26 ms·

Inflation will make any increase in wages meaningless. It will also further drive investment into housing to escape the free falling cash. The answer is no loc

Inflation will make any increase in wages meaningless. It will also further drive investment into housing to escape the free falling cash. The answer is no lockdowns, no bailouts, and no quantitative money printing to oblivion. Let the everything bubble pop and start over with sound first principles. We will get there, but not before politicians make it worse and delay the inevitable defaults.

nly 5y ago
- Boris Johnson (the British Prime Minister) sold his London family home in 2019 for £3.75M after having rented it out for £2000/week (just under 4x the national average income) while living in his Government provided accommodation in his role as Foreign Secretary (2016-2018).[0] - Property prices have shot up 10% during the pandemic, bolstered in part by the Government cutting stamp duty on sales. - A few days ago the Government raised National Insurance (which is an income tax) on all workers to pay for social care while protecting property wealth with a contribution cap. Nobody in power is popping the property asset bubble in the UK any time soon. It's a sacred cow. I'm in the top 2% of earners by income in the UK and I'm still completely priced out of wrt to buying a modest family home (or flat) a humane, commutable distance of central London. Price/Income ratios are too high even for me because I'm competing with my peers. It's a supply problem, and a problem of foreign investment and bad incentive schemes. [0] https://www.mirror.co.uk/news/politics/boris-johnson-clinging-rent-free-12949436 https://www.mirror.co.uk/news/politics/boris-johnson-clingin...
- notanzaiiswear 5y ago
  Or many people want to live in London.
- bb123 5y ago
  There is housing available within commuting distance - I bought a 2 bedroom flat walking distance from a station with a 35 minute link to Kings Cross for under 200k. People seem to think they have some sort of God-given right to live in central London. If you want to buy a property you may need to make some sacrifices in that department. Yes the town I live in is pretty shite, and I have to train to work or to see friends on the weekend but I own my home.
  - yesOfCourse9 5y ago
    Yes only the elite, who speculate prices beyond the reach of normies, should be allowed to live where they want. Nice embedded class based bias by the stiff upper lip crowd. Make the minority that hands itself free money subject to the same open market and you have a point.
    - II2II 5y ago
      > Yes only the elite, who speculate prices beyond the reach of normies, should be allowed to live where they want. It is not even a case of living where you want to, nor is it a case of supporting a particular lifestyle. It is a question of quality of life. If your commute is 30 minutes door-to-door, you are losing an hour a day. That hour could be better put to use to improving your skills, working paid hours, taking care of your personal well-being, or leisure. It is also worth noting that most people measure commute time as time in transit with a private vehicle, this incurs additional costs (meaning working additional hours) and the only way to get around it involves a significant tradeoff for time. There are many people who do not want to live an elitist lifestyle and would be happy to live somewhere other than where the elites live. What they don't want to endure is a quantitative and qualitative diminishing in their quality of life.
  - heavenlyblue 5y ago
    How often is the train? Or is it one of these rare direct 35 minute trains?
  - jvvw 5y ago
    Luton? I think some parts of London are more reachable from affordable places than others and that requirements do change when you have a family (more space and you may not need the best school but you don't want a terrible one). We live further up the Thameslink line and we get a lot of people moving here from London after having children, but it is a long commute.
    - Sanguinaire 5y ago
      I lived in Luton for a year and commuted in to London. Yes, it is certainly more affordable; but only because the NHS covers the cost of dealing with your stab wounds. For non-UK people: yes of course I'm joking, however Luton is the home of both a large immigrant population and the "English Defence League", the closest thing we have to the KKK.
- imtringued 5y ago
  >- Property prices have shot up 10% during the pandemic, bolstered in part by the Government cutting stamp duty on sales. Something that is hard to understand is how taxes influence the price of homes and land. People have a fixed budget. The rule of thumb is that they will spend at most 30% of their income on housing. Popular cities usually have an inrush of educated people getting high paying jobs. The existing residents see their % rise beyond 30% as a result but the rule of thumb still applies. When you have a fixed budget then adding more taxes won't lead to spending more, it means the government siphons money off the purchase of the home. That money cannot be used to purchase homes. When people talk about how taxes make housing expensive they are dead wrong. Taxation does not change your budget. When the government drops taxes on housing what happens is that a bigger chunk of the budget is being used for actually purchasing housing rather than paying taxes. This means house prices will rise and you will not be better or worse off than before. However, the rise in home prices fuels speculation. People buy houses expecting that they go up. The reduction in taxes created a gap and speculators simply insert themselves in that gap and take their profits. The problem isn't the speculation in itself but rather the expectation that housing will always go up. It's not only investors that want to make money. Homeowners see an opportunity to create a big gap by voting for restrictive zoning or making new construction a legal minefield. The real problems begin when even grandma and her dog are speculating.
