Good reads from around the Web.
Bank of England governor Mark Carney was once described as behaving like an unreliable boyfriend [1] with his mixed signals over interest rates.
By that measure, chancellor George Osborne is the housing market’s noncommittal adulterer.
Not long ago George was puffing it up with gestures like First Buy [2] and Help to Buy [3].
Then came his emotional [4] decision to sugarcoat the case for hoarding the biggest home you possibly can with his changes to inheritance tax.
Nor should we forget the right-to-buy extension [5]for Housing Association tenants – announced amid the steepest housing crisis for generations – which seems designed solely to shore up this administration’s Thatcherite credentials.
Or what about the Help to Buy ISA [6], which launches this week? A sweet nothing if you’re looking to buy in London, but useful elsewhere and a political carrot at last for those who dare to be aged under 60.
Toying with our affections
Like any good Tory, Osborne seemed in love with a strong housing market.
But more recently he looks to be getting cold feet – and at least sounding like he understands that ever-higher house prices aren’t necessarily a commitment he wants to sign up to.
Osborne revamped stamp duty [7] in December 2014, and in doing so he took some of the steam out of prime London property.
And in July the second of this year’s procession of Budgets surprised us all with overdue changes to tax relief [8] for buy-to-let landlords.
But if the housing market were a person, it was on hearing this week’s Autumn Statement that it might just have snapped it – a hastily packed suitcase bursting open at the door, and the embattled lover collapsing amid their underwear and travel-sized Apple hardware sobbing: “Just tell me what you want.”
Because the Statement saw the Chancellor mix his messages in the very same message!
The following graph illustrates the confusion. It shows the share price of housing giant Berkeley Group from Tuesday afternoon until Thursday morning – with Wednesday clearly being the fireworks:
[9]
- At first the share price soared on Wednesday after early briefings that Osborne was going to ramp up home building [10] with billions of pounds worth of taxpayers’ money, which he duly went on to announce.
- Osborne even revealed that home buyers in the capital would be granted access to a new jumbo-sized London Help to Buy scheme [11], worth up to 40% of a new build property’s value. Happy days for housebuilders!
- But then, just after 1.30pm, the share price plunged, when the Chancellor added that – oh, by the way – he was also going to increase stamp duty [12] on buy-to-let purchases by a flat 3%.
Now don’t get me wrong, I think it all adds up to Osborne’s most coherent attempt yet at getting at the core problems of the UK housing market – the under-supply of new houses, and over-investment by landlords at the expense of what’s supposed to be a home-owning democracy.
This table from The Guardian [13] shows how the 3% stamp duty add-on will increase landlord’s costs significantly:
[14]
Source: The Guardian [13]
The cunning of the flat 3% hike is clear; it increases buy-to-let buying costs disproportionately at the lower end, where the first time voters buyers are found.
Together with those changes to Landlord’s tax relief announced in the summer, it could be a game changer for the dominance of buy-to-letters in the market.
The end of the affair
As I wrote in my article on fixing the property market [15], it’s not that buy-to-let is inherently wrong.
Rather we have a housing shortage in the UK and landlord growth has come at the expense of first-time buying.
Given that most of us want to own our own homes, even if we’re personally sitting pretty it makes sense to re-tilt the playing field back in favour of those who could buy in previous decades – and who theoretically can now – but who find themselves squeezed out by deep-pocketed, cashflow-insensitive landlords.
Some say these changes are unfair because they will penalize independent landlords, but not larger incorporated operations who can sidestep the extra charges.
However I’m not convinced that matters from the perspective of curbing house price growth and enabling more people to buy their own homes.
I suspect professional operations are also less insensitive to falling yields and less inclined just to bank on future price appreciation – two issues with the buy-to-let sector (in the South East, anyway) that is arguably even making it a threat to economic stability.
Others complain that making buy-to-let less attractive is just the latest example of the older generation pulling up the drawbridge after making off with the profits.
The Telegraph [16] – already angry about the tax relief tweaks – noted:
One in three Tory MPs own buy-to-lets – but they’ve wrecked it for everyone else.
With the stamp duty increase and withdrawal of tax relief, the Tories have ‘killed buy-to-let for the middle-classes’.
Rarely has the esprit de Telegraph been so transparent as it now is over property.
The paper seemingly wants a readership of buy-to-let landlords who can pass on their property wealth via big inheritance tax breaks to enable their own kids to buy their own homes, while everyone outside of the land-owning circle rents and lives on the whims of their landlords.
Because the Medieval Times were such a blast, right?
Home is where the heart is
The extra housing Osborne claims he’s going to get built could help arrest the endless march higher in prices, too, provided they’re built in London and the South East.
