expression etched on my colleague’s face mirrored the words of
frustration she had just spoken. She had just entered the chase
to find and purchase a house in Edinburgh and I could fully sympathise
with her having trodden that wearisome road some three years before.
prices in Edinburgh have increased on average by 10% per annum
over the last four years. Not as frenetic as London, I must admit,
but not that far behind and I guess I should have some sense of
satisfaction that my own house has probably increased in value
by about a third in the last three years. Of course, such a profit
would only be realised if I moved out of Edinburgh to a cheaper
city such as Glasgow (about one third cheaper on average).
is this a triumph of capitalism and the free market? Is this a
venture in which the common man can cut out his own slice of profitable
real estate? I would like to say yes, but even here the dice are
loaded and the cold hand of Statism has its ubiquitous influence;
for there are several anti-competitive factors dovetailing together
which stoke the furnace of houses prices here in Edinburgh.
first the greenbelt policy of Edinburgh City Council. The greenbelt
is a circle of fields, forests, etc which has officially enclosed
Edinburgh since 1957 and is designed to be a remedy against urban
sprawl, smaller satellite towns being swallowed up and the countryside
being readily accessible to urbanites such as myself.
is, of course, a price control imposed on surrounding farmland
which can be sold for anything except housing development. So,
whereas an acre of land could go for £200,000 in housing development,
it stays at the rock bottom price of £2,000.
this has the predictable pressure cooker effect of overheating
the housing market within that arboreal ring as developers snap
up remaining small plots of land at premium prices whilst traffic
congestion increases apace as people who work in Edinburgh are
forced to live outside. Who said asset bubbles were the exclusive
domain of “unbridled” capitalism?
the three net effects of this are people mortgaged to the hilt,
increased pollution due to traffic jams and the potential for
a further excuse for Statist controls on traffic through road
tolls and soaring parking fees. Let’s hope interest rates do not
rise sharply in the next few years or a lot of people will be
sorely burnt in this exercise in speculation.
how would urban sprawl be handled in a deregulated real estate
market? It goes without saying that Edinburgh has grown in size
for centuries and the rulers of the time did not see this as a
rural threat. The New Town with its fine Georgian architecture
would never have seen the light of day if the councillors of the
time had imposed current Statist policies. Economic success breeds
geographical growth as well as financial growth and even though
urbanisation in Britain has increased by about 60% since 1945;
cities, towns and villages still only comprise about 13% of the
total land area of Great Britain (Scotland is less than 10%).
talk about preserving a belt of countryside around Edinburgh is
nonsense when it is realised that even if Edinburgh doubled in
size (a process that would take a very long time indeed), that
would only add another 30 minutes or so transport time from the
centre to the general countryside which stretches all the way
south to the English border and even Glasgow would still be 30
miles away to the West.
factors would also kick in as more and more people would actually
leave larger cities for satellite towns (as we see with London
today) and as these towns expand and become more attractive and
developed centres in their own right. So, there is plenty of room
for outward growth and I trust the free market to respond to the
transportational and amenity needs of an expanding urban population.
contemporary Statist may frighten us with predictions of Judge
Dredd Mega-cities in a hundred years if they do not act; but I
would not trust the State’s prescience to plan ahead for 100
days let alone 100 years. Neither could I trust them to engineer
a soft-landing for this property mania - too many vested interests.
though, that is the main contributing factor to property inflation,
there are other practises to behold.
is the lunacy of the bidding procedure for houses in Edinburgh
which is most uncompetitive. It is called “blind-bidding” and
is basically a Dutch auction wherein each bidder submits their
best price to the seller’s lawyer and is not allowed to know beforehand
what the other bidders are submitting.
way of example, we put in a failed bid for a house three years
ago. We were told we were third in the bidding and that the successful
bidder was actually £10,000 ahead of the second placed bid for
a house costing about £130,000. If we allow for only a £1,000
difference in an open auction, then this is a needless 7% rise
in the house price which could be compounded on every sale of
the house (about 5 years on average).
