Sunday, 23 October 2016

Economic Myths: Falling GBP will push up UK house prices

From The Independent:

Estate agents in the UK have been swamped with calls from Chinese, Middle Eastern, Italian and Spanish buyers looking for a bargain after the pound tumbled to more than 30-year lows, making the exchange rate very favourable for foreign buyers.

With global commodities like oil, if GBP falls and world price of oil stays the same, then the GBP price of oil goes up, obviously.

Not so with land and buildings. Land and buildings sell for a multiple of the rental income and the rental income is in GBP. So if GBP falls, the rent falls in foreign currency terms and so the price which a foreigner is prepared to pay also falls in his own currency terms, and by definition is unchanged in GBP terms. The two effects neatly cancel out.

So in practice, GBP levels against other currencies have no little no effect on the selling price of UK land and buildings (in GBP terms). This is easily observable, or more to the point, is not observable at all because the effect does not exist, or the effect is so faint it is masked by 1,0001 other factors.

I can see the obvious counter-objections to this and I might as well deal with them.

1. "Ah, but wealthy foreigners aren't snapping up London homes for rental income, they are buying them to show off to other rich people."

Quite true, but when wealthy foreigners are bidding, the baseline is that they have to outbid the locals i.e. people who earn GBP and will be paying in GBP.

Further, it is a similar set of factors which influence GBP levels as influence the price of land and buildings, the two seem to move in tandem rather than in opposite directions (interest rates being one exception, a cut pushes GBP down but pushes the price of land and buildings up).

2. "Foreigners will gamble on GBP bouncing back."

Sure, but everybody can do that and there are simpler ways of speculating on currencies than buying land and buildings, with far lower transaction costs. And at any one time, we have to assume that whatever the FX rate (or any other random financial market variable) is, half of people expect it to fall and half expect it to rise.

Saturday, 22 October 2016

Oh dear. How sad. What a pity. Also, it's nonsense.


Quite apart from the fact that the EU uses subsidies to buy its support and fund its mates, why is HM bleating about this when Brexit has delivered her family business its property back? You'd think she'd be bloody grateful. As for all the other pleaders, do they not realise that they are on benefits?

Humph. And then there are these pearls:

It is understood there were concerns about whether demand for stores on Regent’s Street and other parts of London owned by the Crown would drop after a vote for Brexit.

All revenue made by the Crown Estates goes to the Treasury, with 15 per cent of the taking shared to the Royal Family through a yearly 'Sovereign' Wealth Fund.

However a Crown Estate source said last night: “Businesses are still queuing round the block to take retail space on Regent’s Street and St James’s.”


Something else has occured to me.

The taxpayer is coerced into paying subsidies to one part of 'The Crown Estates', whilst another bit collects a share of rents from land in prime retail locations.

Why not just stop paying the subsidies and collecting the share of the rents?

Some more recent "car hits house" and related stories

KRMG News (Tulsa), 22 September, Major damage after car hits house. Possible drunk driver ran away

The West Australian, 23 September, Car ploughs into house in Perth's south

Ipswich Star, 3 October, House damaged during crash between van and car in Suffolk towns

BBC, 3 October, Medieval bridge in Bradford-on-Avon damaged by stolen car

Slough & South Bucks Express, 3 October, Car used to 'significantly damage' window of fish and chip shop. Poorly worded headline, it means "was used for the purpose of" and not "it used to, but doesn't any more".

Daily Mirror, 8 October, Couple drive prized car into living room of house to protect it from Hurricane Matthew storm damage

Road and Track, 10 October, Perfectly Reasonable Man Parks E30 M3 in Living Room to Avoid Hurricane Damage, 11 October, 'Substantial damage' caused as car crashes into front wall of house

12 News (Arizona), 19 October, A family of four is OK after a car slammed into the front of their home, crashing through the master bathroom early Wednesday.

Clydebank Post, 21 October, Drumchapel house damaged by tractor at 3am prompting police investigation

New Haven Register (Connecticut), 21 October, SUV crashes into house, gas meter in New Haven

Follownews (Massachusetts), 21 October, Car Crashes Into Home, Causing Serious Damage

UPDATE from the BBC, 22 October/today, Driver smashes car through garage wall in Brownhills

And now it all makes sense...

A quote from this intriguing article in the Mail...

