Assessing self-assessment

Vast amounts of information provided by UK taxpayers during the self-assessment process could be delivered much more efficiently to the taxman by the financial services industry.

At times my self-image is something like that of Mel Smith’s eponymous character in the late 1980s sitcom Colin’s Sandwich. There has been much cursing chez Joslin over the last few days as, inevitably – following a natural law normally applied to computer programs – my tax form remained, seemingly permanently, in a state of 90% completion.

Eventually my partner asked what all the fuss was about. I pronounced the whole process entirely futile. “Why”, I asked in despair, “don’t the banks just send the data direct to the Inland Revenue?” “Oh, that’s what they do in Estonia”, she replied. I’d previously attributed the lack of fuss around her tax returns in the Baltic state to the sort of innate female efficiency epitomised by Louisa Rix’s Jen, Colin’s girlfriend in the classic BBC sit-com. Or perhaps to a lack of complexity in her financial affairs. But it turns out that Estonian taxpayers only have to report changes in circumstances affecting tax allowances. The taxman already knows about their bank interest, share dividends and so on.

Here’s my advice. If you should ever happen to own some shares or investment funds, do not, on any account, make a profit. It’s simply not worth it. I now realise how stupid it was to sell investments during the last tax year. If I’d waited until the markets crashed late in 2008 I would have saved myself many hours of effort working out my capital gains tax (CGT).

If you share my views and start on a rant about CGT in the pub, then, at around this point, some smart alec will almost certainly whine: “Why don’t you get an accountant?” Because I’m not George Soros, that’s why. The cost would dwarf the amount of tax I have to pay. In fact, a win-win situation could be achieved if it was possible to simply negotiate with the taxman: “Look, I’ve done most of it but I think I owe around another £200; if you let me off having to work it out exactly, will you take £250?” But the main justification for tax DIY is that gathering the data is 99% of the work. All an accountant has to do is add up some numbers and type them into a form. Which you may as well do yourself. Once you have itemised all the interest, dividends and capital gains and losses, it should be childishly simple to enter them online.

Except that the Inland Revenue clearly did not employ a child to design their system. The obvious way to handle CGT would be to provide a spreadsheet where you could enter line after line of item, date bought, cost, date sold, proceeds of sale – and that’s about all you need. Then it would be a simple matter to calculate the tax. But no, they’ve implemented a full page form plus additional pop-up calculators for each entry. It’s almost beside the point that I couldn’t get the form to work, since you could only fill in a maximum of 10 sheets. More than 10 items and you had to do the calculation yourself.

So I started tidying up my own spreadsheet for sending to the taxman, before realising that simply calculating the tax for each transaction and then adding them all up won’t do. Oh no. The online tax form required separate sub-totals that it hadn’t occurred to me to derive. After all my fiddling in Excel, you might suppose that the Inland Revenue would want the ability to check the formulae used in my spreadsheet. Wrong again. It turns out that the Inland Revenue only accepts PDF files. Without access to the formulae used, do they have some high-tech way of validating your calculations? Hardly likely, is it?

And get this. The form asks if you want to pay any outstanding tax through your 2009-10 tax code. It turns out this is simply a mistake. You can’t. You’d think some junior programmer could have made an emergency change. For example, they could have replaced the text: “Do you want to pay through this year’s tax code?” with: “Don’t tick this box, it doesn’t do anything”, which might have been a little less confusing.

The galling thing is that I only incurred a CGT liability because of an unfair, retrospective tax change. I was virtually forced to sell assets to avoid higher tax liabilities in the future. My tax form nightmare was entirely the fault of Alistair Darling. With one stroke of his red pen the Chancellor did away with the decades-old principle of providing relief against inflation when calculating CGT.

Taper relief and indexation have been abolished from the start of the current tax year (2008-9) and replaced with a new flat CGT rate (18%). The unfairness of this change received very little publicity at the time because it was overshadowed by the furore over the removal of the 10% tax band. True, there was a protest over changes to the CGT rules for those selling businesses, and concessions were made. But the voice of private investors (pdf) who were seriously affected by the CGT change was barely heard. The change hugely increased the tax liability for assets held for many years, especially for lower-rate taxpayers. In a double-whammy, some will end up paying 18% tax on a large capital gain rather than 10% on a gain protected from inflation by taper relief and indexation. It would be difficult to devise a more prejudicial tax change – it has the effect of dramatically increasing the tax burden for some taxpayers based on the type of assets they have, not their wealth or income. Furthermore, your house is exempt, but, if you happen to have rented and invested some money instead, you could face a hefty tax bill. Is that fair?

What’s more, Darling only announced the CGT change after the start of the tax year prior to it coming into force. This meant that if, like me, you had disposed of some assets in April 2007 (fearful of possible stock-market falls later in the tax year), it was too late to remain under the CGT threshold when doing the logical thing and taking profits under the old rules on investments that you’d held for many years.

One reason given for abolishing CGT taper relief was to “simplify” the system. But since you need a complete record of your transactions anyway, and the calculations are carried out electronically, not in your head when drunk at a party, it simply doesn’t matter how tricky the arithmetic is.

If we really want to simplify the process, though, here’s my suggestion: implement a system exactly like that which apparently exists in Estonia. Simply instruct the banks, share nominee account providers and other custodians of individuals’ investments to upload a simple list of interest, dividends and capital gains to the Inland Revenue. Employ a few of the IT professionals currently being laid off in the City, and all the taxpayer would have to do would be to add anything that has not been captured automatically and sign the form. Implementing such a system would most likely pay for itself in reduced tax evasion.

It’s the Construction Industry, Stupid!

To help revive the UK economy, the Government should change the rules to encourage more house-building for the private market.

Back in the early 1980s, I occasionally asked members of hard left groups, such as the Militant Tendency, how they proposed to lift Britain out of recession. I recollect that, after the mantra: “Nationalise-the-top-two-hundred-companies!”, their prescription was massive investment in the construction industry. They had a point.

Some of the objectives of the raft of economic measures the Government has announced are absolutely correct. Broadly, their aim is to short-circuit the process of reduction in bank-lending (“deleveraging”) which would otherwise occur. Renewed bank lending will hopefully slow the disastrous cascade of bankruptcies leading to further bankruptcies, for example, amongst failed companies’ suppliers and customers.

The Government hopes that renewed lending will also stimulate new investment and consumption, thereby promoting economic recovery. But where will economic activity increase in the UK? Financial services is on its knees, the car industry is practically mothballed and, from retail to aerospace, most other industries are seeing reductions in demand, albeit less dramatic.

