Having just given HousePriceCrash a plug, it would be churlish of me not to mention that the Royal Institute for Chartered Surveyors are predicting a little price boom at the moment. The story can be followed on Reuters and the Daily Express website (the latter I understand is claiming prices will boom by 50% over the next six years).

Surely HPC and RICS can’t both be right? Worryingly, they could be, but we’d better hope that HPC is closer.

Despite the rosy coverage in both Reuters and the Daily Express, a rise in house prices essentially means that demand is outstripping supply. Yes, your economics A-level was right - unlike the magical fairy land where Express journalists live, prices go up and down depending on how much there is of a thing and how many people want it.

What your economics A-level might not have explained very well (mine certainly didn’t) was that if demand is perceived to be outstripping supply, price can escalate even higher as people ramp up prices in an attempt to cash in. People will tend to stockpile - sit on perfectly good housing believing that if they delay their sale, they will make a killing. And in turn, people will buy at escalated prices on the assumption that they will be able to sell on for even more. It’s called a bubble.

The problem is, the invisible hand of the market is such that sooner or later it will drag the price down - hence that rather mountainous looking graph on the front of HPC. If you stay ahead of the curve, you stand to make a fortune. If you stay in the market too long, you’ll get burned.

And if you’re a young adult trying to buy a first home? You’re utterly screwed.

The good news for property owners is however that unlike 17th century tulips, late 20th century dot-com shares and, periodically, American comics (I worked in a comic shop in the early 90s when the comics industry went through a little bubble of its own), in the long term housing tends to keep its value. That isn’t to say it doesn’t peak and trough, but the other thing to notice about the graph on the HPC website is that the overall trend is an increase. That’s because people always need land and there is only a finite amount of it to go round. Land is not capital, and it behaves differently.

The implications for this explain why I said on Saturday that I didn’t think PricedOut goes far enough. The government can’t simply legislate itself more homes if the market knows it is onto a winner with the number of homes currently being built; if we attempt to build more homes than the market wants, then developers will simply put the breaks on, as they have been doing for the past 20 years. Raising interest rates will probably cool down the market, but the potential gains are still huge - speculative pressure will remain.

The problem, I suggest, is the market itself, and specifically the fact that it treats land just like any other commodity, despite the fact that it is sui generis. But I will continue this another time as it’s getting late.

A couple of websites have caught my attention today:

• HousePriceCrash - is dedicated to highlighting that we are due for a corrective house price crash soon. Prediction is a mugs game, but they are almost certainly correct - any speculative market is subject to boom and bust no matter how much Gordon Brown protests. This flash animation is quite entertaining as well.
• PricedOut is a campaign I would almost certainly support, although I might quibble about whether their proposed policy changes go far enough.

Labour and Lib Dem spokespeople have been competing on how best to insult young people struggling to pay for their own pensions this week.

Speaking at an Institute of Public Policy Research meeting, Pensions Minister James Purnell highlighted the fact that the number of young people saving for a pension has gone down in the past five years from 1-in-3 to 1-in-4. His explanation is simple:

“At the moment, young people are acting as if they expect to be able to fund a longer and longer retirement with less and less saving.”

Meanwhile Lib Dem Shadow Chancellor Vince Cable has been highlighting the huge levels of credit that young people are currently taking out:

“This research highlights the fact that there is a pressing need to help the young when it comes to financial understanding.

“All the signs point to a huge shift in the financial knowledge of young people now compared with their parents.

“The Government’s university tuition fees, high house prices and the aggressive marketing of credit are all contributing factors.

“Although there is some financial education and help for people when they are in difficulty, the focus should be on tackling this problem before it occurs.

“There should be a genuinely independent financial advice network to help people before financial hardship takes hold.”

To be fair on Vince, he does at least refer to contributing factors such as house prices and graduate debt, but he doesn’t propose doing anything about them - he magic bullet is simple more education. James Purnell doesn’t even go that far. His explanation are “Three Cs” - confidence, complexity and culture. All three may well be true, but that is to pretend that pensions are wholly divorced from everything else.

