Sunday, June 29, 2008

Property treadmill

A little birdie warned me that the Torygraph had a particularly
stupid article
up about house prices. On reading the post it turns out to be a lot less stupid than most MSM writing about economics, but I promised Femme-de-R I'd fisk it, so I am going to have to go into detail on a few particularly egregious points.

He also warned that the "severe rationing" of mortgages was preventing first time buyers from taking advantage of falling house prices, preventing affordability from improving.
Not quite. Edmund Conway needs to remember that business is like dating. The key players in the housing market are guys and gals houses and people who want to buy them. Money, prices, mortgages etc. are just a way for nerdy guys to get laid a dez rez in the suburbs. At a "Sex and the City"-themed singles party the vast majority of the ladies are going to go home unsatisfied and nothing can change this. Even if all the women are gorgeous, rich, Oxbridge-educated professionals and the two guys who turned up by mistake are a failed computer programmer and Mr Fry Cook of the Month, only two couplings are possible. [I ignore second homes for the moment - most first-time buyers are not trying to buy in the rural areas popular with second home-owners].

At the moment this is the state of the housing market. There are very few entry-level homes (because the planning system makes them less profitable to build than McMansions, when it doesn't make building homes for the private sector completely impossible) and a lot of first-time buyers (because of immigration, people wanting to buy before they get married, an expanding middle class etc.) When Northern Crock would lend you enough money to buy a house you couldn't afford, house prices were crazy-stupid, so most first-time buyers couldn't buy houses. Now you can only buy houses you can afford, prices have dropped to merely unaffordable levels and first-time buyers are still out in the cold.

None of this has anything to do with the mortgage crisis. The only thing that can make housing affordable is if a new supply of houses comes onto the market (perhaps repossesed buy-to-lets) or if a bunch of buyers quit (perhaps young single people might realise that buying a house that you might have to sell in two years when you get married is a risky speculative investment, and thus unwise).

Planning wonk and adviser to the PM Stephen Nickell said "The consequence is that house prices fall. But despite the fall in house prices they still find it hard to get into the market because of the difficulty in getting hold of credit."
No, Mr. very clever planning wonk. First-time buyers are finding it harder to get into the market because of the lack of houses.

The housing market - in terms of the price of houses - will not look much the same as it did before the credit crunch until after six or seven years.
It is going to be a lot more than six or seven years before the crazy mortgage lending practices of the pre credit-crunch boom come back. The norm in financial markets is that you don't get another speculative bubble in the same thing until the people who remember the previous one are old enough that they can be dismissed as "old fogeys". That will be more like fifteen to twenty years. If housing prices to get back to 2006 levels before then it will only be because of inflation.

He also warned that the problems facing Britain's housebuilders threatened to put back the Prime Minister's promises to build 3m more homes by 2020.
This is the real issue. The only sentence in the story that deals with the gender balance at the party. And it's buried half-way down. If the credit crunch does slow down housebuilding, then that is a long-term problem for potential homebuyers.

At the same time, the article completely ignores the main way the housing market downturn can help first-time buyers. First-time buyers have to compete for entry-level homes with investors (i.e. your friends with property portfolios) and speculators (your enemies with property portfolios, plus Will Hutton's wife) buying to let. They don't compete all that much, because investors prefer one-bedroom flats in prestigious city-centre locations that they can rent out to single yuppies whereas homebuyers prefer three-bedroom semis in the suburbs that they can raise a family in. But economic theory tells us that this kind of small effect can affect prices a lot.

People now know that buying to let isn't free money. Some buy-to-let landlords can't compete with first-time buyers any more because they are too busy struggling to avoid reposession. Others have simply pulled out of the market because they don't want to lose their shirts. If all the gold-diggers leave our party because they realise that there are no rich men, this improves the odds for the women actually looking for love.

