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On target?

Evan Davis | 10:35 UK time, Thursday, 10 July 2008

Given the news from home-builders this week, there were a lot of potential questions for Caroline Flint, the housing minister who came on at 8.10.

I probably tried to squeeze too many of them in.

Obviously the job losses announced by Barratt and other developers was one issue that had to be raised. It was interesting that she was not ready to retreat from the target that 3m new homes will be built by 2020.

It was ambitious before the downturn, but we'll be drifting off track imminently.

But there were two other questions I was keen to engage her in - rather complex ones that were hard for her to answer in the time available.

First, was the general one on house prices: does she want them to stay up, or go down? I asked it because there's a tendency for people to hold contradictory views - both in wanting "more affordable homes" and ever rising house prices.

Ms Flint herself got round the possible contradiction by quite reasonably expressing her desire for a stable housing market. But she also wanted more homes to be built, something that if she achieved (in any significant measure) would tend to drive the price down.

It's an important issue. In general if we think the price of something has gone up to an unsustainable level, we should surely want it to come down to a sustainable one, painful as the adjustment might be.

The second more specific question I would have liked more time to discuss was on the subject of newly-built city centre flats. The anecdotal evidence suggests there are a lot of them on the market struggling to sell. The question is whether we encouraged too many of them, perhaps as a result of government targets that encouraged high-density development?

I think we should come back to that one, as there do seem to be an awful lot of new two bedroom flats, and not many takers for them.

Comments

  • Comment number 1.

    While I was living in Manchester you couldn't walk through the city centre without seeing a new "Luxury Apartment Development". Even before the downturn I thought the market was heavily over-saturated. I suspect there are some good deals on city centre living to be had these days.

  • Comment number 2.

    Evan

    While I take on board your comments above, it was a bit depressing to hear you take up the persistent interrupt method of interviewing. Demanding a yes/no answer when discussing complex and/or sensitive issues seems a waste of air time.

    Let's hear politicians explain what they are doing and why. Ask them hard questions, demand they explain how what they are doing will achieve the stated goals. Call them to account when they do not meet previously stated goals. Let's not persist at sound-bite answers I suspect are for re-packaging as headlines in subsequent bulletins rather than informing listeners.

    I have generally been enjoying your interviews because they do usually meet these criteria. Indeed, with John Humprey's reporting from Iraq, I thought how good he was doing that rather than leading the Today inteviews!

  • Comment number 3.

    Evan - always been a great admirer of your work. Economic questions are too important to be left to journalists who are not specialists in the subject and as the economy is a frequent topic on the Today Programme, it's great to hear you on the show, as a regular presenter, giving the politicians some aggro in response to their evasive non-answers.

    (Consider this a response to Elstevester's comment).

    With depressing regularity, we listen in vain for a politician to give a straight answer to a straight question. I can see why Caroline Flint didn't want to answer the question about house prices: whatever she answers, she imagines someone will be upset. Truth is, if she gave a straight answer to a question, any question, we would be so stunned we wouldn't know what to do except applaud her for speaking her mind.

    Sadly, that isn't going to happen. When it comes to the relationship between politicians and the media, I'm afraid it will always look like a case of the greyhound chasing the rabbit: the rabbit usually wins because the rabbit is running for its life and the greyhound is only running for its dinner.

    Keep up the good work.
    Tom Reeve

  • Comment number 4.

    There is good demand in many city centres for rented apartments. A good opportunity maybe for 'buy to rent' investors?

  • Comment number 5.

    Evan,

    What concerns me in all the debate about house prices and the indices used to say if prices are going up or down.

    I did an Ergonomics degree that included lots of stats. The housing stats are based on a very few sales and the variability of the housing stock is massive. For example, terraces where I live in Sheffield are still selling at the same prices and slightly higher than last year.

    If people decide to buy terraces instead of semis, it does not necessarily mean prices of comparable houses are dropping which is what the headlines imply.

    Even within my terraced area, there is a huge variation in prices. My property is worth 30-50% more than other 3-bed terraced homes on my street. If I sold, it would raise the average price immensely but misleadingly.

    Similarly, the quality of housing stock has greatly improved over the last 20 years as people have converted garages, added conservatories, better glazing, etc etc. Most houses on my street are far better now than when I moved here in 1993. One three-bed is now a five-bed. So, once again, there is no true price comparable.

    My concern is that lack of true price comparables, small sample size and the use of a blanket average could be both meaningless and dangerously misleading.

    What is your opinion on the reliability of the figures and do you really believe the figures are useful? Do they exaggerate the hihgs and lows leading to unnecessary volatility?

  • Comment number 6.

