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The housing market: unsustainable asset bubble or ladder to prosperity?



Fran Boait, campaign manager at Positive Money, looks at the role of the housing market in creating a more sustainable economy.

This article originally appeared in Blue & Green Tomorrow’s Guide to Sustainable Homes 2013.

Every time I attend to a lecture on house prices, there is always a question in the Q&A from a continental European (usually German or Dutch). They ask, “What is the obsession that British people have with buying houses? We don’t have that in our country, we are happy to rent.” After mumblings from the audience the host will usually say something like, “Yes, we don’t really know either.”

But the question whether you should rent or buy, forces another question: what is a house for after all? Is it a home to live in, something everyone needs? Or is it really an asset that everyone should aspire to own? You could say it can be both – but is that even possible?

One consequence of everyone scrambling to get on the housing ladder has been that house prices have been rising much faster than wages, which means that houses become less and less affordable. Anyone who didn’t already own a house before the bubble started growing ends up giving up more and more of their salary simply to pay for a place to live. And it’s not just house buyers who are affected; pretty soon rents go up, too, including in social housing.

Click here to read the Guide to Sustainable Homes 2013

This increase in prices led to a massive increase in the amount of money that first time buyers spent on mortgage repayments. For example, while in 1996 the amount of take home salary that a first time buyer on an average salary buying an average house would spend on their mortgage was 17.5%, by 2008 this had risen to 49.3%. In London the figures are even more shocking, rising from 22.2% of take home pay spent on their mortgage in 1997 to 66.6% in 2008.

High house prices also act as a mechanism for transferring wealth from the young to the old, from the poor to the rich, and from those that don’t own their own home to those that do. Even those with housing don’t benefit massively from higher house prices; after all, we all need somewhere to live, and anyone selling their home will find that on average other house prices will have risen by the same amount, leaving them no better off.

In reality, only the banks and those with many properties benefit from high house prices. High prices mean that people will have to take out larger mortgages for longer periods of time, which means more money in interest payments for the banks.

So why are house prices so high?

Many of us were told that house prices are so high because there are too many people and not enough houses. The reality is that house prices were massively pushed up by the hundreds of billions of pounds of new money that banks created in the years before the financial crisis. Limited housing stock may have caused some shortage in areas, and there are many other complications too.

But a fundamental driver that caused a 300% house price increase in the 10 years up to the start of the financial crisis was mortgage lending. During the period in question the amount of money banks created through mortgage lending was collectively £417 billion (that’s £417,000,000,000).

So you might ask, where on Earth did that £417 billion come from in order to inflate these house prices out of reach from ordinary people? Well, when a new mortgage loan is made, the bank doesn’t borrow money from savers — banks actually create new money with every loan they make. Those numbers in your account don’t represent a pile of money in the bank; they’re just numbers; accounting entries in the computer system of your bank.

Paul Sheard, the head of global economics and research at Standard and Poors Financial Services Company wrote, “Banks lend by simultaneously creating a loan asset and a deposit liability on their balance sheet. That is why it is called credit ‘creation’ – credit is created literally out of thin air (or with the stroke of a keyboard).”

As the loan is repaid, the money disappears, whilst the banks keep the interest as profit. And since a loan on a house is secured by the house itself, and a substantial profit can be made on the interest on the loan, it is a win-win situation for the bank.

But is it a win-win situation for anyone else? Who benefitted from the banks creating £417 billion to lend to mortgages? The banks yes, and people that decided to become landlords of multiple homes, yes. But in reality all that debt into a non productive asset bubble really just laid the foundations for the 2007 financial crisis.

What would have happened if instead that £417 billion was used for something more useful, like green electricity, building sustainable homes, or retrofitting our housing stock to make them more energy efficient? House prices would have stayed lower. Yes, less people would own multiple homes, and yes, less people would own homes at all. But we would all have more disposable income because rent and mortgage repayments would be lower, there would be lower household debt, and we would be all be better off.

So why is the government trying to help people buy their houses again?

The government has launched a scheme, Help to Buy, offering financial support to help people buy homes. The scheme has meant that first time buyers, who otherwise would not have been able to, have been able to get on the housing ladder.

The appeal of living in a home you own is very understandable. But do the short-term benefits of more home owners outweigh the problems caused by avoiding a long term strategy to create a sustainable economy? We don’t think so. For the reasons outlined above, we think it is not a good idea to direct government spending into mortgages, and we are not alone.

On September 18, Adair Turner, the former chair of the now-defunct Financial Services Authority spoke about the scheme on Newsnight. He stated, “I certainly have worries about the Help to Buy scheme… I think we may be overdoing the stimulus to the housing market and we may come to regret that. I feel that we have a whacking great hangover after a debt-fuelled housing boom and our policy seems to focus on a bit of the hair-of-the-dog that bit us.”

