Broad Oak: your emotional support animal

Sunday, June 08, 2008

Does State expenditure inflate the market?

Charles Moore comments on Jonathan Ross' £18m 3-year deal with the BBC:

... even if it is a wonderful idea to pay Mr Ross roughly 30 times more (annualised) than the Prime Minister and 20 times more than the Governor of the Bank of England out of what is, after all, tax, it is obvious rubbish that this does not push up the market. If the BBC were not competing in this field, Mr Ross’s price to commercial channels would plummet.

Deplorably, Mr Ross is unbelievably coarse, which sends a message to his (relatively) young audience. Peter Hitchens suspects that this crassness is a cynically avaricious pretence:

Ross talks on TV in an arrogant sort of loutspeak.

I wonder if he talks like that when he’s dealing with his lawyers and his accountants.

Now that would be a fly-on-the-wall documentary to screen next to Ross' show.

So, celeb wages inflated and manners undermined by spendthrift public services.

Meanwhile, Liz Jones takes a very laudable interest in the young, especially those rotting away in the complex trap of social security benefits. And again, a market may be distorted by public money:

Her room is damp, sparsely furnished, has a stinking, threadbare carpet, and Paris mostly sits on her bed, terrified to walk to the shared bathroom in case one of the boys who slouches around outside harasses her.

Drugs are dealt openly in the corridors. Each week, ‘the council’ (I’ve never heard her use the words ‘government’, ‘Labour’ or ‘Gordon Brown’) pays the £330 rent (yes, that is £1,430 a month, more than my mortgage repayments) for her box room direct to the private landlord; on top of that, Paris is given £47 a week to live on.

That is, she was, until the council got wind she had got off her backside and found a job, just three days a week, in a clothes shop in Oxford Street (she would have loved, she told me once, to have been a fashion designer).

Although her pay is less than her rent, she has been bombarded with letters and forms, too complicated for anyone, let alone someone with dyslexia, to fill in, demanding six months’ back rent.

She is now being threatened with eviction.

The negative reinforcement is too obvious to summarise, but look at this young girl's rent as a proportion of her total "income": 87.5%!

Compare that with this, from the Guardian in December 2007:

The CML said a typical first-time buyer paid 20.6% of their income to service their mortgage in October, up from 20.4% in September, while for those moving house it rose to 17.6% from 17.5%. The figures are the highest recorded since 1991 and 1992.

There are now very many people (about 4 million) on some form of housing benefit. Is it not possible that rents, and consequently housing valuations, have been grossly distorted by such interventions? Isn't there some other way to house people without creating opportunities for modern Rachman types?

11 comments:

Chervil said...

Interesting - and Britain is certainly not alone in this. Rental crisis is also a buzzword in Australia at the moment - rents are going through the roof, people get evicted because the owners suppposedly are about to move back in. The owners then have a change of heart, and bingo! They get a couple of hundred dollars more per week from the next renter. Apparently, the number of homeless people has also gone up considerably.

Lord James Bigglesworth said...

Not much to add here. Makes one weep.

SACKERSON said...

Hi Chervil, thanks for commenting. We don't get much about the Oz economy here (though I do read the Contrarian Investor's Journal blog from time to time), but it seems you're going through interesting times.

James, the world is a comedy to him who thinks, a tragedy to him who feels.

dearieme said...

The workhouse?

hatfield girl said...

It seems best to abandon finance with feeling. It isn't funny any more. Do you think most people understand that any debt can be levied against any asset, and that as house prices fall there will be a rush to grab any housing equity?

When remarks about it not being like the early nineties are made, it is usually in terms of lower unemployment; much higher debt exposure can be worse.

SACKERSON said...

HG: it is rather worrying, but see Wolfie's comments in the next piece.

DM: My mother-in-law remembers some of the inmates in the workhouse in Birmingham, from around WW2. The gate still stands, by the entrance to the new Eye Hospital. They were hungry, ordered-about people; - m-i-l would slip them a bit of extra food on the q.t. It was no joke.

I understand seaside towns are filling up with youngies permanently on the dole, who might as well enjoy having nothing to do in brighter, warmer surroundings - whereas I'm working my socks off for the chance to do the same at 65.

Ryan said...

"When remarks about it not being like the early nineties are made, it is usually in terms of lower unemployment; much higher debt exposure can be worse."

I was thinking about this the other day. I think some economists are saying this kind of thing because they think we are in the middle of a moderate recession whereas it is pretty obvious to me we have barely started the beginning of a severe depression.

Since employment remains high, the question we should be asking is "Why are so many people getting their houses repossessed when everyone has a job?" and "when people start losing their jobs, what will the repossession rate be like then?"

Yes, it isn't like the 1990s. In the 1990s the high rate of repossession was CAUSED by a growing rate of redundancies. So we can assume that things are going to get FAR worse, as the downward spiral feeds into itself. The avalanche is picking up speed as it careers down the mountainside. A few people on the ski-slopes have been engulfed, but the greater number of people living in the valley can only see the avalanche approaching and speculate on the terrible damage it will cause to the town. The second half of this year, and during 2009, the economic avalanche will be upon us.

Ryan said...

Not so very long ago I was thinking of building my own house based on a timber frame approach (the same approach used by the likes of Barrat Homes). Now to build such a home of about 100m2 floor area (bog-standard 4-bed) would cost about £50,000 (source:Potton). Now the land is priced on the artificially limited supply of land with planning permission. So why can't we get anough to house our own fine citizens? And why is it acceptable for a fine young copule, starting out in life, to be expected to work for 2 x 25 years to pay for it?

It is due to the moral corruption of the ruling elite and the willingness of the ruled to submit to such scandalous slavery.

Remember that we set the slaves of Jamaica "free", only because it was cheaper to give them a poor salary than employ a lot of soldiers to keep an eye on them. In reality they were still slaves - only the system used to enslave them had changed.

SACKERSON said...

Hi, Ryan. Note the new Argos flatpack home for £13,000; also "park homes" (e.g. here at http://www.britanniaparks.com/). Home-seeking cavemen could evict a resident bear in a day, now it takes us half a lifetime to evict the bank! We've gone backwards.

SACKERSON said...

P.S. You'll see from the sidebar that I'm expecting a bottoming-out in Spring of 2010. Optimistic or pessimistic?

Ryan said...

I think I might agree with you for a bottoming out in 2010 - but personally I would expect the process to take longer. The downward spiral will be a feedback mechanism that will take time to unravel. Spring 2011 I would say. But even once bottomed out, prices will fall in real terms. It takes time for enough confidence to return to the market for asking prices to rise.

Another point to note is that the average price falls won't be of much use. I expect one bedroom flats in the London commuter belt to fall by as much as 80% whilst student flats in northern cities will fall by no more than 10%. There will be rich pickings for the investor that is still sovlent in the next 5 to 10 years. Unless the government sets us free from housing slavery and introduces a policy that gives us decent housing at a reasonable price. Nah, that will never happen...