In the capital sales of homes below £200,000 fell by more than 60 per cent, a further sign that first time buyers remain trapped outside the housing market.
Given what you can get for 200 grand in London, I suspect that this is mostly flats bought for investment purposes. Which will start moving again when the forced sellers are banks (who are rational and just keep cutting the price until it sells) rather than amateur speculators (who desperately don't want to own up to taking a loss).

Overall verdict: while this story avoids most of the standard errors of media house price reportage (possibly because it isn't written by Will Hutton talking his wife's book) it still kind of misses the point. And I haven't yet dealt with the one line that really made me cringe, from near the beginning of the article:

Prof Nickell, the warden of Nuffield College, Oxford and the chairman of the National Housing and Planning Advice Unit, said he was extremely worried that the credit crunch would keep first time buyers from getting onto the property ladder.
No speech marks, so at least I can hope that the words "property ladder" were chosen by the journalist (who can't be expected to know better) than the wonk (who should). The point of a ladder is that each rung helps you to get to the next rung up, something that is no longer true.

In the Elder Days when Men were Real Men, and your Friendly Local Building Society was really friendly, local, and a building society, large deposits (20% plus fees plus any difference between the purchase price and the building society's surveyor's valuation) were used as a device for rationing mortgages, which were at subsidised interest rates - often below inflation after accounting for the now-abolished tax relief. The limiting factor on how much house you could afford was normally the deposit you could put down, and the best source for a deposit was the sale of your previous house. With inflation at 5-10%, house prices could rise by 10% a year without anything untoward going on, so you built up equity easily as inflation wiped out your mortgage.

Nowadays mortgages are rationed using credit ratings and ability to afford the monthly payments. Even in a credit crunch you only need a 10% deposit, and 5% will do in normal market conditions. The limiting factor on how much house you can afford is whether you can afford the mortgage payments. And if you take on too large a mortgage, inflation means that it will be a financial millstone for 25 years. To cap it all, house prices could only go up 10% a year because of a speculative bubble that has now burst. Between getting into credit card debt to cover the mortgage when your cheap Northern Rock 2-year fix expires and the threat of negative equity, house 1 is as likely to take you further away from house 2 as towards it. Even if the price of your current house is going up, the price of the house you want to trade up to is probably going up faster. The "housing ladder" is actually a "housing treadmill" where just staying in place is hard work.

Nor is this a bad thing. The housing wealth that our parents acquired without working for it was a transfer - partly from people too poor to get on the "ladder" in the first place (someone had to pay for all that mortgage interest tax relief) and partly from all the gen-Xers who have to pay through the nose for shoeboxes. A society where the only way to live in a nice house is to pay for it is a fairer society. And a society where a house is a home and not an investment is a more honest society.

Read more!

Pigeon/banker joke of the day

It's very rare you can find a joke involving both pigeons and bankers. So it's with great pleasure that I present this credit crunch gem:

What’s the difference between a stockbroker and a pigeon? A pigeon can still leave a deposit on a Porsche.

Thanks to the FT and LibertyCat who tells me that, to make the joke perfect, it just needs to incorporate a ferret's mother-in-law.

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Friday, June 27, 2008

Giving birth to more red tape

The proposed Equality Bill to be promoted by Harriet Harman is a damp squib for identity politicians. The proposals headlined in the press are about making public sector bodies and around 30% of private sector companies report on the gender gap, rather than doing anything about it. The remaining 70% of companies are not compelled to do anything.
"Part-time women receive 40% less pay than full-time men. Do you think that
that's because they are 40% less intelligent, less committed, less hard-working,
less qualified? It's not the case,"
Harriet told BBC Radio 4.

Part-time work and the gender gap is more complex than it looks. Harriet is right that part-time workers, for example, are just as qualified and intelligent as part-time ones. But some jobs just can’t be done effectively part-time. For example, managing full-time staff who may become clueless/panicky or demotivated by an absent boss. This isn’t about discrimination – the same applies to male part-time bosses.

