The ever-reliable Bryan Appleyard had an excellent piece on the economics of the ageing baby boom in this week's Sunday Times magazine. Appleyard -- a boomer himself, as am I -- argues that the self-indulgent lifestyle of the baby boom cohort has ensured that the boomers' children will be much poorer than their parents.
In essence, the boomers' refusal to live within their means, and their willingness to take on debt, has distorted the property market, keeping the young off the "property ladder". Worse, many boomers see their home as their pension plan. They intend to borrow against it in order to keep consuming into their dotage. As a result, the benefits of the higher value of the property will be lost to their offspring, who will inherit their parents' debt along with the house. To complete the misery of the younger generation, the boomers' life expectancy continues to increase, placing an even greater burden on a dwindling working population.
I agree with most of this, although I think Appleyard might have acknowledged that the boomers are not the first generation to figure out the joys of leaving the bills for someone else to pay. Governments have been doing this for centuries, most often in order to fight wars. However, the example the boomers are following is much more recent. After the war, the boomers' parents, dubbing themselves the Greatest Generation and looking for a reward for winning the war, started paying themselves state pensions that they had never contributed to. Once public pensions were put on a pay-as-you-go basis, in the UK and elsewhere, the die was largely cast. Add in open-ended spending commitments like the NHS or its equivalents elsewhere, and you start to see why the cost of Government has spiralled over the past half century.
But at least the Golden Generation, for the most part, passed its assets unencumbered to its children, the boomers. It's my generation that wants it both ways, yelping in pain at any attempts to control the cost of social programmes, unwilling to pay the taxes to fund them properly, and determined to squeeze all of the juice out of our own assets, rather than providing for the next generation.
Appleyard thinks the young are certain to fight back, and cites one or two examples (a banner at a French rally: "we won't pay your debt"). He acknowledges that a few politicians are at least attempting to focus attention on the issue but, since the old (i.e. the boomers) will both outnumber the young in the years to come, and outvote them at election time, it isn't easy to visualise a happy ending. I find this distressing, as I have never believed that the young owe much to the old: if you reach 60 and you don't have a pot to pee in, that's probably not your kids' fault.
The US economist Lester Thurow used to say that the job of government was "to represent the future to the present". Does that sound like any government you know? Thought not.
Monday 28 May 2007
Thursday 24 May 2007
HIPs don't fly
Considering the British obsession with property, it's amazing that the process of buying and selling homes in England and Wales is so poorly organised. The estate agents are unregulated and largely untrained, and the "multiple listing" system that makes property dealing so much easier in North America is unknown. Worse, the legal process is so drawn out and convoluted that it opens up all kinds of opportunities for naughtiness. I recently sold a property. When the paperwork was almost complete, the buyer approached me through his agent, trying to cajole me into a lower price in exchange for a quick closing. (I refused and, wondrous to relate, the deal went ahead as originally agreed). In a rising market this so-called "gazundering" is less common than the infamous gazumping, in which a greedy seller tries to squeeze more money out of a desperate buyer by threatening to accept a competing offer.
The Blair Government, never shy of introducing inappropriate regulations, hoped to address this through the introduction of "Home Information Packs" (HIPs), which every vendor would be obliged to provide to prospective buyers. As originally envisaged, the HIP would have included details on the property title, an energy efficiency report and a report on the condition of the property. This last item was dropped after lenders made it clear that they would still insist on a separate survey before advancing funds against a property.
In recent months, in keeping with the rise in "green" awareness, the Government has placed most emphasis on the energy efficiency report as the key element of HIPs, rather than the title report and other legal details that might have helped to speed the selling process -- which was, remember, the original purpose. This week, however, the Government has been forced to back off again, delaying the introduction of HIPs by two months (to August), and phasing them in, starting with larger properties. The delay is partly related to the fact that in true New Labour fashion, nobody paid much attention to seeing whether the fine intentions could actually be implemented. Reports suggest there is only one person registered to perform the energy efficiency audit for the entire London area.
HIPs are a bureaucratic solution to a problem that could be solved much more easily. The Scottish system of property transactions has much to recommend it. A signed offer from the purchaser, once signed back by the vendor, is binding on both parties. This doesn't mean that deals can't collapse, for example if the property survey is unsatisfactory or the mortgage falls through. But it does limit the opportunity for gazumping and all the other shenanigans that make buying a house in England such a pain. Reports suggest that Gordon Brown will persevere with HIPs when Blair finally steps aside. He would do better to consider ways of bringing the Scottish system down south.
