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National politics

How the boomers will pay for higher tuition fees

Much of the commentary around last year’s student riots focussed on the unfairness of the boomers, who went to university pretty much for free and have done well out of the UK’s property market over the last 40 years or so, visiting £9,000 tuition fees on the next generation. As a late boomer myself I can’t help feeling a little guilty over this.

This morning the Radio 4 Today programme followed up on the Grant Shapps interview in the Observer on Sunday. There he talked about the craziness of first time buyers, without the benefit of help from their parents, having to wait until they were 36 to buy their first properties. I started paying my first mortgage when I was 23. Maybe that was too early. Shapps talked about the desirability of the housing market lagging wages and making housing more affordable over time.

Shapps is on dangerous ground talking about pushing the cost of housing down and in the past I have had people get angry with me when I have suggested that it would be desirable if this happened over time. As a nation we have an unhealthy relationship with property ascribing to it supernatural powers. Most commentary on the housing market blames supply but the demand picture is just as important. Not many people have lost money being long in property over the last few decades and as a result many of us have rather large homes. We believe that we simply cannot lose if we pile further and further into property even branching out into buy-to-let when we can’t envisage an even larger home.

As you walk around London suburbs where maybe 80% of properties have been extended by say 30% with rear and loft extensions you can’t help but wonder how we have increased the size of the property stock by a quarter say and still the price has greatly risen above inflation. Surely we are doing something weird? We are. Many of us are effectively hoarding. I know there are other factors at play such as immigration and foreign property buyers in London but these factors can only have a big impact in a market which is already overbought.

There are two things which the new coalition government has done which will have a big impact on property prices over time. Firstly, it plans to take about £2 billion out of housing benefits. The social housing advocacy industry worries that this will lead to large movements of benefit recipients out of more expensive property. I am not sure how many taxpayers are that worried about this. The most likely outcome is that rents will fall. This will blow back on property prices.

The second big change is those tuition fees. Because Brits think that property is magic the price of property is strictly tied to their ability to borrow. The liquidity problems in banking have already flowed through to stable property prices. Interest rates will march up to 5% or so over the next couple of years and will bear down further on any hint of exuberance in the property market. Over the medium term tuition fees will feed through too. If future generations of young people have their property borrowing limited by education loans on a large scale this will feed through to lower property prices. Instead of maxing out their borrowing on property alone young people will need to share their credit limit between education and property loans. What this means is that when the boomers come to cash in their property chips they will get less than they would have if tuition fees had not been pushed up.

The next generation will borrow and repay pretty much the same. Tuition fees will be offset by lower property prices. The UK property market will get more normal. The boomers will pay. Rejoice!

6 replies on “How the boomers will pay for higher tuition fees”

When someone has a student loan their credit limit will not be affected. The only thing that the bank will need to know for a property or other loan is the student’s outgoings i.e: ability to pay. The student loan is not like a loan from a bank – it requires a contribution/payback only if the graduate exceeds a certain salary threshold.
This kind of misinformation is responsible for much worry by future students.

Perdix,

If you take spending power from a group of borrowers they will ultimately be able to borrow less. Future students will be able to borrow less unless lenders are very dumb. That said house prices will be lower as a large group of high earners will have less spending power. It is a bit of a zero sum game.

PS I thought that the French for partridge was spelt perdrix?

Phil
I think what Shapps said was “It’s crazy that we think in this country it’s normal to have a situation where the most important thing — a roof over somebody’s head — is so unaffordable to such a large number of our fellow citizens,”

He is right. But that also applies to people who will be faced with a 10% cut in HB, which as Housing minister I suspect he also supports. So how can he be outraged by the property market being denied to purchasers if at the same time he wants to push people onto the street? That is one area where the Labour party has to be right, in that the cuts are too deep and too fast.

It would be helpful to first time buyers if the estates which they inherit from their parents were not so heavily taxed.

I think it remains to be seen if vacation of properties by benefits claimants reduces rents. We may see the sixties factor creep back in again where these properties get reduced by landlords in size to small flatlets. Also private tenants are finding it very hard to get somewhere to live, and I do wonder if the demand will keep the rents at broadly the same level.