He is not the only commentator warning. Ann Pettifor is an economist who predicted the crisis in 2006 in her book, The Coming First World Debt Crisis. She spoke about this subject on Radio 4 on August 15, warning that the government’s Help to Buy scheme will create another ‘bubble’.

“We are making people think they can buy another property and taking out mortgages which they simply can’t afford in the long term. Those prices will fall at some point”, she said.

“I think it’s artificial and can’t be sustained. People’s incomes are falling in real terms, and have done so for five years. Now there’s been this sudden, go on let’s just go made because everyone says its recovery.

“At a fundamental level it’s quite dangerous because household debt is still 153% of GDP.

“There’s nothing seriously underpinning this recovery, and that’s why it’s Alice in Wongaland, the confidence fairy is out there.”

An alternative

Can an economy run on the feeling of being wealthy, the so-called ‘wealth effect’, that arises when houses price are increasing? Clearly, it is not sustainable in the long run. We need wages to catch up with rent and mortgage repayments, and the only way to achieve that is to get money to create jobs rather than to inflate house prices.

But will banks ever want to direct their lending activities into productive industries such as sustainable housing and green infrastructure, rather than asset bubbles? We don’t think so. We don’t think we can rely on banks with short-term profit motives that clearly don’t fulfil the wider needs of the economy. Therefore we need to change the rules of the game. If we have people that want to work and jobs that need doing, why can’t we create a system that achieves these things?

Positive Money is advocating that the Bank of England create new money that can enter the economy via the government. This could be done in three ways: increase government spending; cut taxes; or make direct payments to citizens. Although each of the options has its own appeal, we think that because the UK needs to reduce unemployment, the biggest benefit to society would be to increase government spending to create new jobs.

Opportunities to create jobs and build a more sustainable economy lie in green energy infrastructure, building sustainable and affordable housing, and developing better public transport. It’s not that we can’t afford these things; it’s that we haven’t got an economy that works.

We believe that it’s time to radically rethink how the system works and we have a blueprint for an alternative. 

Fran Boait joined Positive Money as campaigns and operations manager in November 2012. Prior to that, she was an Earth scientist researching carbon dioxide storage.

Further reading:

Ernst & Young: fears of a housing bubble are ‘unfounded’

Gross lending by mutuals up 32% in 12 months

Help to Buy scheme to launch three months early

Bank of England to review government mortgage scheme

The Guide to Sustainable Homes 2013 


How Going Green Can Save A Company Money



going green can save company money
Shutterstock Licensed Photot - By GOLFX

What is going green?

Going green means to live life in a way that is environmentally friendly for an entire population. It is the conservation of energy, water, and air. Going green means using products and resources that will not contaminate or pollute the air. It means being educated and well informed about the surroundings, and how to best protect them. It means recycling products that may not be biodegradable. Companies, as well as people, that adhere to going green can help to ensure a safer life for humanity.

The first step in going green

There are actually no step by step instructions for going green. The only requirement needed is making the decision to become environmentally conscious. It takes a caring attitude, and a willingness to make the change. It has been found that companies have improved their profit margins by going green. They have saved money on many of the frivolous things they they thought were a necessity. Besides saving money, companies are operating more efficiently than before going green. Companies have become aware of their ecological responsibility by pursuing the knowledge needed to make decisions that would change lifestyles and help sustain the earth’s natural resources for present and future generations.

Making needed changes within the company

After making the decision to go green, there are several things that can be changed in the workplace. A good place to start would be conserving energy used by electrical appliances. First, turning off the computer will save over the long run. Just letting it sleep still uses energy overnight. Turn off all other appliances like coffee maker, or anything that plugs in. Pull the socket from the outlet to stop unnecessary energy loss. Appliances continue to use electricity although they are switched off, and not unplugged. Get in the habit of turning off the lights whenever you leave a room. Change to fluorescent light bulbs, and lighting throughout the building. Have any leaks sealed on the premises to avoid the escape of heat or air.

Reducing the common paper waste

paper waste

Shutterstock Licensed Photo – By Yury Zap

Modern technologies and state of the art equipment, and tools have almost eliminated the use of paper in the office. Instead of sending out newsletters, brochures, written memos and reminders, you can now do all of these and more by technology while saving on the use of paper. Send out digital documents and emails to communicate with staff and other employees. By using this virtual bookkeeping technique, you will save a bundle on paper. When it is necessary to use paper for printing purposes or other services, choose the already recycled paper. It is smartly labeled and easy to find in any office supply store. It is called the Post Consumer Waste paper, or PCW paper. This will show that your company is dedicated to the preservation of natural resources. By using PCW paper, everyone helps to save the trees which provides and emits many important nutrients into the atmosphere.