Misogynist dinosaurs are just that - almost or about to go extinct. The real threat to women is not intentional discrimination, but structures that make entirely non-sexist people treat women and men differently in the workplace. One of these is maternity leave. Small companies can be put out of business by a hard-to-replace female member of staff becoming pregnant and disappearing on leave for months at a time. Needless to say, some employers will preferentially employ men or women who aren’t of reproductive age.

The way around this is simple. Slash female maternity leave to a maximum of 12 weeks ordinary maternity leave and offer men 12 weeks paid paternity leave, all to be taken after the birth. Cancel additional maternity leave entirely. I’m suggesting 12 weeks maternity/paternity leave because most nurseries won’t take babies younger than three months old. In addition, up to four weeks paid leave could be taken by either partner before the birth, either to make last minute preparations for the birth, or for health reasons.

This leaves businesses with a choice between not employing people of reproductive age or employing men and women in equal numbers. In addition, there would be no automatic assumption that a woman should be primarily responsible for child rearing. Parents would find it easier to deal with the new arrival if the woman was not solely responsible for the baby after the first fortnight.

[NB: Does this seem sensible? Can anyone who has children tell me if it’s realistic physically/emotionally to return to work three months after a birth? So far as I understand it, pregnancy is as physically harrowing as a major operation]

Thursday, June 26, 2008

If you can’t stand the heat, keep out of the kitchen

Devil's Kitchen is having a tedious grappling match with Labour MP Paul Flynn over whether humans are causing climate change.

I've read and posted on this before so, with a sinking sense of deja vu, I am going to wade back into the fray and make exactly the same points as I did last time. See, told you it was tedious!

The devil is not in the detail of whether global warming is happening. Therefore, to whine on about any of the following is to miss the point: the Stern review; the accuracy of any one graph; the equations used in any model or models; the beliefs held by a majority of UK MPs; and the number of eminent academics publicly demanding action.

Here's all you actually need to know if a climate change denialist crawls out from under a damp log near you and claims humans are having no effect on global temperatures.

Do CO2 and other gases affect the Earth's temperature?

Yes. Gases like CO2 and methane are responsible for keeping the Earth's temperature 33 degrees C warmer than it would otherwise be. See this Encyclopedia Britannia diagram for an explanation of this natural greenhouse effect.

Can relatively small changes in the gases and particles in the atmosphere have a profound effect on global weather and temperatures?

Yes. In 1815, a volcano called Tambora in Indonesia erupted, belting 100 - 150 cubic kilometres of ash and debris into the atmosphere. 200 million tonnes of sulphur dioxide, the same weight as 100 million SUVs, entered the upper atmosphere (stratosphere). It sounds like a lot of sulphur dioxide, but the weight of the whole atmosphere is around 5 quadrillion tonnes (50 with 14 zeroes *).

The ash, debris and sulphur dioxide in the upper atmosphere blocked sunlight reaching the Earth and meant that 1816 was 'the year without a summer'. The Asian Monsoon was affected and, in New England and Canada, snow fell in June.

How much CO2 and other gases have humans added to the atmosphere?

760 billion tonnes of CO2 between the industrial revolution and 2005, assuming the figure for the weight of the atmosphere I have here is correct! That's 3800 times the amount of CO2 than sulphur dioxide.

Bearing in mind that CO2 is a pretty pathetic global warmer compared to the cooling effect of sulphur dioxide, that's a still lot of CO2. And it's hanging around too, unlike sulphur dioxide, which tends to leave the atmosphere relatively quickly.

It's entirely possible to argue about the exact amount average global temperatures will rise for a given rise in CO2. After all, climate scientists are arguing about this too. But what is clear, is it's not tenable to argue all this CO2 is sitting about in the atmosphere with no effect at all. Zero. Nada. Nothing.

* Actually somewhere between 4.7 and 5.5 quadrillion, depending on whether you're using US or European tonnes. It's a lot, basically.