to say, the sellers will not be interested in changing such a
lucrative but uncompetitive system as will the estate agents
who pocket a small percentage of the inflated house price. Edinburgh
differs somewhat from England in that the solicitors are also
the estate agents – they do everything apart from the structural
surveys. This is a monopoly which accounts for over 90% of all
transactions within Edinburgh and I am almost tempted to call
it a passive cartel.
say that because though such a practise may go back a long time,
this well-connected network of lawyers are in no hurry to alter
a practise they have complete control over. The mightily convenient
practise of these solicitors in not telling the successful buyer
how many thousands he or she was ahead of the pack intentionally
perpetuates it in my not so humble opinion. It is time for the
free market to assert itself, methinks.
barristers and solicitors. If any group is most represented in
Statist governments, it is them. They find the transaction from
interpreting and debating myriads of government laws to making
them a most logical step. And in that there is no surprise, for
in a libertarian government, there would be so few laws as to
render most of them unemployed. Lawyers love interpreting rules
and regulations as much as the bureaucrats do in making them.
But, I digress too much.
in these two prime areas of inflation we have two simple solutions.
Free the land up to the markets and enforce open bidding for houses
(though the enforcement would be little required once the obvious
benefits became apparent to all). With these liberties in place,
we would see sanity restored to the markets. I would add, however,
that it is best to implement these changes at the bottom of an
inevitable property price crash (probably the next up-cycle in
interest rates) lest the very changes designed to usher in reason
are blamed for the crash itself.
are two further complications to this mania which I should mention
as Edinburgh is very much the second financial centre of Britain
behind London, we see the “golden handcuffs” of slashed interest
rates being offered to employees of banks and other debt-issuing
institutions. Armed with their ultra-low mortgages, these people
can go out and bid up the prices of the properties even more.
this practise also be classed as anti-competitive or as much a
perk of the job as company pensions or free medical insurance?
I would say not, insomuch that it is no more anti-competitive
than someone using a recently acquired inheritance to bolster
their bidding power. Nevertheless, with potentially hundreds of
Edinburgh employees benefiting from such a perk, it will have
its effect on the bubble.
we must make mention of the structural surveyors of Edinburgh
who also make a mint on the backs of buyers burdened with another
anti-free market practise. I refer to the ludicrous practise of
house valuations having to be paid for up front by the bidders
and not the seller.
remember well having to pay a total of over £1,000 on valuation
fees for the bids we tendered on five different properties. My
chief complaint here is that the price advertised by the seller
should be a true reflection of the property’s worth (which it
never is unless it is offered at “fixed price”). Once again, in
my measured opinion, when the open auction is concluded, only
then may the successful and conditional buyer pay for a structural
and valuation survey to verify that the initial price offered
is not fraudulent.
would indeed deal a deathblow to the surveyors’ golden goose of
multiple survey fees for the same property, but the free-market
has no mercy on the profiteering oppressor once its forces are
unleashed. We may note that, in contrast to the other anti-competitive
practises, this scam probably has a deflationary effect on prices
as money is diverted from mortgage capital to wasted survey fees.
final mention should also be made of the unsurprising attraction
all this has for the multi-billion pound pension funds which invest
in growth property markets. Edinburgh is a magnet for them and
they have the financial clout to outbid anyone on the planet for
the best properties and thus contribute their own little offering
to the asset bubble that is known as the Edinburgh housing market.
combination of Statist land control and plain greed will probably
end in tears. Crashes are not just limited to the stock markets
as the thousands who entered into negative property equity in
the early 1990s found out. Many are now mortgaging themselves
up to the neck, as interest rates stay low at 6% or so. They hope
that this asset appreciation will continue to grow and act as
a financial investment to offset the large commitment to interest
repayments on the capital.
may be right; but, for the foreseeable future, I will assume my
Edinburgh home is no more than that, a place to live in.