The reason a “live fast, die poor” culture has emerged is that credit and depending on parents is the norm for young people these days; it’s how you get on in life. Lecturing people about depending on too much credit is a little rich in a country where it is government policy to have every young person in hundreds of thousands of pounds of debt before they hit thirty.

And are we really expected to believe that the previous generation were any more careful with money than we are? Last time I looked, they spent their youth on drugs shagging anything that moved. The generation before, that grew up in the 1920s and lived through World War Two, certainly knew the meaning of saving for the future. I’ll take lectures from them, but not their profligate children.

Can I just say how important it is that sites such as HandsOffOurFuture are here to remind everyone that there is a huge population of people who will be driving the economy over the next three decades but as far as I can see they will be suffering taxation without representation.

My business is in helping young people on to the housing ladder and from what the hundreds of young people we advise each month are telling me they don’t have a stake in our homeowning democracy.

The first thing to realise is how important it is to make housing affordable. (more…)

The phantom council tax payer has struck again, this time thwarting Jo Rooney’s campaign against litter. Previously, Sylvia Hardy’s protest was undermined in the same way.

Council Tax has struck a deep emotional chord amongst the public, not quite to the same extreme that the Poll Tax did, but the fact that so many pensioners are willing to get locked up over it suggests something is going on.

It is a very silly tax that doesn’t seem to achieve anything and it is curious that both the Tories and Labour have lined themselves up to defend it with their dying breath. Strictly speaking, it can hardly be described as a property tax as (in England at least) properties haven’t been revalued since 1991, meaning that it has very little to do with the actual value of your property. What’s more, the 8-band system means that effectively it is capped: those who own the most expensive properties pay the least proportionately. A random, regressive tax is pretty indefensible.

But one thing is does not do is hurt poor pensioners. Prof Iain McLean has calculated that just 1.2%-2% of the population is ‘an owner-occupier with below 60% of median income living in a house in Council Tax bands E to H’ (the majority of whom will be pensioners). What’s more, pensioners on a fixed income are entitled to Council Tax Benefit. The still smaller minority this does not apply to could (whisper it!), always downsize to a smaller property.

Don’t tell Help the Aged however. Apparently, council tax affects people “below the poverty line” - how? They claim that an elderly couple with just £182 per week income “could end up paying the same level of Council Tax as their neighbours, a young and wealthy couple with an income of tens of thousands”. Yet, according to entitledto.co.uk, (which the Help the Aged website links to elsewhere), that couple won’t have to pay any council tax at all.

Help the Aged also bleats about how council tax has increased out of step with pensions - but that just means that more pensioners are entitled to council tax benefit. It then goes on to cheekily complain that very few pensioners are aware they are entitled to council tax benefit. Well of course they aren’t if organisations like Help the Aged go around pretending they aren’t entitled!

Pensioners like Rooney and Hardy are being goaded on to make themselves martyrs not because of a serious issue that is effecting thousands of pensioners, but because a number of relatively comfortably off pensioners resent paying a tax that pays for basic local services. These women really don’t appear to realise what they are letting themselves in for by going to prison; they probably believe the Daily Mail’s claims that it is akin to spending a couple of weeks at Butlins.

The Lib Dem local income tax solution I’m ashamed to say is to let pensioners off the hook entirely and simply increase the tax burden onto that wicked rich young couple with an income of “tens of thousands.” The fact that those wealthy young wasters may be bringing up a family and have an enormous mortgage to pay is neither here nor there.

The irony is, pensioner poverty is a real issue, but council tax is a total red herring. The income-poor, asset-poor pensioners (IPAPPs) have been let down by a system that has squeezed them throughout their lives, left them with nothing to call their own and then does not support them in their dotage. Money spent on subsidising the relatively wealthy pensioners is money that can’t be spent on the truly needy. The IPAPPs are our allies and a warning of what millions of younger people have to look forward to under the current system.