    Evan:

    House prices have to fall substantially (30% or more) for us to get to a 'stable market'. Too many flats: definitely. Not only too many, but too many badly built ones at that. Why didn't she give a straight answer: well, isn't that what New Labour woodentops do as a default position? As for you, no2 elsetevester, give us a break, have you thought that the problem is that these politicians actually like to give 'complex' answers to what are broadly simple questions? The only reason Evan and is associates interview like they do is because of the utter inability of most politicians to give a straight answer to a straight question.

  • Comment number 7.

    Are we wrong in assuming that politicians have any answers when they're questioned in interviews? I may be becoming paranoid, but I get the feeling that the people who shape the financial future are never heard or seen by folk like me - and certainly never interviewed.

  • Comment number 8.

    Elstervester is partially right. I entirely agree that John Humphreys is better in Iraq than doing interviews in the studio. My only quibble is that I would actually much prefer him to be a lot further away than just Iraq. Macho hectoring is no substitute for exploring complex issues. Government is very difficult, not least because governments operate on a statistical basis - helping 50 or 60% of the population if they are both clever and lucky - whereas these days each individual wants their own concerns dealt with. And this kind of hectoring journalism is very easy because it is very easy to be critical but very difficult to be constructive. I do hope that Evan Davis is not going to follow the same path, but the jury is still out on that.

  • Comment number 9.

    Unfortunately, I have to agree with the others about the sudden to 'Hunter' Humphrys mode. I have always enjoyed your incisive questions and lack of hectoring style. Your jocularity and clarity are a rare combination.

    It was a breath of fresh air when I heard you were joining Today however I was worried that you would adopt the style that stopped me being a regular listener some time ago. Bickering over breakfast doesn't appeal to me. The Flint interview made me wonder if my worries were justified. The fact that you recognise you overcooked it gives me renewed hope.

    One other trait that became apparent on Today a few years ago was the tendency to carry on biting even when the answer demonstrated the question was misguided and partial. I remember a JH interview with a senior soldier in Basra after the invasion of Iraq. JH was on the attack that such a low percentage of people had access to running water and was blaming it on the military action. Even when the soldier calmly pointed that under Saddam the percentage was actually much lower, that did not stop the hectoring line of enquiry and I soon turned off.

    My personal view of politicians is that give them enough rope and you can stand back and watch them hang themselves. You don't need to winch them up and kick the stool away.

    The Today audience is pretty savvy. Respect that fact and I might become a regular again.

    Bring back the Evan we know and like.

  • Comment number 10.

    Evan

    Don't be too hard on yourself.

    The fact that you weren't able to get a straight answer out of Caroline Flint is that she hasn't got a clue! And it showed!

    The Govt have no answers to the problems facing the nation's housebuilders. They don't see the illogicality of being to meet their own new house building targets if the major housebuilers are laying off thousands of workers. She clearly hasn't got a grasp of her subject matter.

    But if she had, she is hardly likely to admit the truth. The housing crisis is the result of failure of Govt policies that allowed the banks to over heat the housing market through uncontrolled credit growth. Just look at how the regulator system set up by this Govt failed to stop Northern Rock become a leadling mortgage lender on money borrowed short term from the USA and lent long term here. Mortgage lenders were falling over themselves to lend and house buyers were encouraged to jump on the bandwagon before it was too late.

    The ridiculous and unstable growth of credit pushed house price rises way above inflation and earnings growth over the entire period of htis Govt. It couldn't go on for ever but because the Govt took no action to slow it down before the credit crunch, the adjustment will be all the harder now.

    The mistakes of Gordon Brown as Chancellor to control the credit boom are coming home to haunt him.

  • Comment number 11.

    Evan,

    Next time you interview a Government minister who insists that the situation regarding today's property market is completely different from that at the time of other property crashes in recent times (then: high inflation, high interest rates, high unemployment; now: low inflation [but surging], low interest rates [but market rates rising despite the base rate being kept on hold], low unemployment [but beginning to rise and looking set to explode]). ask them why the conditions being different (for now) is of the slightest importance if the final outcome (a massive price fall) is the same?

  • Comment number 12.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 13.

    It was a strange interview in which the question as to how the government is going to build 3 million new homes by whenever was completely unanswered. This should not surprise us as this target is both impossible and unanswerable.

    The difficulty we have at the moment with the economy is that the pattern is not yet clear, there is little we can do about anything for fear of making the general situation worse.

    With the housing market a 25% price drop is expected over two years but this has not killed activity in the market as people still need to move and still need homes to live in. So long as a home-owner has equity this situation will continue.

