and can’t afford them rising too rapidly (before, some suggest, the last decade of debt is inflated down to more managable levels...) without a crippling severe recession possibly needing further QE type stimulus to get out of. We’ve become too used to low rates and our borrowing habits and debt levels reflect that. Can't have rates rising too rapidly without it all failing. There's quite possibly/probably some heavy CB/US/IMF influence going on to prevent the 'wrong' policy at the wrong time.

Thanks for that, Pete. Makes sense to me!

[chickencurry60]

RE Pete's explanation of why the "mini-budget" caused such an upheaval in the markets, as an analysis it was spot on. The only point where I would correct it slightly would be the bit which says "price of a bond drops when its yield rises" which would be more correctly expressed as "the yield of a bond rises as the price drops" since the yield is effectively fixed at bond issuance e.g. a 10 year gilt at a 3% coupon, and changes as that existing bond changes hand for a lower price.

I understand what you are trying to say, but I think it's misleading to ever say the yield is fixed, it is the interest rate (coupon) that is fixed

[andy popp]

Dear oh dear. Anyway ...

[teestub]

Dear oh dear. Anyway ...

Is the tofu eating wokerati membership the same as the anti growth coalition one wonders?

[andy popp]

Dear oh dear. Anyway ...

Is the tofu eating wokerati membership the same as the anti growth coalition one wonders?

I eat so much tofu I'm a black hole of anti-growth.

[andy popp]

Joke as we may, it's really, really not funny anymore.

[seankenny]

This afternoon I went out to roll around the skatepark for an hour or so and when I came back I discovered the Home Secretary had resigned. 

Well it’s all been a bit politics heavy lately so I had my tea and watched some TV and by the time I’ve done that there’s been bouts of scuffling in Parliament like it’s 1750 or something, the PM didn’t vote for her own fracking bill and no one knows if the government’s chief whip has resigned or not.

Jesus fucking Christ this is not normal.

[Oldmanmatt]

This afternoon I went out to roll around the skatepark for an hour or so and when I came back I discovered the Home Secretary had resigned. 

Well it’s all been a bit politics heavy lately so I had my tea and watched some TV and by the time I’ve done that there’s been bouts of scuffling in Parliament like it’s 1750 or something, the PM didn’t vote for her own fracking bill and no one knows if the government’s chief whip has resigned or not.

Jesus fucking Christ this is not normal.

It’s the new normal…

[TobyD]

This afternoon I went out to roll around the skatepark for an hour or so and when I came back I discovered the Home Secretary had resigned. 

Well it’s all been a bit politics heavy lately so I had my tea and watched some TV and by the time I’ve done that there’s been bouts of scuffling in Parliament like it’s 1750 or something, the PM didn’t vote for her own fracking bill and no one knows if the government’s chief whip has resigned or not.

Jesus fucking Christ this is not normal.

It’s the new normal…

Actually bonkers.  I sort of hope that Truss stays in a very strange way, or that Sunak/ Hunt are brought  in,  due to the nagging feeling that the next cretinous thing that the conservative party will do is to bring back Boris Johnson as a last ditch attempt to be less unpopular.  While I'd like to think he was gone for good,  I think a lot of people would probably like to see him back,  and he's as bad for democracy as Truss is bad for the economy. 

[ali k]

Speaking of Johnson. How is it that he’s able to be on holiday in the Caribbean while Parliament is sitting?

[Nigel]

Jesus fucking Christ this is not normal.

It’s the new normal…

Yep, they are making it normal. Last night seemed next level, but its easy to forget it was only 3 months ago that basically the entire government resigned en masse to force out Johnson. That in itself was not normal - ps Chris Pincher, the guy who admitted groping, the reason that precipitated all that, is still an MP, wandering around the commons and taking a wage! Also not normal. Another ps - Johnson is currently on holiday in the Carribean, taking his MP's wage and PM severance pay, despite parliament sitting. Imagine taking an unauthorised holiday from work like that? Is that normal?

If they wanted to carry on with the business of government after they themselves forced out the last PM, then that was the time to install the deputy PM as PM (or what are they for?) with the express intent to carry on with the 2019 manifesto, or call a new general election. Instead they pressed pause on the machinery of government while there was an energy crisis and war in Europe so they could have a faux general election campaign, televised on shows with names like "Your Next Prime Minister", which to a rounding error basically no-one watching could vote in. Its one party state stuff. Truss explicitly campaigned against the government she was part of, complete with manifesto breaking promises e.g. fracking. Sunak campaigned for the government he was part of which also included lots of manifesto breaking promises e.g. tax rises, and somehow elided the fact that he had also broken the law in office and would rather live in America thank-you-very-much. Neither of them mentioned going to the country with their brand new plans.

Then you get the mini-budget / not a budget / biggest budget ever which exploded norms on fiscal policy. Now we are effectively led by a person who went for the leadership and actually came last on MP's votes. Who does he represent? There hasn't been anything vaguely normal for ages.

I expect our new masters "the market" are feeling reassured right now at least 

[sherlock]

Lectern just  been set up outside Downing Street.....

[Wellsy]

Lol fuck off and stay gone

[sherlock]

Remarkable. Another leadership election in the next week.
Ladies and gentlemen, place your bets.

[petejh]

Inevitable.

Buy shares in hat and ring makers.

[Fultonius]

Remarkable. Another leadership election in the next week.

Surely questions have to be asked about their fitness to govern? Great how our much lauded unwritten constitution fails us completely in times like these! There should be a defined process if shit goes as bad as this.