The UK's housing bubble: ready to pop?

As someone who was badly caught out by the last major crash in 1990 - this chart frightens me.

The report is from Fathoms, who are economic advisors to Newham Council Investment and Accounts Committee.

"The UK's house price to income ratio has been inflated to within a whisker of its pre-recession peak and is well above its long-term average.

Property prices would need to fall by up to 40%, or household income grow at ten times its current pace for the next five years, in order to bring the ratio back to balance.

We maintain our view that this increase is demand driven, brought about by both exceptionally low real rates of interest and Chancellor Osborne's Help to Buy scheme.

The housing market is likely to remain overvalued at anything other than near-zero interest rates. Fearful of destabilising the fragile arithmetic that underpins the housing market, we believe that Bank Rate normalisation is a distant prospect - regardless of the EU referendum result".

"It's the economy, stupid": Sunday Night Live

On the last Sunday of January was the 4th (and best attended so far) "Sunday Night Live" at the Stratford Picture House, E15  The idea is to encourage maverick thinking and get subject experts to debate with the public to better understand our world.

The speaker was Economist and Professor, Stephen Keen, who is credited with being one of the very few to have predicted the 2007 financial crisis and resulting recession.

For those of us who have mortgages or property in London and fear we are in a "bubble" he is not reassuring with his analysis of the Japanese economy, where there has been an ongoing 70% fall in property prices since 1990.

He thinks that the disaster in Japan was a dress rehearsal for 2007 as was the Spanish Civil War for World War 2.

Privatisation of public services has proved to be as equally disastrous. The private sector has to deliver profit in the short term. Private utilities will always tend to run down services and not invest in the future.

The City of London makes money by creating debt. By 1990 corporate debt was exhausted,  so they went looking to create a new and bigger market for private household debt. This led directly to the the collapse in 2007.

Stephen argues that those in charge of capitalism don't actually understand it. There is nothing intrinsically wrong with Government debt. Why austerity is so wrong is that if you reduce government spending to reduce this debt while in recession, the private sector loses out.

Jeremy Corbyn's idea about "People's QE" will potentially put money into bank accounts directly to simulate demand and increase consumer prices and increase wages.

He argues that the arch Neo-liberal economist,  Milton Freeman, actually talked sense for once when he argued for "helicopter money" (helicopters throwing money out onto the streets to increase demand). Stephen was one of those who made the case for the $1000 dollar payment to all Australian taxpayers in 2008 to combat recession.

No one now in London under 35 can now buy a house unless they have  wealthy parents. Labour needs to take on the Tory government idea that the economy is just like a family household. Yes, government is often inefficient but the only long term plan that offes hope is to re-industrialise the UK. Let us make things again and trade with other countries.

In response to a question about what should we do with Greece, Stephen argued that we should write off the debt to Greece. The people who lied about the Greek economy are now dead or retired and not the young who are suffering. The Greeks will never be able to pay off these debts and their only hope will be to inflate the economy and to encourage it to grow.

(Next Sunday Night Live will be on  "Housing" on the 28 February)

Islington: Residential property to provide ethical, long-term returns - Investment - Pensions Week

I got a twitter message from the editor of Pensions Week , David Rowley referring to this video of him interviewing Chair of Islington Pension committee, Richard Greening, about their investment into residential property. They are putting around 2.5% of their £800 million fund into it and hope for a long term 4-5% return above inflation, as well as increasing housing supply. Greater Manchester Pension Fund is doing something similar.

For years I have been puzzled why Council Pensions funds haven't invested in residential property? I never got a satisfactory answer from advisers or fund managers why this is so. While these schemes are for the private rented sector, I'll be obviously interested in social housing as well.

There are of course risks and concerns that many Council pension funds are too small to invest in such assets. Also the beneficiaries representatives need to be involved in the decision making since it is their pension futures that will be at risk.