But there is huge unmet demand for housing. Waiting lists for social housing are at record levels. At the same time unemployment is heading towards 3 million. A naïve observer might suggest trying to tackle both problems at once. They’d be right.

So far the Government has attempted to address only the demand side of the housing market. Margaret Beckett is even, disgracefully, trying to scare first-time buyers into taking the plunge. But demand will only return when prices drop to a level justified by the new reality. Currently, sellers are marking house prices down by an average 2% a month. This rate may slow later in the year, but is so high it suggests prices are likely to fall for quite some time, until first-timers can buy for 3x salary, and enough of them have saved a hefty deposit.

Perhaps Beckett does not clearly understand that we have entered a period of consequences. The fact that house prices are falling rapidly now is a result of past mismanagement of the market. The Government is clear that we can’t return to the lax lending practices of the past. Quite right. It follows that the housing market will not return to its previous state.

Many commentators (and it seems Government ministers) appear to confuse the bubble phase of the housing market, when supply constraints inflated prices, with the current crash, when all that really now matters is affordability and hence demand. Observe how the oil price is behaving in a similar way to the UK housing market – the fact that we couldn’t get the stuff out of the ground quickly enough a year ago is suddenly entirely irrelevant.

The UK housing market differs from a number of others in that there was no oversupply during the bubble years. On the contrary, many first-time buyers were priced out of the market. It matters not a jot now whether there are 1000 properties on local estate agents’ books, or 10, if no‑one can afford to buy any of them. First-time buyers still can’t enter the market because, quite rightly, mortgages are harder to obtain and require a significant deposit. Unless the Government plans to encourage lenders to reinstate 100% mortgage deals, house prices will tend towards a new equilibrium level, at least in relation to average wages. The Housing Minister should be considering now how to change the rules of the game in order to incentivise developers to build houses for private sale in the lending conditions likely to prevail for the next 10 or 20 years.

Reading Margaret Beckett’s words: “If demand starts to turn up before supply turns up, you’re immediately back in inflationary pressures… when the upturn comes, there will probably be a mad rush”, it starts to dawn on me (to my horror) that the Government might be happy to see a lack of house-building for private sale. This is a mistake. Instead, the Government must do everything it can to promote house-building. In terms of the effect on the housing market, the pay for the jobs created would more than compensate for the increased supply of housing, since the full cost of construction has to be paid out when property is built (i.e. put into the economy now), but this money is borrowed (i.e. is only taken out of the economy in the future), first by the developer and later by the purchaser of the house.

So, encouraging a bit more house-building now would be a very good idea. The problem is that, not only is the housing market in freefall, the Brown Government has already splashed money about remarkably liberally. Rather than devise ways to help the banks raise fresh private capital by, for example, underwriting deeply discounted rights issues, the Chancellor has simply reached into the taxpayer’s pocket. The pound is now under pressure and concern about the fiscal deficit will make it more and more difficult for the Government to borrow. Consequently, the Government is not in a position to finance a massive social house-building programme, much as it would like to. But they could change the rules to reduce costs to developers, encouraging them to build more houses.

The reasons why there is so little house-building now are the same as during the bubble years. Then, the lack of supply inflated prices more than would have otherwise been the case, contributing to the mess the economy is now in. Now, more house-building would help the economy out of recession.

First, the local planning process is seriously dysfunctional. The Government should redouble its efforts to speed applications along. Unfortunately, there is stiff resistance to the necessary measures, and I also suspect the Government is in something of a bind, as one of their aims is to empower communities. The trouble is, when it comes to planning, “local democracy” is a contradiction in terms. Decisions are overly influenced by the concerns of anxious neighbours – often bordering on the ludicrous, for example, in terms of sensitivity to increased traffic – to the detriment of the general interest in adequate housing provision. At a minimum, the Government needs to constrain the planning process to restrict the grounds for objection. For example, objections on grounds of supposed traffic increases should only be admissible if a new through-road is being created.

Second, the level of house-building is much reduced by Section 106 agreements with Councils, whereby developers fund, not just supposedly necessary infrastructure improvements, but also the provision of new social and “affordable” housing. Section 106 taxes inevitably reduce the supply of housing because (as would be learnt in an Economics 101 class) restricting developers’ profits will, as sure as economic gloom follows euphoria, result in less investment in house-building. To try to increase social housing provision through such a measure as Section 106 is a colossal blunder, since, by reducing the overall supply of housing, more people end up on local authority lists because of the lack of supply to the private purchase and rental markets (and consequent high prices), than if Section 106 schemes to provide “affordable” homes didn’t exist! The Government should stimulate house-building by drastically restricting the ability of local authorities to, in effect, tax first-time buyers through Section 106 agreements, and permanently abandon the use of this method of funding “affordable” housing provision.

If the Government were to take these steps, house-builders would judge many more potential projects to be commercially viable than would otherwise be the case. For many developments, they would be able to reduce their costs sufficiently to be able to sell the property profitably when the housing market stabilises in a year or two. Developers would have an incentive to make use of the bank-lending the Government is encouraging and restart the house-building industry, providing a much-needed stimulus to the economy in general. The increased economic activity from a revival of the house-building industry would itself contribute to arresting the decline in house prices.

It’s Definitely the Short-Sellers

This is ridiculous.  Following yesterday’s post, there’s another front-page Guardian article about recent short-selling:

“Lansdowne Partners, which also profited from the fall in the share price of Northern Rock at the height of its problems, sold Barclays shares last Friday – when the bank lost almost a quarter of its value in frenzied trading – and bought them back again on Wednesday after they had fallen by almost £1.”

Lansdowne made a profit of £12m, according to the Guardian.  Well, trading in Barclays shares may have been frantic last Friday (somewhere around 150m changed hands, judging from Yahoo!’s graph), but a large part of it was due to Landowne’s activities.  If they made £12m profit they must have sold short somewhere between 12m and 24m shares (50p – £1 profit on each).  This tallies with the 8bn or so Barclays shares in circulation, and Lansdowne’s declared 0.25% position (today’s Guardian article confuses what this represents). 0.25% of 8bn is 1/400th of 8,000 million, i.e. 20 million, around 1/3 of the average daily volume of Barclays shared traded over the last 3 months, according to Yahoo!.

And there may have been other short-sellers, perhaps under the 0.25% reporting limit.  It’s odd that Lansdowne are just over it – maybe they didn’t intend to have to report the position but made a mistake.

Some of the rest of the 150 million shares will have been panicked investors (as opposed to speculators), including those with stop-loss facilities that will have kicked in as the share price fell.  This is a complete screw-up and a windfall to the speculators.   Short-selling of financial stocks should only have been reintroduced once stability had returned – probably in a year or two.