There are certainly reasons to be skeptical of any immediate acceleration – planning restrictions and rising labour costs for starters – but this is the biggest declaration of intent yet by the Government to get things moving.
Of course, it wouldn’t be a political love affair without some short-term silliness – those mixed messages don’t just mix themselves.
In particular the London Help to Buy scheme looks like oil loaded into a crop duster ready to be sprayed liberally over Zone 3, helping prices grow still higher.
In addition, the four-month delay before the 3% additional duty kicks in could lead to a “ballistic” rally before April, according to [17] one mortgage broker.
Perhaps the idea is all this will offset the landlord money that eventually leaves the sector, keeping prices stable?
Perhaps. Anything is possible in the world of barmy London property these days.
Indeed, this fantasy world aspect to housing in the South East is I think Osborne’s biggest problem.
It’s why he continually finds himself going around in circles to keep the show on the road, while more recently making some effort not to disenfranchise the entire younger generation in doing so.
Make up or break up
If you went back in a time machine even 20 years and tried to explain today’s economic situation – homes costing up to 12 times [18] average salaries (compared to 3-4 times in the old days), interest rates near 0%, and amateur landlords buying London apartments on 2% yields – your listener would assume the UK had turned into a futuristic dystopia.
Someone will probably tell us in the comments below that it has.
But what’s more surprising is that it hasn’t.
Employment is at an all-time high, the economy is growing, the national finances are at last on a path to sustainability (albeit a slow one), and those short-term damaging tax credit changes were diverted.
All this is threatened, however, by the timebomb that is the housing market.
If Osborne looks like a figure in a love triangle desperately trying to engineer a bit more time, that’s because it’s exactly what he is.
If he can achieve a decade of stagnant prices, he might just see off a slump.
A boom without a bust?
We’ll see…
p.s. It seems next year’s ISA subscription limit will be held at £15,240 (see page 117 of the Statement [19]), rather than rising with inflation. The thin end of the wedge for changes to come to our fabulous tax shelter?
From the blogs
Making good use of the things that we find…
Passive investing
- Just because it looks like skill… – The Evidence-Based Investor [20]
- Multi-millionaires can be Bogleheads too – The White Coat Investor [21]
- Why is there a return gap? [Long, deliciously nerdy] – Research Affiliates [22]
Active investing
- Mega deals are a mega warning for investors – The Value Perspective [23]
- An interview with author/fund manager Guy Spier [Podcast] – Hsu Untied [24]
- DIY Income Investor has updated his portfolio page – DIY Income Investor [25]
- Frothy growth stocks often keep growing (for a while) – Dana Lyons [26]
- Lots of dough at Finsbury Food’s AGM, but also concerns – Richard Beddard [27]
- Better to buy Berkshire Hathaway or Buffett’s stock picks? – Meb Faber [28]
Other articles
- The joy of living within your means – Financial Samurai [29]
- How much employer stock is too much? – Oblivious Investor [30]
- The lingering impact of the financial crisis – A Wealth of Common Sense [31]
- Respect your enemy: Advertising – The Escape Artist [32]
- The costs of retirement – SexHealthMoneyDeath [33]
- A guide to going from Sole Trader to Limited Company – The FIREStarter [34]
Product of the week: The first Help to Buy ISA rates have been announced. ThisIsMoney [35] trumpeted the 2% offering from NatWest [36] as a table-topper but it was bested overnight by a 4% offer from the Halifax [37], which ThisIsMoney also explores [38]. Both articles recap how the new ISAs will work.
Mainstream media money
Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1 [39]
Passive investing
- Don’t swap bonds for stocks [US but relevant] – AARP [40]
Active investing
- Corporate insiders are selling stock at a fast clip – CNBC [41]
- Beware the surge in UK profit warnings – Interactive Investor [42]
- China killed the commodity super-cycle. The Fed will bury it – Bloomberg [43]
A word from a broker
- UK restaurant shares with great roll-out potential – Hargreaves Lansdown [44]
Other stuff worth reading
- The Autumn Statement in summary – Telegraph [45]
- The full statement for your studying pleasure [PDF] – UK Treasury [19]
- Tax dabbling can’t disguise the mess of public finances [Search result] – FT [46]
- Top up your pension before April [Search result] – FT [47]
- Essex has the biggest pension pots – ThisIsMoney [48]
- Self-help books can be more helpful than you think – aeon [49]
Book related item of the week: You can buy a 7″, 8GB wi-fi enabled Kindle Fire [50]
Like these links? Subscribe [51] to get them every week!
- Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩ [55]]