Brown launches UK's "Ownership Society" as panic sets in

The Guardian is reporting Brown aims for 200,000 new homes per year

The government announced plans for a big house-building programme yesterday in an effort to avoid a looming crisis which threatens to lock huge numbers of would-be homeowners out of the housing market within the next 20 years.

It wants to see up to 200,000 new homes a year in England - an increase of a third on current levels - as it seeks to ensure that up to three out of four people get the chance to become homeowners.

The government argues that there is a choice between a "step change" in housing provision which would match supply and demand, and the social and economic damage caused by unaffordable housing.

It is backing its homes-building strategy with a series of measures including help for first-time buyers, a streamlined planning process and legislation for real estate investment funds that will increase the money available for housing development. It is also considering a windfall tax on landowners' profits when they get planning permission for developments to help pay for the infrastructure in new communities.

But the plans were criticised by housebuilders who said a windfall tax would strangle development and also from green campaigners worried about the impact on the environment.

In his pre-budget speech Gordon Brown said that though there were now more than one million more homeowners than in 1997 Britain still needed to bridge the gap between the numbers of homes being built and the rate at which new households were being created. He drew particular attention to the need "to build houses young people can afford". Investment in social housing, which has doubled since 1997, is set to rise further, he said

In a joint announcement giving more details, Mr. Brown and the deputy prime minister, John Prescott, said: "The choice is clear: meet the needs of future generations or deny them the opportunities we enjoy. Extend the benefits of home ownership towards 75% of households or accept that unaffordable housing will constrain our social and economic ambitions. Support affordable housing or see growing inequalities and disadvantages."

Yvette Cooper, the housing and planning minister, said later current house-building levels were running below those at the end of the second world war and the 1980s. "The evidence is clear - if we fail to increase the number of new homes then within 20 years less than a third of30-something couples will be able to afford to buy a home of their own," she said.

Mr. Brown also gave more details of plans for more affordable homes. He said he had struck a deal with three leading mortgage lenders which would mean home-buyers only need to take out a mortgage for 75% of the property's value, with the lender and the government sharing the rest of the cost.

One of the most controversial parts of the government's housing package is the decision to consult on a windfall tax on profits on land granted planning permission. According to the government's figures agricultural land in England has a market price of �9,280 per hectare while industrial and warehouse sites sell for about �632,000. That compares with the price of land with planning permission for new houses of some �2.46m per hectare.

Mr. Brown said he would be consulting on "proposals for a local planning gain supplement to give local authorities a fair share of planning gains to invest locally".

But Philip Davies, chief executive of Linden Homes said: "With Britain in the grip of a housing crisis, the implementation of a planning gain supplement ... would only further strangle housing supply in the UK."

Clare Hartnell, a tax partner at Grant Thornton, said historically such schemes had proved unsuccessful.

"The key is the rate at which PSG will be levied." she said.

Can someone please tell me why it is the role of government anywhere to make sure people own houses? Are renters second class citizens? Why should the government care if someone owns a house or if someone rents a house? Besides, who really owns a house anyway? The only way many people can afford a house is by taking out an interest only loan for 30 years. How many people expect to be able to pay off their mortgages completely? Heck, most of the advice I see says you are a sucker to do that. In fact, one of the reasons housing is not affordable is because of silly governmental programs designed to make "housing affordable". The US has 280 such programs in addition to Fannie Mae and Freddie Mac. Are these programs working or are they part of the problem?

Actually I do not think affordable housing is what is REALLY on Brown's mind at all. Quite frankly I think he is scared half to death of an impeding economic collapse and is looking for anything and everything to make his silly budget projections look better. I offer the following as proof:

Stephen King is reporting Brown's goalposts have not just been shifted, but moved into a different stadium.

The Chancellor is seriously short of revenues, a shortage that has both persuaded him to launch a raid on oil companies and circumscribed his room for policy action.

His problems, though, run deeper than a simple revenue shortfall. His whole framework is creaking under pressure from events beyond his control. Because of this, he is shifting the goalposts in ways that undermine the credibility of his "golden rule", the lodestar for his fiscal decisions.

The possibility that wages are weak because of global competitive pressures rather than weakness of domestic demand could easily come back to haunt Mr Brown.

All economists have problems measuring the output gap, so the Chancellor's decision to shift the goalposts is hardly a heinous crime. On closer inspection, though, it appears that the goalposts have not just been shifted a little way across the pitch: rather, they've been sent off to an entirely different economic stadium.

Over the summer, the Chancellor decided, on the basis of revised output data, that the latest economic cycle began in 1997. Up until then, the Chancellor had argued that the cycle began in 1999. The advantage of this redefinition is obvious: it provided the Chancellor with a couple of extra budget surplus years, thereby increasing his chances of meeting his golden rule over the course of the - now-lengthened - economic cycle. In yesterday's report, he went a stage further.

In the March Budget, Mr. Brown's numbers suggested that the current economic cycle would come to an end in 2006-07. He's now suggesting that the cycle will come to an end in 2009-10. This decision - seemingly innocuous but hugely influential on his ability to meet his fiscal rules - gives him a few extra years in which to make up the revenue shortfalls that have left his budgetary coffers so short of cash.

I have no idea of where we'll be cyclically at that stage. Neither has the Treasury. And nor has the Chancellor. But it's a neat trick: rules, it seems, are there to be bent, if not broken.

The contradictions within the report reveal a chancellor who is no longer enjoying an easy economic ride. He wants to argue that growth has not been as weak as the official numbers suggest. He wants to argue that the output gap is bigger than previously thought. He wants to argue that the labour market is benefiting from supply-side flexibility. And he wants to argue that the economic cycle will continue for another three years relative to the projections made nine months ago. On some of these observations, he may be right. It is highly unlikely, though, that he'll be right on all of them.

Gordon Brown is clearly in a panic.
His bragging about the "Golden Rule" is about to come back and haunt him as he is now hoping that some sort of miracle silver bullet can be found in housing. Bear in mind this is the man that sold a huge chunk of England's gold at $250/oz marking the bear market bottom. Did he think gold was going to zero?

Brown's troubles are just beginning. The North Sea has peaked and sometime soon the UK will be an importer of oil. His economic cycle was revised from 1999 to 1997 on the back end and now he is revising the cycle end from 2006-2007 to 2009-2010. That is not enough it seems and his panic proves it.

I have some advice for Gordon Brown.
Bush, Snow, Greenspan and Bernanke can use the same advice.

• Let the market set interest rates
• Get back on the gold standard
• Stop spending more than you take in
• Get out of the "affordable housing" business
  
• Let the market resolve economic cycles instead of you trying to dictate them

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/