I find it absolutely incredible that the FSA is apparently insisting that the reintroduction of short-selling hasn’t pushed down UK bank share prices – resulting in jitters wiping tens of billions off share prices around the world.  Today the Guardian noted:

“While bank shares, particularly those of Barclays, Royal Bank of Scotland and the newly formed Lloyds Banking Group, have been savaged since the ban was lifted, the FSA insisted yesterday that short-sellers were not to blame.”

Quite.

****

On a slightly different note, there was – and it pains me to admit to such a thing – an inaccuracy in my previous post on this subject.  I said:

“Yes, Vince and I (as befits fellow SPS graduates) agree on one point: it was lunacy to lift the short-selling ban.”

Actually Vince Cable didn’t read SPS – he did Economics.  I know this because he was on Desert Island Discs [note to self – this link will go out of date, will need to update when Vince is archived!] this morning.  SPS didn’t even exist when Vince was at Cambridge, fully 20 years before me.  What we have in common is that we both started out doing Natural Sciences and switched completely.

Maybe we have less in common than I thought, as Vince’s music selection was – how can I put it – boring.  No No More Heroes, Ruby Tuesday or even Enola Gay, just classical stuff.

And, of course, Economics is just a tiny subset of Social & Political Sciences.  You need to understand the whole to really understand any of its parts, such as Economics.  But then, you need to study SPS to know this!  Whilst SPS is universal, the Economics Vince studied will eventually be but a footnote of our history explaining the quaint ideas of the fossil energy industrial period.  Perhaps our different studies explain why Cable is the champion of nationalisation and I see it as a huge blunder.  At least both Cable and I are members of that vanishing species, polymaths.

It’s the Short-Sellers – Do the Math

I just turned on the TV to find the Money Programme is appropriately and coincidentally discussing the VW bear squeeze when there quote “was a huge transfer of wealth from the hedge fund community to Porsche”!  Worth a look on iPlayer if you missed it.

What caught my eye today was, first, the Guardian’s front page story that Darling is unhappy (maybe he raised an eyebrow) that the ban on short-selling was reintroduced.  Watching UK bank share prices plummet since the ban was lifted on Friday, I’m hardly surprised.

But then I read Nils Pratley’s often excellent column.  He notes, en passant that:

“… there is very little evidence that short-selling has been taking place in significant volumes since prohibition was lifted last week.”

What??  I could have sworn that I read yesterday (Wednesday 21st) in the very same newspaper that positions had been declared.  After a bit of a rummage I found the Market forces column where, indeed:

“… the banks were again the dominant feature of the day [Tuesday], with Lloyds Banking Group losing 20.2p to 44.8p on worries that it could be nationalised. Barclays fell 15.1p to 72.9p, while Royal Bank of Scotland saw an early bounce peter out and closed down 1.3p to 10.3p. A couple of new short disclosures were issued, with Landsdowne Global edging its bearish position in Barclays up from 0.25% to 0.26% and Paulson declaring a 0.79% short in Lloyds.” [my emphasis]

0.79%!!!  I’m just an ignorant punter and maybe I’m missing something – and the only known unknown I can come up with is whether this was partly a pre-existing position dating from before the short-selling ban – but 0.79% is a huge number of shares to sell, and would definitely move the price dramatically.

Why do I say this?  Well, if I look up Lloyds on Yahoo! Finance, I see that the share price right now is 49.10p and the market cap is £8.03bn.  That is there are approximately 16bn – that’s b for billion – shares in circulation.  Good old Yahoo! (whose figures I assume have some kind of reliability), also tells me that daily average volume of Lloyds shares traded over the last 3 months has been just under 40,000,000 (several times more over the last few days – but then that’s the problem).  40m/16bn is 40/16,000, or 1/400, that is, around 0.25%.

So, over 3 trading days (Friday 16th, Monday 19th and Tuesday 20th) Paulson (whoever that is) alone has built up a short position equivalent to around 3 average days normal trading!  OK, the Government made an announcement on Monday which was bound to increase volumes, but even so, selling 0.79% of the shares would be more than sufficient to disturb the supply-demand equilibrium that normally exists in the market.

We’re supposed to believe that holders of the shares have sold out for various reasons (and they must have reasons, since it’s normal when the price of something falls for fewer people to sell it and more to buy) – somehow they suddenly believe that the UK banks are about to be nationalised, or they are worried about Monday’s announcement, or they are freaked by confusing and contradictory statements by ministers and officials (what’s new?), or by Gordon Brown’s “angry at RBS” grandstanding for the electorate – but what has to be borne in mind is that all these justifications are post facto rationalisations (does Taleb emphasise this point?).  Even random movements in share prices have to be somehow justified by financial reporters. The media has to contruct a narrative, random pieces of information are simply not digestible.

What are the facts?  Well, I saw much of the announcement by Brown and Darling on Monday.  It was technical and detailed but if anything supportive of bank share prices, and certainly made nationalisation less likely, nor more, in that it announced a number of measures short of full state control.  OK, it was a bit of a surprise, and there are some uncertainties, but nothing to provoke many different shareholders to suddenly take a loss.

And do you suppose fund managers, say, carefully manage their portfolios for years just to dump bucket-loads of shares at a massive loss at the first sign of trouble?  (Lloyds shares were trading for over £1 as recently as last Friday – the first bank share price to suffer was Barclays which fell by 25% that afternoon).  No, of course not.  Most investors would wait for more definite information – if the price did plummet it would be in thin trading.

So I’m arguing that the sellers were not primarily holders of the shares, but speculators.  Why would they be selling short?  Well, lot’s of reasons:

• They may really believe the banks are going to be nationalised, and are putting their highly-leveraged money where their mouth is.   Now we already have a problem – you need to employ a lot less capital to short shares than to hold them.  A short-seller can easily outgun a good honest shareholder with similar financial resources.  Even another speculator using options or CFDs to gain similar leverage would be unable to directly move the share price.

• They may be hoping to draw in other short-sellers in order to make a Ponzi-type profit (when those last into the market take the loss).

• They may be hoping that share-price  falls will self-fulfil an irreversible event, such as nationalisation or dilution due to a forced fund-raising at low prices (or ejection from the ERM in the case of the currency markets!).  This is where I get really uneasy about short-selling.  Because if the aim is to force an event, the decision about when to unwind the position doesn’t come into it.  This introduces an asymmetry (apart from the leverage) as longs have to decide both when to buy and when to sell (in the case of the UK banks that would have been a couple of years ago).  Force the price to zero and you don’t have this problem.  Under certain circumstances deep enough pockets, or the ability to attract other speculators give the short-seller an advantage.

