Monday, 9 June 2008

House price crisis

I’ve been struck by the reaction of some people to the impact of the housing price crash. Their instinct is to blame those who are suffering –it’s their fault for borrowing too much and they list the extravagant activities they think they must have used the borrowing on: holidays, extensions and other frivolities. And anyway, these new puritans argue, we want lower house prices.
This desire to blame the victims is clearly deeply engrained in humans. I was taken with a radio broadcast I heard a while back by the Dean of St Albans-there is a man who has experienced more than his share of unwarranted blame. He recalled an incident from his boyhood in Wales:
‘In my childhood I also had a naughty great uncle, a man who very uncalvinistically drank and smoked and swore and womanized. He died a happy man, as you might imagine, but at a rather early age, of cirrhosis of the liver. His funeral was the first time he'd been in Chapel since his wedding. But the really memorable thing was the sermon, and the gasp of disbelief as the minister took a text of appalling relevance: Psalm 55, verse 23, "Y pechadur ni chaiff fyw hanner ei ddyddiau"…; "The sinner shall not live out half his days, for thou Lord shalt bring him down to the pit of destruction".’

This model of terrible retribution could be extended. Let us stop treating folk who smoke, or motor cyclists who crash, or any of the cancers that result from lifestyle choices. These people knew the possible consequences when they chose to spend their holidays sitting out in the sun. If they’ve now got skin cancer they should not expect the rest of us to bail them out.
It is, of course, the poor who will suffer most. They should have known that the oil price was going to reach $140 a barrel and that it would impact on their energy and food costs. How could they have been so naive? After all the government and the regulatory authorities were on the ball-well possibly not. The failure of the Bank of England, the Government, and the FSA, not to mention the sub prime lenders in the US or the Federal Reserve- but it is the poor person with their house repossessed who has to bear the responsibility.
The awful truth is that the innocent are going to be slaughtered as a welcome price adjustment turns into a serious economic dis location
Government and bankers in the UK and US have kept interest rates artificially low for more than a decade. As savings have declined this policy has led to debt being piled on top of debt all secured on house values. How often have you heard people say-house prices always go up in the long term or the confident assertion that if the market stuttered the Bank would reduce the interest rate and all would be well?
Soon it will not just be the victims of house repossession that will be suffering. A large part of our nation’s economic prosperity is based on the activities of the City of London and financial services industry. Already J P Morgan is telling us that 40,000 jobs are about to go in that sector and it will not stop there. After years of plenty the new Puritans have forgotten what it is like to live in a economic down turn. Their children may not be able to get jobs to buy the cheaper house that come on the market as lenders demand bigger deposits and only lend 3x their income.
It is time step in and for government to start managing the situation. The Housing Corporation could start buying repossessed properties and offer them to their occupants for rent-thus reversing the disastrous decline in the social rented sector. An independent assessment of financial circumstances could be insisted on before repossession and options like shared equity statutorily explored.
Part of the picture has been the long held belief that there is a housing shortage. In part this has been fuelled by immigration –in part but by no means entirely - from the E.C. But with the British economy failing and the pound falling fast many of those European immigrants are returning home. If you couple that to the number of the baby boomer generation who are now entering retirement who may now sell their family homes to maintain their incomes and move into some of the empty apartment that are all over our towns and cities it may just be that the housing shortage is not so great many have imagined.
The Dean of St Albans was a lot closer to the truth as he answered those who wanted to punish those who face misfortune. His talk went on :
‘Even on a personal level we seem to have this instinct that good fortune or bad must somehow depend on how good or bad we have been. Something awful happens and what we do? We look up to heaven and say "What have I done to deserve this? - as though divine rewards and retributions really were immediate and automatic.
There's a much-ignored passage in Luke's Gospel that tells us very clearly what Jesus thought about this theory of retribution. The disciples come up to Jesus one day and tell him about two recent events in the Palestinian news. In Galilee Pilate had just staged a massacre of some sectarian Jews who had been holding an illegal sacrifice; he had actually had them burned along with their offerings. And then in Siloam, a suburb of Jerusalem, a tower block had collapsed and killed l8 people. The disciples were very excited about all this and distinctly inclined to gloat. These people had got it in the neck, so they must have deserved it; besides, they had just been to Jerusalem and Galilee with Jesus, and those people had refused to listen. So plainly they had it coming to them. But when Jesus replies, what the disciples get is a wonderful smack in the mouth. "Do you really think the Galileans were worse than anyone else because they suffered? Or do you suppose the people in Siloam were greater sinners than anybody else?’