  - ItsMonkk 5y ago
    Exactly. If property taxes were raised to 100% annually of the cost of the home, the price of the house would instantly drop to somewhere near the annual rent cost. "Buying" the house would end up being close to a security deposit. It goes without saying though, that 100% annually is not a good number. It would disincentivize building, which is something we really need right now. The right number is a Land Value Tax such that the cost of the property equals the cost of the building. So if you have two properties, one in downtown SF, and one in the middle of Montana, and each are the exact same house, but the Montana house sells for $200k and the SF house sells for $1M, really it's the land in SF selling for $800k. So that SF market price should move to $200k. To do so we need to tax the property at increasing rates(per sqft of land) until they match. When we tax enough, the new price will reach its improvement value. In the short term this will have devastating effects on the Net Worth of individuals who took out loans or otherwise bet their income on owning a home, so I advocate for a one time tax break(that for exceptional cases like the elderly would be transferable for straight cash upon sale of the property) equivalent to the drop in market value of the home. So in the SF case, they would get a $800k tax credit. Once this system is in place being a NIMBY will no longer be a profitable stance, and will instead cost that area money in taxes. As it will no longer be a perverse incentive, the population will mostly switch to becoming YIMBY's, and advocate for better Zoning rules and to ease up on silly restrictions. The tax money can be spent on high value improvements to the area that will boost everyone's quality of life, and if none are found, can be simply given back equally to all. Once this system in place and the tax credits have been used up, we can even go further and get rid of income taxes, sales taxes, corporate taxes, and capital gains taxes. The value of the land tax will be enough to replace all of them. All from a tax that because land is at a fixed supply, is completely non-distortionary and results in no dead weight loss. Housing can either be an investment or affordable long-term, it can not be both.
- yodelshady 5y ago
  > Nobody in power is popping the property asset bubble in the UK any time soon. It's a sacred cow. It's a bad mad, especially considering how much the Tories have relied on there being homeowners. Their whole thing is that that group is the sensible middle, who work for a living, but also appreciate that suppliers of capital have limits. Odder still to not protect flat owners with cladding (I'm not one, FWIW). Higher-density housing is happening, and you've just told your next cohort of supporters to a) never invest in this asset class, we will render it worthless, b) never vote for us either, even as homeowners we won't support you.
zpeti 5y ago
Agreed. 20 years of lower and lower interest rates, meaning higher and higher mortgage amounts have driven up prices into oblivion. Either these prices are inflated away or there is a collapse. There's not much else you can, UK housing market is so far from market reality that it's a joke. And ironically the more you create policies like lower deposit amounts for younger people, or subsidised mortgage payments, the more you drive up house prices making these policies hurt the next generation of young people more. Perfect example of government intervention making things worse creating more government intervention etc etc
- ZeroGravitas 5y ago
  Depends on what you mean by "government intervention". The phrase is usually used to stop people fixing problems like this, which are the kind of collective action problem that only government action can solve. The government intervention you mention is actually just the voters with property using their vote to protect their wealth. And that worked exactly as intended.
- imtringued 5y ago
  >Agreed. 20 years of lower and lower interest rates, meaning higher and higher mortgage amounts have driven up prices into oblivion. The falling of interest is purely market driven. There is no government intervention there. Interest rates have been falling for a long time, far longer than 20 years and the reason is pretty simple. There are people out there who do not spend their money. The interest rate simply moderates between saving and investment. If saving is going up relative to investment then the interest rate must drop. https://news.ycombinator.com/item?id=28373304 https://news.ycombinator.com/item?id=28373304 You say higher and higher mortgage amounts have driven up prices but if you spend $360k what is wrong with getting a $360k house out of it in the end? What's so good about paying interest?
