What caught my eye this week.
Ever wondered whether you own enough home? If you’re casting your eyes around your living room and finding all the walls, windows, and doors present and correct, you might think this is a trick question.
But not if you’re James Max, the Financial Times columnist who writes [search result]:
While I am fully aware that you can only live in one property at a time, I’m firmly of the opinion that you need to own more than one home.
Three used to be the ideal number. Is this still the case?
Max isn’t suggesting you become a landlord. He says own three homes for your personal enjoyment.
Fair enough, it’s a point of view, but it’s a bit – well – rich to then claim:
News flash! There isn’t a housing crisis: there is a particular difficulty for those wishing to buy.
For those with a home, there is no crisis – other than the slowing market created by politicians.
Max apparently made his fortune on the back of his business smarts. He’s clearly smarter than me, because I took a different lesson from the guff about supply and demand.
Owning a lot of property also sounds like a lot of hassle. No doubt Max is right when he argues – as he did on the FT’s follow-up podcast – that not renting out your second and third homes does reduce the grief.
Less grief that is until the property-poor masses come to your door with pitchforks…
Home alone
It’s a tricky one for this self-professed capitalist, but on balance I think housing in the UK is a special case. There are clearly limits on our ability to meet demand with supply, and still live in a country we mostly all want to live in.
I’m therefore in favour of punitive taxes on owning multiple properties, where the extra housing is removed from the national housing stock. But I can understand why some feel this is an impingement on the rules of the capitalist game.
Luckily I’ll probably be spared too much hand-wringing. Becoming an owner of even one home has increased the complexity in my life. I can’t imagine tripling down.
One multi-property owner agrees with me. Blogger Fire V London finds:
The most painful complexity is real estate. I will let out a big sigh of relief when I eventually sell my old home. And I may well then repeat the process and sell my ‘buy-to-let’ flat.
Certainly, if I swapped out my ownership of these two assets and replaced them with just a diversified collection of public real estate listings […] my net yield would increase and I think my long term rate of return would increase.
Read the whole article for a candid recap on how investing can spiral out of control.
From Monevator
It’s an emergency (fund)! – Monevator
From the archive-ator: The first law of personal finance – Monevator
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1
Salary required by first-time buyers rises 18% in three years in UK’s biggest cities – Guardian
London stamp duty take hits record £4.9bn even as sales fall [Search result] – FT
Barclays chair condemned after claiming many PPI claims are fraudulent – Guardian
Brexiteer billionaire rejoins world’s richest amid building boom [JCB] – Bloomberg
How would Labour plan to give workers 10% stake in big firms work? – Guardian
Emerging markets: Basket case or opportunity? [Search result] – FT
36 million millionaires (< 1% of adults) hold 46% of household wealth worldwide – via Ben Carlson
Products and services
Wall Street versus High Street: Goldman Sachs launches 1.5% online saver – Guardian
Sharia-compliant Al-Rayan Bank still offers best two- and three-year rates – ThisIsMoney
First-time buyers with a 5% deposit offered the cheapest deals ever – ThisIsMoney
Ratesetter will pay you £100 [and me a cash bonus] if you invest £1,000 for a year – Ratesetter
Silver 50p coin sells for £400 at auction. Do you have one? – ThisIsMoney
TSB, HSBC and Barclays customers hit by latest IT problems – Guardian
I’m 82 and in good health, so can I blow some savings on a world cruise to avoid future care bills? – ThisIsMoney
Comment and opinion
Dear future me – Robert Seawright
Undervalued financial advice – A Wealth of Common Sense
Next week you can get financial planning for free. YFG has the details – Young FI Guy
When you don’t know the price until you sell – Of Dollars and Data
Monkey stocks: A three-year experiment with stock picking – Quietly Saving
FIRE in the news: Liar, liar, pants on fire – Simple Living in Somerset
Living the good life on a small budget in Mexico – Physician on FIRE
Why the ‘Dean of Valuation’ is selling/shorting Apple and Amazon2 – Musings on Markets
Interview with tech VC Fabrice Grinda [Podcast] – Meb Faber
