Welcome To The Non-Linear World

It seems clear that we’re on the verge of an enormous financial crisis, one that’ll make the last one look like a wasp-ridden al fresco meal (a picnic, keep up Nick Clegg, Christ…). No one seems to mind though, so that’s good. In fact, Osborne seems quite pleased at the way everything is going. The unprecedented drop today of inflation to zero, he not only takes credit for, but the fact that we are on the verge of deflation and he is planning massive fiscal cuts after May, he seems to positively welcome. Which seems a bit…odd.

Anyway, I’m a Chartered Surveyor. So back to houses. So, houses eh? Cor!

I recently heard a Tory pitch to ‘frustrated first time buyers’ on the radio, saying you should now vote Tory, as they have introduced the FTB ISA. This would provide an extra three thousand pounds, potentially, towards a deposit, which, as it happens, starts shortly before the Help to Buy 2 scheme expires. So this new scheme will prop up house prices by allowing those who are going to buy anyway to have a slightly bigger deposit, and then when minimum deposits go back up to 10% for mortgages, on an average house in the south east, that will leave a mere extra thirty thousand pounds to save, in cash, for everyone else.

He then mentioned the 20% discount on new homes for FTBs, also promised by the Tories, as a reason for FTBs to vote Tory. This is a great scheme – buy a badly constructed and un-insulated shoe box, with no section 106 contributions – so no roads, drains etc – and the developer can say they’re worth 20% more than they would otherwise, and then ‘knock’ 20% off – job done! Hurrah!

What slipped through the cracks when this was reported was that these shanty-towns will also replace social housing construction nationally, so even less affordable housing will be built. If any.

I also love the other Tory promise to increase housing by proposing to flog off the remaining social housing at a discount, and then replace them, only not as a many, as there won’t be the money to do so, as they were sold at a discount. Let’s make sure we have more cake by selling all our cake, cheaply, and then making slightly less cake! Hurrah! Because that will mean we have less ca….oh, hang on…

He also mentioned the savings on stamp duty, which has been reformed so that there is now no slab structure. I was fairly drunk when I did my Masters in economics, but even I can remember basic stuff: this streamlining of the tax involved will increase the velocity of transactions in the market, which, with dwindling supply, will increase prices. Hurrah!

I wrote a blog about Vladimir Surkov, but I haven’t posted it yet – but essentially, he is a chief advisor to Putin, and is a master at saying and making people believe one thing, whilst doing the complete opposite, thus creating constant confusion amongst any opposition. He calls it the ‘non-linear’ world. He has been behind Putin’s actions in Crimea: effectively invading, and then saying ‘what us? Nope, we’re not doing anything…’.

A cynic would say this is what the Tories are doing; so, here goes: THIS IS WHAT THE TORIES ARE DOING. They are pretending to help first time buyers, but are making is harder with every sinew of their being(s).

I think the point I’m trying to make here is this: if you are trying to buy a house for the first time, but can’t afford it, and you think voting Tory will make it easier ultimately to buy your first house THEN YOU ARE WRONG. Their policy, and everything I’ve mentioned above, is designed to keep house prices high. Whether you can buy a house from now on depends almost entirely on whether your parents have a house.

This worries me. Even though my parents, being the lucky, baby-boomers they are, own a house worth ten times what they paid for it. And even though I ‘helped’ them access their internet banking the other day, and they have now very generously given me a large deposit, and it’s not my fault they can’t remember actually doing that, but you know, they’re getting old and what-not. But even they are beginning to see that this is not healthy. What kind of madly inefficient society has this created?

You hear now all the time ‘all we need to do is build more houses’. And yet, of the million houses built since 2000, 86% were bought by BTL landlords. Build another million, and we’ll still potentially have a ‘crisis’.

Maybe it won’t matter though. Sovereign wealth fund transfers, the so called ‘wall of money’ flowing into the west, which has kept interest rates low for years, are going into reverse now. The Fed looks like it is on the verge of tightening policy. We are facing deflation. Private debt is at an all-time high. And public debt is twice what it was in 2010, more or less. The government is printing billions every month, and using this money to buy its own debt to fund its own fiscal activities (that fact alone is fairly mad).

So, when interest rates are forced up because of this, the current three million amateur buy to let landlords will put their properties on the market overnight, kicking out their 9 million private tenants with a few weeks’ notice. Only no one will be able to afford to buy them, as years of no wage growth will finally catch up with us: we will realise house prices are a leveraged bet on low rates, and they will tumble. Banks have, on average, nearly thirty times more assets than equity – so a 3.5% drop on their balance sheets would wipe them out. So banks will go bust. And everyone will have to sit down and work out what the hell they’re going to do.

I won’t though, as I have my parent’s internet banking details. I’ll be in the Caribbean…