I’ve just had an email from Yvette Cooper. My first thought was: “Bloody hell, after all these years!” Then I remembered that, since leaving college, I have become a washed-up nobody and she has become a member of the Cabinet with two houses—both of which I am paying for. Not that I’m bitter.
Coincidentally, property was the subject of her Labour Party bacn, entitled: “Because fairness isn’t just a word”. She and her colleagues in the government want to do something to revive the housing market, including helping frustrated first-time buyers in their efforts to buy a depreciating asset with money they don’t have—or “trying to get on the housing ladder” as Yvette puts it. This is going to involve their spending more of my money. You can read the details of the upcoming tinkering here.
After getting a First in PPE from Oxford, Yvette went on to go get a Master’s in Economics from Harvard the LSE. You’d have thought someone might have mentioned to her—or indeed that someone might have mentioned to someone in the government1—that speculative bubbles and Ponzi schemes are fairly easy to identify (especially in markets with a well-characterized history of them) and that a lot of trouble can be saved by intervening in them early on, in this case, for example, by enforcing the laws against fraud properly to prevent reckless lending.
Anyway, is any currently-renting member of the current Cabinet likely to take advantage of this generosity with other people’s money to add a central London one-bedder to his or her property portfolio now? Or have they finally spotted a pattern?
Can you guess what it is yet?- Oh yes, people have, repeatedly, for years. Didn’t listen though, did they? I wonder why. [↩]
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Not that it matters much, but I don’t think YC does have a degree from Harvard – she went there as a Kennedy Scholar, and they are normally non-degree students. (Also, Kennedy only funds one year, and it’d be hard, I think, to complete the requirements for the Economics Department’s master’s course in one year, especially if all you’d done beforehand is PPE.) Her postgraduate degree is an M.Sc from the LSE.
Thanks, Chris. Fixed now.
This is one of those issues where politicians and media fail the country. No-one seems to want to show the housing market as a whole, to show that booming prices mean people get shut out and that the only people who gain from high prices are people who get out of the market or downsize to Lincolnshire.
Blears was interviewed on Today and the whole topic was covered from the point of view of helping the housing market. George Osborne’s response seem to be couched in the language of the government not doing enough to keep the market up.
You voted for them Damian.
I think speculative bubbles are as easy to recognise in hindsight, but I don’t know how easy it is to recognise them in advance.
It seems obvious now that house prices were in a bubble, but it did to Barry Riley of the FT back in January 2000, Hamish McRae in August 1999, Alex Brumner in July 1999 and Diana Wright of The Times in July 1997. I don’t know about the last person but McRae and Riley (especially) are very well respected economic commentators. Later in 2000 and 2001 it was almost received wisdom.
Were they already in a bubble at the start of 2000? The average house was then £83k (according to the Halifax). Prices peaked at over £200k and remain at £174k. They would have to drop by about 60% from their peak to be below the 2000 level, or just under 50% if you take inflation into account.
[Similarly Greenspan’s “irrational exuberance” speech on equity markets came when the S&P500 was at 744.4, a level its never fallen below in nominal terms]
This difficulty means any potential government intervention could be badly timed (although I agree entirely about enforcing the rules that exist). There was some government intervention, I guess, in raising stamp duty rates. Maybe a more active use of that would have helped.
No one’s getting a let-off on this one. Plenty of people recognised it in “foresight”. Every single familiar financial and behavioural box was ticked, from novices buying on margin to old-hands buying on “momentum” to taxi drivers telling you about their buy-to-let empires to gross, broad-daylight fraud that vested interests chose to ignore because it was a “one-way bet”. I think Yvette Cooper was piddling around with the not-famously-successful Home Informating Packs around the same time that even the not-famously-hip-to-the-beat BBC was making documentaries about large-scale mortgage fraud.
It wasn’t just that there were multiple historical examples in exactly the same market to compare the situation in the Anglo-Saxon world with; there was a simultaneous example taking place, being studied, and being criticized in Japan.
Oh, those. At least with the dotcom bubble there was some room to argue that some kind of discontinuous technological change might have been taking place that “altered the rules forever”. There were no unprecedented demographic or constitutional shifts in the UK or the US or Ireland or Spain or New Zealand or Australia to justify the insanity in ther respective housing markets so people who should have known better just made shit up—and deeply unconvincing shit at that—because, y’know, the Invisible Hand is all-seeing and all-knowing, and, er, it’s the Wisdom of Crowds, innit?
Trust me that’s nothing. We’ve already had double-digit falls within one year—and that’s with low unemployment and low inflation. Nothing like that happened in the last crash, when the wider economy was a mess. What’s the score in Japan at the moment? About 70% down on the peak?—and that’s with relatively small single-figure annual falls since the early 90s. Check out that graph. Want to make a fifty quid bet with me that prices here won’t fall below 50% of the peak?
[I “corrected” the above comment from saying “Housing Information Packs” to “Home Information Packs”. I probably typed the “housing” because I can’t bear that kind of godawful abuse of the word “home”.]
I wonder if this guy’s been reading PooterGeek:
No one’s getting a let-off on this one.
The Economist was warning of a house price bubble, burst, and collapse back in 2003. They said it might not come soon, but come it will. They repeated this every six months, without budging.
The Economist was right all along that it was a bubble. Unfortunately for everyone, there were plenty of people who had a political interest in keeping it inflated for as long as possible; some of those people could have done something about it before things turned nasty, but they chose not to. The frightening thing is that even now they are still pretending that there never was a bubble in the first place.
I think you might have slightly misunderstood my point, which was not that”well respected” economic commentators were giving reasons to justify a house price bubble as some gave reaons to justify dot-com share valuations (although clearly there were many who did do this), but the opposite - that they were saying it was already a bubble in 2000 (and before). If it was a “bubble” in 2000 then that means house prices were already way too high then, and I do think government intervention then would have been misplaced (if by that we mean higher interest rates), not least because it would have real effects on the economy.
But other than that I don’t really disagree with your analysis and will not take you up on the bet.