Challenging the convention wisdom on active management [Research] – Paper at SSRN (h/t Abnormal Returns)
Kindle book bargains
The $100 Startup: Fire Your Boss, Do What You Love and Work Better To Live More by Chris Guillebeau – £0.99 on Kindle
Small Change: Money Mishaps and How to Avoid Them by Dan Ariely – £0.99 on Kindle
Your Money or Your Life: A Practical Guide to Getting – and Staying – on Top of Your Finances by Alvin Hall – £0.99 on Kindle
How Do We Fix This Mess? The Economic Price of Having it all, and the Route to Lasting Prosperity by Robert Peston – £0.99 on Kindle
Brexit
Boris Johnson’s [pay-walled] 6-point plan has no answer to fixing Brexit – Business Insider
UK nationals would suffer under skills-based immigration, EU tells Javid – Guardian
Chilling predictions confuse the Brexit picture [Search result] – FT
Customs delays of 30 minutes will bankrupt one in 10 firms [Seems alarmist] – Guardian
Life after Brexit [Comic short film] – BBC Three via Facebook
Media Leaver heralds corporation tax cut benefit from Brexit. Wrong as per. – Twitter
Bottle of wine up 28p to record high since Brexit vote – ThisIsMoney
Off our beat
Different kinds of smart – Morgan Housel
Where we’re at – James Morrow via Twitter
And finally…
“Life shouldn’t be an impulse purchase. We may fall short of our financial plans, but that’s better than no plan at all.”
– Jonathan Clements, From Here to Financial Happiness
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“I’m therefore in favour of punitive taxes on owning multiple properties, where the extra housing is removed from the national housing stock.”
I think there may be mingling here between the issue of inadequate housing supply and punitive taxation. I am against the notion of pitchfork-wielding peasants deciding to vent their misfortunes or inadequacies on people who have more than one property; we are not communists and as far as I can tell you very few people in the country want to become communists. I also see the issue of inadequate supply. Let therefore the government of the day buy out second properties at full fair market value with the cost of purchase born via normal taxation on the whole population.
I opened my Goldman Sachs Marcus 1.5% savings account yesterday. Unlimited withdrawals, instant access and interest paid monthly. Transfers in from Current Account also arriving within a couple of minutes. Still derisory and well below inflation but the best I can find in the current market.
@hospitaller
Surely the point is that 2nd (and 3rd) homes are distorting prices, so how would you assess “full fair market value”.
I do kind of of agree that “punative” taxes may not be best(easy dodge, spouses live separately). Paying full council tax for all houses would be a start.
“Economists are desperate to be right at least once in their career …”: true, I suspect.
“claiming many PPI claims are fraudulent …”: I’ve always assumed as much. Hasn’t everyone?
I am horrified to find that RIT buys something he calls “Organic Skim Milk”.
“Bottle of wine up 28p to record high since Brexit vote”: our favourite loaf has fallen in price by 15p “since Brexit vote”. Wot no headline?
Just to clarify, you might have written “I am also against…” 🙂
I’m not calling for peasants to put Mr Max under house arrest whilst annexing his third garden. I’m recalling/warning that sort of uprising (physical or political) has happened many times in history when imbalances have become, rightly or wrongly, perceived to be unbearable.
*cough* Corbyn *cough*
As it is the punitive taxation changes made a few years ago seem to be tilting the advantages away from landlords to home buyers, which could prove a meaningful step towards re-balancing matters (aside from improving supply, which we both advocate for).
Unfortunately it could in some edge cases take stock out of the total supply, if instead of net going to single-home owners (/first-time buyers) it simply allows a third-property seeking cash-rich buyer to out-compete a landlord. (That said IIRC holiday lets are treated differently from standard BTL, and it’s in those sort of supply-constraint beauty spots that second / third homers would be most competing with first-time buyers I suppose.)
Stamp duty in England varies from 3 to 13% for second homes… It’s a fair amount of cash that goes to the treasury.
Anyway, plenty of houses to go round when we have Brexit and all those EU’ers go home….. In all honesty though why do we allow so many migrants in when we do have a housing crisis? IMHO we have an immigration crisis and not a housing crisis.