    The trouble with city-centre flats - particularly those in northern cities - is that building outstripped the demand in an obvious example of a buy-to-let speculative bubble. Like the Spanish property market this is now imploding and giving the mortgagors their own difficulties as well. However other parts of the buy-to-let market are doing very well.

    I am afraid it all comes down to fundamentals. The reality is that there has been a leveraged property boom in the UK and this is now receding leaving its casualties on the shore. This is in turn producing the inevitable unemployment within the building trades which will go on to generate its own ill-effects with suppliers and manufacturers.

    I don't think Ms Flint understands any of this. I think there is an opportunity for the government to put a floor under unemployment in the building industry by commissioning much needed social housing. I think the government will miss that opportunity as it too has run out of money.

    It is all a pitiful waste!

  • Comment number 14.

    stanilic re 13

    A good analysis on the housing situation, particularly your final point when you said Caroline Flint doesn't understand any of this.

    I think you should have applied a lot of blame to the Govt for allowing the housing boom to get out of control by not restricting the huge growth of credit. The blame lies entirely at the door of Gordon Brown and this Labour Govt for not putting the necessary controls in place.

    As for your conclusion I agree that the Govt should help the building trade by commissioning much needed social housing. it won't happen of course. The Govt haven't got the vision, understanding or the money to do so. They haven't got the money because of their negligent mishandling of the economy.

  • Comment number 15.

    Re: #13 stanilic

    I think there is an opportunity for the government to put a floor under unemployment in the building industry by commissioning much needed social housing.

    So, after recognising that this Government was complicit in fostering the property bubble that has now burst, you are advocating that they waste yet more taxpayers' money (New Labour have been particularly good at that) in a vain attempt to support overvalued property prices (so much for the free market!) by paying over-inflated prices for new social housing? Great idea, even if they had the slightest chance of being able to afford it.

    The property bust is coming, and pretty much nothing short of a devaluation of our currency through hyper-inflation will stop property prices falling considerably. Once they have reached something approaching sensible levels, then it might be a good idea for the Government to step in and help put a floor under them. At least this might eventually bring about some sort of solution to the lack of council housing.

  • Comment number 16.

    Evan,

    The Government do not have a clue. You cannot build more houses and not affect prices. So your question should have been asked. If the Government are going to build many more houses, who is going to live in them? Where are these homeless people?

    The Government have also lost control of the economy. Bank rate 5%. Mortgage rates 7%. Where did those billions go to help the banks?

    Please explain how the bank of England is going to affect Saudi oil prices.

    House prices have doubled in the last decade but inflation, according to GB, has been around 2%. So where have people subject to 2% been housed? in caves?

    If house prices are going to fall 25% then presumably anyone who has bought a house in the last few years is going to be affected. So is the Government saying they are not going to be affected?

  • Comment number 17.

    Re: #16 Blogpolice

    The Government do not have a clue. You cannot build more houses and not affect prices. So your question should have been asked. If the Government are going to build many more houses, who is going to live in them? Where are these homeless people?

    You touch on the real nub of the issue.

    Not for the first time during their time in Government, New Labour have completely mistaken the cause of a serious problem. They looked at soaring property prices and realised that there was a demand-supply imbalance. However, they thereby concluded that suddenly there was a massive under-supply of housing in the country and therefore the solution was for the country to embark on a massive building spree. Unfortunately, the real problem was an excess of demand which had been triggered by a sustained period of excessively low interest rates. With credit so ridiculously cheap, it engendered a massive property bubble while at the same time fostering significant artificial growth in the economy through the massive increase in both public and private debt, the result of which was to attract a huge immigration of cheap labour from poorer EU countries thereby causing a feedback effect on the demand for housing. The seemingly perfect pyramid scheme. During this "miracle" of strong economic growth coupled with low inflation, New Labour - and especially one Mr G Brown - simply basked in the glory of their apparent genius economic alchemy.

    But never in the history of man has it been possible to turn base metal into gold. And never has this fact become more apparent.

  • Comment number 18.

    I am I alone in finding this ironic?

    There is a mantra about high oil prices being due to supply and demand issues rather than speculation and a need to increase supply to control prices. Yet, when you apply precisely the same argument to housing, declining property prices are, we a told, a symptom of downturn.

    There has been historically a shortage of affordable housing in the UK forcing people to borrow excessively and often beyond their means to buy into the market. This has been fueled by the availability of reasonably cheap money and much of that will dry up or become more expensive. The fact remains that falling house prices will drive down the price of land and present an opportunity to extend the housing stock at a time when skilled labour is available to do the work. Surely this should be seen as an opportunity, not a crisis.

  • Comment number 19.