"The other major stumbling block for those landlords worst affected by the tax changes has been a perceived need to refinance, the costs of which can prove to be astronomical and may result in losing preferable mortgage terms agreed prior to the credit crunch."

I've long suspected that Mark Carney's 'forward guidance' (and all those bland speeches he manages to get reported everywhere as 'interest rates are about to rise') is all about wrong-footing consumers into fixing their mortgage rates.  It's forgivable too, as his job as a macro-prudential regulator is to keep the banks safe.

Mark Carney opens his mouth and the interest rates futures market jumps.  Mark Carney makes the merest hint of rising rates and folk in my office all start panicking and fixing their mortgages.  It works.

I guess not only do the BTL reforms create the need for highly leveraged landlords to re-mortgage, it also pushes them into business banking, where they can be well and truly pillaged with almost utter impunity.

"Bus hits bridge in Tottenham, injuring 26 people"

From the BBC:

Five people have been taken to hospital and a further 21 injured after the roof of a bus was ripped off when it hit a railway bridge in north London.

Bus hits bridge stories are a lot less common than car hits house stories, but are more spectacular so get a lot more coverage. I'll have to start keeping a tally.

Friday, 21 October 2016

Von Thünen's Law of Rent in action...

From The Telegraph:

House price growth at stations on Southern Rail's routes has ground to a halt as strikes by the RMT Union continue to make commuters' lives a misery.

New research by the online estate agency HouseSimple found that properties on the Brighton Mainline, Mainline West and East routes have fallen in value by an average of 0.4pc, losing £1,875 in value in the last three months.

This is not due to a general slump in house prices in the area during a traditional summer lull: in the south-east of England, house prices have risen on average 2.4pc between June and August, according to the Land Registry.

Von T's rings assume constant travelling speed (in the days of horses and carts) so it is only distance that matters; what actually matters is time, cost and hassle, so if a train service is less reliable, that is effectively further away from The Centre.

Right at the end there's a nice bit of Home-Owner-Ist double counting:

Alex Gosling, chief executive of HouseSimple, said: “House prices along Southern Rail routes haven’t gone into freefall just yet, but these figures do suggest that the ongoing dispute is hurting local property markets.

"It would be a real kick in the teeth if homeowners, who have had to endure the daily misery of train delays, cancellations and strike action, started to see the value of their homes falling because of the RMT and Southern Rail’s inability to reach a deal."

The amount by which rental values (and hence house prices) fall is not in addition to the grief and hassle, it is the market's estimate of the cost of the grief and hassle.

Thursday, 20 October 2016

The BBC channels its inner Daily Mail

From the BBC:

Harry Redknapp's wife was seriously injured when she was run over by a Range Rover driven by the former football boss. Witnesses described seeing Sandra Redknapp, 69, get her coat caught under the car as her husband pulled away…

Mr Redknapp, also 69, had been dropping his wife off in Westbourne, which is four miles away from the couple's £5m home in Sandbanks and reportedly didn't realise that his wife was stuck and drove away.

Either his wife was unlucky, he's a poor driver or that was the most badly planned murder attempts of all time. Reminds of the famous quote: … as a German commander said later, and the Allies learnt the hard way, "if you’re going to invade Italy, don’t start at the bottom".

Wednesday, 19 October 2016

Fun Online Polls: Hard Brexit and the "price" of Soft Brexit

The results to last week's Fun Online Poll were as follows:

Which is more likely to push the UK into a 'Hard Brexit'?

Political grandstanding and threats from EU leaders - 54%

The inevitable UK backlash thereto - 42%
Other, please specify - 5%

Which is pretty conclusive. As Tusk and others have said, the UK must pay a price and be seen to pay a price for Brexit pour encourager les autres. So if we end up with Hard Brexit, that was their decision, not ours.
The question is, what will that "price" be?

1. Merkel keeps insisting that Britain can't get full single market access with free movement concessions. I'd be a hypocrite to oppose the freedom of EU citizens to move within the EU to work and I can't say it bothers me greatly (although it bothers a lot of others, fair enough I accept that).

2. There has also been some mumbling that the UK would have to pay a market access fee, estimated at £5 billion a year, half our current contributions and under the circumstances, a price worth paying if it's for the benefit of the whole economy. For some reason, the pol's are obsessed with UK-based banks having access to the single market, in which case it's not a price worth paying and the banks can pay it themselves out of a bank asset tax or something. Either way, it appears that the EU is not insisting that we continue being the second largest net contributor.