The Devil's Kitchen: Paul Flynn MP: criminally ignorant moron

Wednesday, June 25, 2008

Square is the new black

Are our 20-somethings rejecting “sex, drugs and rock ‘n roll” for “marriage, yoga and a quiet life”? The New York Observer was accused of inventing a lifestyle phenomenon when it published an article on New Victorians last year . The Telegraph subsequently picked up on the story. Here I argue that today’s youth aren’t what they used to be.

Take David. He’s a teacher and a district councillor who lives in the country in a house he and his wife own. This isn’t particularly surprising - married, home-owning teachers are pretty common. What is interesting is that he is a 26-year-old Oxbridge graduate. His wife is 22 and left university a year ago.

He isn’t alone. When I met Clara, 20, she was living with her older sister and doing a year-long work placement as part of her sandwich course. Like many female students, she enjoyed going to parties and reading gossip mags. But there’s a twist. She was envious of my engagement ring, explaining that she wanted to get married and have kids but all the guys her age were immature and just interested in casual sex. Furthermore, she was taking advantage of working regular hours to take up ballet and yoga classes.

Clara intrigued me. When I was at university, no regular student would own up to being exhausted by anything but an all-night clubbing session or an essay crisis brought on by slacking during the week. Certainly, they wouldn’t admit to being tired due to ballet practice until 10pm. I’ve mentioned her to several people my age since and they’ve been unsurprised – apparently early 20-something university graduates are taking up wholesome hobbies, getting married and settling down in droves, causing confusion among their marginally older siblings. Parents, too, can become worried that their child is making a rash decision rather than having fun and "playing the field".

Why is this important? Well, where a country’s elite goes, its culture follows. Only the UK’s urban intelligentsia were significantly affected by the ‘swinging 60s’. Most people didn’t have the time or the money to listen to bad music or try to ‘discover themselves’ in a field. The country was touched by the cultural changes but, for the majority, life went on. Yet, although only a few young people participated directly, the ‘1960s’ form part of the UK’s shared history and its effect on people’s lifestyles, education and values are still vigorously debated. So it matters if young people who would have “turned on, tuned in and dropped out” 40 years ago are now making Ikea rather than LSD trips.

The New York Observer article mentions “Generations”, a book published by William Strauss and Neil Howe in 1991. One of their ideas is that all young people rebel against the establishment, but whether they 'conventionally rebel' (shock, sex and sin) depends on which generation they belong to and not whether they are young. In short, the “Baby Boomers” (born 1946 - 1960) will always believe they are ‘the yoof’. Think Brian Eno advising the Liberal Democrats on youth. Ok, he's a record producer, but he's 60! Strauss and Howe also predicted the New Victorians, who they called the ‘Millennials’, and who would start being born in 1982.

According to Wikipedia:

“Millennials are held to higher standards than adults apply to themselves;
they're a lot less violent, vulgar, and sexually charged than the teen culture
older people are producing for them, and, over the next decade, they’ll entirely
recast what it means to be young.”

LibertyCat and I were born in 1979/1980 and can feel we’re standing between two generations. Below us are a noticeable number of students and recent graduates who believe it’s cool to be square. Above us are a significant minority of disaffected, disengaged and political apathetic types who I call "InSecure Over-Achievers" (ISOAs). I am quite sure that they are "Generation X", the group Strauss and Howe predicted a year before they were identified in Douglas Coupland's book "Generation X: Tales for an Accelerated Culture"

Children and marriage aren’t on the ISOA radar. If questioned, they often plan to do these things, but at some unspecified future time. In the meantime, they drift between professional jobs that dissatisfy them and different careers, punctuated by advanced degrees and periods of travel or unemployment. Some ISOAs are the masters and mistresses of portfolio careers – trying to break into competitive fields while using their intelligence and qualifications to freelance. Yet others look like sorted high-flyers, but are in jobs they do purely for the money while being utterly bored and miserable. ISOAs are often serially monogamous, with some relationships lasting several years, but in many cases is goes little further than moving in with someone. All of them feel something is missing, and there is a better world out there, but they’re not entirely sure what it is or how to find it. A typical ISOA question is: "Is this it?" After years of education, effort expended turning into high grades and a clear path towards exams, they finally graduate. The world looks open to them but then, either immediately or a few years in, they feel lost, angry or frustrated and ask: "Is this it?"