    Re #15 YummyCarolKirkwood

    I am sorry Carol, but I have done all the rage at New Labour and their foolish policies. I have been having a pop at Gordon Brown and his institutionalised dissimulation for years. Now he and his cronies will go as soon as their fingers can be prised from the sceptre.

    My concern now is that our economy may very well be going down into ruin and we now have to reprioritise our attitudes into trying to ease the misery this will cause to decent people.

    We have an increasing number of skilled craftsmen being put out of work, we have an entire industry and its suppliers whinding down into a recession, and we need to try and ease the pain.

    We have a crying need for social housing because very little has been built since new Labour came into power. Yet another example of their failure.

    So why don't we find someway of helping one group of people to have jobs and another group to put a roof over their heads? Sounds reasonable to me.

    I don't think this will in any way effect the private housing market. It never did in the past.

  • Comment number 20.

    Re: #19 stanilic

    My concern now is that our economy may very well be going down into ruin and we now have to reprioritise our attitudes into trying to ease the misery this will cause to decent people.

    I can see no way of that being avoided. The question really is whether it is a relatively short, very sharp recession (interest rates are raised), or a long, protracted depression (interest rates kept low or lowered) - see my post on another thread: http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/05/the_mortgage_gap.html. This is enitrely the consequence of the pyramid-scheme economy that has existed in this country (and the US) since the turn of the millennium.

  • Comment number 21.

    The housebuilding market is mothballing partially built homes to try to keep the price up as one would expect.

    Fannie May and Freddie Mac are both far larger than NR and the consequences of even partial failure, which looks increasing likely this evening, will be to siphon even more liquidity from the banks all round the World and thus mortgages will become more expensive here, as will oil and commodities.

    Hold on tight we are in for a very bumpy and long ride! It looks increasing like a 1929 situation not a 1990 one - next thing we will see is wage cuts for state employees (even BBC staff!)

    Come to think of it isn't that exactly what the fire shift managers are saying today!

  • Comment number 22.

    John_from_Hendon

    The Wall Street Crash did not immediately cause the great Depression. That happened in late 1930 when a large number of banks started to fail and there was a banking crash. The cause of this was that the bonds and other assets which the banks held had become greatly devalued in the months following the Wall Street Crash, which meant that their liabilities exceeded their assets. The effect of the banking crash was to dry up liquidity and this brought in the Great Depression.

    So are there similarities with 1929-30? On the face of it there are.

    The US Govt is in a difficult position. According to the BBC news, if they bail out Fannie May and Freddie Mac, they may end up increasing the US national debt by 50%. But what would this do for the already weak US dollar and what would be the effect on the real economy? What price would oil reach then? Confidence will be shaken and we have already seen stock markets take a significant hit around the world today to add to recent growing losses.

    And if the US Govt did nothing, then it seems likely that will cause an enormous financial and credit crisis that would make the credit crunch look mild in comparison.

    The choices seem bleak and it will be a case of the US Govt taking the least bad option. That looks like being the bail out of Fannie May and Freddie Mac and taking on their liabilities.

    If I was the Democratic or Republican candidate for the White House, I might be wondering if the better result would be to lose in November and let the other guy have all the problems!

  • Comment number 23.

    busby2

    Similarities to the 1930s:

    Bubbles burst. In all of the scenarios that I can immediately think of, with or without state aid the result is a reduction in liquidity. Money supply is squeezed.

    Politicians like to strut their stuff, but without printing money in one way or another, the result is the same. The problem that I see it at present is that the monetary authorities and the politicians want to increase regulation to 'prevent it happening again'. The biggest problem with this strategy is that it increases the squeeze on liquidity that the banks are all ready suffering. This of itself will prolong and deepen the slump. The market is already compelling the banks to rebuild their balance sheets and they are all in a rights issue frenzy (if they can!).

    The way out of a slump is for the fiscal authorities to increase money supply, (with care and regulation e.g. Tennessee Valley Authority (created May 1933 et al). That is priming the bottom rather than the top which is happening at present. The position in the boom/bust cycle at present is that money is still being squeezed. (i.e. early 1930s)

    That is a thumbnail sketch of my view at present. What do you think?

  • Comment number 24.

    Evan, can I belatedly add my support to your friendly critics like elstevester, who fear you may be being pressured into adopting a hectoring, sub-Humphreys style of interviewing after your rather rude encounter with Ms Flint the other day? I hope this is not the case.

    I have enjoyed your presence on Today precisely because you havn't been doing this; instead, we have had, quite often, informed and intelligent dialogue which has shed light rather than heat. To be frank, this is partly because unlike some of your colleagues, you actually know what you are talking about.