  - nly 5y ago
    > The interest rate simply moderates between saving and investment. For businesses perhaps, but this doesn't happen much at the personal level. Most people will save in cash, rather than invest, even if interest rates are zero or negative. Most people are risk adverse. Source: https://www.ft.com/content/2bcd4367-ef4c-4d1d-a69d-df2126b0fb63 https://www.ft.com/content/2bcd4367-ef4c-4d1d-a69d-df2126b0f... > While the annual ISA tally showed high levels of saving, most of the money went into cash ISAs, which offer low rates of interest and could leave savers vulnerable to rising inflation. > Some 300,000 new subscriptions went to stocks and shares ISAs, compared with 1.2M new subscriptions for cash accounts. So that's only ~20% of savers investing in to stocks in the most tax efficient way possible in the UK, even when the Bank of England base rate is at 0.1%
nivenkos 5y ago
The answer is to control the housing market and stop it being used an investment against inflation. Force people to invest in industry against inflation - not rent-seeking in housing, or cryptocurrency pyramid schemes. Only allow resident citizens to own the one property they live in, and have the government handle rentals like the old council housing / Folkhemmet homes.
- boldslogan 5y ago
  I think the political will here is kind of weak...the voters who own housing dont want their asset to decrease in value and wont vote for politicians who want to force investment into industry, versus the renters who do. I am not sure what to suggest...
  - nicoburns 5y ago
    Medium term I think this political will will change as fewer an fewer people Can afford housing
    - disgruntledphd2 5y ago
      Probably not in the UK, as the house-owning population are much older and tend to vote Conservative (the current governing party). Young people are already screwed, and unless they all show up to vote in marginal constituences (unlikely) then they'll continue to get screwed, unfortunately.
      - nicoburns 5y ago
        Right, but the age cohorts that are screwed are only going to get older over time (unless policy changes).
        disgruntledphd2 5y ago
        That time is well beyond the average politicians event horizon, I suspect.
tclancy 5y ago
That sounds a lot like if we just do what we have been doing for the last couple hundred years it will all work out. But we have a couple hundred years of evidence of who it works out for and who it does not.
- FredPret 5y ago
  What are you talking about? Standards of living have increased the most at the bottom of society. - Labourers used to work seven days a week (12 hour days), then six, now five times eight is standard, with some exceptions. - Workplace safety have gone from a laughable concept to the first priority. - 100% of Western populations can read and write. This used to be a rich-person thing - How many poor kids have you seen lately with their faces covered in coal dust from the mines? - There are thousands of other examples. Poor people today live longer and better in many important ways than rich people even a hundred years ago, never mind a "couple hundred years."
  - pyrale 5y ago
    > Standards of living have increased the most at the bottom of society. Ah yes, conflating 150 years of history like the 60's and the 2010's were comparable in a stable stream of progress. Remember even further, when we were forced to dress in animal furs and sleep in grottos? How amazing progress we made since then... I wonder why the serfs are complaining.
    - FredPret 5y ago
      Oh, I’m sorry that the eye-watering amount of progress isn’t good enough for you, because sometimes it’s faster than other times. Only if every single minute is better than the last by the exact same amount is capitalism working!
      - pyrale 5y ago
        Are you the fifth Yorkshireman ? Too bad you left the band before it became famous.
SquishyPanda23 5y ago
> The answer is no lockdowns Ah yes, the anti-vaxxer chiming in with the "let everyone die" approach to the economy.
- dang 5y ago
  This sort of comment will get you banned on HN, regardless of how wrong someone else is or you feel they are. If you'd please review https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html and stick to the rules when posting here (all of them—you must have broken at least half a dozen here), we'd appreciate it.
  - SquishyPanda23 5y ago
    okay thanks
onlyrealcuzzo 5y ago
How can you be confident we will get there? Central Banks can easily knock interest rates down a few points and take away all gains in labor wages (plus more). Why would Central Bankers (who answers to no one) stop giving themselves (and other asset owners) more and more pie when it's so easy to take it? What's the incentive to stop? The West is on a 20-year trend to lower interest rates. Japan's on a 30-year trend. Have you stopped to consider how hard it is to maintain a life a leisure in a low-growth environment without slave labor? /s