The Blair Government, never shy of introducing inappropriate regulations, hoped to address this through the introduction of "Home Information Packs" (HIPs), which every vendor would be obliged to provide to prospective buyers. As originally envisaged, the HIP would have included details on the property title, an energy efficiency report and a report on the condition of the property. This last item was dropped after lenders made it clear that they would still insist on a separate survey before advancing funds against a property.
In recent months, in keeping with the rise in "green" awareness, the Government has placed most emphasis on the energy efficiency report as the key element of HIPs, rather than the title report and other legal details that might have helped to speed the selling process -- which was, remember, the original purpose. This week, however, the Government has been forced to back off again, delaying the introduction of HIPs by two months (to August), and phasing them in, starting with larger properties. The delay is partly related to the fact that in true New Labour fashion, nobody paid much attention to seeing whether the fine intentions could actually be implemented. Reports suggest there is only one person registered to perform the energy efficiency audit for the entire London area.
HIPs are a bureaucratic solution to a problem that could be solved much more easily. The Scottish system of property transactions has much to recommend it. A signed offer from the purchaser, once signed back by the vendor, is binding on both parties. This doesn't mean that deals can't collapse, for example if the property survey is unsatisfactory or the mortgage falls through. But it does limit the opportunity for gazumping and all the other shenanigans that make buying a house in England such a pain. Reports suggest that Gordon Brown will persevere with HIPs when Blair finally steps aside. He would do better to consider ways of bringing the Scottish system down south.
Monday 14 May 2007
Just go away, you barmy creep
I was planning to write a detailed obituary for the Blair years, but the mainstream media have expended so much energy on the subject that it almost seems like a waste of time. I have read an enormous amount of this stuff, from both left and right wing viewpoints. The most memorable phrase I came across was from David Aaronovitch, in a two-hander with Matthew Parris in the Times. Aaronovitch summarised Blair as a "barmy creep" -- and he was supposed to be arguing the pro-Blair position!
Anyway, for what it's worth, the pros and cons for the barmy creep look something like this:
PRO:
Northern Ireland: you can't take this one away from Blair. I watched last week's ceremonies at Stormont in utter disbelief.
Improved social services: but you'd have to say that the amount of money thrown at things like the NHS should have produced much better results.
The economy: yes, it's grown steadily throughout the Blair years, but does he deserve much of the credit? It would make just as much sense to praise him for Helen Mirren's Oscar, or the good weather we had in April.
CON:
Iraq: no more need be said.
Sleaze: a depressing catalogue, what with cash for honours, Mandelson, Stephen Byers, David Blunkett, Cherie's real estate ventures, and so on.
Spin: the Blair Government has been all style and no substance, sometimes with lethal effect, as in the David Kelly affair. This has directly led to a major increase in public distrust of all politicians -- which may not be a bad thing, but is surely not what Blair was hoping to achieve.
Scottish nationalism: again, not necessarily a bad thing, but certainly the exact opposite of what devolution was supposed to bring about.
Wasteful public spending: in addition to the inefficient spending of the increased funds allocated to the NHS and to eduation, we have seen money poured into the Millenium Dome, the Olympic disaster-in-waiting and the quite pointless Trident missile replacement.
Blair's attitude to the job is summed up by his decision to quit in the middle of the last week in June. This means that he, rather than Gordon Brown, will attend the G8 and EU summits as Prime Minister, which is reprehensible. It also means that Brown will have almost no Parliamentary time to establish himself before the summer recess.
As a distinguished former colleague once remarked about a difficult client, "I wouldn't piss on him if he was on fire, but I might if he wasn't". Just go away, you barmy creep.
Anyway, for what it's worth, the pros and cons for the barmy creep look something like this:
PRO:
Northern Ireland: you can't take this one away from Blair. I watched last week's ceremonies at Stormont in utter disbelief.
Improved social services: but you'd have to say that the amount of money thrown at things like the NHS should have produced much better results.
The economy: yes, it's grown steadily throughout the Blair years, but does he deserve much of the credit? It would make just as much sense to praise him for Helen Mirren's Oscar, or the good weather we had in April.
CON:
Iraq: no more need be said.
Sleaze: a depressing catalogue, what with cash for honours, Mandelson, Stephen Byers, David Blunkett, Cherie's real estate ventures, and so on.