I’ve never understood the obsession with owning houses. One is quite enough – have you ever tried getting a plumber or builder to actually turn up who isn’t a con artist?
Or are they the ones with the 3 houses bought from the proceeds of conning the rest of us?
@gordon Immigration has an effect but it’s quite small compared to the demographic changes. We have gone from three generations being alive at any time to four, add in the consistent under building for the last two decades and the increase in single occupancy to find the main cause of our housing problems.
It should come as a shock to many but property wealth is absurdly under taxed in the UK.
No capital gains on your primary residence.
Lower council tax / land value tax compared with other countries like the US.
Tax reliefs for btls that owner occupiers can’t access.
It creates a UK where housing creates vast inequality and no government wants to fix it because the major beneficiaries are more likely to vote.
Solutions? Who knows; a house price crash would help but praying for that has been on my mind for 13 years now. My advice for the young would be to think carefully before joining the rat race – leaving it ain’t easy.
@RIT
A good feature of the Marcus account is that (unlike e.g. Ford Money flexible saver or NS&I direct saver) you get your own primary account number linked directly to the Goldman Sachs sort code, rather than a secondary reference number where the account number you pay into belongs to the savings product generally. This makes for quicker payments both in and out.
Slightly off topic, but Junior Monopoly has become our 4 year old’s favourite game this weekend. He’s won a couple of games, so already learning the benefit of buying assets!
He’s taking a bit too much pleasure out of bankrupting his parents tho… 🙂
According to the Guardian “First-time buyers need an average £53,000 salary to buy a home in the UK’s 20 largest cities”.
If you read the article carefully however they are actually calculating what first time buyers need to earn to by an *average* priced property in different locations. Why? When we bought our first property 30 years ago we bought one of the cheaper ones in the area not an averagely priced one.
— “It should come as a shock to many but property wealth is absurdly under taxed in the UK.” —
You surely have to be kidding!!
I’ve worked in the UK, Germany, France and now Italy, and have never known in my life such high taxation as in the UK.
Germany has a local tax which is very affordable.
France has a ‘Taxe d’habitation’ and ‘Taxe Fonciere’. Annoying but affordable.
Italy has ‘ICI’ and now ‘EMU’ tax that is only levied on 2nd properties. We live in Italy and pay NO tax whatsoever on our house. Though we do pay for rubbish disposal and water.
Back in the UK, the local taxes are stupendous! People in small villages are paying over 1000 pounds a years in taxes just because they have a bleedin’ house!! I really can’t believe that the UK has huge property taxes!!
Steve
I remember an article a while back by MSW which showed that the real charge of ‘rates’ was in fact much lower than in the past.
From a random view through a train window today, houses are being built in staggering numbers. I don’t understand where the people who will eventually live in these are living just now, and when they do live in them how the roads and station car parks will cope.
May be the demand for houses for investment is keeping prices growing and thereby create the demand for rentals which their houses supply.
Tend to agree that something should be done, but not sure I understand why I think that. Jealousy, belief that homes should not be subject to investment cycles and thereby bubbles?
MSW may be on to something.
Steve, property tax in the UK? Do you mean council tax perhaps (paid by the resident not the owner, so not a wealth tax)?
I’d be all in favour of a property tax if it was offset by a corresponding reduction in e.g. income tax.
Re-value all housing and set it at 1% of the value of the house. 2% for the second, 3% for a third, etc.. Only if a couple are legally separated can they claim separate 1% allowances. Only if there are specific, local infrastructural changes would houses ever need to be re-valued. If you’re income poor e.g. below the income tax threshold, roll it up until the house changes hands. To encourage payment, add on interest at base rate + 1% maybe.
Far better, surely, to tax wealth rather than income?
@Brod — The trouble with implementing a general wealth tax like that *now* is it would be hugely disruptive to valuations in the South East. There must be millions of people/couples in London with £600-£1m properties bought a few years ago with household incomes in the £50-£100K range. An annual £7-10K wealth tax would be like a 25-50% rise in income tax. I can’t see any conventional non-revolutionary government doing it.
With that said it’d have been a good idea when average property prices were down in the 3-4x income range rather than 7-12x. It might have stopped us getting to this state.
