evidence to Treasury select committee

[james armstrong]

the following has been sent to the Treasury Select Committee

PROFESSOR NIELL FERGUSSON
Talking of the problem of  America's  chronically unbalanced domestic 
finances  , the New York University professor of financial history  and 
senior research fellow of  Oxford ,  Niall Fergusson , says

"The magnitude of the  problem is such that most Americans including those 
who consider themselves well informed about the nation's finances , find it 
quite simply incredible. Indeed the main reason why America's fiscal  crisis 
remains  latent  is precisely that people refuse to believe in  its 
existence. "

In UK the same is true of the consequences of the housing crisis. People, 
whilst wondering at the phenomenon of out of reach and  still rising house 
prices and the endemic low supply of new houses,  refuse to believe  in its 
significance.

This paragraph is an attempt to make the housing crisis real to the reader, 
preparatory to identifying the parties who cause it  and establishing the 
methods to cure the problem.

BUYING THE LAND UNDER A HOUSE
A patch of the best grade 'A' agricultural land,  big enough to fit a house 
on has an average value of  £175.
When it gets planning permission for building a house (before the digger has 
moved in  ) it  is worth
£62,500.
When you subsequently take out a mortgage to pay for the house built there  
you have to pay back in interest and repayments over twentyfive years, £ 
133,000 - and that’s for the site and is additional  to paying for the 
mortgage for the bricks and mortar of the house itself.

BUYING THE HOUSE
The price of an average house is  £200,000.  The average mortgage taken out 
is 80% of the house value.

COMMENT
Mortgage lending has now reached astronomical and  unsustainable levels  in 
terms of  both
personal finance  and in the level of stress to meet the repayments  imposed 
on people in terms of work, travel and accomodation, or even to  secure 
accomodation  or contemplate such commitments.

On this anomaly rests our banking system, much of our economy and the credit 
boom .  On such  foundations  rests our housing crisis.  This  involves the 
credibility of our financial regulatory system, of our financial 
institutions, and of the integrity of successive governments and brings into 
  question the meaning of our 'democracy'

The parties causing this anomaly  are identifiable, as are the means of 
reforming the market,  but until the scale of the problem  is acknowledged  
this crisis is a latent  threat to national financial and political 
stability.   James Armstrong.         30th April 2007
(contributor to The Barker Review)
Sources:
"The Rise and Fall of the American Empire" p 262
Inland Revenue
Halifax Building Society

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