The Solution To House Price Bubbles

Regulating house prices won't work - there's massive pressure as population both grows and demands more space.

But you're not talking about regulating house prices, it's actually lending you're talking about regulating. If you prevent people borrowing more than 4x salary, then this will have a fast knock-on effect on the housing market (unlike interest rates). It will damp it down in the short run, but in the long run, control house prices and bring some sanity into the market.

More importantly, stopping people from borrowing more than they can possibly afford to pay back is a no-brainer in my book. It's one of the things we need to do to prevent the likes of the credit crunch we're currently going through (lowering risky borrowing probably wouldn't have stopped the crunch we've had, but it would have helped, a lot)

Regulating house prices would actually be a sensible idea.
The first think would be to decide a value - say trough of 08/09 and say property cannot be sold below that for 10 years.
Second make the banks liable for any shortfall on selling a property, say 25% of the total mortgage for those in negative equity. ie Mort 200k, selling price 130k, bank liable for 50k homeowner only 20k.
They were egging on the market with builders bidding against the first time buyers (ie fraud)so I have no sympathy for them. Why should people be stuck in negative equity due to others dishonesty.
This would stabilise the market, give banks and ides how much they have lost, stop fire sales at less than 50% of previous worth.
Both schemes should run for 10 years to allow homeowners a chance to save up and sell there property.
Most of the posts only discuss the small falls in prices in SE England. Look around the country - many areas down near 50%. This is the sort of scheme we need, not this ridiculous give money to banks and they gave it away on bonuses we have currently.

Completely agree with Buggrthis about a land tax also see Simon Cahills detailed rationale re this in 'Who Owns Britain' the answers will surprise you. perhaps it is time that the mighty brains of 'love money' investigated this issue.

One of the biggest problems facing the UK today is too much regulation.

Bugrthus, suggests changing Council Tax to Land Tax and a number of changes to various income related taxes.

I would suggest that Councils should be forbidden from raising funds directly and all forms of tax and charges should be levied by the Government directly.

Councils should be allocated funds in specific central government accounts, 1 set of accounts per council, 1 account for each area such as schoolss, hospitals, police, Maintenance and Development. Such Funds should be means tested by calculating various factors such as the number of people, (children, Employed Adults, Unemployed Adults, Pensioners), The number and type of private and public buildings, the number and size of businesses, the number and length of types of road etc etc

Existing Taxes PAYE, Captial Gains, National Insurance, former Council Tax etc should be replaced with a new form of PAYE which is split into classes. Each Class of PAYE may be taxed at different levels and must be linked to a specific target. Targets may include EU Tax, Hospital, School, Inphrastructure (Police, Fire, Highways), Military, Waste and Recycling, National Pension etc etc.

Such classed PAYE may be set up with a minimum %, maximum %. tiered % or minimum/maximum £ for each class as well as a TAX free amount and a global minimum/maximum tax.

Tax should be aimed at those who can afford to pay for it - e.g.
00k-10k 0%
10k-20k 15%
20k-30k 25%
30k-40k 35%
50k-75k 45%
75k-100k 50%
100k+ 60%
Having a well defined tax policy and removing costs associated with properties to which some home owners cannot hope to pay should stabalised.

Owner entering into a contractual relationship with a Bank should be compelled by legislation to pay the mortgage directly from salary. Banks should be compelled to limit the amount of interest and charges that may be levied in selling such a product.

A typical fair limitation on charges might be for example a maximum of interest on a loan or mortgage of 1% of the total loaned at the start for every year of the life of the loan. A mortgage or loan of £100,000 would attract a maximum of £10,000 interest in a 10 year period, £20,000 in a 20 year period, £25,000 in a 25 year period. Interest would be added and payed of over the life of a mortgage. The minimum amount payed each month/year would be at least the interest plus an equivelent amount of the mortgage balance. In this example to pay of the mortgage in 25 years you would pay £1000 interest plus £4000 debt. for 20 years you would pay £1000 interest plus £5000, for 10 years you would pay £1000 interest plus £10,000.

The government might control the actual maximum rate for interest, however by making loans and mortgages more affordable and limiting the greed of banks, the Property market would boom irrespective of the value of property.

I would prefer to see legislation for businesses and other bodies completely changed.