At least if you only target second / third homes etc those are optional extras. It’d still be very tough but perhaps manageable.
Personally when I wrote punitive taxes I meant the ones (and the changes to come) we’ve had in place for the past few years. There’s already signs as I say they’re rebalancing the market a little, I think, without massive pain so far.
Darn, just found two links I had saved that I overlooked when creating this week’s post:
First is this BBC Twitter thread which goes through how BBC journalists figured out the identity of some soldiers who shot civilians in Africa. Pretty incredible:
https://twitter.com/BBCAfrica/status/1044186344153583616
Second is this New Yorker article on how targeted Russian propaganda and hacking very possibly did swing the last US election:
https://www.newyorker.com/magazine/2018/10/01/how-russia-helped-to-swing-the-election-for-trump
It’s tempting for someone like me to see the same forces behind the Leave win in the Referendum but (a) polls still show the country is pretty evenly split, so it’s hard to argue it was a moment in time and (b) with a Referendum every vote has same weight, unlike election systems like ours and the US where there are a bunch of localized winners and losers in swing constituencies.
@ Tony Edgecombe
Yeah, I get your point people are living longer and people are divorcing and these increase the need for housing.
However net immigration is circa 250,000 a year. How many houses do we need for that number of people? Probably about 100,000? That’s about 270 houses we need each day for immigrants…
The Labour manifesto proposes building 100,000 social houses a year. Even if they build that number of houses it would only be enough to cover immigration…..
Reduce immigration and watch house prices become more affordable.
Re- Dear future me – Robert Seawright
Must remind myself to get everything passive and keep it that way when I hit 60. If it’s good enough for the heirs of Warren Buffet, I might just cope.
@jimjim – Warren Buffett has again been deprived of part of his name. I continue my war on bad spelling.
It must be my age… better get on with it sooner!
Perhaps we are looking at the housing situation through the wrong lenses. I have always felt uncomfortable with notions that because some folk have more of x, this means they can be legitimately targeted. Is the situation with housing not due to the fact that we have had no world wars for a while and have become (at least for a while) quite good at clamping down on plagues? Are some to be targeted to have to/be forced to sell their property for these reasons? Surely not. I tend to agree with some of the above comments – that if Government wants to force sales, then it has to pay properly and fully in compensation or, rather, in effect we all have to pay properly and fully. This may not go down well with extreme left-wing views but then little ever does.
@The Investor: “There must be millions of people/couples in London with £600-£1m properties bought a few years ago with household incomes in the £50-£100K range”. The “millions” here surprised me and I was curious enough to track down some numbers: apparently there are about 1.6 million owner occupied properties in London (see https://www.trustforlondon.org.uk/data/housing-tenure-over-time/) and the median house price in London is £460k (see https://www.bloomberg.com/graphics/property-prices/london/). So the “millions” in your comment could be more like hundreds of thousands.
@Steve — There’s a big difference between “forced sales” as you put it, and tweaking taxes to tilt the playing field this way or that. We do this all the time with all kinds of taxes, including income tax, corporation tax, and whatnot. It’s hardly an extreme left-wing view.
(According to The Sunday Times today our center right-wing Conservative government will announce this week an additional small tax on purchases for overseas buyers).
I’d agree in the general case of “X”. But that is a miss-statement of the housing situation in the UK.
Personally I am only talking about a situation where X is home ownership — because it is a very limited supply good in the UK, with huge constraints on increasing supply, rightly so in many (not all) instances.
The situation then is “because some people don’t and seemingly can’t realistically own a home and everyone wants and needs a home in some capacity, this means those that have two or three homes can be legitimately targeted”.
One can still disagree against this specific extra home-based targeting, of course. But as I say the “targeting” is tweaking the tax rules to make it less affordable (not forced sales) and “X” isn’t some communist vision of every good and service being equally distributed, but rather decent homes in a small country that also wants to have national parks, countryside, views, farms, manageable-sized towns and cities with historic-ish city centers, and so can’t build without limit.
@James — Hmm, the population of Greater London is what, 8-9 million? I was just riffing on that. (Guestimating roughly a quarter). I’m pretty surprised by your finding, but I follow your reasoning, assuming those data sources check out.