So that's this week's Fun Online Poll, if it were a simple choice (which it won't be), which "price" would you rather we pay to retain tariff and quota free access to the EU single market? Or indeed neither?

Vote HERE or use the widget in the sidebar.

Tuesday, 18 October 2016

Killer Arguments Against LVT, Not (406)

Emailed in by Physiocrat, from the comments in an article on FT Adviser headed "The pound’s longer, sharper Brexit shock":

Paris azawak said:

@ Physiocrat @ RiskAdjustedReturn

I have attempted to follow this bizarre thread in which Physiocrat puts forward an ultra-liberalist hypothesis in which all taxes would be abolished overnight except for a simple land tax…

This is his first Big Mistake, as Mike W points out in the comments:

I only require that the 'last great project of political economy' (actual phrase which caused the problem), itself conforms to Popper's dictum of 'piecemeal' observable, testable, one bit at a time, implementation. With no bloody revolution or bloody reactionary counter thrust.

But let's read the rest of the drivel anyway, just for fun:

… Would this not simply result in a return to the known ills of completely unbridled capitalism:

(i) the brutal, irresponsible chaos of disproportionately concentrated wealth into the hands of an increasingly small number (a proliferation of Murdochs, Gates, post-soviet oligarchs, etc, behaving like capricious feudal barons as the rest struggle as vassals once did);

(ii) an immediate widening of the disparity between rich and poor (ie the rich get richer and richer, the poor get poorer and fall behind, are excluded, abusively "exploited", resulting in a surge in social decay and moral injustice (refer Dickens) which costs far more to cure than to prevent (exclusion, poverty, declining health, homelessness, poor education, exclusion, discrimination, delinquent behaviour, crime, &c);

(iii) the decline of infrastructures (especially less "profitable" ones) that taxes pay for in response to specific needs and situations as they evolve and in accordance with government policy as they develop according to evolving democratic majority choices in the interest of the common good.

No company or person enjoys paying taxes.

However, what taxpayers get in return for their fleeting contribute is a very great deal more in return than the sums they contribute since they benefit from the vast heritage or legacy of all that has been constructed and developed by decade upon decade of taxpayers (heath sector, educational sector, law and order, transport and communications, government and public buildings ... the list is endless).

The only possible way to levy tax fairly in order to maintain and develop the vast EU wide infrastructures that make the existence of dynamic, modern and efficient trade, services and consumer markets possible is good governance, fair regulation and taxation based on means-testing.

A land tax is haphazard by comparison and relatively easy to distort and circumnavigate (eg as pointed out, foreign companies such as Google generate unprecedented wealth without owning physical land in the markets they derive profits from through a virtual, immediate and monopolistic electronic Platform).

For the same reason, VAT is relatively unfair since it is a flat tax on consumption regardless of means. The poor pay the same VAT as the rich for the product.

Tax should be levied on income/revenue and not exclusively on land ownership as suggested, because

(a) land value varies constantly according to market fluctuation and is impossible to estimate exactly

(b) in an imperfect world [income tax] is:
(i) means-tested;
(ii) proportionate and therefore sustainable;
(iii) supportive of the market whose infrastructure has made its generation possible;
(iv) adaptable according to specific and ever-evolving governmental policies aimed to protect society in the interest of the common good, and so as to avoid the higher social and Financial cost of exclusion and social decay;
(v) ethical, civilizing and therefore progressive,

A land tax would be regressive and mark a return to the Dark Age:

Indeed, history teaches us that in the middle ages, land taxes concentrated power and wealth into increasingly power dynasties who possessed entire fiefdoms and kingdoms; charity was dispensed patronisingly and randomly according to whim or the success of petitioning peasants and vassals.

Not much means-testing there. Just medieval madness, machiavellan machination and civil strife all round (refer Shakespeare).

RiskAdjustedReturn is entirely correct above, it seems to me when he state in a post above that:
"Someone has to pay for the infrastructure that makes the building viable for habitation."

Well that settles it then, doesn't it?

Sunday, 16 October 2016



Well, FFS it's taken you lot how long to admit this?  We told you it was all a bad idea at outset and the actions your 'project' has taken has just compounded the error.

I'm truly speechless.