While people have the freedom of democracy, businesses and the government are there to facilitate the development of society by providing people with a means to work for a reasonable salary. At present legislation provideds businesses the means to operate without much constraint and to operate for the exclusive benefit of the shareholders with little consideration for staff or consumers.

The law needs to be changed from the rule

"A Government or Business may do anything they want except as limited by the following laws"

To the rule

"A Government or Business may only to those things that are explicitly allowed by law. Any act not defined in law will be considered illegal until such time as the law is ammended to include the act. Such acts must be approved by referrendum"

This would end the culture of businesses operating on a cruel and ethically/morally dubious manner.

It would be very difficult for a Bank to come up with a new charges/fees or find a loophole or alter a product in a manner which would unfairly take advantage of a customer by charging more than a fair and reasonable amount of money for a service or to take advantage of employees by compelling staff to work unreasonably or perform ethically dubious duties or pay unreasonably large amounts of money for negligable work or dubious results. Such legislation might dictate the amount of money a business may redistribute over time to shareholders, staff at every level, and consumers or charitable and sponsorship outlets in order to provide a balance to everyone, and may also compel excessively profitable business to reduce costs to consumers or offer partial refunds in such circumstances where consumers might be considered to have overpaid if profitability is too high.

If the businesses at the core of our national and the global economies are so compelled to operate in an effective and reasonably competative yet ethically and morally acceptible manner than the economy will run like a finely tuned and well maintained engine, instead of a engine which is over revved be the likes of a boy racer and is prone to fits of stuttering when idling.

I don't think it is too much to ask that society is modified to allow those who are poverty stricken a chance to improve themselves while those who are glutenous and have bloated band balances and property portfolios should be compelled to pay more for their "success"

Your point about having money to spend on more important things in life is well made. You can actually do this by renting: In August we sold our house, as I relocated with work. We are currently renting a very nice 4 bed house with garden etc, which would cost well over £500k to buy. The rent works out at an equivalent mortgage of less than 3%. If house prices collapse I will not loose out.....

However, I am desperate to get back onto the housing ladder, all I can see is house prices going through the roof - Where I am, asking prices have gone up by at least 15% in the past 4 months. There is so little supply that all houses get snapped up instantly. Intellectually I know that prices should fall, my problem is that the market is not behaving rationally

In the early 70's you could only get a mortgage based on 2.5 times earnings or 2.25 times combined earnings, and the building society expected you to have saved your 10% deposit with them. You also got tax relief on your interest payments. None of this prevented a steady rise in property prices, but it did seem to prevent a property bubble. Having said that, didn't property prices triple in the early 80's when we went through a period where the average house increased in value faster than most people were actually earning money? You can't regulate this market, but sensible lending, just like the minimum deposits and standard repayment periods once associated with hire purchase, would limit the risk of speculative bubbles being caused by reckless lending.
We are all going to pay a heavy price in due course: inflation will eventually sort out the government finances at the expense of those on fixed incomes like pensioners.

Love the sentiment. This mental market continues to baffle. Couple of worries for fellow fools on the 4x salary limit:

1) Where do we put all the loonies who bought in the boom on questionable mortgages? (As much as I'd love to see them go bust, leaving such vast numbers trapped in over priced rabbit hutches doesn't do much for keeping the workforce mobile and, ultimately the economy, competitive.)

2) How does this discourage the buy-to-let (or buy-to-shaft as I like to call 'em) crowd? Those who bought pre-2003 have stacks of equity available to hoover up cheap property. Doesn't that just leave us with those who have it all and those who can only dream?

Instead lets learn to embrace this property owning paradise:

1) Add a statue on the fourth plinth of Messrs. Allsop and Beeny.

2) Ship all the first time buyers and non-property owners to Canada, damn whiners and moaners.

3) Fix education once and for all by abolishing sciences, trades and other pesky subjects then replace them with "Property development" courses for all.

4) Ban this pernicious lie that working for living makes sense; buying/selling houses is the way to run an economy. Who needs engineers, doctors and scientists when you can be an estate agent, conveyancer or landlord?

5) Enact a law that prices must grow by 10% per year. By my reckoning every man, woman and child will be millionaires by 2015. Poverty solved.

Other ideas welcome.

Those above suggesting a tax are right. Oversimplifying it, the government should stop charging tax on income or jobs altogether, and shift the whole of that burden onto land ownership.

