All posts by John B

Another house price post

Via Tim, Raedwald has a silly piece suggesting that the 30% collapse in new-build flat prices, rather than being the outcome of a speculation bubble, came because developers were required to build 30% social housing as part of the development.

However, this doesn’t fit the facts, or what we know about economics.

If the new-build flats sold for 30% more than existing Victorian and Edwardian properties nearby, that’s because buyers believed the new flats were worth 30% more than existing Victorian and Edwardian properties nearby – otherwise, prices would have converged.

In fact, the most likely reason the new build flats listed for 30% more than existing properties is that builders across the board granted a discount of just over 30% for buying off-plan. Which also means that any fall in real new-build flat prices should be measured from 30% below list price, not from list price.

But we all know you can’t get something from nothing – so how were the ‘affordable’ flats funded? Well, the marginal cost of building them compared to building the same development without a social housing element, which is low (e.g. adding an extra storey to the block), is covered by the money that’s actually paid by the social housing body to the builder.

So who’s paid for the difference between the cost of building and the theoretical value of an HA flat? As long as you assume that the purpose of the planning laws is to protect local residents from overpopulation, the answer is other local residents: in the space where the developer would otherwise have been given permission to build 20 full-price flats, he’s received permission to build 20 full-price flats and 8 affordable ones.

An open letter to people who bought houses in the last two years

I’ve been living in rented accommodation for the last two years despite being able to afford a house/flat, because it was incredibly obvious that house prices were going to peak, interest rates rise, and the economy slow down.

The fact that you did buy a house means that either you felt financially secure enough that even if all the above happened, you’d still be able to pay the bills (I know some people who’ve gone down this route; good luck to them), or that you thought buying a house was a supercool one-way ticket to infinite money at the expense of, erm, someone else.

If you’re in the first group, good luck to you. If you’re in the second group, then I’ve got to admit that I don’t find your financial travails spectacularly moving.

Relatedly, please can clueless muppeteers stop whining that “ooh, inflation is actually really high”? The CPI and RPI, both of which are still below 5%, are weighted by people’s actual spending on the actual goods included, so the fact that chips cost 15% more than they did is not evidence in favour of your proposition. Here is the actual breakdown of price changes by category (PDF). Read, digest, then put up or shut up.

Also, read this. It is true.

You know you’re flying too often when…

The redhead girl from the BA safety video really is cute, isn’t she? Shame she’s clearly still very much in love with the vaguely-Barack-Obama-lookalike father of her adorable kid. Ah well…

– me, various points, the last 18 months.

Even more tragically, for those of you who don’t fly BA, the video is a cartoon.

Newly sharpened

I’ve a slightly snarky new piece at the Sharpener, on how ‘fuel poverty’ isn’t nPower or EDF’s fault (or, indeed, a very meaningful concept).

Some of the discussion about this issue has reminded me of how bloody annoying it is when hacks and bloggers take £ profit numbers as meaning something in their own right. “BT’s made a profit of £35,000 per second, but they’re outsourcing call centres to India – outrage“, etc.

Profit numbers are only meaningful as a percentage – whether of revenue, of share price, of number of customers, or of the same number last year. Even then, you need to be very careful not to overstate things: when your values of y and z are similar, x = (y – z) can produce very large variances in x for small variances in y and z.

And if your y varies in the long term (say, retail energy prices) while your z varies in the short term (say, wholesale energy prices), this can produce massive apparent swings in profits that really don’t mean very much…

On that ‘who subsidises whom’ thing

There’s a great deal of controversy and bitterness over whether the parasitical Scots steal money from the hard-working English to spend on whisky and deep-fried Mars bars, or whether in fact the evil colonial masters are stealing the Scots’ money to fritter away on Pimms and linen suits.

The problem is, despite the statistical data on where tax revenues are generated and where they end up, there’s no answer to the question of who’s right.

If you believe North Sea oil belongs to the Scots [*], then it’s clear that the Scots are subsidising the English, as annual North Sea oil tax revenues of £9bn for 2006/07 are way in excess of the Barnett payments of £7.5bn. If you believe North Sea oil is a shared resource between all citizens of the UK,
then it’s equally clear the English are subsidising the Scots.

Since the answer to that question is dependent on one’s beliefs about political philosophy, equity and the nature of nation states, and also on unresolved questions about the UK’s constitutional status, it’s hardly bloody surprising that the controversy exists…

[*] i.e. if you believe that oil reserves should be allocated between England and Scotland based on the Law of the Sea, which under most estimates would give the vast majority of oil to Scotland.

Automatic comment generator

This is an absolutely superb generator of ignorant nonsense. It’s nominally a tribute to the BBC’s Have Your Say, but is quite an effective simulation of most right-wing blog comments.

Sample:

Twas ever thus. here come the pc brigade and the nanny state! Gordon Brown is going to put us all in Death Camps. It is vital that we string them all up. Why did nobody listen to Enoch Powell all those years ago?!!

Gordon Clown Out Now England

Don’t axe Crossrail – double it!

Local press exclusives on specialist topics are seldom the most reliable or accurate commentaries you’ll ever find on anything ever. Nonetheless, I’m concerned by the East London Advertiser’s current alleged scoop on Crossrail.

The ELA claims that:

Crossrail chiefs fear the deteriorating economic climate, spiralling Olympic costs and the election of Tory Boris Johnson as Mayor of London will persuade Mr Brown to delay construction.

The source said: “It’s only my opinion and not the corporate line, but my strong feeling is that in the current circumstances, the Government will more than likely delay the project by a few years.”

If the ELA is right, then the government are making a very daft short-termist decision swayed purely by bean-counters and spurious “OMG, debts are evil” worries.

Simply put, Crossrail is a 10-year project with benefits over 30 years. Dropping it because of short-term budget constraints would not only be utterly ridiculous, it would be the worst possible choice the government could make. Economic bad times are a positive reason to build Crossrail, not a reason to shelve it.

The ideal time to build a massive infrastructure project paid for largely with public money is during a construction recession, when the workers, managers and contractors responsible are unable to find sufficient private sector work. This would not only make Crossrail cheaper for the taxpayer, but will also prop up the wider economy, stemming unemployment and reducing the impact of falling private sector demand on GDP growth.

What about actually finding the money? Well, governments are able to get credit on good terms right now, since they’re among the lucky few for whom the markets believe they’ll be able to pay it back. And UK national debt is in reasonably good shape as a proportion of GDP – 37% now against 43% in 1997, so there’s no obstacle to ramping up government borrowing to buoy demand and cushion the tough times.

Yes to sceptics, the 37% figure is too low, since it does not include finance leases under PFI that would be accounted for as debt under IFRS. These amount to an extra £30bn on top of existing debt of £530bn, taking real public sector debt as measured under IFRS to 39% of GDP. Some people account for PFI by counting all future PFI liabilities including payment for services which haven’t yet been delivered but if you do this then you do not understand how accounting works [*].

Sorry for that digression. The point is that the government has plenty of room to borrow money to stimulate the economy over the next couple of years, and building Crossrail would be one very good way of doing this. Financing it entirely through public sector borrowing would raise the national debt by 1% of GDP, which is entirely affordable. Axeing it would be somewhere between a short-termist capitulation to Treasury interests, and a deliberate attempt to screw things up for the incoming Tories…

[*] If I sign a billion pound contract with the government to provide them with and maintain their widgets for the next 40 years, and I book sales of £1bn for year one, then I go to jail. This is precisely what people who count PFI liabilities at £100bn are doing, except for the “going to jail” bit.