On the other hand I could modify my comment to expand out of London to include much of the South East and the big University cities etc, and probably still get to a million I think?
My general point is it wouldn’t be a handful of fat cats or hedge fund managers who’d have to find say £6,000 a year out of nowhere under the commentor’s suggested annual wealth tax. In reality lots of people would have to sell, at hugely deflated prices, and we’d have a recession.
Perhaps it’d be worth it to reset prices but I have my doubts. Best to let the steam out slowly as seems to be happening, or else get a time machine and do it 20 years ago when incomes/prices weren’t so out of whack. 🙂
Thanks for the links, TI. I’m on with James on his early breakfast show tomorrow reviewing the business stories (I suspect Elon might make our conversation). Should I take my pitchfork in a sign of solidarity? I normally keep it to scare off developers who come to our village trying to build more houses in the greenbelt. The thing about that column is to realise what it’s really for…
The housing debate is skewed by the low interest rates as well as a misunderstanding that the fundamental good is a place to live not an asset to own. Hence council tax being a tax on occupancy (or not) rather than a tax on ownership. Capital gains taxes apply to second homes and that represents a very large tax on that ownership — the btl interest relief pales into insignificance by comparison. Ultimately building more homes is what is required if we are to house the steady influx of immigrants powering the mighty UK economy. However, since we appear to have solved that problem in a different way, Northamptonshire is going to be a pretty cheap place to live in a few years time.
Elsewhere this week, I endured ermine’s usual wise grumpiness and followed his link to the excellent Flannel Guy post on income and FIRE. Great following through of the logic behind save more / spend less backbone to FIRE and how it really starts with earn more. Well worth the read.
I’m also fascinated by the SSRN paper and whether there might be an intellectually rigorous challenge to the emergent passive out-performance hegemony. But for the meantime, I’ll watch the fees falling and try to control myself.
“Only if a couple are legally separated can they claim separate 1% allowances.” How is that going to work when most couples aren’t legally married?
If one person has the good fortune to own 2 houses and another person has the misfortune not to own a house, it seems illogical for the homeless person to not take a house from the person with 2 houses.
Fortunately, for the minority of people with multiple houses, we have a society where by the unfortunate have been convinced that they should sacrifice their lives rather than take back some of the good fortune that others have aquired.
As an observer it makes no sense. But as someone who hopes to one day own multiple properties I shall be grateful that the homeless person will be shivering outside in the cold this winter rather than taking my second or third home away from me.
Play up! Play up! And play the game!
@TI – Well, I did specifically suggest that the tax can be rolled over until the house changes hands, so we can disregard all those poor widows rattling around in their six-bedroom “family homes” which are so family that they’ll will be sold within six months by their heirs. And, less flippantly, we can ignore those people that genuinely can’t afford to pay if we allow any unpaid tax to be offset against the probate value of the house (thus perhaps saving on IHT.) I also explicitly stated that it should be fiscally neutral, let’s reduce income tax to compensate.
A full fledged Land Value Tax would be better, yes. My insurance company tells me that it’ll cost less than £300k to rebuild my house, Mr. Market says I could sell it for £600k or so. Let’s tax that £300k differential rather than make policy on edge cases. 3 bedroom semis (I believe?) are our answer here.
And by the way, the median house price in London is £463k, so “millions” may be pushing it a little.
Anybody would think you’d recently called the top of the market 😉 (which, incidentally, it looks like you did.)
Perhaps someone can do the maths, if UK housing is currently worth £xx bn, and we assume all is taxed in the 1% band, what would be the offsetting reduction in lower rate income tax or increase in the tax free allowance?
@Ermine – I think you’re letting your prejudices get ahead of you, it’s about 2:1
“In 2017 there were 19.0 million families in the UK, a 15% increase from 16.6 million in 1996. With 12.9 million families, the married or civil partner couple family remains the most common in 2017, with the cohabiting couple family growing the fastest.” (source: ONS Statistical bulletin -Families and Households: 2017)
Ha ha, yes currently looks that way, although to be fair not a huge surprise as I knew I was buying into a soft market. 🙂
Need to get my “why I bought” post written, really. Not that there’s anything clever to reveal from a fiscal/investing perspective. Perhaps some useful asides from a psychological one.