Spin: the Blair Government has been all style and no substance, sometimes with lethal effect, as in the David Kelly affair. This has directly led to a major increase in public distrust of all politicians -- which may not be a bad thing, but is surely not what Blair was hoping to achieve.
Scottish nationalism: again, not necessarily a bad thing, but certainly the exact opposite of what devolution was supposed to bring about.
Wasteful public spending: in addition to the inefficient spending of the increased funds allocated to the NHS and to eduation, we have seen money poured into the Millenium Dome, the Olympic disaster-in-waiting and the quite pointless Trident missile replacement.
Blair's attitude to the job is summed up by his decision to quit in the middle of the last week in June. This means that he, rather than Gordon Brown, will attend the G8 and EU summits as Prime Minister, which is reprehensible. It also means that Brown will have almost no Parliamentary time to establish himself before the summer recess.
As a distinguished former colleague once remarked about a difficult client, "I wouldn't piss on him if he was on fire, but I might if he wasn't". Just go away, you barmy creep.
Thursday 3 May 2007
Deadlier than the Mail
The publishers of the Daily Mail -- the only mainstream UK paper that was pro-Hitler in the 1930s -- have re-established their credentials as the country's most despicable media barons by "outing" BP Chairman Lord Browne as a homosexual. There is no conceivable "public interest" angle to this -- or at least there wasn't until the threat from the Mail panicked Browne into perjuring himself. The Mail must be thrilled -- the man has lost both his personal privacy and his reputation as a businessman of integrity. The paper has spent most of this week dancing on his grave, bragging that his career is in tatters. It is not an edifying sight.
One aspect of the coverage of this story elsewhere in the media has puzzled me: the widespread suggestion that Lord Browne kept his sexual orientation hidden because of persistent homophobia in the "City". Yet it seems his homosexuality was well-known throughout the oil industry. It didn't seem to stop him reaching the most senior position in one of the sector's biggest companies, so to suggest that the "macho" nature of oilmen forced him into the closet seems a bit odd. It's much more likely that he really didn't think it was anyone else's business.
I never worked in the oil industry but I did spend many years in the "City" (which is, by the way, not the same thing). When I moved to my Bank's London trading room, I worked with a significant number of openly gay colleagues. They were, as my mother would say, not backward in coming forward, maintaining a little trophy wall of gay icons, featuring (if memory serves) a Robbie Williams calendar. One can only imagine how the firm would have reacted if one of the straight male employees had pinned up an FHM calendar. But we were all too busy making money to take any of this seriously. There may well be workplaces in Britain where homosexuals are not accepted, but there are a lot fewer now than there were a decade or two ago, and I would be very surprised if there were very many of them in the "City".
One aspect of the coverage of this story elsewhere in the media has puzzled me: the widespread suggestion that Lord Browne kept his sexual orientation hidden because of persistent homophobia in the "City". Yet it seems his homosexuality was well-known throughout the oil industry. It didn't seem to stop him reaching the most senior position in one of the sector's biggest companies, so to suggest that the "macho" nature of oilmen forced him into the closet seems a bit odd. It's much more likely that he really didn't think it was anyone else's business.
I never worked in the oil industry but I did spend many years in the "City" (which is, by the way, not the same thing). When I moved to my Bank's London trading room, I worked with a significant number of openly gay colleagues. They were, as my mother would say, not backward in coming forward, maintaining a little trophy wall of gay icons, featuring (if memory serves) a Robbie Williams calendar. One can only imagine how the firm would have reacted if one of the straight male employees had pinned up an FHM calendar. But we were all too busy making money to take any of this seriously. There may well be workplaces in Britain where homosexuals are not accepted, but there are a lot fewer now than there were a decade or two ago, and I would be very surprised if there were very many of them in the "City".
Wednesday 2 May 2007
Hockey cards and holiday casas
A couple of decades ago in Canada, there was a sudden upsurge of interest in collecting those picture cards that you sometimes used to find in packets of chewing gum -- you know, the ones with blurry pictures of your sporting heroes and a few details of their careers. All at once, the perception arose that these were an investment you could make money on. Shops opened up where you could buy cards to fill in the gaps in your collection, and some of the newspapers even started regular columns to report on the trend.
