Sunday, 22 February 2009

A genuine proposal for a crazy experiment in economics

Society is all about experimentation. I've been saying it a lot recently.

Public health care, education for all 5 to 16-year-olds, income based taxation, child benefit, law and enforcement of law - none of it is divine wisdom or pure science, it's just social experimentation. It begins from someone, or several people, sitting down and saying "Bear with me for a second - I think I've got an idea. What would happen if we... ?" and some time later, often many years later, we get to experience the concrete world's clues about whether it was a great idea, a terrible idea or a pretty-good-but-flawed idea.


Bear with me for a second - I think I've got an idea.

What would happen if we decided, collectively, that house prices were approximately correct ten years ago, at which point they'd been near enough stable for a decade?

What would happen if we said that anyone who had bought a house in the last ten years had been mis-sold to, and we accepted that as a society we have a collective responsibility through having allowed, and often encouraged, our housing to become a pyramid sales scheme?

What would happen if we opened up the option for anyone who had bought a home in the last ten years to have their mortgage reduced to the recalculated value of their home - taken as the price 10 years ago adjusted for inflation - in return for an agreement that should they sell it in the next decade they would have to do so at this new valuation readjusted for further inflation?

What if we provided the liquidity and bad asset underwriting the banks are scheming screaming for through this method? Of course they'd lose out on some of the profits they might otherwise make off the 125% mortgage they mis-sold to people who are now in negative equity... but isn't that their own fault for having been a huge part of the problem? After all, the Halifax & co released statements along the lines of "House prices will go up and up and up next year!" and thus pushed up unsustainable price inflation.

I have been asking this 'what if?' for a couple of days, and I think most concerns have an answer.

What if home owners don't want to say their home is worth £100k instead of £200k? Won't they be losing £100k?

- That's fine, it's not compulsory. If they believe they would be losing a fantasy £100k that no longer exists then they are welcome to cling on to it, and keep their £180k mortgage. If they agree that their house is only worth what someone will pay for it then they might see it as dumping £80k of debt instead.

Some people will get more debt relief than others!

- Yes. They will. If you believe that you miss out when someone else eats chocolate then you're likely to see it that way. I don't even have a mortgage. I just would like to live in a society where average families can afford avergage mortgages on average houses without both parents having to work two jobs. I think that's good for the world generally.

Some people won't deserve it - they were greedy to try to buy the house they wanted.

- True. But most people have just been desperately stretching themselves to buy normal family homes with a tiny patch of garden for the kids to mess about in. If 90% of recipients are deserving does it really matter if 10% should have made better decisions? Does it matter because it's character building for those ten percent to face repossession, even though housing homeless families, providing legal aid to people facing repossession is expensive to society too?

Most people didn't buy a home in the last ten years.

- True. But most of those people had bank accounts with the banks that provided the mortgages, so we collectively funded the whole scenario even if we didn't drink the kool aid ourselves. And if you were born early enough to have a salary sufficient to buy a house in the 1970s or 1980s does that really make you morally superior to folk who only turned 21 in they year 2000? Should you congratulate yourself on having cleverly decided to be born soon enough to get on the property 'ladder' before the latest boom cycle, or were you just lucky?

What about people who have buy-to-let mortgages and second homes?

- People who bought for investment purposes should have balanced the risk with the reward.  A home that you live in isn't an investment - it's a place to live. While I'm personally a fan of renting I can understand why many people, especially those with kids, felt that if they wanted stability and decent quality housing they had no choice but to buy a home. This would only apply to first homes - the one you actually live in.


The banks will get the money anyway. I believe that the best way of giving it to them is through clearing mortgages which should never, ever have been provided, which the government, the banks and the rest of us who didn't flood the streets protesting against an insane upward spiral in house pricing all collectively contributed to the existence of.

If you are interested in finding out whether the folk who make decisions about this sort of thing might take this proposal seriously then blog a link to this post and comment. I'll gather a list of links in, combine it with the comments, and send it as a petition to anyone I think might take an interest.

You never know.

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