Make money by spreading the word

Companies realize that consumers like to buy, or invest in whatever the latest trend may be. They also cater to companies that are doing great things for the quality of life of all people. People want to know that the companies that they cater to are doing their part for the environment and ecology. By going green, you can tell consumers of your experiences with helping them and communities be eco-friendly. This is a sound public relations technique to bring revenue to your brand. Boost the impact that your company makes on the environment. Go green, save and make money while essentially preserving what is normally taken for granted. The benefits of having a green company are enormous for consumers as well as the companies that engage in the process.

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5 Easy Things You Can Do to Make Your Home More Sustainable




sustainable homes
Shutterstock Licensed Photot - By Diyana Dimitrova

Increasing your home’s energy efficiency is one of the smartest moves you can make as a homeowner. It will lower your bills, increase the resale value of your property, and help minimize our planet’s fast-approaching climate crisis. While major home retrofits can seem daunting, there are plenty of quick and cost-effective ways to start reducing your carbon footprint today. Here are five easy projects to make your home more sustainable.

1. Weather stripping

If you’re looking to make your home more energy efficient, an energy audit is a highly recommended first step. This will reveal where your home is lacking in regards to sustainability suggests the best plan of attack.

Some form of weather stripping is nearly always advised because it is so easy and inexpensive yet can yield such transformative results. The audit will provide information about air leaks which you can couple with your own knowledge of your home’s ventilation needs to develop a strategic plan.

Make sure you choose the appropriate type of weather stripping for each location in your home. Areas that receive a lot of wear and tear, like popular doorways, are best served by slightly more expensive vinyl or metal options. Immobile cracks or infrequently opened windows can be treated with inexpensive foams or caulking. Depending on the age and quality of your home, the resulting energy savings can be as much as 20 percent.

2. Programmable thermostats

Programmable thermostats

Shutterstock Licensed Photo – By Olivier Le Moal

Programmable thermostats have tremendous potential to save money and minimize unnecessary energy usage. About 45 percent of a home’s energy is earmarked for heating and cooling needs with a large fraction of that wasted on unoccupied spaces. Programmable thermostats can automatically lower the heat overnight or shut off the air conditioning when you go to work.

Every degree Fahrenheit you lower the thermostat equates to 1 percent less energy use, which amounts to considerable savings over the course of a year. When used correctly, programmable thermostats reduce heating and cooling bills by 10 to 30 percent. Of course, the same result can be achieved by manually adjusting your thermostats to coincide with your activities, just make sure you remember to do it!

3. Low-flow water hardware

With the current focus on carbon emissions and climate change, we typically equate environmental stability to lower energy use, but fresh water shortage is an equal threat. Installing low-flow hardware for toilets and showers, particularly in drought prone areas, is an inexpensive and easy way to cut water consumption by 50 percent and save as much as $145 per year.

Older toilets use up to 6 gallons of water per flush, the equivalent of an astounding 20.1 gallons per person each day. This makes them the biggest consumer of indoor water. New low-flow toilets are standardized at 1.6 gallons per flush and can save more than 20,000 gallons a year in a 4-member household.

Similarly, low-flow shower heads can decrease water consumption by 40 percent or more while also lowering water heating bills and reducing CO2 emissions. Unlike early versions, new low-flow models are equipped with excellent pressure technology so your shower will be no less satisfying.

4. Energy efficient light bulbs

An average household dedicates about 5 percent of its energy use to lighting, but this value is dropping thanks to new lighting technology. Incandescent bulbs are quickly becoming a thing of the past. These inefficient light sources give off 90 percent of their energy as heat which is not only impractical from a lighting standpoint, but also raises energy bills even further during hot weather.

New LED and compact fluorescent options are far more efficient and longer lasting. Though the upfront costs are higher, the long term environmental and financial benefits are well worth it. Energy efficient light bulbs use as much as 80 percent less energy than traditional incandescent and last 3 to 25 times longer producing savings of about $6 per year per bulb.

5. Installing solar panels

Adding solar panels may not be the easiest, or least expensive, sustainability upgrade for your home, but it will certainly have the greatest impact on both your energy bills and your environmental footprint. Installing solar panels can run about $15,000 – $20,000 upfront, though a number of government incentives are bringing these numbers down. Alternatively, panels can also be leased for a much lower initial investment.

Once operational, a solar system saves about $600 per year over the course of its 25 to 30-year lifespan, and this figure will grow as energy prices rise. Solar installations require little to no maintenance and increase the value of your home.

From an environmental standpoint, the average five-kilowatt residential system can reduce household CO2 emissions by 15,000 pounds every year. Using your solar system to power an electric vehicle is the ultimate sustainable solution serving to reduce total CO2 emissions by as much as 70%!

These days, being environmentally responsible is the hallmark of a good global citizen and it need not require major sacrifices in regards to your lifestyle or your wallet. In fact, increasing your home’s sustainability is apt to make your residence more livable and save you money in the long run. The five projects listed here are just a few of the easy ways to reduce both your environmental footprint and your energy bills. So, give one or more of them a try; with a small budget and a little know-how, there is no reason you can’t start today.

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