Latest Scheme
The latest scheme come from the UK with a Government Pledge to Increase the Number of Affordable Homes.
Details
- A new shared ownership model would see the minimum initial share to buy in a property reduced from 25% to 10%.
- People would also be able to buy additional shares in their home in 1% instalments with heavily-reduced fees.
- The £12.2bn investment, listed in the Budget, includes £700m for new homes.
- The shared ownership model will also include a 10-year period for new shared owners where the landlord agrees to cover the cost of any repairs and maintenance to the property.
“Today’s announcement represents the highest single funding commitment to affordable housing in a decade and is part of our comprehensive plans to build back better,” said Housing Secretary Robert Jenrick.
For starters £700m is not much.
That’s actually a good thing because the less money thrown at this boondoggle, the less money will be wasted.
US Comparison
The US has Fannie Mae, Freddie Mac, Ginnie Mae, the FHA in addition to hundreds of programs at the city and state level all designed to create affordable housing.
Not a single program has ever worked and none of them ever will.
The very act of getting people to buy homes creates more artificial demand and even artificial shortages.
There’s another boom in the US right now thanks to excessively cheap mortgage rates.
That did not make homes more affordable. Prices rose more than any interest rate benefit.
The UK’s approach in which the landlord agrees to cover the cost of any repairs and maintenance to the property is 100% certain to be reflected in the cost.
Who Benefits From This Madness?
The answer is banks and builders.
The banks make more loans, pass them off to Fannie Mae, Freddie Mac, or Ginnie Mae and taxpayers are on the hook.
Builders love the programs as they build more homes.
In the UK scheme the builders will either be compensated for the cost of repairs by the buyer or the government or some combination.
There is no free lunch for the buyer or the taxpayer in any of these schemes.
Great Recession Irony
In the wake of the Great Recession, home prices crashed.
Neither the Fed, the banks nor the US government was happy with prices that were the most affordable in a decade.
They all acted to force up the price so that new affordable home ideas surfaced, now actively promoted by the Fed, just not by name.
Mish
In America, the government, coupled with a slew of builder and Realtor associations control the housing narrative. Huge discrepancies exist in the cost of housing in the various markets across America and while price variations are not uncommon they should be seen as a reason for caution. The future of the housing market is a topic that has been subject to a great deal of debate and can be somewhat confusing. The intention of the post below is to shed light on some of the myths that have been generated and add some clarity to the discussion of where housing policies are taking us.
Here’s Demopublican government policy re keeping a roof over people’s heads:
“Not a single program has ever worked and none of them ever will.”
+a million.
The price for any good, is set by the intersection of supply and demand. Leaving demand static, the only way to make things “more affordable”, is to increase supply.
Now, supply is a function of cost of provisioning. Leaving affordability a function of cost of provisioning.
That’s it.
For houses to become more affordable, it must become more affordable to build more of them. Effectively meaning, restrictions on building more, must be eased, as artificial restrictions is far and away the biggest cost faced by budding slappers-together-of-new-builds in high demand areas.
Knock down Pelosi’s place and replace it with 20 units; rinse and repeat across all of urbanity; and housing; no doubt surprisingly to those sufficiently dumb and economically illiterate; will tah-dah! become more affordable. Bloody magic, I tell you! Now who could have thought?
Absent increasing supply, the only other way to make housing more affordable, is to lower demand. Either by the population dying off, which is what solved the problem in Japan. Or, as in America, by making people poorer and poorer. By way of having a central bank and government rob them into destitution, in order to hand the loot to people who already have all the houses they’ll ever need, hence won’t demand more of them despite being handed mountains of unearned wealth stolen from the current and/or soon-to-be homeless.
The scheme is aimed at first time buyers who can’t buy the whole property because they can’t get a large enough mortgage and would otherwise have to rent or live with their parents. To give you an idea, a small 3 bedroomed terrace in my town east of London is about £330k so about $430k. 5 or 6 years ago it would have been £230k.
People will go for them because they want to get their feet on the property ladder. Builders will go for them because they can profit from the ongoing costs associated with the maintenance costs, and later sales of their share. Builders have already been making exorbitant fees and profits in a similar way from retirement homes.
The problem in the UK is a shortage of land with planning permission and strict regulations associated with that permission.
That is becoming the problem in urban areas all across the US as well as they try to curb the blight of sprawl. Just no land available, though there are many parts of towns and cities in the US that have a lot of vacant buildable land, it is at a price that the neighborhoods will not support, therefore infilling of land is not an economical option.
Then you have places like Texas and to a great degree Florida where sprawl is not only not slowed it is encouraged. In a lot of communities in Florida they build, people move in but can’t afford proper maintenance, they become newer slapped up slums that then nobody else will want to live or buy in. For example Leighhigh Acres east of Naples. Naples is now gentrified and expensive, while the vast area to the east is just a hopeless mess and property values are very low. Sure it is cheap to get a house there, but it is not a nice place to live either.