nly 5y ago

- Boris Johnson (the British Prime Minister) sold his London family home in 2019 for £3.75M after having rented it out for £2000/week (just under 4x the national average income) while living in his Government provided accommodation in his role as Foreign Secretary (2016-2018).[0] - Property prices have shot up 10% during the pandemic, bolstered in part by the Government cutting stamp duty on sales. - A few days ago the Government raised National Insurance (which is an income tax) on all workers to pay for social care while protecting property wealth with a contribution cap. Nobody in power is popping the property asset bubble in the UK any time soon. It's a sacred cow. I'm in the top 2% of earners by income in the UK and I'm still completely priced out of wrt to buying a modest family home (or flat) a humane, commutable distance of central London. Price/Income ratios are too high even for me because I'm competing with my peers. It's a supply problem, and a problem of foreign investment and bad incentive schemes. [0] https://www.mirror.co.uk/news/politics/boris-johnson-clinging-rent-free-12949436 https://www.mirror.co.uk/news/politics/boris-johnson-clingin...

notanzaiiswear 5y ago
Or many people want to live in London.
bb123 5y ago
There is housing available within commuting distance - I bought a 2 bedroom flat walking distance from a station with a 35 minute link to Kings Cross for under 200k. People seem to think they have some sort of God-given right to live in central London. If you want to buy a property you may need to make some sacrifices in that department. Yes the town I live in is pretty shite, and I have to train to work or to see friends on the weekend but I own my home.
- yesOfCourse9 5y ago
  Yes only the elite, who speculate prices beyond the reach of normies, should be allowed to live where they want. Nice embedded class based bias by the stiff upper lip crowd. Make the minority that hands itself free money subject to the same open market and you have a point.
  - II2II 5y ago
    > Yes only the elite, who speculate prices beyond the reach of normies, should be allowed to live where they want. It is not even a case of living where you want to, nor is it a case of supporting a particular lifestyle. It is a question of quality of life. If your commute is 30 minutes door-to-door, you are losing an hour a day. That hour could be better put to use to improving your skills, working paid hours, taking care of your personal well-being, or leisure. It is also worth noting that most people measure commute time as time in transit with a private vehicle, this incurs additional costs (meaning working additional hours) and the only way to get around it involves a significant tradeoff for time. There are many people who do not want to live an elitist lifestyle and would be happy to live somewhere other than where the elites live. What they don't want to endure is a quantitative and qualitative diminishing in their quality of life.
- heavenlyblue 5y ago
  How often is the train? Or is it one of these rare direct 35 minute trains?
- jvvw 5y ago
  Luton? I think some parts of London are more reachable from affordable places than others and that requirements do change when you have a family (more space and you may not need the best school but you don't want a terrible one). We live further up the Thameslink line and we get a lot of people moving here from London after having children, but it is a long commute.
  - Sanguinaire 5y ago
    I lived in Luton for a year and commuted in to London. Yes, it is certainly more affordable; but only because the NHS covers the cost of dealing with your stab wounds. For non-UK people: yes of course I'm joking, however Luton is the home of both a large immigrant population and the "English Defence League", the closest thing we have to the KKK.
imtringued 5y ago
>- Property prices have shot up 10% during the pandemic, bolstered in part by the Government cutting stamp duty on sales. Something that is hard to understand is how taxes influence the price of homes and land. People have a fixed budget. The rule of thumb is that they will spend at most 30% of their income on housing. Popular cities usually have an inrush of educated people getting high paying jobs. The existing residents see their % rise beyond 30% as a result but the rule of thumb still applies. When you have a fixed budget then adding more taxes won't lead to spending more, it means the government siphons money off the purchase of the home. That money cannot be used to purchase homes. When people talk about how taxes make housing expensive they are dead wrong. Taxation does not change your budget. When the government drops taxes on housing what happens is that a bigger chunk of the budget is being used for actually purchasing housing rather than paying taxes. This means house prices will rise and you will not be better or worse off than before. However, the rise in home prices fuels speculation. People buy houses expecting that they go up. The reduction in taxes created a gap and speculators simply insert themselves in that gap and take their profits. The problem isn't the speculation in itself but rather the expectation that housing will always go up. It's not only investors that want to make money. Homeowners see an opportunity to create a big gap by voting for restrictive zoning or making new construction a legal minefield. The real problems begin when even grandma and her dog are speculating.
- ItsMonkk 5y ago
  Exactly. If property taxes were raised to 100% annually of the cost of the home, the price of the house would instantly drop to somewhere near the annual rent cost. "Buying" the house would end up being close to a security deposit. It goes without saying though, that 100% annually is not a good number. It would disincentivize building, which is something we really need right now. The right number is a Land Value Tax such that the cost of the property equals the cost of the building. So if you have two properties, one in downtown SF, and one in the middle of Montana, and each are the exact same house, but the Montana house sells for $200k and the SF house sells for $1M, really it's the land in SF selling for $800k. So that SF market price should move to $200k. To do so we need to tax the property at increasing rates(per sqft of land) until they match. When we tax enough, the new price will reach its improvement value. In the short term this will have devastating effects on the Net Worth of individuals who took out loans or otherwise bet their income on owning a home, so I advocate for a one time tax break(that for exceptional cases like the elderly would be transferable for straight cash upon sale of the property) equivalent to the drop in market value of the home. So in the SF case, they would get a $800k tax credit. Once this system is in place being a NIMBY will no longer be a profitable stance, and will instead cost that area money in taxes. As it will no longer be a perverse incentive, the population will mostly switch to becoming YIMBY's, and advocate for better Zoning rules and to ease up on silly restrictions. The tax money can be spent on high value improvements to the area that will boost everyone's quality of life, and if none are found, can be simply given back equally to all. Once this system in place and the tax credits have been used up, we can even go further and get rid of income taxes, sales taxes, corporate taxes, and capital gains taxes. The value of the land tax will be enough to replace all of them. All from a tax that because land is at a fixed supply, is completely non-distortionary and results in no dead weight loss. Housing can either be an investment or affordable long-term, it can not be both.
yodelshady 5y ago
> Nobody in power is popping the property asset bubble in the UK any time soon. It's a sacred cow. It's a bad mad, especially considering how much the Tories have relied on there being homeowners. Their whole thing is that that group is the sensible middle, who work for a living, but also appreciate that suppliers of capital have limits. Odder still to not protect flat owners with cladding (I'm not one, FWIW). Higher-density housing is happening, and you've just told your next cohort of supporters to a) never invest in this asset class, we will render it worthless, b) never vote for us either, even as homeowners we won't support you.