I first came acros this idea in Fred Harrison's splendid book, published in 2005, titled "Boom Bust", but subtitled "House Prices, Banking, and the Depression of 2010".

Everyone is missing the obvious. We do not need further regulation. It only creates more cost and red tape.

As stated previously house prices rise due to a shortage. Why the shortage ?.

Uncontrolled immigration and high birth rates amongst a large proportion of them help compound the shortage.

The majority of British residents (black, white, green or otherwise) have lower birth rates.

Properly control immigration/ help people to return to their home countries if they want to / eject illegals and the problem will reduce.

These are not the rantings of a BNP facist. I'm just getting fed up with living in a place that is getting more & more overcrowded and the only answer being considered is to make it worse by building even more houses. Think of a Motorway - add an extra lane and it's guranteed to fill up again within a year or two.

High house prices caused by demand exceeding supply is a boom, but not a bubble.

High house prices caused by excessive borrowing is a bubble.

And high house prices caused by excessive borrowing which borrowers cannot afford is an unsustainable bubble, which is dangerous as we have seen.

Rather than rigid regulation, i.e., trying to micro manage banks and other lenders, a much simpler and more efficient way of limiting reckless lending would be to make it far, far harder for lenders to recover houses from defaulting borrowers.

Impose that as a general restriction and we might see a return to the days of lenders being more cautious and expecting their borrowers to borrow less and to have demonstrated an ability and willingness to save more before seeking a home. No need to ban nonsense like 100%+ mortgages or self-certification - these would disappear almost immediately.

However since reckless lending has led to a boom in house prices and thus a boom in an otherwise stagnant economy, no government (despite their fine words) is ever actually going to do anything so simple and practical, because all governments need to maintain the illusion of a booming economy both to generate tax income and to ensure re-election.

As an adiitional point: I regard it as completely unfair on tenants (even as a landlord myself) on that, although they are protected from instant eviction if they fail to pay their rent, they CAN be instantly evicted, even though they have been good tenants and have always paid their rent if their "borrow-to-let" landlord defaults on his mortgage. Not a lot of people realise this. It is WRONG and the law shoiuld be changed.

Ideally, the innocent tenants of "borrow-to-let" landlords should have even more protection than other tenants. That would discourage reckless lending to would-be landlords, which has been an additional cause of the unsustainable bubble in house prices.

One idea that is never suggested, because it will impact everyone, is to abolish Capital Gains Tax exemption on owner occupied homes.

Of course it would be wildly unpopular. No government would get elected on that mandate. But in a hypothetical country where it was enacted, house price inflation would stop, overnight.

Yes,

But restrictions on lending have to matched by a good social housing policy. Part of the drive to owner occupation is caused by the complete lack of social housing in the UK - I believe that there are around 2 million on waiting lists. Right to buy - a Thatcher pork barrel policy needs to go (as it has in Scotland).

Quote from the above article: "Property is vital to the health of UK PLC"

Absolute tosh!

The export of manufactured goods is vital to the health of the real economy of any country, the USA is still the world's largest manufacturer and it's recovery along with that of China, Germany, France etc will be lead by exports, not property.

It's time UK PLC got real and stop living on fantasy island or, as Cliff D'Arcy wrote in an article a couple of years ago: "Bullsh*t Britain"

REGULATE HOUSE PRICES? Don't make me laugh! I can hardly keep my shirt-buttons shooting off.
First of all, who should decide what is the right price, right now? Is there a better arbiter than the "market place" ? I might fall off my stool if somebody said our incompetant Govt. cabinet ministers or book-worm civil servants. History has always shown us that it is the "have-nots" majority who want the natural, day-to-day happenings dis-allowed or restricted, I think, out of sheer jealousy.
You know what your idea sounds like? Let's bring back communism where the "polite bureau" shall write a red-book with two sections; Thou shalt only do this & throu shalt not do that, or else...

I've had enough of this c**p ...........bye.

Regulation - it might help - but we really need to shift some paradigms!

Everyone knows the price of a house, but not its value.

The value of a house is what it does for you - how happy you are there, how it helps you with family friends and relatives, how it helps you with business etc. If you can't quantify your houses's worth either, we are merely speculators, hoping that we can sell these valueless properties to each other at ever increasing prices.

I suggest that we start with the Surveyors and Valuers: let's ask them to help us assess what properties are worth to us, rather than the price that other fools are prepared to pay for them.

