Rising house prices and cheap credit are driving the wrong kind of growth | Economic recovery


T.he average house price, increased by £ 6,000 or £ 200 a day in April according to the Nationwide Building Society. Over the month, real estate costs rose 2.1% – the highest one-month increase since 2004.

Everywhere there are signs of a boom: buyers bid without even seeing the property they are looking for; agents asking for the best and last bids that far exceed the asking price; lenders trying to offset rising prices by offering cheaper home loan rates and simpler terms.

There is more to come. Despite evidence that the economy is coming out of its deep winter freeze faster than expected, the Bank of England will keep official interest rates at 0.1% this week. Threadneedle Street’s quantitative easing program creates the money that lubricates the real estate market.

At the Treasury, Rishi Sunak has extended the stamp duty holiday, which now expires definitively in September, and with rising prices, buyers have an added incentive to close their deals quickly. The fact that the housing market was in a slump last spring as a result of the first lockdown means double-digit house price inflation in the coming months.

In a way, this is good news. The UK is so dependent on the state of the housing market that the current burst of activity increases the likelihood of a rapid recovery from Covid-19. Homebuyers employ lawyers to make their transfers. They spend money on furniture and white goods to keep shops and distribution centers busy. Even without the feel-good factor caused by rising prices, there are significant spillovers when the market is warm.

That said, however, a fledgling property bubble isn’t welcome for a number of reasons. First, it already anchors serious inequalities between young and old, between rich and poor, and between owner-occupiers and tenants. It’s not immediately clear why a young couple is desperately saving to buy their first home, but needing an ever-increasing down payment, would consider rising prices a good thing.

The second problem is that this is the wrong kind of growth. There’s an awful lot of talk about the need to ‘rebuild’ from the pandemic, but that rhetoric strangely goes hand in hand with a high-quality recovery based on cheap money, property speculation and debt-driven consumption. Britain has been here many times before and it never ended well.

The third problem is that the boom will undoubtedly end at some point, either because the policy is tightened, because prices get so high that start-ups are pushed out and the market rises, or because there is some other negative shock.

As things stand, the likelihood of the kind of severe policy tightening that would lead to a crash is limited. It is true that the end of the stamp duty holiday in the fall acts like a rocky edge, slowing down activity in the winter. But the Bank of England should hike interest rates significantly later this year – to between 2% and 3% – putting buyers in serious financial trouble. That is possible, but not likely.

The market losing momentum as prices become too high for first-time buyers seems a much more likely scenario, and is indeed what happened to control the boom in the mid-2000s. But an unexpected shock – another wave of the pandemic, a sharp rise in unemployment as companies cannot cope with the withdrawal of government aid – would certainly weigh heavily on the market. Both are possible.

Banks are not as optimistic as they seem about recovery

The week of the British bank results ended with a bang. After more than a year of lockdowns, Barclays gave the British hope by stating that the UK was on track for its biggest boom since 1948.

Chief executive Jes Staley praised the UK’s introduction of vaccines and predicted that the “massive pent-up demand” was about to be unleashed by money-rich consumers lucky enough to keep their jobs during the pandemic.

But while making headlines, his prediction masked some UK banks’ reluctance until the boom actually occurs.

“While the evidence of recovery is encouraging, we have continued to look cautiously at the impact of the pandemic on the business,” said Staley, with much less fanfare.

So instead of following HSBC, Lloyds and NatWest in releasing hundreds of millions of pounds originally intended to absorb the blow of possible defaults, Barclays took on an additional £ 55 million, saying it was the effect of tapering off would keep a close eye on government aid. So much for charging full throttle in the “Roaring 20s”.

Meanwhile, Nat West’s own cautious message was buried by renewed interest in plans to move its headquarters from Edinburgh to London in the event of Scottish independence.

Although it reported predicted profits and released about £ 102 million in bad reserves, CEO Alison Rose warned it was too early to comment on the impact of the looser lockdown restrictions until later this year.

Barclays also reminded investors that the UK’s economic allies are still struggling. The bank said it tried to support its 20,000 Indian staff as they handled a devastating spate of Covid cases – a reminder that the uneven global recovery could threaten even the most optimistic forecasts.

BT’s early bath has left the Premier League short of a major player

The BT Sport TV operation in action during a Premier League game last year.
The BT Sport TV operation in action during a Premier League game last year. Photo: Justin Setterfield / AFP / Getty Images

BT’s ten-year multi-million dollar mission to become a sports channel that rivals Sky is over. The telecom giant is looking a strategic partner to inject money into BT Sport, its pay-TV service that broadcasts Premier League and Champions League football so it can focus on upgrading the national internet and mobile networks and reviving a mediocre stock price.

BT hopes to find a player – be it Amazon, Disney, sports streamer Dazn, ITV or private equity – who is willing to help defray the enormous costs of sports rights. In reality, it effectively called full-time several years ago to expand the service – losing £ 2 billion and barely profitable, with only a few million customers.

Ten years ago BT Sport succeeded the loss of millions of broadband customers to Sky stopped, but now it casts an increasingly clumsy and unjustifiable shadow on the balance sheet. Shareholders are focused on BT’s £ 12bn investment in broadband, billions more for the 5G rollout, the £ 9.5bn pension shortfall and dividend payments. Spending another £ 2 billion on top-tier football deals doesn’t look good.

Three years ago, BT and Sky signed a peace deal: A channel-sharing agreement that eliminated the need for fans to have separate pay-TV subscriptions to watch all matches. It led to a £ 600 million drop in the value of Premier League television rights. Since then, BT has been happy as a ‘viable second’ competitor and Sky, already disciplined in sports rights, has become even more so since the takeover by the American giant Comcast.

The Premier League is facing another drop in earnings when the rights for the three seasons to 2025 are sold later this year, and is looking to renew existing deals with Sky, BT and Amazon. After the disastrous reputation damage the European Super League has caused to the beautiful game, sports rights holders hope that as BT comes off the field, a new player will perform to ensure that big-money TV deals remain a part of the game .

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