Fixing our broken housing market
10 February 2017
Fixing Our Broken Housing Market
This week saw the release of a hotly anticipated government White Paper outlining the problems with the UK’s housing market, and the ways in which Theresa May’s government intend to fix it. Some elucidating statistics provided in the paper show that the average residential property in the South East increased in value by £29,000 during 2015 at a time when the average annual pay in the region was only £24,542, essentially meaning that houses are earning more than the people living in them. Over the same period, returns on the average London home made the equivalent of £22 per hour over the working week - substantially above average hourly pay in the capital. Another jaw-dropping statistic contained within the report indicates that in the early 1990s a low-to-middle income earning household saving a twentieth of their wages each month would have enough for a deposit on a house after three years, however, today it would take nearly 25 years do the same. The reason for this seemingly unsustainable rise in house prices? Planning permission, the pace of development and the structure of the housing market have left us with too few houses. Government plans to address these issues include reforms to planning processes, increased funding for non-profit developers and a clearer framework for provision of utilities. A full copy of the report can be foundhere.
Populist right-wing Front National leader takes the lead in French elections
For most of the build-up to the French presidential elections, Front National (FN) leader Marine Le Pen was considered no more than a vocalisation of the electorate’s discontent with the state of French society. Accordingly, commentators gave her only an outside chance of rising to power. The most recent polls now place her as the front runner in the first round of voting. The consensus is still that she will be defeated in the second round, where conservative elements are expected to rally around another candidate (probably centrist candidate Emmanuel Macron) in order to prevent the FN’s ascent, but the political landscape is now much less certain. Driving uncertainty is a developing scandal involving former presidential front runner François Fillon’s employment of family members at the state’s expense. Allegedly, since 1988 Mr Fillon has paid his wife a pre-tax sum of over eight hundred thousand euros. He is also said to have put his children on the state payroll whilst they were students. Politicians employing family members is no strange thing in France, but investigations by journalists have uncovered very little evidence that Ms Fillon actually did any work. The FN’s policies pander to anti-immigration sentiment sweeping the globe in recent times, and perhaps most significant from a financial markets perspective, Le Pen plans to return France to the franc. A redenomination of French debt from euros to francs would be seen as a technical default, and this is perhaps why the spread between French and German government bonds is so wide at present (i.e. French bonds are yielding more than German bonds, indicating the higher risk associated with them).
Considering we have looked at goings on in the White House every week since November, we’ve decided to look elsewhere in this week’s Wrap, however we are acutely aware of the impact Trump’s controversial travel ban is having on global markets. The executive order preventing travel from several predominantly Muslim countries was blocked this week, and if Trump’s twitter feed is anything to go by (“SEE YOU IN COURT, THE SECURITY OF OUR NATION AT STAKE! [sic]”) the story is far from over. The US president is meeting Japan’s prime minister Shinzo Abe this evening, and in light of both the Trump administration’s views on currency manipulation and Japan’s monumental quantitative easing programme, this could well be a talking point early next week. In the comparatively mundane world of economic data we have a number of inflation readings across Europe, the UK, the US and China that have the potential to move markets.