You talk about guilt and being a wicked Tory so you should by association. That guilt stems I would say from Reaganomics when the relaxation of lending rules then led over many years to self certified mortgages, sub prime and all that. Interesting that Shapps talks about the desirability of prices lagging wages – as they once did. I don’t see that getting past a Tory government.

Mt Perdix is right I think, but up to now and only at the moment. But I think you are more right. I just cannot see banks ignoring for ever the fact that graduates will have to find much more than now to repay their debts and so I agree with you that this gradually will, some years ahead, slow down the rate of price rises. In any event the fees will go up yet again. Mr P should consider that banks are not charities, but greedy, which is why they need lots of regulation only if they refuse to lend and less if they start lending. The Old Lady should be given back her regulatory powers rather than having to share with several organisations.

You say that the property market will get more normal. I so sincerely hope you are right, but that is a very big guess.

George,

You are cheeky trying to make out that I might think the Tories wicked. The Tories are not wicked, merely practical. In your mindset you can be a socialist and want loveliness for everyone but fail to govern well and be “good” or be a Tory and be wicked for wanting to get incentives right.

The limit for HB is going to be £20,000 per annum. Can you explain how that is unfair? Can you explain how someone who earns the average full-time wage of just over £25K in this country is supposed to pay tax and compete in the rental market with someone who cannot work and is subsidised by the state? Lower HB will feed through to lower property prices and lower rents. Good for everyone except landlords. Doh!

In any case my suspicion is that very few HB claimants will have to move. The market will change around them. When the previous Labour government limited LHA to the five room rate from 1st April 2009 as a result of the Acton Afghan case were there any reports of people having to move? No.

Phil
But for one mistake which I cannot work out why I said it about inheritance, I think that the IHT rates should go up as soon as possible because I feel that will help parents pass on cash to their struggling children and get some of the market moving.

But I was very careful not to say all Tories are wicked because I don’t think they all are. For instance I suspect IDS has a great deal of opposition lined up against him. It may surprise you that I think the Tories have some, yes some, good ideas and I do think GB made some very bad mistakes, e.g. compared with others this government has one of the lowest gold reserves in the developed world.

I agree it is a rock and a hard place re those in work getting £25K, but also breaking up vulnerable families and making some homeless is pretty offensive as well. For me that is ONE area where social justice should prevail. Indeed the Coalition have already backtracked and the jury is out as to whether they will backtrack further.

I thought the Labour LHA was aimed at new claimants, but please correct me if you are sure I am wrong. I agree with the notion that families on benefits in private accommodation rented out to the LH authorities at high rents should start to lose their right of tenure but phased over a period and when the children are old enough to move. (With any extra children not extending the entitlement of prolongued tenure). But you have to accept that this problem would have been much smaller had we had had a continuing house building programme. I don’t think it fair to suddenly bring in this 10% HB reduction when successive governments are the only ones to blame. But here we have the government hiding behind the financial crisis to divert us from what had built up over many years.

I am really not certain about lower rents coming into London. The waiting lists are supposed to be high. We shall see.

Neither is it loveliness when I consider that people who refuse to work, refuse to train, and insist on lolling about in the benefits culture should live in London and I wish Ealing would take a harder line on this.

But wickedness for me is not so easy to define as you purport 😉 to do!!!!!

Phil

It is a supply versus demand issue in London. You might be looking at the country as a whole here, I am not sure.

London is almost a country within a country. You have people coming here from abroad(people like me), and then you have people coming to london from other parts of the country.

The population increase in London over the last ten years has had more to do with prices climbing than tuition fees will have on property prices over the next ten years.
The housing benefit payments have also distorted the rental market, as there are fewer properties available to rent to non HB claimants, pushing up rents there.
Cutting HB will make renting cheaper, reducing landlords profits and also making buying a less attractive option, not just for landlords, but for first time buyers.

Over the last ten years, rents have climbed so high in London, that people have bought simply because the mortgage was cheaper than renting, pushing prices up further.

If banks start to lend again, which they probably will in a couple of years, when they have gone some way to boosting their reserves, then that will create demand for something that their still isn’t enough of in london, Property. Prices will start to climb again. Until Banks do start lending again, the property prices will move sideways or gently upwards.

The rest of the country is a different matter altogether

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