Assets should count for something - the current government was wrong to put so much stock into the pensioner credit and thus create a disincentive to save. But it’s time we recognised that the culture of encouraging people to lock all their assets into property causes all kinds of social problems; specifically a restriction on the housing supply which screws over the following generation, depopulates villages and towns and subsequently leads to increased pressure on local public services that old folk depend on. Emotive arguments about turfing old people out of the family homes notwithstanding (and what about the emotive argument about people not being able to get a foot on the property ladder?), pensioners and their families benefit from property taxes. The issue is making them fairer and taking off their harshest edges, not scrapping them.

Liberal England points to an intriguing story from BBC Leicestershire:

People are lying to the police about anti-social behaviour to get groups of children dispersed, police have said.

A senior policeman admitted there was an increasing trend of residents calling to complain about innocent behaviour, like playing football.

Inspector Andy Ramsey, from Leicestershire Police, said incidents were exaggerated or even invented to ensure officers intervened.

I get the sense this story is merely the tip of the iceberg. And while the young are the obvious victims here, there is something sad about a society where adults are so disempowered and infantilised that this is what they resort to. But then, isn’t this what the “Respect Agenda” is all about?

(apologies for the lack of posts on this thus far - I’ve been remarkably busy over the past few weeks and that is set to continue. But I’ll do my best to keep this updated when I can).

From what little feedback I’ve had about this website so far, a lot of people seem to think my main hobby horse is pensions. This is probably partly because of launching this site during the same week that the government announced their new pension plans.

In fact, personally I think pensions are a bit of a red herring. For a long time people have been awake to the emerging problem of what to do about the “pensions timebomb” and I think Adair Turner got the balance about right. If there is still a problem, it lies in the fact that financial pressures will force a number of people to opt-out of their second pension.

Where do those financial pressures come from? Rising graduate debt doesn’t exactly help, but if I were to pick out what I think is Public Enemy Number One it is simple: the lack of affordable housing.

Housing is a remarkably equal opportunities social issue. Well, lack of housing doesn’t seem to be affecting those at the very top of the tree, but for everyone else it is a problem, affecting both middle and working classes alike - worse, it is forcing the middle classes to scrounge off the working classes.

In London, the average house price is now £306,664. Back when I was at school, we were taught that you could only borrow up to 3.5 of your income. Under this quaint old rule of thumb, you have to be earning £87,618 p.a. in order to get a foothold on the housing ladder.

In reality of course, people have a broader range of options. There are graduate mortgages, where a bank essentially lends you more on the basis that your future earnings are set to increase. If you are a “key worker” you can get some support from the government. A growing number of more entrepreneurial people are resorting to buy to let. In essence, if you can’t afford to live in the area where you work (common in London), buy a property somewhere else and live off the rental income. This in turn of course means that the pressures on London property prices essentially seep out across the rest of the country, exacerbating the problem.

For most people however, it means getting a top up from their parents or other relatives. That’s if they have parents/relatives who can afford it. It doesn’t take a genius to work out that means that how well you are likely to be able to get on is going to be increasingly dependent on your social background.

In short, the options available to young people attempting to get some long term security are some combination of scrimp and save, pass the problem onto someone else and depend on inherited wealth. Is it no wonder that social mobility has taken a nose dive?

The papers have been rife over the last few days about a new study published by the Sutton Trust about how professional careers are now dominated by public school educated people. Lots of theories have been floating about as to why this is in an era where class is generally perceived to no longer be particularly relevant. Once again, much of this boils down to housing. As Will Hutton writes:

Another factor is that London has become more expensive and the growth in starter salaries has not kept pace. Having parents who can support you early in your career is more crucial. London house prices prop up the middle class’s closed shop as effectively as independent schools.

I don’t think you can underestimate this factor. Many professions - from law to journalism to party politics - are propped up by an internship system that relies on the fact that people are prepared to work for free in the expectation that it will get you a rung on the ladder. The think tank “sector” (such as it is) that I work in is incredibly nepotistic and extremely dependent on unpaid interns. Even for a tiny organisation like the one I work for, competition for places is considerable. We’re all too aware that getting an internship gives people a major advantage in terms of getting paid work in the sector, yet the only people who can afford to take an internship tend to have comfortably off and understanding parents. It’s a conspiracy of convenience that quietly and surely gives the comparatively wealthy a clear advantage regardless of talent.
The mass expansion of education was supposed to create a more level playing field but in fact the opposite has happened - because so many more people have degrees now, employers need other ways to differentiate potential applicants. Bizarrely, we’ve created a system whereby young people are forced to get themselves into tens of thousands of pounds of debt for a degree that is worth far less than its free equivalent 30 years ago (John Harris has some interesting related statistics here: the argument for tuition fees was always that graduates would earn, on average £400,000 more over their working life; in fact, an arts grad can expect to earn £22,000 more).