zpeti 5y ago

Agreed. 20 years of lower and lower interest rates, meaning higher and higher mortgage amounts have driven up prices into oblivion. Either these prices are inflated away or there is a collapse. There's not much else you can, UK housing market is so far from market reality that it's a joke. And ironically the more you create policies like lower deposit amounts for younger people, or subsidised mortgage payments, the more you drive up house prices making these policies hurt the next generation of young people more. Perfect example of government intervention making things worse creating more government intervention etc etc

ZeroGravitas 5y ago
Depends on what you mean by "government intervention". The phrase is usually used to stop people fixing problems like this, which are the kind of collective action problem that only government action can solve. The government intervention you mention is actually just the voters with property using their vote to protect their wealth. And that worked exactly as intended.
imtringued 5y ago
>Agreed. 20 years of lower and lower interest rates, meaning higher and higher mortgage amounts have driven up prices into oblivion. The falling of interest is purely market driven. There is no government intervention there. Interest rates have been falling for a long time, far longer than 20 years and the reason is pretty simple. There are people out there who do not spend their money. The interest rate simply moderates between saving and investment. If saving is going up relative to investment then the interest rate must drop. https://news.ycombinator.com/item?id=28373304 https://news.ycombinator.com/item?id=28373304 You say higher and higher mortgage amounts have driven up prices but if you spend $360k what is wrong with getting a $360k house out of it in the end? What's so good about paying interest?
- nly 5y ago
  > The interest rate simply moderates between saving and investment. For businesses perhaps, but this doesn't happen much at the personal level. Most people will save in cash, rather than invest, even if interest rates are zero or negative. Most people are risk adverse. Source: https://www.ft.com/content/2bcd4367-ef4c-4d1d-a69d-df2126b0fb63 https://www.ft.com/content/2bcd4367-ef4c-4d1d-a69d-df2126b0f... > While the annual ISA tally showed high levels of saving, most of the money went into cash ISAs, which offer low rates of interest and could leave savers vulnerable to rising inflation. > Some 300,000 new subscriptions went to stocks and shares ISAs, compared with 1.2M new subscriptions for cash accounts. So that's only ~20% of savers investing in to stocks in the most tax efficient way possible in the UK, even when the Bank of England base rate is at 0.1%