@james @monevator
Regarding number of houses in the £600k to £1m range in London.
According to the Guardian in 2015 a little over 300,000 houses worth over a £1m in London
According to London Mayors housing report around 3.6m houses in London.
According to the FT average house price in half of London postcode areas >£500k (pretty much draw a North South Line through the middle of London and they all lie to one side of it…)
According to FT UK housing stock worth £7.14 trillion and 25% of that in London (ie London houses worth approx £1.8tn) suggests average (mean) house worth around £500k
Previous quoted median price of £463 k implies 1.8 million homes worth over this , deduct 300,000 or so over the million suggests around 1.5 million homes in the £463k to £1m range , not knowing how many houses are in the £463k to £600k range , it’s 25% of the range from £463k to £1m but the distribution is likely to be slanted towards the lower value properties , perhaps ⅓ ?
Suggests around 1millon homes in the £600k to £1m range and another 300,000 odd over the million pound value. Give or take !
@The Investor really looking forward to the why I bought post! I’m at the stage where I could potentially stretch myself a little to get something. I’m 30 and see London always being somewhere good to have an apartment. I’m starting to think there could be some oppertunities over the next year or so. Whatever I can afford will never be quite good enough so at some point I’d probably like to upscale, in this scenario a correction wouldn’t be the end of the word provided I can build equity so a remortgage could work.
@Hari Seldon — Hah, interesting analysis! As mentioned above I was just going on gut feel, and you may have rehabilitated my use of “million” if not that rogue “s”. 😉
I spend most of my time on the right (wrong?) side of that imaginary line of yours, and have spent many hours clicking through pages of expensive homes/flats to reach ones in my price range over the years, which probably skews my guestimation.
(E.g. There are currently almost exactly as many homes listed at or above the £600K mark within half a mile of my flat as below it (and many are worth *much* more).)
As I say, would have been helpful if we’d not got to this crazy state in London and the South — I did my tiny part in bemoaning the direction of travel for over a decade — but given that we’re in it now, any land/wealth tax would have to be surgically deployed (as Brod does suggest with his own ideas) to avoid an almighty crash that wouldn’t serve up much for the rest of the country except (ironically) schadenfraude.
Far better a slow deflate, relative to incomes.
@Owen — Honestly, don’t hold your breath. As I’ve said before it’s much more a personal thing than a financial thing. Ironically I listened to my financial brain for most of 15 years (there was a period in the middle where I would have bought but nobody would give me a mortgage) and missed the boom, then gave in to what we might call my heart (exes may disagree) just in time to get on board the swoon. 😉
James Max was on the FT Money podcast talking up his 3-homes theory. If the piece was tongue in cheek, he wasn’t letting on. https://player.fm/series/ft-money-show/emerging-markets-tax-avoiders-and-owning-property
@TI – thank-you, but you do me far more credit than I deserve. What I suggested was merely a mash-up of various ideas I’ve read and thought made sense.
Re: a slow deflate. I think the property market is driven by stronger fundamentals than a small tax change. If we introduced these changes over a decade, say, how much affect would it have if each year I, or rather the owner of my house, had to pay an extra £600 in property tax? It might marginally increase the velocity of any rebalance, but I think we’d all be winners. Housing is an essential good we all need so surely better to pay less for it?
@AAJ – charming. Hoping I’ve been whooshed.
What none of the commentators seem to have mentioned is foreign buyers. (Most were acutely obsessed with repeatedly disproving the “s” in the “millions” in TI’s comment!).
Even in foreign, I specifically mean Chinese buyers. Properties in London are cheaper than in HongKong, plus Chinese govt can touch your money. EU or raising council taxes are second order affects, keep an eye on – chinese economy and the regulations in China (especially money laundering regulations)
@Balit — Well the Conservatives are apparently going to increase stamp duty for foreign buyers, so we’ll have to watch that demand carefully…
Once again, thank you for sharing a post from my site, even if I am from the wrong side of the pond.
Cheers!
-PoF