5 September 2008

Paying the price of property greed

Once upon a time, in a land not far from here, property was bought to live in, not to fund individual pension plans or as a means of turning a quick buck.

Ordinary people with ordinary jobs lived in rented accommodation until they could scrape together the deposit – usually around 10% of the purchase price – and then applied for a mortgage based on 2.5 or 3 times of their income. For those who could not get the deposit together or were not earning enough to get a mortgage, there was local authority hosing or a range of private renting options.

Somewhere it all went pear-shaped.

Perhaps the first step to where we are now was the great ‘Council House Sell-Off’ which effectively took a huge swathe of previously rentable accommodation out of the property mix. This would not have been quite such a disaster if local authorities had continued to build homes, but they didn’t.

But what really screwed up the property market and led to the so-called ‘credit crunch’ (a term I am starting to hate almost as much as ‘Shaker style’), was good old-fashioned greed.

First there were greedy, commission-fuelled sales people, selling expensive loans to people who could not afford to repay them, in the sure knowledge that when the fertilizer hit the air-conditioning they, the sales person, would be long gone.

Greedy banks were more than happy to lend more money than the property was currently worth to people who wanted to jump on the escalating property price bandwagon.

People, who in some cases could barely balance a household budget, were encouraged to take out buy-to-let mortgages and become overnight property barons.

Greedy developers meanwhile, said “stuff the family home, let’s build shed loads of one and two-bed properties for those Jonnies with the buy-to-let mortgages”.

Boom went property prices. And after boom comes bust - as sure as night follows day. When property prices get to a point that the first-time buyer cannot get onto the property ladder the whole market comes to a juddering halt. And it stays quiet until the first time buyer can kick-start the market again.

But where the current correction in property prices (a 10% reduction in prices that have gone up by over 200% in the last five years can hardly be called a ‘slump’), is different from previous corrections is that the very institutions that largely caused the problem with reckless and irresponsible lending – and made considerable hay while the sun shined – now want to be bailed out.

And we are all being asked to pay the price of this greed. While the market for kitchens and bathrooms is not as bad as some of the more dramatic headlines may suggest, it is quieter than it should be for some. I for one would not like to be selling ‘entry level’ kitchens or bathrooms.

There is good business still being done amongst credit-worthy customers who want to improve their property and enjoy the fruits of their home improvements rather than just ‘do up’ a property for a quick sale.

What is needed is not so much a ‘rethink’ on our attitude to property but more an ‘oldthink’. Until we can return to thinking of our homes as a place to live rather than a get rich quick scheme, we are all at the mercy of the greedy few that make us all poorer by their selfish actions.

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