Friday, 22 June 2012

Homes, poets and bankers

For the opening of Community Housing Cymru’s new offices  Gillian Clarke the National Poet for Wales penned a verse titled “Not much to ask.”
A holt, a den, a form,
like otter, fox or hare,
shelter from shadows of the night
against the bitter air,
four walls for the winds to lean on,
a roof for the rain’s knock,
a door to close against the dark,
a key to turn in the lock,
a window to watch people pass, 
a street, a tree, a patch of grass.
As night falls it’s our breath, our story
clouding the glass.
A poem about all of us having a basic need for shelter, triggered the thought that the economic storm that’s raging around Europe was initially caused  by a massive slump in the housing market in the United States.
The story starts with more and more cash lent on houses that had a low asset base.  People used the cash to buy all kinds of goods, cars washing machines you name it the money was there to buy it.  But as they say, all good things come to an end.
These banks got cold feet. They collectively decided they’d been a bit imprudent had put out too much cash on such a slender base. They decided to roll things back.
So how did they set about getting themselves out of a hole of their own making. 
The first port of call was to become heavy with those a few years earlier they’d been encouraging to take more and more cash. But just like low life loan sharks they pushed the poor householders for their cash back. 
So what happened when the pressure was put on, the owner-occupiers try to sell their houses to clear their debts. Or more often than not foreclosure happened. Homes were seized by their creditors the owners evicted. The banks then try to sell a job lot of houses.

It’s not rocket science to work out the consequences - plunging house prices and then more and more find that their  debts greatly outweigh their assets.  
Even more find themselves forced to sell. Each day, not to put to fine a point on it, the numbers finding themselves in the financial mire goes up. House prices? They're in a spiral moving relentlessly downwards. 
Result - a massive slump in the housing market which triggered the  general slump we’re all in today.
Not only did these banks lean on those they’d handed the cash to, but they also off loaded as many of these mortgage agreements to other banks and financial institutions. 

What these banks were buying was junk. If you buy junk you eventually run out of cash and just like the householders you're in trouble.  In banking terminology, they’re over exposed. To the rest of us they're in a mess. So there you have it - the banking crisis in a nutshell.
What starts as a genuine need by families for a roof over their heads, becomes a financial instrument that is more and more distant from that basic need. And as they say, that's why we're  where we are, in a middle of a recession or perhaps even a depression.
So what’s to be done? Well,  government needs to bring back confidence to the market.  This cab be done by building more homes for rent. It also can help with mortgage rescue schemes so that families don’t loose their homes and cause creditors to further depress house prices by off loading these  homes onto the market.
The Welsh government bemoans that it hasn’t got many weapons in its economic armoury. Housing is something it has responsibility for. It could and should use housing as a vehicle to grow the economy of Wales. All it takes is a little imagination and some determination.


  1. And who would rent all these new houses you propose to build? And at what price?

    No, this isn't the answer. The answer is to let property prices crash, as they must. This, in turn, will lead to a much greater supply of properties for purchase. And at much more affordable levels.

    Most would prefer to buy rather than rent. If purchase prices are cheap, relatively so, who needs more properties for rental? No-one.

    Politically difficult perhaps, but it has to happen. The asset price bubbles of the past need bursting, no matter what the political consequences.

  2. The long-term problem with the housing market is that we just haven't been building anywhere near enough new homes to keep up with the rate of new household formation. Even at the peak of the boom, we were only building roughly half as a many homes as needed, and new construction has fallen dramatically since. While the fall in prices is welcome for first-time buyers, prices are still way out of sync with incomes and high private sector rents mean that young people find it very difficult to save the large deposits that lenders now demand.

  3. People always saying we aren't building enough houses to keep up with household formation. But, in fact, this just isn't true. It's a way of trying to keep current property prices buoyant. Nothing more!

    Granny flats, conversions, extensions, annex constructions and the like more than make up for new household formations. In fact, we have a real surplus of property on this island and everyone is desperate to keep it quiet.

    Granted it might not be in the right place, but it exists and it should be used before any new builds are considered necessary.

  4. I think that's wishful thinking KP. There are an estimated 250,000 new households formed each year in the UK, and something like 105,000 new housebuilding starts - you do the math, as Americans say. The BBC recently cited a figure of 1.8 million people on the housing register in England. The notion that young families can be accommodated in other people's empty extensions and granny flats seems somewhat fanciful to say the least. Are you proposing that the state should requisition private homes and allocate rooms?