I didn't realise truck drivers were so well informed and articulate.

Bob 1023 has hit just about every nail on the head. The not so simple truth is that banks wield massive power, far more than any government and nipping and tucking little bits of legislation will, in the real world, make diddly squat difference to the global and national financial issues we face today.

Reality check: the desire for wealth now drives most of the modern world (perhaps it always has)and those that have it 'aint about to lose it' - sorry.

Democracy is about (or should be) the maximisation of happiness for the most people possible. What we have is a situation where the wealthy and privileged become ever more wealthy on the backs of people who live in relative poverty, and even absolute poverty. Will this ever change? I doubt it, the rich will always make sure that they remain rich. Why wouldn't they? Why should they care about the suffering of others? It's that very suffering that made them rich in the first place, and continues to do so.

I can't believe this nonsense about supply and demand pushing up house prices. Go to any city in Britain, possibly with the exception of London and you will find vast sprawling housing estates full of Council houses and flats which are only 50 to 75% occupied. I think if you check empty home numbers in most parts of Britain against the number of homeless people you will find these people could easily be housed within the empty homes.

So it's not about supply and demand, it's about over concentration of Government and Business in one part of the country. This leads to excessive demand in a region while the rest of the country teeters along, with spare capacity.

The jam needs to be spread more evenly to prevent this over concentration of demand.

Houses prices have been driven by an increase in availability of cheep cash. Without the cheap money to borrow house prices cannot possibly be sustained at current levels. Therefore they will either fall or stay at current levels until earnings catch up. Anybody know how long this will take ?. I'm with the 3.5 to 4 times earnings brigade when it comes to house prices. This worked for many years with only a few minor hiccups. The ride is not as exhilirating but neither is the crash landing so terrifying. We have not seen the last of the financial troubles, there's still a long road of deleveraging ahead for UK.

I agree with the posters who are sceptical about controlling prices. but I think imposing a legal limit on loan to values and on loan to salary is not a bad thought. Crucially, these measures would require no regulation as such as they would be laws (which need policing not regulating).

In France lenders are just as legally responsible as borrowers for ensuring payments are affordable. In a recent legal case a borrower successfully sued his bank for lending him money which he was subsequently unable to pay back. Why not introduce a similar law here?

More government regulation is not the answer. We already have too much of it. Theres lots to be said for a free market.

Targeting bank lending has too many complications. And banks will only pass on increased costs and/or penalty to consumers.

How about impose a progressive tax on profit from real estate say, 50% of profit if property sold within 1 year of purchase, 40% in the 2nd year and 30% in the 3rd year etc ?

This directly reduces the incentive for quick profits, discourages a trading mentality or speculations, encourages stability and improves the government coffers. It is cheap and easy to administer. It is simple - no ambiguity or complications.

To encourage 1st time buyers, government can offer tax breaks on say, 1st house, or 1 house per life time. Or, to encourage family life, limit tax breaks to married couples only.

There are many ideas that can help shape the society we live in but the government (and the political parties) is too stupid and lack political courage to think of anything simple or effective. All they do is pile on more regulations at ever increasing costs to complicate our life which they have already made miserable.

Regulation only works if it is enforced. If a Regulation is broken it is the burdon of a Regulator through Courts to try - often unsuccessfully to force changes in practice and/or compensation. This rarely works and can take many years.

Legislation is required not Regulation. That way if a law is broken, the state is compelled to prosecute and properly punish the individual or business.

The bottom line is ethical and moral business practices. As long as a single indivudual or business is allow to operate without such constraint, the customers and sometimes the staff will be fleeced for as much money as possible.

Banks and other Financial Companies such as Insurance providers are some of the worst examples of this. If a law happens to prevent an action such as making PPI insurance optional or allowing use of an alternative provider of PPI on loans, then another method of extracting money will be sought. New Fees, or penalties will be generated to fullfill some mythical problem and/or existing policies, fees, and penalties will be modified.

Governments with TAX are little better, and technically impotent by wirtue of the fact that the Rich Financial institutions and I'm not talking about high street banks have the economy in a stranglehold.

How many Billions of Public money has been pumped into the Banking system and how much lending has taken place - even sensible lending. Very little. And when the recession ends and confidence improves, Bad Banking practices will resume!