The first ISOA I noticed was Seb. Seb is 27 and is applying to do a masters degree. After graduating from Oxbridge five years ago, he had no idea what he wanted to do. After a period of voluntary work, he went abroad for six months in the hope that changing his surroundings would help him decide. He came back, still had no idea, and drifted into an extremely technical job related to his degree. Since then, he has never stayed in a job or a house for more than a year. He's now done four jobs in the same sector and is typecast, which frustrates him since he wants to work in policy, but doesn't feel he can get out. I know of at least two other people in a similar position.

Since Seb, I've identified numerous ISOAs, including several friends. Recently, I was having a Japanese dinner with one of them in a filmset-esque location. She remarked it was all very Sex in the City. I thought about it. Then I realised that, although it looks that way, the dream has gone sour for many of UK's beautiful, directionless, urban elite - the tail end of "Generation X". As Bridget Jones noticed - a failure to commit to causes or people looks like freedom and independence, but it can also be a byword for emptiness, a lack of passion or purpose, and a fear of being left alone to be eaten by alsatians.

Faced with such a self-absorbed and empty immediate future - is it any wonder that some of the 'yoof' are rebelling against the "Baby Boomers", who started it all, by burning their Manolo Blahniks and embracing hearth and home.

[NB: Names have been changed]

Tuesday, June 24, 2008

Obesity statistics a fat lot of use

I was bemused to discover that, according to figures released by the Department of Health, London had the worst figures by region for child obesity.

The reason for my confusion? These figures (from 2006) showing a galumphing obesity risk in Wansbeck, Corby and suchlike, with the slimmest chances of getting fat for those living in... erm, Westminster, Camden, Islington... Yep, London boroughs had the 10 lowest levels of risk.

I know London has enormous inequalities, even within boroughs, but this is crazy! A bit of consistency in messaging, please?

Just goes to show, 98.56% of statistics you read are made up on the spot and the remaining 1.42% are utterly meaningless.

Sunday, June 22, 2008

This week's guest quango is...

The Potato Council...  A quango on which taxpayers money is NOT being wasted.

No, it's up to potato growers and seed merchants to fund it via a levy of around £4.54m annually, whether they want to or not. Including money from other sources, the Potato Council spends £6.3m per year.

The Potato Council came to my attention due to this story in the Guardian. All kudos to these quangoids for spinning the credit crunch quite this creatively to a national newspaper and boo hiss to the Guardian for printing such a blatant 'non-news' story.

But, apart from filling column inches, what does this worthy body do with a cool £4.54m of spud botherers money?

Well, according to the Development Plan for the Agriculture and Horticulture Development Board 2008 - 2011, where is sits alongside other similarly pointful organisations like the Milk Development Council, it intends to (among other activities - some of which I've detailed below):
Work to alter the misconceptions on the nutritional profile of chips
National Chip week is threatened by concern over nutritional profile of chips. Fight this
I can only say one thing in response to this... OBESITY CRISIS. Joined-up Government, don't you just love it...

Other highlights include:
  • Engage in various knowledge transfer campaigns, e.g. on blight (paraphrase: leaflets)
  • Regular dialogue in support of the potato industry with industry, stakeholders and the media (paraphase: mmmmm, meetings - the practical alternative to work!)
  • Provide a range of generic GB tools for use by GB seed industry (paraphrase: 'tools' presumably means 'more leaflets' and not 'free shovels all round')
But I'm really loving:
  • Lack of trust in [Potato Council] prevents industry involvement. [Promote] industry involvement from inception of projects
Says it all really, doesn't it...

I'll let the Times (2006) have the last word.