Needless to say, the chewing gum makers saw an opportunity to boost sales, so the issuance of cards multiplied dramatically. It's not clear what happened to all of the extra gum that you had to buy to get your mitts on the cards, but there's probably a lot of it mouldering in closets all over Canada. Of course, the jump in the supply of cards ended their appeal as an investment, and the whole mania just faded away. There's still money in trading cards for serious collectors who can get hold of rarities, but the idea that a lot of people could get rich off them was firmly put to rest.
I'm reminded of these events by the sudden downturn in the property market in Spain. A couple of years ago a work colleague was kind enough to let me use his villa on the Costa del Sol for a week. The villa was lovely (thanks again, Frank and Ann!), in an established neighbourhood and with the inevitable golf course right behind the back wall. But the signs of overheating in the market were everywhere. There were construction cranes at every point of the compass, and it was clear that most of what was being built was not of the same high standard as my colleague's place.
Spain has been building 800,000 properties a year in recent years -- far more than the number in more populous countries like the UK, Germany or France. Spain's indigenous population is hardly growing at all, so the premise for the whole construction boom has been the assumption that foreigners from colder climes would continue to pile in to the market to pick up holiday homes.
Until recently, the British, Germans and Scandinavians have been happy to oblige. But there's a real problem with the idea that everyone can make money out of being an amateur landlord. If you're buying a place to use for one month a year, then unless you're very rich you are counting on either a capital gain or a stream of rental income to make it worth your while. However, prices are set by supply and demand, not just demand. Even if the buyers keep coming, so long as developers keep slapping up more units, there's not much chance of a sustainable rise in prices. And as far as the rental income is concerned, the odds are that the guy you thought you could rent to each year has just bought the new place down the street.
A lot of people are going to get hurt as this bubble deflates. Property companies in Spain are saying that those who bought five years ago can still count on capital gains. With new properties being offered below the price of resales, I doubt if those gains will survive for long, particularly if a lot of owners panic and try to cash out. Properties purchased "off-plan", a favourite money-making wheeze until very recently, may never be built.
There may be some bargains to be had in the next year or two, but I would only be tempted if I thought I could make adequate use of the property myself. The days of making easy money in Spanish property are probably gone for a good long time. So where next for the more adventurous investor? Well, maybe it's time to take another look at hockey cards.
Needless to say, the chewing gum makers saw an opportunity to boost sales, so the issuance of cards multiplied dramatically. It's not clear what happened to all of the extra gum that you had to buy to get your mitts on the cards, but there's probably a lot of it mouldering in closets all over Canada. Of course, the jump in the supply of cards ended their appeal as an investment, and the whole mania just faded away. There's still money in trading cards for serious collectors who can get hold of rarities, but the idea that a lot of people could get rich off them was firmly put to rest.
I'm reminded of these events by the sudden downturn in the property market in Spain. A couple of years ago a work colleague was kind enough to let me use his villa on the Costa del Sol for a week. The villa was lovely (thanks again, Frank and Ann!), in an established neighbourhood and with the inevitable golf course right behind the back wall. But the signs of overheating in the market were everywhere. There were construction cranes at every point of the compass, and it was clear that most of what was being built was not of the same high standard as my colleague's place.
Spain has been building 800,000 properties a year in recent years -- far more than the number in more populous countries like the UK, Germany or France. Spain's indigenous population is hardly growing at all, so the premise for the whole construction boom has been the assumption that foreigners from colder climes would continue to pile in to the market to pick up holiday homes.
Until recently, the British, Germans and Scandinavians have been happy to oblige. But there's a real problem with the idea that everyone can make money out of being an amateur landlord. If you're buying a place to use for one month a year, then unless you're very rich you are counting on either a capital gain or a stream of rental income to make it worth your while. However, prices are set by supply and demand, not just demand. Even if the buyers keep coming, so long as developers keep slapping up more units, there's not much chance of a sustainable rise in prices. And as far as the rental income is concerned, the odds are that the guy you thought you could rent to each year has just bought the new place down the street.
A lot of people are going to get hurt as this bubble deflates. Property companies in Spain are saying that those who bought five years ago can still count on capital gains. With new properties being offered below the price of resales, I doubt if those gains will survive for long, particularly if a lot of owners panic and try to cash out. Properties purchased "off-plan", a favourite money-making wheeze until very recently, may never be built.
There may be some bargains to be had in the next year or two, but I would only be tempted if I thought I could make adequate use of the property myself. The days of making easy money in Spanish property are probably gone for a good long time. So where next for the more adventurous investor? Well, maybe it's time to take another look at hockey cards.
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