David Gildeh

Yesterday I read (BBC News Article) that the UK Government is announcing a ‘great’ new program to get everyone back on the housing ladder again. This includes:

• Mortgages of up to 95% of the value of new homes to be offered with government underwriting part of the risk
• £400m public fund to help developers “unblock” stalled housing schemes
• Largest discounts for social tenants wanting to own their properties under right to buy
• More public sector land to be made available for building
• Planning obligations on stalled projects reviewed
• Up to £150m to help bring empty housing back into use

This for me reads Deja-Vu all over again. Wasn’t it just 3 years ago the whole western markets crashed due to a debt crisis, started initially by government programs promising ‘home ownership for everyone’?!

We need to dispel the myth that your home is your biggest investment. It isn’t. It never was. If you ask any experienced property investor if their home is an investment, they’ll tell you right away – it costs them money, it doesn’t make them zip, so its NOT an investment. Some people have been lucky riding the appreciation wave, but buying something on the hope of appreciation only is speculative, its not investing. Real investors invest for cash-flow, not capital appreciation that can go up as well as down.

This has been going on for over 90 years in the US and UK, governments have pushed the idea of home ownership for everyone as the dream, pandering to our emotional desires. While it may win votes from unsophisticated voters that don’t have much financial education, its essentially poured billions, maybe even trillions of dollars/pounds into an unproductive asset class – housing. And in the process it’s created a debt culture, where people speculate on the appreciation of their home to re-mortgage and buy that nice flat screen TV they’ve been pining for instead of putting money into savings or real investments that make them, and the whole country, wealthier.

Policies like this show a complete lack of understanding of basic economics, complete ignorance about how we got to the financial crisis in 2008, and guess where the money’s being lent from to support these policies – well a lot of its coming from the BRIC countries, particularly China. Our banker is now China, who’s government don’t have a home ownership for all policy, but have some of the highest cash saving rates in the world. We’re effectively shipping all our cash over to China and living in their pocket.

Borrowing money isn’t a bad thing if the country/person uses it to invest in productive assets – things that actually generate more wealth for everyone. But housing doesn’t. The £550m+ that the government is putting forward to this is going to be squandered, our GDP will go down, we’ll finally default on our even bigger loans to China, and we’ll end up in an even worse position than 2008. That’s the long term prediction if the government keeps pushing bad policies like this forwards.

Why not put that money into infrastructure projects that generate more business in the UK, by investing in our woefully inadequate education system so the next generation of kids can actually get jobs and start companies, or take that cash and put it into small business loans to help our businesses grow, increase our exports, increase the tax the government actually makes, and start paying off some of our debt before adding to it!