To cut a long story short, lack of housing is starting to have a severely detrimental effect on social mobility. Far from realising the Eighties dream of everyone being a homeowner, what is instead happening is that we are creating a landed middle class with almost impenetrable power over an unlanded underclass. While this is good for those families who got on the housing ladder over the past couple of decades, it’s bad news for everyone else and it’s dreadful news for the economy.

So, what’s to be done? Unfortunately, the problem is not as simple as “build more houses.” No developer wants to build affordable housing when they can make vastly more money on more expensive housing for the same cost. Speculation has a stranglehold over the property market - indeed, as a society we worship this fact. That speculation leads to over-inflated housing costs and an artificial limitation of the supply of available land. In short, developers are quite happy to sit on land and wait until the price is right. But land is not capital, which loses value over time. Indeed, sitting on land can be a very profitable business indeed.

We have to end this nonsense. The simplest mechanism I have come across for doing this is an annual tax on land values. This tax would be levied on landowners whether the land was in development or not; sitting on land would cost and thus the supply would be much larger. And because land values are entirely based on external factors such as accessibility to public services and transport links (as opposed to the capital costs of property such as bricks and mortar or double glazing), it is a virtuous tax as the money raised is created by society and not the landowner in any case. What’s more, the money raised from it could replace taxation elsewhere. The most obvious candidate is council tax, but most people agree that land value taxation could raise much more than that.

The alternative? Well, we can sit back and watch the concept of a dynamic, meritocratic society go down the toilet, or we can spend billions of pounds of taxpayers money enriching the very people who are sitting on land and causing the problem in the first place. I’m open to other ideas, but I haven’t heard anything better.

I’ve been sitting on the url handsoffourfuture.org.uk for a couple of months now, but work pressures have made it very difficult to get things moving.

I’ve been finally spurred into action for two reasons: firstly, Andrew Rawnsley’s article in the Observer this Sunday on the subject of Generational Equity is a clear sign that this issue is increasingly hitting its head against the mainstream. Rawnsley’s namecheck of Tory MP David Willetts suggests that at least he is starting to take these issues on board.Secondly, rumours have been circulating that my own party, the Lib Dems, are on the verge of missing a golden opportunity of taking the initiative on this area with its latest Tax Commission. The Commission is apparently set to water down its proposals for a “Progressive Property Tax” which was to signal a major shift in the burden of taxation away from low income earners and onto property owners.

Frankly, no major party in the UK is tacklingly generational equity in a meaningful way, and why should they when the over-50s are more likely to vote and are more numerous than ever before? What’s more, the old are organised in a way that the young are not. They have their own lobbying groups - Help the Aged, Age Concern, Saga, et al - and they have perfected the whine of the perpetual underdog. For a more perfect example of this, look no further than the campaign against Council Tax. Fixed income pensioners don’t even pay it, and yet it is presented as a social justice issue.

The young are predominently creating the wealth in the UK, and yet they are being stung by the quadruple-whammy of graduate debt, sky-high property values, pensions and income tax. And that’s not counting an uncertain future due to climate change and the fact that the under-20s have been institutionally demonised by a state which has invented the term “anti-social behaviour” as a new tool for keeping the public in a constant state of anxiety. It is time to get our shit together.

This website is intended as a contribution to the debate and as a catalyst for organisation. Although, as editor, I’m a Lib Dem, I’m hoping it will evolve into a truly cross-party initiative (while I’d like to see my own party take a lead on this issue, I’m not convinced it will until the issue is more high profile). If you’re interested then bookmark this page and pay a visit to the accompanying forum.