This is where media management comes into it, and the whole business starts to get a little whiffy.  For example, someone called Jim Rogers has been talking down the UK in general and sterling in particular.  Why now?  Presumably this guy’s fund is short sterling, but shouldn’t his every utterance be qualified?  Doesn’t he have inside knowledge of market positions?  I’m very uncomfortable about this sort of thing.  It did prompt another idea though: it occurred to me that shorting the banks and forcing their share prices down may be a cheap (and even profitable) way of exploiting a short position in sterling, since if the banks were nationalised thsi would be very bad, perhaps even Icelandily disastrous, for the currency.

Of course, the best media management draws in others who have the same point of view for different reasons, in this case, John McFall, who somehow finds himself an off-message head of the Commons Treasury Select Committee in these momentous times.

And there may be more subtle media manipulation going on.  I mean, if the Russians and Georgians, Israelis and Palestinians are at it, why shouldn’t managers of multi-billion dollar funds get in on the act?  It’s not as if they can’t afford it and it’s not as if there isn’t plenty of expertise out there for sale, unlike Kaka, to the highest bidder.  Why, for example, do we suddenly find out, today of all days, about an unhelpful clause in Barclays agreement with its Middle East investors?

I’m very pleased to have achieved a negative rating when commenting on few days ago on a column by Vince Cable in the Mail.  I’m currently at -4!  Great!  But I stand by all the statements I made, especially the one point on which I agreed with the man who will share a large portion of the blame (not least for egging the Government on to set the unfortunate Northern Rock nationalisation precedent) for the car-crash the UK economy will become if all the banks are nationalised, or even one of what are very large organisations indeed.  Yes, Vince and I (as befits fellow SPS graduates) agree on one point: it was lunacy to lift the short-selling ban.

Personally I can’t see how the UK can nationalise the banks, the short-sellers seem to have made further equity fund-raising impossible, so other than giving the Government some more prefs (with a less punitive coupon than before – why give overseas banks an advantage, they cause even more problems?), the authorities will just have to muddle through, burying the biggest black holes in the banks’ balance-sheets, in time-honoured fashion.

(G)Aga

I’m sure that, like me, you woke on Tuesday, turned on BBC Radio 4, and heard the sensational news broadcast between 07:43 and 07:46 on the Today programme (please podify the paper review segment, Mr BBC!).  Yes,  George Monbiot had used his Tuesday Guardian column to start a campaign against the Aga!  The crusade was even flagged on the paper’s front page.

Actually, the Aga is only mentioned in passing in George’s column, mainly to make a rhetorical point, it seems.  The article is a bit of a ramble about class and green politics, and is more about flying than heating/cooking.  Perhaps it was the Guardian’s editor who decided to emphasise the Aga point.  Nevertheless, George claimed that:

“A large Aga running on coal turns out nine tonnes of carbon dioxide per year: five and a half times the total CO2 production of the average UK home…  So where is the campaign against  Agas?”

What made George’s article stick in my mind was that I happened to notice a couple of hours later on Yahoo! Finance that Aga’s shares were one of the day’s biggest fallers at that point.  Wow!, I thought, Monbiot is verily the Heineken of eco-babblers: he reaches parts other green commentators simply cannot get near.

But then I read in Wednesday’s Guardian that Aga had – coincidentally, or is George monitoring the company’s financial calendar?, is he a share-holder?, or maybe a short-seller? – announced poor results on Tuesday morning. The Guardian’s report (the online version, which apparently appeared first, has been edited in several places to produce the Wednesday print version) – supplemented by an amusing cartoon – drew heavily on George’s piece.  Graeme Wearden wrote:

“In a column in today’s Guardian, he [Monbiot] declared the start of a campaign against the Aga. ‘A large Aga running on coal turns out nine tonnes of carbon dioxide per year: five and a half times the total CO₂ production of the average UK home,’ he [Monbiot] wrote. ‘To match that, the patio heater would have to burn for nine months.’ “

The numbers didn’t stick in my head, but I was mulling over whether an Aga is really an inefficient way to heat a home.

First off, I reasoned that if the Aga runs on oil or coal (apparently these beasts can run on practically any form of energy – I’ve just put myself on the waiting list for the nuclear-powered model) then it could be more efficient than some other forms of heating.  Virtually all the heat would be captured, which would not be the case for electricity generated in coal- or oil-fuelled power stations, which would suffer from energy losses, first, because not all the fossil-fuel energy would be converted to electricity (waste heat is lost at the power station, but useful at the Aga) and, second, during electricity transmission.

On the other hand, I understand we have to move away entirely from fossil fuels.  George mentions that Agas can run on electricity as well.  Great!  This can be generated renewably.

Would Agas be less efficient than any other form of electric heating?  No, of course not, since in both cases all the electrical energy converted goes into heat – normally when considering efficiency you worry about waste heat, but this doesn’t apply when heat is what you want!  OK, heat pumps would of course be more efficient as they use energy to extract heat from the environment, but we’re comparing the heating habits of different social classes in the UK today, and hardly at the moment anyone has a heat-pump.

With any conventional form of space heating the energy required doesn’t depend on the muscle of the heating system.  What it depends on is the rate at which energy is lost from the building.  Assuming the system has some kind of thermostat, and doesn’t stay on until the occupants of the house have died of heat exhaustion and turned to dust, what is important is the insulation of the property.  We only have to worry about the heat losses.  These might, of course, be higher than otherwise if heat escapes up a chimney, if the thermostat is turned up or if a heater is left on 24/7, as Agas tend to be.  But Agas cannot possibly be in themselves any less efficient than other heaters using the same energy inputs.

Sure enough, today’s Guardian bashfully includes a correction:

“A Comment article said that a large Aga running on coal turned out nine tonnes of carbon dioxide per year: five and a half times the total CO2 production of the average UK home. It is 35% more than the total produced by the average home (This is indeed a class war, and the campaign against the Aga starts here, 13 January, page 27).”

The text of the online version of Monbiot’s column has been amended, so no longer makes sense (in this case it might have been better to asterisk the text and put the error in a footnote).

We still have what appears to be a misleading statistic.  A “large Aga running on coal” is likely to be in a big, detached house.  It’s not that surprising such a heater/cooker produces 35% more CO2 than the average home, which must include much smaller properties, some of whose occupants perhaps can’t afford to keep themselves as warm as they’d like.   