I bought a house about 45 minutes drive north from Tampa airport. The toll road going down is wonderful but rather expensive. About $10 round trip. I live in a deed restricted upscale subdivision of single family houses, on what was 26.6 square miles of cattle ranchland about 5 miles from the Gulf Coast. To drive Hwy 19 down to Clearwater or Port Richey or god forbid St. Pete, it would take all day, it is 2 then 4, then 6, then 8 lanes wide the closer to the city you get, like a divided freeway, but a light every few hundred feet and not timed, mile after mile.
I can see (especially now with racial issues and Covid) that my house which is on the far fringe of the Tampa suburban area will in 10 years be like having a house in Hudson or Port Richey. At least in this neighborhood the HOA does a fair job of not letting houses go to dilapidation, and the development was one of the first in the nation to incorporate a ton of greenspace where every house is either on a golf link or natural protected forests. As long as we do not dry out like the west coast that will be great, the privacy is very peaceful. If it ever gets really dry we are in trouble though. Only one main road through the subdivision and about 6,900 houses. If we ever get really dry I am getting out BEFORE there is a problem, go to Key West and slum it there till the rains come. 🙂
I guess what I am saying is there would be adequate land supply if intentional obsolescence was not driving out buyers. With land price very often dictates the quality of the residents, and thus a downward spiral, the opposite of gentrification.
Words like “Affordable Housing” (a contradiction in terms in most parts of the USA) means housing for Black & Hispanics (who constantly play the race card to get what they want) as well as other dog whistle terms like “screening process” and “Right Fit”
Almost 60% of Americans LAST YEAR before this economic shambles Trump handed us, could not come up with $500 in an emergency, such as an unscheduled car repair, or urgent medical issue. That means pretty much 60% or more cannot “afford” a house either. It is not just black and hispanic, it is more than half the population that is simply too broke to own a house. Look at me, I bought a house in April and have a fair income, but while the PITI is a majority of a house’s expense over the life of the mortgage at least in my case there is a structural problem I simply do not have the money to pay for and thus after only 5 months am facing the prospect of having to abandon the place. I decided to stay in it till the beams start collapsing, but from the looks of them that could be any week now. If this happens the bank will take it back and sell to a builder/flipper for pennies on the dollar and then it will get repaired but my future will mean being stuck for life on the rental treadmill. Or leave the country.
How many have a 10% down payment? Many first time home buyers are up to their eyeballs in debt already. That 10% down will become 3%, and then 0%.
My downpayment was zero, it was a no down VA home loan, but I found out the hard way that they are doing us no favors. With zero down you have zero equity. If there is a problem you have nothing to tap to get through the problem. You end up losing the palce and your credit as well, and that is a one way ticket to structural poverty.
The result of all government schemes is to push prices higher. The reduced down-payment will cost the hapless borrower a lot more in total, but by the time shim is drowning in debt, the next government is in office, and the country is also fubarred for good.
One would have thought, that this was already obvious, but noo.
Once, it could have been prevented if the originators of this system were educated and studied Plato.
So….I think what really drives these programs is the same kind of thinking that drives all programs designed to “help” those at the bottom who can’t afford home ownership.
The details usually reveal the truth…like 700M pounds is a drop in the bucket…..not a significant program…..but a sop thrown to the socialist crowd worried about more “affordable” housing.
Like the way we build condos here that cost $350K but one unit goes to some lucky “qualifying” person for $175K….the builders basically give a few units away to get the whole development approved, and their shortfall gets shared by all the buyers.
The government pushes lenders to approve “special ” minorities for loans by sweetening the pot, and then in economic contractions they generally tend to default at much higher rates….this is then spun as just one more sign of inequality….which leads to MORE incentives and more programs….
Mish, have you ever looked at the demographics of all the US foreclosures from the 2008 crash? I have, and it’s revealing. Anyone who wants to know can look it up, but no news outlet I know of has ever talked about it.
There is one other group of people who benefit other than banks and builders…it’s savers who use real estate to leverage their wealth, hedge against inflation, and get the tax benefits built into the system. And unlike something like gold, there is some ROI too.
“They all acted to force up the price”
…
Yeah, the Obama Administration had its version of forbearance with an alphabet soup of programs (HARP, HAMP, etc) to keep mortgages current that only helped the lender and not the borrower.
This doesn’t sound like forebearance. Sounds more like a bad blend of owning and renting where you get the benefit of neither and the headaches of both
So this is U.K. initiative. This should have been more obvious perhaps in the headline itself.
wasn’t really sure what this was so i found an article
The applicant buys between 25% and 75% of the home and then rents the rest. Typically, these are newly built homes or properties re-sold by housing associations. Military personnel get priority and there is a specific scheme for the over-55s.