Yes the Banking System has to change but the changes have to be made in Law and these changes have to be radical to prevent Banks from ever EVER, behaving this way again. You cannot say Bad Bank - You may not overcharge on PPI, and expect Bank not to come up with some other scheme instead,

After all you don't want them to make you destitue, just because they needed to maintain their multibillion profit line. their executive salaries, and to do this they forclose on you when you are struggling a little do you.

Or am I talking to the Bank Executives and Shareholders who will poo poo on the very notion of tying down banks with proper legislation.

Don't be Naive. WAKE UP. Regulations will not work, Laws have to be fair, ethical, moral and Absolute where businesses are concerned.

Should we not do to Banks what we did to Monarchies in Europe - Take away their Freedom and Power and suffer them to operate in a manner than is acceptible to societyin particular common people.

The easy solution is to tax btl this is the real cause of high prices. It would not only raise revenue but improve crime and the environment in which we live. I know I can hear the protest now but it really isn't fair to own more than one house in a country where there is a shortage. The housing boom does nothing to provide real jobs as it is not real economic growth. All that happens is ordinary people have their wages reduced when compared to compulsory costs eg heating and life for them (me) becomes miserable.

Yes, great idea, but isn't that what used to happen anyway, when RPI was used to measure inflation for the purposes of setting interest rates?

When Gorgon Brown was chancellor, and he realised that as Labour were 'New', he couldn't borrow money like there's no tomorrow, as 'Old Labour' used to, he decided to switch to using CPI, and not care one jot about controlling house prices. This way, he could create a housing valuation boom, knowing that the great British public would borrow money against the vastly inflated 'value' of their homes.

Gorgon likes to blame the Banks, but he knew what he was doing, and should shoulder the blame as much as them. The Labour government has once again lumbered this country with massive debt, the same as they always do.

@ juneandon
Fair points re the supply of housing and demand for it. However if controls are placed on the lending standards of the banks regarding mortgages then artificial price rises of the type that we have seen since the 80s will not be possible. Lending of up to 3.5 times salary with a deposit will control house price inflation which surely we all want to be more regular.

Very sensible. There should be a policy of stable house prices, with levers pulled to ensure that.

Every other item we purchase has gone down in price relatively speaking - except houses. The one thing we can't do without.

Stable house prices should include dealing with the economic externality in land. Fundamentally you can't make any more land and therefore holding it unproductively should incur a large levy on the owner. That would deal with land banking and free up more land for development by more people - keeping a control on prices. Or it would throw up a large pot of money for social housing projects.

We need to wean the UK off non-productive land investments and into investments in the productive economy. You should not be able to get rich exploiting the 'greater fool' theory in housing.

extend this low price property idea as it leads to a higher standard of living/quality of life,not least because most people might be able to buy somthing approaching desirable and decent to call home at an attainable price without being hocked to the eye balls for the rest of there lives.
This is in some part due to restrictive planning consent,
Solution:- compulsory purchase vast amounts of farm land in all counties from the farmers that have been the most inefficient IE had the most hand outs over the years for not producing,then auction it in mass lots with planning consent to developers with restrictive conditions in terms of the "higher standard of living"
It is a fact that the UK in the average has the smallest home size yet most expensive in the EU.

Why Dont the so called owners of the Bank and the bail outters of the Bank AKA the Government via the Public purse re-evaluate all thos negative equity mortgages thus easing the burden on the purse strings of those caught in negative equity yet willing to pay their mortgage and thus stuck in a stressful rut of being unable to sell and giving even more of their money to a banking system that clearly with the credit cards and loans interest rates are robbing us blind again.
Its a disgrace the way they keep getting away with it and people like myself a public sector worker keep having to pay more and more even the government is targeting us in terms of more national insurance and more to pension funds well 'enough is enough'.
The banks clearly still arent lending are crying about having no money when thousands are in negative equity and still paying their mortgages and the banks keep raking it in and paying their fat cats. Get rid of the fat cats get rid of the millions of management tiers make them more streamline decisions and action areas and stop wasting money. They should value people whom genuine are trying to pay things yet hit people on lower incomes fo higher interest rates and give rich people lower income rates this seems wrong to me!
Banks get your fingers out, Government and people wake up we own the banks and its about time they should do what they are told and listen to the populas the voices and not to their own rich life styles ferrari and boat engines and the silence on their luxury holiday tours homes and glass ivory towers with glass floor looking down laughing at the hard working honest people!!!!!