George asks why there is a campaign against patio heaters and not Agas.  The point, of course, is that patio heaters heat the outside, which is a bad idea.

Bit of a bad day at the office for Monbiot, but what bothers me most about the issue is that, according to the Guardian:

“Aga said it had seen a shift of interest away from oil-powered cookers into wood-fuelled models over the last year, a time when the oil price soared to its record high of over $147 a barrel.”

Using wood, of course, is even worse than using oil, coal or fossil-fuel electricity.  The arguments against the supposed sustainability of biofuels apply to a biomass energy source like wood.

It turns out that the UK is already importing wood for stoves.  According to the SocietyGuardian Environment article:

“Britain grows up to 1m tonnes of domestic firewood per year, according to the Forestry Commission, but we also import up to 180,000 tonnes of wood and wood products. The 25% to 30% increase in demand for logs year-on-year is proving hard to satisfy, says Vince Thurkettle, a forestry and woodland consultant.”

Nevertheless, Thurkettle is optimistic:

” ‘The dramatic upturn in demand for firewood is fantastic news in many senses because, in theory, we have so much of this resource that it is hard to see it ever running out,’ Thurkettle says.”

The numbers must stack up then, mustn’t they?

“Convinced that the new love affair with wood is a long-term phenomenon rather than a temporary dalliance, the government’s current woodfuel strategy for England aims to bring another 2m green tonnes of wood to the market by 2020 – enough to heat around 250,000 homes.  …this represents less than 50% of the potential unharvested firewood already available in privately owned English woodlands.”

Adding the 2m tonnes to the 1m we already have and that’s 375,000 homes that could be heated by wood in Agas or otherwise.

Let’s be generous and double the amount of firewood we can produce.  That would get us to 750,000 homes.  Wow! , that’s a lot.

Trouble is, there are something like 20 million, that’s 20,000,000 homes in the country.  750,000 is less than 4% of 20 million.

So we’re already shipping logs in from eastern Europe, where, unlike the UK, there are still some decent forests.  Not for long, I fear.

Maybe George could let us know what he thinks about forests here and abroad being turned into ecologically barren tree-farms on behalf of the UK middle classes…

Renting References

Following on from my last post, there’s a great piece by Renter Girl in today’s Guradian Society section.  It’s not on her blog yet, but I guess may appear there soon.  Her point is that landlords as well as tenants should have to provide references.  As a comment on the Guardian piece puts it:

“…the laws governing private lettings need to be rebalanced.  Tenants rights have been minimal since assured shorthold tenancies became the norm (due to legal changes made in its death-throes by the Major “government”).

…the most important references would be from previous tenants, preferably at the same property or, for a new let, at another of a landlord’s properties.  New landlords should have to provide character references, but I expect even a no-mates weirdo king would be able to find a bloke in the pub to write something nice about them.

Any financial problems a landlord may have should not be allowed to affect tenancies, but – since it’s likely that a landlord’s credit score will only go negative when his BTL empire collapses – rather than provide tenants with credit references, I think it would be better to improve security of tenure, which should be maintained (as, to be fair, is the current insecurity of tenure) even if a property is sold.  Or repossessed.”

Another idea I haven’t mentioned yet was that the managing agent (see my response to Renter Girl’s point 2 in my previous post) should be responsible for maintaining files on properties to be shown to prospective tenants – a bit like Home Information Packs (HIPs) for house purchasers, I suppose.  As well as, for example, the newly introduced Energy Performance Certificates, such a file would include correspondence relating to the property, and in particular letters and emails from previous tenants and any replies.  Landlords would then have a greater incentive to deal with the cause of complaints.

Perhaps Brown’s government is too busy saving the world to do a bit of heavy-lifting – providing sensible legislation for the private rental market would improve the lives of millions of tenants.

If I Ruled the UK

They say you should read the sort of thing you write.  So I thought I’d have a look round some blogs this lunchtime.  I didn’t get any further than Renter Girl, who occasionally appears in print in the Guardian.  In a post, If I Ruled the World, she considers what could be done to improve the private rental market for tenants.  This happens to be an issue I’ve been thinking about for quite some time.  It absolutely amazes me that people aren’t in the streets about this, and that the Labour Government has done absolutely nothing for tenants.  I’m not quite as ambitious as RG, so if I ruled the UK this is what I’d do, in response to some of her points:

“1 Landlords are obliged to submit to the same credit checks and investigations as their tenants. They should also provide references from former tenants, testifying to their suitability, efficiency and professionalism.”

Absolutely spot on.  This got my attention.  The second part is most important.  At present you have no way of knowing what the problems with a property or a landlord are.

I’d go further.  Credit checks on tenants need to be reasonable (and probably specified by law, given the sort of people the property market seems to attract).  I had one agent (and those involved in the Cambridge rental market will know who they are) who, after I’d spent days looking at dross and eventually found somewhere I was happy to live, demanded (on behalf of the landlord, ha, ha) 6 months rent in advance – free credit in other words.  I’d just sold a flat to do a business degree FFS.  I haggled it down to 3, when they happened to mention the fee to renew the contract after 6 months.  I was out the door, all that flat-hunting time totally wasted.

There is a public interest in seeing people housed (since at the end of the day the state has to deal with the problem), so tenants shouldn’t have to do a lot beyond putting up a deposit and a month’s rent in advance and avoiding getting themselves on a non-payers blacklist (to be established for the purpose).  After all, if they can’t pay the rent they soon won’t have a home and will be being hunted by credit collection agencies.

“2 For tenancy deposit protection to apply to landlords, who will pay an amount equal to that paid by their tenant into an account, withheld if they are naughty.”

Makes sense, but who decides they are naughty?  I’d go further.

First, withholding a deposit should be treated as theft, which it is.  The new arrangements for a third-party holding deposits should make this problem a thing of the past, though.   I have to say it’s rather pathetic that all the Labour government has been able to do for tenants is provide some protection against landlords stealing significant sums of their money.

The fundamental problem, though, is that everyone involved is working for the landlord.  In the event of a dispute the agent nearly always sides with the landlord.

Legislation needs to specify the principle that the managing agent is responsible for the property, in a similar way perhaps as a Board is required to take decisions in the best interests of a company (which is a legal entity in itself), not themselves or the employees.

To make this work, there needs to be an appeal procedure for the tenant to complain about and/or switch managing agent (who, obviously, doesn’t have to be the same as the letting agent).