nivenkos 5y ago

The answer is to control the housing market and stop it being used an investment against inflation. Force people to invest in industry against inflation - not rent-seeking in housing, or cryptocurrency pyramid schemes. Only allow resident citizens to own the one property they live in, and have the government handle rentals like the old council housing / Folkhemmet homes.

boldslogan 5y ago
I think the political will here is kind of weak...the voters who own housing dont want their asset to decrease in value and wont vote for politicians who want to force investment into industry, versus the renters who do. I am not sure what to suggest...
- nicoburns 5y ago
  Medium term I think this political will will change as fewer an fewer people Can afford housing
  - disgruntledphd2 5y ago
    Probably not in the UK, as the house-owning population are much older and tend to vote Conservative (the current governing party). Young people are already screwed, and unless they all show up to vote in marginal constituences (unlikely) then they'll continue to get screwed, unfortunately.
    - nicoburns 5y ago
      Right, but the age cohorts that are screwed are only going to get older over time (unless policy changes).
      - disgruntledphd2 5y ago
        That time is well beyond the average politicians event horizon, I suspect.

tclancy 5y ago

That sounds a lot like if we just do what we have been doing for the last couple hundred years it will all work out. But we have a couple hundred years of evidence of who it works out for and who it does not.

FredPret 5y ago
What are you talking about? Standards of living have increased the most at the bottom of society. - Labourers used to work seven days a week (12 hour days), then six, now five times eight is standard, with some exceptions. - Workplace safety have gone from a laughable concept to the first priority. - 100% of Western populations can read and write. This used to be a rich-person thing - How many poor kids have you seen lately with their faces covered in coal dust from the mines? - There are thousands of other examples. Poor people today live longer and better in many important ways than rich people even a hundred years ago, never mind a "couple hundred years."
- pyrale 5y ago
  > Standards of living have increased the most at the bottom of society. Ah yes, conflating 150 years of history like the 60's and the 2010's were comparable in a stable stream of progress. Remember even further, when we were forced to dress in animal furs and sleep in grottos? How amazing progress we made since then... I wonder why the serfs are complaining.
  - FredPret 5y ago
    Oh, I’m sorry that the eye-watering amount of progress isn’t good enough for you, because sometimes it’s faster than other times. Only if every single minute is better than the last by the exact same amount is capitalism working!
    - pyrale 5y ago
      Are you the fifth Yorkshireman ? Too bad you left the band before it became famous.

SquishyPanda23 5y ago

> The answer is no lockdowns Ah yes, the anti-vaxxer chiming in with the "let everyone die" approach to the economy.

dang 5y ago
This sort of comment will get you banned on HN, regardless of how wrong someone else is or you feel they are. If you'd please review https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html and stick to the rules when posting here (all of them—you must have broken at least half a dozen here), we'd appreciate it.
- SquishyPanda23 5y ago
  okay thanks

onlyrealcuzzo 5y ago

How can you be confident we will get there? Central Banks can easily knock interest rates down a few points and take away all gains in labor wages (plus more). Why would Central Bankers (who answers to no one) stop giving themselves (and other asset owners) more and more pie when it's so easy to take it? What's the incentive to stop? The West is on a 20-year trend to lower interest rates. Japan's on a 30-year trend. Have you stopped to consider how hard it is to maintain a life a leisure in a low-growth environment without slave labor? /s