The applicant buys between 25% and 75% of the home and then rents the rest. Typically, these are newly built homes or properties re-sold by housing associations. Military personnel get priority and there is a specific scheme for the over-55s.
As time goes on, the householder can buy a bigger share – known as staircasing.
Doesn’t feel at all similar to Fannie Mae or Freddie. You really can’t own 25% of a home. It’s more like buying stock at that point. They have mortgages in the U.k. s o I don’t get what’s being accomplished although the u.k. mortgage product difers from that of America’s.
If you are renting 75% of your house how are you better off? Who controls the rent? Seems dumb
Why not hae rent with option to buy with your rent going towards the purchase if you so desire.
I get how increasing home ownership can be desirable as people take pride in their homes and it gives them a sorce of wealth if the homes increase in value but subsididies raise costs and saddling people with homes can also reduce worker mobility a clear downside
Thats just a higher interest rate, with extra steps.
“Seems dumb”
Duh!
It’s a scheme invented by rank idiots. The UK is as thoroughly financialized as the US is. Its ruling retards consequently no more literate than ours.
No different from here, this sort of obviously-stupid-to-even-average-five-year-olds drivel, is what the retards believe is “innovation” and, like, clevva! Which I suppose it just may be, if one is dumb enough to not be able to count fingers on, like, both hands (wow!) at the same time, hence being relegated to collect welfare stolen from others while doing mindless makework in The City ad thinking one has a “job.”
“Neither the Fed, the banks nor the US government was happy with prices that were the most affordable in a decade. “
…
Audit the Federal Reserve
I know durn well Federal Reserve was sitting on hundreds of $billions in losses in 2009 / 2010 regarding its GSE mbs holdings. But they were opaque and so no one ever knew how bad mortgage holdings performing.
Of course, Federal Reserve does have an “independent” auditor (recently KPMG), but Federal Reserve considers itself “special” and does not have to mark to market its holdings.
From Federal Reserve:
“Accounting principles for entities with the unique powers and responsibilities of the nation’s central bank have not been formulated by accounting standard-setting bodies. The Board of Governors has developed specialized accounting principles and practices that it considers to be appropriate for the nature and function of a central bank. These accounting principles and practices are documented in the Financial Accounting Manual.
The primary difference between the accounting principles and practices in the Financial Accounting Manual and GAAP is the presentation of all System Open Market Account (SOMA) securities holdings at amortized cost rather than the fair value presentation required by GAAP. Treasury securities, government-sponsored enterprise (GSE) debt securities, Federal agency and GSE mortgage-backed securities, and investments denominated in foreign currencies comprising the SOMA are recorded at cost on a settlement-date basis rather than the trade-date basis required by GAAP. Amortized cost, rather than the fair value presentation, more appropriately reflects the financial position associated with the Reserve Banks’ securities holdings given the System’s unique responsibility to conduct monetary policy. “
Make the FED solely the lender of last resort.
Move it into a small office somewhere.
These verified buffoons deserve it.
Did I mention Larry Summers?
The reason they forced prices up is because of the derivatives market and associated instruments that are sold to investors. Derivatives are the primary cause of everything bad in the financial markets and economy.
It’s much more fundamental than that. Even if “derivatives” didn’t even exist, they’d do the exact same thing.
The fundamental reason, is that by forcing prices of something above where they would be in a free market, productive people’s earnings are being stolen. Such that those earnings can then be handed it to idle, unproductive leeches too useless to add any value themselves. Making idle, unproductive leeches, and only idle unproductive leeches, rich enough to buy the government, is the way central banks ensures everyone with influence is beholden solely to them. It’s a basic survival tactic for the useless yet privileged.
Automation makes fewer of us productive every day. Heck, I make an upper middle class salary, and the product I work on is by definition a complete waste of time… so income is no indication of leech/nonleech status.
If we starve the poor leeches, they aren’t going to wander off and die quietly. They’re gonna take what they need to survive, and probably end up getting shot for it, which will induce them to shoot back when they can.
We’re talking about at least 100 million people in the US alone. Are we ready for that?
OR
We could continue to feed the leeches, and realize that despite all the hair tearing, yargle bargle, and fear, that the lights are on, the toilet flushes, food finds its way to the fridge, and in general life is fairly good.
The birth rate is supposedly dropping… maybe if we behave like real Christians for a while, the problem will fix itself? Jesus would certainly smile upon us for it.
Derivatives are not the problem. They don’t do anything in and of themselves, other than make the economy work a little better. The dangers comes when someone, or worse, some institution, ends up with more leverage than they realize.