Accordingly, a portion of the rent – say the 10% notionally for maintenance on which I understand landlords get tax relief – should be paid into a fund (like the “sinking fund” some freeholders maintain for leaseholders) and used to make repairs/improvements to the property.  Either landlord or tenant could propose such improvements, with the managing agent having the casting vote in the event of a dispute over priorities etc.  I’ve lost count of the number of “improvements” I’ve asked for and not got: that old chestnut, secure postal delivery; better thermal insulation (guess who pays the heating bills?); security improvements and any number of odd jobs I’ve done myself – such as replacing the 50p plastic loo seat that’s always put in new conversions when it broke.  To be fair, my landlord has fixed a number of problems, too, but these tend to be the ones that don’t cost a lot.

“4 For landlords to pay the council tax. They paid the old style rates. Why was it changed?”

I expect they’d just put the rent up to compensate.  However, as a temporary resident in Cambridge, I am disenfranchised – the Residents’ Associations aren’t begging me to join, and the Council doesn’t seem to take me that seriously, other than as a source of revenue – so get less value from my Council Tax than permanent residents.  For example, the Council allowed the rental property to be created, but provided no (legal) parking space (so, only using a car occasionally, I ended up with 2 tickets before I realised I had to park in another street where the Residents’ Association had succeeded in providing amply for themselves) – and when I complained that my street is all metered and the local residents’ permits don’t work, the Council listened, to be fair, but didn’t take my problem seriously (the money from meters on my street is needed, apparently, to subsidise park and ride buses, so that people who live outside Cambridge can come into town cheaply – um, why is this my problem? – and why are we allowing some people to drive into town and park in order to discourage others to do so? But I digress – that £60 fine really gave me the hump!).

I’d also argue that private tenants get less value per £ of tax collected from council services than owner-occupiers of property.  I don’t drive often (except using the occasional Streetcar – the point of renting is to be live where I want to be); don’t have kids that need educating; and don’t even trouble the police (though when I’ve run into them in the street I have asked them once or twice to try to stop people cycling flat out on the pavements – without lights).  Maybe there should be a special (lower) Council Tax rate for private tenants.

I think, though, the answer is to reform the Council Tax, which is truly awful.  It should be much more progressive (i.e. the rates for small rented properties should be negligible and the rates for 5 bedroom detacheds much higher, in order to be fairer, and, among other things, encourage people to trade-down when the kids have flown the nest), of course, but the main way to achieve fairness is to make it far less significant.  Councils (like in the US) should have other local sources of revenue: a local incomes tax; local sales tax; congestion charges; hotel room occupancy taxes (a brilliant tax, as most of these people don’t get a vote! – if I have to pay it in New York, why shouldn’t tourists pay it when they come here?, after all they use our roads, leave rubbish, report their stolen cameras to the police…), and so on.

“5 It is presumed that tenants are able to stay for as long as they pay rent, and that two months notice must be given. However, tenants can give one months notice. Oh, stop whining and snivelling, landlords!”

Yes, wipe you’re snotty faces, as Putin would say!

It’s absolutely outrageous that tenants no longer have any security of tenure.  This should be restored immediately.  The Assured Shorthold Tenancy should automatically roll over after 6 months to a contract with one month tenant notice, 2 months (or more) for the landlord, but the landlord should only be able to evict a tenant:

• if they’ve caused a nuisance, and the tenant must have a right of appeal.  This would be a return to the status quo ante, i.e. the situation before the Major Gov’t brought in the present arrangements which it has to be said, have successfully promoted a private rental market, arguably too successfully, in that there’s a lot of evidence that first-time buyers have been priced out over the last few years; or

• to take vacant possession (the major Major innovation that led to the growth of the BTL market), in which case the tenant should be compensated for the inconvenience.

“Renegotiation” of the contract (and the associated fees that are often levied) every 6 months (or year) should be OUT.  People don’t organise their lives in 6 month chunks.  I know someone who bought a property just after renewing an Assured Shorthold (um, so she’d have somewhere to live, of course), and was then told she was liable for the rent if the landlord couldn’t find another tenant (not very likely in Cambridge, fortunately).   This is just ridiculous.  It’s reasonable for the landlord to expect you to stay for the first 6 months, but after that you have to be able to choose when you leave.

2 months is far too little notice to have your life disrupted – I gather it’s 6 in France.  And the tenant should be allowed to move as soon as they find somewhere else within the landlord’s notice period, and compensated for the costs incurred (i.e. a couple of months’ rent waived).

But vacant possession must mean that.  It shouldn’t mean a landlord can simply get rid of a tenant they don’t like or to try to find a higher-paying tenant.  Of course, the landlord might try to abuse this and lie about the reason for eviction.  My suggestion is that if a landlord takes vacant possession, without a valid reason, then as well as paying compensation to the evicted tenant, they should be barred from letting the property again for 6 months. This should put them off.

“6 For tenants to be allowed, within reason *, decoration rights. It used to be the case that on taking up a tenancy, new residents would be granted one weeks rent free to cover the cost of paint (more on production of reasonable receipts.) No more magnolia, no more greige. Hooray!
* Fuchsia gloss on the walls is not reasonable.”

Like insecurity of tenure, this is another obstacle to renting long-term.  It’s not necessary, as evidenced elsewhere e.g. France, where (I saw on TV), the first thing new tenants do is decorate.

I would have thought it was in the interest of landlords as well as tenants for long-term renting to become a viable option in the UK like it is in practically every other country in the Western world.

It’s also in the national interest to sort out the private rental market as the social housing arrangements can’t cope (and too much social housing is bad for the economy in various ways), as more and more priced-out young people will emigrate to Australia.  Fewer and fewer have been able to buy as house prices have risen over the noughties, and since the start of the credit crisis property is now even less affordable (don’t confuse price with affordability), largely because high LTV mortgages have vanished and first-timers now have to raise hefty deposits, not to mention the unemployment risk factor.  Social housing schemes can’t keep up.

“7 For there to be an effective fair rent forum, with tenants encouraged to use it. Landlords are legally prevented from giving notice if the rent is deemed too high, and legally and physically restrained from bleating about it.”

Another key issue.  Landlords must be prevented from hiking the rent once a tenant has spent a fortune moving into a property, or (see point 5) in order to get someone out.

My suggestion is that rent increases are linked to an index of the rents achieved locally by new rentals of comparable property (well, those council bureaucrats need something to do!).  The new rentals are where you find out what the market thinks property (or anything else) is really worth. This way, landlords won’t be able to complain that they are losing out because of a sitting tenant.

“8 For all landlords to nominate a caretaker and contractors on duty 24/7. Overseas owners must have a local representative. These representatives or caretakers must respond to urgent repairs within one day, or less in cases of water or gas leaks and the potential explosions, obviously.”