    What is the point of bullying a minister into admitting that they havn't a clue what to do about the housing situation? They havn't, and neither has anyone else, including the Tories (who is the shadow housing minister? - remind me). But they'll never admit it, and why should they? - their job is to find solutions, not to publicly flagellate themselves - and anyway if they did admit they are clueless, how exactly would that help the situation?

    I hope you read these comments and stick to the intelligent, measured, well-informed style which has made you such a success on Today.

  • Comment number 25.

    Re: #22 busby2

    The Wall Street Crash did not immediately cause the great Depression. That happened in late 1930 when a large number of banks started to fail and there was a banking crash. The cause of this was that the bonds and other assets which the banks held had become greatly devalued in the months following the Wall Street Crash, which meant that their liabilities exceeded their assets. The effect of the banking crash was to dry up liquidity and this brought in the Great Depression.

    If memory serves, The Stockmarket Crash of 1929 was followed by an even bigger crash (in percentage terms) in 1931. I was expecting a similar pattern to emerge following the bursting of the stockmarket bubble in 2000, but Alan Greenspan at the Fed and other central banks - "learning from the lessons of The Crash" - slashed interest rates in response. This produced artificial economic growth as a result of the bubble that was created in another asset class - property. This bubble has now burst. The result, IMO, will be a considerably bigger economic impact than if the central banks had allowed the economic cycle to run its natural course in the early part of this decade, ie a recession. Personally, I think the economic outlook is pretty apocalyptic: depression and/or hyper-inflation. I will be extremely impressed if the central bankers manage to avoid this scenario.


    The US Govt is in a difficult position. According to the BBC news, if they bail out Fannie May and Freddie Mac, they may end up increasing the US national debt by 50%. But what would this do for the already weak US dollar and what would be the effect on the real economy? What price would oil reach then? Confidence will be shaken and we have already seen stock markets take a significant hit around the world today to add to recent growing losses.

    The US dollar is "worthless". This is becoming increasingly apparent by the relentless rise in the price of commodities and the drop in the value of the dollar against other currencies. This has been the case for at least a decade, but it has been a case of the Emperor's New Clothes. The US is set to experience extremely high inflation, and printing several trillion dollars more to rescue Fannie Mae and Freddie Mac will simply exacerbate/accelerate the problem. Every time the US has experienced a financial crisis it has inflated its way out of the problem, but I strongly doubt that tactic will work this time round. The devaluation of the dollar will be a massive earthquake for the global economy. We are witnessing the beginning of the end of the US as the world's economic superpower, and the sooner other countries formulate independent economic strategies so that their currencies can start decoupling from the dollar, the better.



    Re: #23 John_from_Hendon

    The way out of a slump is for the fiscal authorities to increase money supply, (with care and regulation e.g. Tennessee Valley Authority (created May 1933 et al). That is priming the bottom rather than the top which is happening at present. The position in the boom/bust cycle at present is that money is still being squeezed. (i.e. early 1930s)

    We already have surging inflation. Adding fuel to this fire will be economic suicide, and trying to defy the natural economic cycle is eventually futile with more damaging long term consequences - see points above.

  • Comment number 26.

    One other point comes to mind regarding comparisons with the 1930's.

    On 16 October 1929, Irving Fisher (Professor of Economics, Yale University) declared "stock prices have reached what looks like a permanently high plateau", at which point the US stockmarket immediately started to crash (about 5 days later).

    At the beginning of this year, the economists at the major mortgage lenders declared that house prices would remain flat for the coming year. Almost immediately, the housing market began falling, with the falls becoming increasingly dramatic in recent months. Still, the BBC and other news organisations persist in seeking the views of these "experts" (and the views of other self-interested "experts" involved in the property sector) on the housing market and predictions for its future direction...

    "History doesn't repeat itself, but it does rhyme" - Mark Twain.

  • Comment number 27.

    Re: #19 stanilic

    We have an increasing number of skilled craftsmen being put out of work, we have an entire industry and its suppliers whinding down into a recession, and we need to try and ease the pain.


    It occurred to me today that this was exactly the approach taken to the downturn resulting from the bursting of the technology/dotcom bubble in 2000 and later punctuated by the events of September 11th. The result is that we now face an economic crisis of several orders of magnitude greater in gravity (there is now a real - if still slim - possibility of a breakdown in the global banking system) than that faced at the beginning of this decade. This just goes to prove that you can't interfere in the natural economic cycle by fostering artificial growth without massive consequences further down the line - solving one problem by creating a bigger one is not really a solution.

    Ye cannae change the laws of economics!

 

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