Mark Carney must think we are all mad!

publication date: May 19, 2014
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books
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The Bank of England is right, we need to build more homes

The Bank of England Governor must be sitting in his office today (or in a meeting) completely bewildered by the press report over the weekend.

He explains that as the guy in charge of ‘money’ his job is to

  1. Make sure if we have another financial crash the banks don’t need bailing out

  2. Check the ridiculous 100%-125% interest only mortgage lending never happens again

  3. Ensure mortgages are affordable to buyers both now and if rates go back to ‘pre credit crunch’ norms

He happens to mention that as the need for more housing isn’t being met by anywhere near enough properties, that this is a major contributory factor to house price increases which is out of his remit to deliver.

And who doesn’t know at this moment in time that if house prices aren’t ‘tamed’ then this is a threat to our economic growth? We already know it’s a massive contributor to rising living costs. In fact Professor Michael Ball launched a superb report recently on the impact of house prices and rents not being brought under control in London. He estimates it would cost the region a billion pounds a year if not tackled and tackled quickly.

Mark Carney is right
Despite being accused of trying to ‘cover himself’ or ‘getting involved in politics’ you could tell by the guy’s body language he was just ‘saying it like it is’ – well that’s my view. And as a serious decision maker involved in our economy, he has every right to turn round and point out problems outside of his domain that prevent him from doing his job.

What isn’t right is for Cameron to say Mark Carney has the tools he needs to curb house price bubbles. He doesn’t. There is too much cash around thanks to us being third generation homeowners, inheriting huge amounts of money which is then ploughed into a second home here or abroad or used to buy a bigger home or help the next generation on the ladder.

Increasing interest rates will affect the housing market, but if it also chokes our economic recovery, that’s bad news for all.

We need to build
The bedroom tax has shown if properties aren’t available for people to trade down to, they can’t move. And it’s the same for a buyer. If properties aren’t available or attractive enough, people won’t buy and if there is no incentive or availability of property to purchase a ‘better’ or ‘smaller’ property, then stock won’t come onto the market at the rate we need.

The only thing left to curb house price inflation is to build. Areas like Nottingham, the North etc haven’t got major house price inflation – because they match supply and demand much better than other areas, such as London.

And to build, we need land made available as well as a change in hearts and minds towards new build sites being approved. Spending years battling over whether planning will be granted is in no-one’s interest. Politicians and articles on ‘developers’ holding land are a myth – it’s property investment companies which hold land, developers make money when they build, so land banking is rarely lucrative for them.

And just more land won’t solve the problems we have either, we need land which is available at the best cost possible, as opposed to landowners hanging out for the highest price, so government/church owned etc. Land sold to the highest bidder means properties are more expensive and it’s this ‘vicious circle’ we have to stop. Land issues couple with rumours that the new local planning rules are supporting anti-new build protestors are not good news.

Hearts and minds have to be changed to see new build is good news, not a ‘disaster’ if on your doorstep.

It’s essential prior to the next election to sort out what land can be made available NOW to help build more homes, especially in areas of great need such as London. This then needs to be funded and communicated to locals in a positive way.

We need to understand that there are THREE markets not ONE 
Finally, politicians in particular need to drop their belief that the private sector can fund 30 years of government and local councils not building enough homes for the three different property sectors we have:-

  • Social housing (renting)
  • Affordable homes (renting/buying)
  • Private homes (renting/buying)

For the last 20 years, all parties have encouraged the movement of those on benefits from social and affordable housing run by charities, councils and/or housing associations into the private rental sector.

Last week’s vote by Labour – pushed for primarily by Shelter – unfortunately shows Labour in a poor light. To reduce a whole industry’s turnover with apparently no discussion of the impact to the industry or anyone else in the ‘know’, without understanding what the fees actually pay for, can’t be wise due to unintended consequences.

Had it gone through, for me, the very people likely to suffer would be the ones they were trying to protect – the socially vulnerable and low paid. For example, why would a good agent spend higher amounts of their time on tenants often requiring greater checks and many needing guarantors if it’s more expensive than taking someone else?

The issues thrown up by Shelter about their worries and fears over the private sector, coupled with huge council waiting lists, surely remind us that we need regulation in sectors where vulnerable people are involved and most importantly we need more social/affordable homes.

The private sector can take some of the responsibility as do private healthcare and private education, but it can’t and shouldn’t be expected to fund so many that the only way to make it work is to reduce private sector fees potentially to a point it’s not worth them working on their behalf.

Politicians need to stop relying, then blaming the private sector for their own failings
I understand why Shelter want to ban tenant fees, it’s a coup for them and helps justify their funding. Unfortunately what it is likely to do is result in a ‘short term win’ but a long term loss.

Worst still, their emphasis on PRS gives politicians the excuse not to invest in the social and affordable housing needed, which to me is where Shelter should be concentrating their efforts. That way everyone would be united in the industry alongside Shelter, rather than a ‘battle ground’ bizarrely being fought between a charity trying to do good and good letting agents and landlords who they are adversely hurting.

Finally the lettings fees argument wouldn’t even be around if it wasn’t for the failure of all politicians to regulate the lettings industry. If this had been done when the industry asked, fees, property condition and a mature PRS would have naturally occurred. But while rogues are allowed to let more cheaply than the good guys, those needing lower priced properties will continue to be forced to rent through agents/landlords that provide poor quality housing.

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