Yeap.  In my experience most landlords use professional managing agents and they should be required to have one (who should be registered, i.e. liable to be struck off if they don’t do their job, by the way).  As now, managing agents provide different levels of service.  The minimum should be the arbitration and deposit and sinking fund holding role (see point 2) plus 24 hour cover for the landlord.  The drama round here this week was a neighbour getting locked out.  The landlord had apparently given all the spare keys to the agent who only works 9-5!

“10 In the event of forfeiture in the above instance, or bankruptcy, or sale, for it to be presumed that the tenant is a ‘sitting’ tenant, and for notice only to be given to them, well never.”

Of course, but see point 5.  This all needs to be debated, but I’m taking the line that a private rental market is a good thing.  And there was probably some merit in the argument that landlords need to be able to take possession.  But the over-riding principle has to be to allow them to do so without pushing costs onto tenants and whilst minimising the disruption caused to evictees.

“11 Landlords who do not control their tenant’s anti-social or illegal behaviour will be entertained at length in their own home by a crack team of Ethel Merman impersonators who shall perform an avant-garde opera based on the life and works of Celine Dion. Loudly.”

Yeap.  Someone asked me to look at a tenancy agreement recently.  There were all kinds of clauses about not causing a nuisance e.g. by making a lot of noise.  I said to just sign it, and that the problem would be not that the landlord enforced these terms (some of which were on the Alice in Wonderland side of the realistic), but that they didn’t (for other people).  How right I was.

As I said, it’s amazing that Labour has done nothing about the private rental market.  I find it absolutely incredible that social housing tenants have rights that I can only dream about.  Why should my rights depend on the sort of organisation my landlord happens to be?  You’d think there’d be some kind of European law against such unequal treatment of citizens.

On Deflation and Quantitative Easing

The latest panic move by the UK authorities may well be to “print money”, much to the outrage of the Middle England tabs.  I’ve spent a good part of the last 24 hours trying to understand exactly what’s going on.  So here’s my take.

The government doesn’t want to just let events run their course, because what they’re worried about is the election… oh, sorry, I mean “deflation”, or falling prices.  Now, people like me, a heavy consumer of home electronics, have come to know and love the deflation phenomenon of consistent falls in the price of, for example, computing power and portability.  Not a problem.  Far from it.

The trouble is, deflation in other parts of the economy causes some quite nasty problems.  Property (domestic or commercial) is perhaps the main worry.  When property is worth less than the loan taken out to purchase it (negative equity), the owner is effectively trapped, as the value of the debt in effect increases.  Economic activity slows, as, even if insolvency or its consequences (bankruptcy etc) is avoided, it becomes more difficult to take advantage of new investment or spending opportunities, e.g. you can’t trade up from the starter home to the semi.  Prices continue to fall.

Then there is the process of falling prices.  It might not be so bad if the whole thing happened overnight.  Rents, in particular, are slow to fall – especially if the landlord has a debt to worry about! And it’s difficult for wages to fall generally – employees have debts and rent to worry about (since rent and mortgage payments may not fall proportionately, any salary reductions that are forced through will disproportionately affect discretionary spending, causing prices to fall further).  Instead, companies are likely to cut costs by laying workers off, again causing prices to fall further.

On the other hand there may be investment opportunities for those without a (growing) debt burden, especially as rates for new lending would be near zero – though another problem is that they can’t go negative.  New entrants in (say) retail or the housing market are suddenly at a distinct advantage compared to incumbents – the trouble is there are unlikely to be enough of them, and they are likely to hold off while prices are still falling.

This is a scenario the government (and economists) are especially keen to avoid.

The idea of “quantitative easing”, as I understand it, is to (in effect) print money. The idea is that, by issuing more cash, the value of money tends to fall, so prices tend to rise, counteracting the dreaded deflation.

Now, I’m a little worried by the way the process is explained by some of our leaders – Saint Vince Cable, for example.  Vince describes it this way:

“What happens is that the government borrows from the Bank of England, not from the markets.”

Fine, we’ve increased the national debt.  We have obtained some cash for public spending (or other uses such as tax rebates or reductions – some economists even think the government should just write cheques to everyone), but haven’t soaked up exactly the same amount of private cash to purchase the bonds.

But Vince says in the next sentence that we’ve managed to borrow without incurring a debt:

“It expands the money supply to keep the economy going and also to counter deflation without simultaneously increasing government debt.”  [my stress].

I wonder why the Japanese didn’t think of that?

Even more worrying, there may be some complacency about the cost of this cunning scheme.  Anatole Kaletsky writes (he’s talking simply about a big increase in public spending or tax cuts, rather than quantitative easing specifically):

“The beauty of such policies in a world of zero or near-zero interest rates is that they are effectively cost free.”

Interest rates for government borrowing are only low now, because investors see the alternative uses for their money as too risky.  I hate to criticise, because Kaletsky, like me, is sceptical about the virtues of saving. But…

Unfortunately, eventually you have to pay the piper.  When you come to roll over the debt, interest rates will be much higher (assuming the policy has worked).  I gather this happened in Japan, who in some ways were in a better situation, as at least people wanted their currency to buy their goods.

I mention this, because, as I understand it, the idea is not to keep the bonds issued for the debt in a tidy pile in the Bank of England’s safe (though even there they would have an effect on the market).  Rather, the cunning plan is for the Bank (as the Bank of England is simply referred to in the trade, interchangeable with the “Old Lady”, as in the “Old Lady of Threadneedle Street” – but I digress) to exchange the government debt for illiquid assets, e.g. the dreaded mortgage-backed securities. I gather the Fed is doing something like this in the States.

Since the plan involves a little more than the Chancellor giving an IOU to the Governor, Alistair “Blackadder” Darling would have to work closely with Mervyn “Baldrick” King.  Which, of course, the Old Lady doesn’t like as it undermines her independence.  And of course, the Bank is uneasy about the whole plan, since it complicates its job of controlling inflation.

Well, that’s my understanding of what’s going on anyway.  Watch this space…

On Virtual Money and the “Virtue” of Saving

As I mentioned, my New Year reading includes Niall Ferguson’s latest opus, The Ascent of Money.  William Rees-Mogg got through it twice by Boxing Day, so I must be a slow reader.   But maybe a careful one, because like Cable, Cameron, Brown and Darling, I now believe I’m an expert on the topic!

Here’s what I’ve learnt from Ferguson’s Chapter 1 (they’re big chapters, all right?): there are many differences between the virtual money we have now and traditional currencies like gold or cowrie shells.  For example, it is a lot easier to achieve leveraging with virtual money than with gold.  Another salient characteristic of virtual money is that for every saver you must have a borrower.  Virtual money has to be used.  It can’t simply be stored like gold can.

Now, David Cameron seems to believe that saving is more virtuous than borrowing.  If we imagine for a moment that the UK economy were completely isolated, then banks would lend every pound that was deposited.  They would lend available cash to the highest bidder and compete with other banks to attract deposits at a lower rate than they could lend it.  Bubbles in the price of assets, such as houses, will therefore be more likely, the more inequality there is, a point made very well in a comment by Brian Barrington on a Willem Buiter Maverecon blog entry (an entry that incidentally was itself reported in the Telegraph – maybe I’ll comment on it later myself).

The UK economy is not isolated, of course.  What Cameron presumably wants to do is replace overseas savings (which reach the UK mainly via the money markets) with UK savings.  But the pool of overseas sterling funds looking for a home depends on our cumulated trade deficit with the rest of the world.  Whether or not we have a trade deficit with a particular country depends largely on the exchange rate.  If a country, such as China, keeps it’s currency artificially cheap, then they are bound to have a trade surplus, and at least some other countries will be in deficit to it.

All else being equal, and, in particular, unless the trade deficit is addressed, a higher rate of savings in the UK will make asset bubbles even more likely.  Perhaps saving is not so virtuous after all.

Money is for spending or investing.  Many commentators treat the term saving as equivalent to investment, and generally compound the problem by confusing speculation such as on housing with true investment.

Investment is the process of acquiring assets that provide an income stream.  Since the income stream has value, successful investment is a way of preserving or increasing one’s money.

Speculation is the process of aquiring assets in the hope that other people will value such assets more in the future than today.  Buying art is speculation, but so is buying property if you pay more than the value of the income stream from renting the property.  Sound familiar?

Saving is the process of retaining money in the hope that it will value in the future.  This was a reasonable expectation with gold.  Unless it was stolen, or – as Ferguson explains in The Ascent of Money – someone discovers a huge supply of it, you could be reasonably certain it would retain its value.  This is not the case with the currencies of the modern world.

It is in fact very difficult to preserve the value of virtual money.  Inflation is a bit of a headache, and as we saw in 2008, banks can go down as well as stay afloat.  Society already provides a very generous service to savers in allowing them to not only preserve the value of their money, but actually increase it (through earning interest), at (virtually) no risk.  Even if they deposit their money with an institution, such as an Icelandic bank, which is taking such risks with the money that it can pay a higher interest rate to savers than other banks, we (the taxpayer) still compensate them in full. And they’re not even grateful!  [You need to scroll to the Ron Kipps correspondence on the last two links].

Even if it’s remarkably unpopular, surely taxing savings interest as income is the least we – society – should expect in return for the service of protecting the value of savers’ money – in other words, insuring savers’ risks?

Sometimes I want to shake that David Cameron!

Stick to the facts, Halifax!

I really thought I was going to get through the morning without choking on my bran flakes (if they’re good enough for Hoycules, they’re good enough for me!).

Then I read the Guardian headline: “Glimmer of hope for housing market despite further pressure on prices”.  You what??  Curiously the online version of the article has a slightly different spin: “Housing market braced for brutal 2009 as prices and mortgage lending plunge”.  The latter appears to be the earlier version as it is dated 2nd January, whereas the print version appeared today, 3rd.  How do these changes happen?

The Halifax’s “point” (emphasised in a sub-heading in the print Guardian) is that “the speed of decline may be stabilising”:

“The Halifax said that the average house price had fallen 5.2% in the fourth quarter of the year – similar to the third-quarter drop of 5.6% and the second quarter’s 5.1% fall.  [I suspect these figures are seasonally adjusted].  But that still means prices are falling at an annual pace of more than 20%, although the Halifax said it showed the speed of decline may be stabilising.”

At least the Guardian mentions again later in the article that the total fall from the 2007 price peak could be 50%, as they yesterday reported Capital Economics suggest.

Halifax have officially suspended their house price predictions.  Conveniently, of course, this allows them to point to green shoots of recovery, instead of in effect having to warn buyers to beware further price falls:

“Martin Ellis, chief economist at the Halifax, said: ‘A number of factors will help to support demand and should help to limit the downturn. Improving housing affordability and an easing in the pressure on the majority of households’ finances should support market activity and prices.’

He added that the house price-to-earnings ratio – a key affordability measure – was at its lowest for five and a half years at 4.4 times, down from nearly six times in the middle of 2007 and not far above the long-term average of four times.”

Shameful. Perhaps I can suggest how to complete this paragraph. If 4 is the long-term average (and it well may not be long-term enough, giving too much weight to the two recent booms in the 1980s and from the mid-1990s to the mid-2000s), and the measure can overshoot by 50%, why wouldn’t it undershoot by an equivalent amount, that is to below 3?  In which case prices would have to drop another third.

And shame on the Guardian and the rest of the media for continuing to report “predictions” from those with a vested interest in talking house prices up.

As I mentioned yesterday, the British public are not so stupid.  Have a look at the comments on this Times piece.

With prices falling at more than 2% a month (an “annual pace of more than 20%” as the Halifax helpfully points out), you’ve got to doubt either the rationality or more likely the motives of those organisations predicting a 2009 drop of 10% or less.

The sooner house prices bottom out the better.  If unfounded optimism by vested interests leads to a sucker rally this will help no-one, least of all the first-time buyers who will regret being drawn in.

As I happened to mention a little while ago, I reckon prices could easily fall 50% in total, simply on the basis that as a market participant over 3 decades (and OK, I admit it, a consumer of huge amounts of punditry on the topic), property seemed to me to be selling at around twice fair value, at the peak in the summer of 2007.

Btw, there’s a nightmare scenario: we’re Brown toast if interest rates (and therefore mortgage costs) have to rise to check inflation before house prices have recovered.

So on the basis that a 50% drop is needed to bring the buyers out in force and turn the market, but with some moderation in the current rate of price decline, we’ll see another 15-20% drop in 2009, and  5-10% in 2010.  I’d respect the Halifax a little more if they came out and said something like this.

We’ll know in a while, crocodile!

And I’m now starting to wonder if the Government haven’t been allowing for similar price predictions for some months now.  ‘Cos measures like the daft VAT giveaway smack of panic to me.   Maybe Brown was (and perhaps still is) hoping for a dead cat bounce this Spring, a snap General Election and another 5 years of power…

We’ll find out later, alligator!