Wednesday, 12 October 2011

RICS and Nimby Numpties Create Double Dip Depression in UK

Est modus in rebus is the motto of the Royal Institute of Chartered Surveyors (RICS) - "there is measure in all things".
Unfortunately there is also manipulation and murkiness in all things too.

RICS is allegedly an independent body that advises government but the reality is more nuanced and top down as the current systemic manipulation of the British housing market indicates.
RICS are imposing an approximate 10% devaluation on all property sale prices that have been agreed by buyer and seller.
There has been no public announcement to this new structure by either government or RICS and yet, mysteriously, every single surveyor has unilaterally determined to impose this devaluation on the market.

Why the secrecy to this coordinated market adjustment?

More importantly, why haven't the government thought through the impact of their actions on a fragile economy?

Such market manipulation distorts the validity of the market creating skewed incentives to insiders and those with the housing equivalent of first-mover advantage and, due to the behavioural aspects that underpin all markets (particularly those that are constructively precious to our lives like our homes), will lead to a whole batch of unintended consequences...
...as well as some top down intended ones.

First we might look at the real impact of this manipulation and, secondly, we'll assess what the Old Etonians are up to.

British house prices are currently overvalued by 8%.
By forcing property prices down, the government intends to burst this bubble aggressively instead of allowing the market to return to norm under its own incremental momentum.
The real impact for real people will be far more devastating.
For the majority of the country, their main asset is their property. By removing 10% of wealth at a secret stroke, the government and RICS are going to drive a whole swathe of the population into negative equity territory. Repossessions will rise as banks refuse to lend or support a whole new strata of sub-prime mortgages.
The manipulation will also have huge impacts on several industry sectors including construction and building, architects, estate agents, surveyors and, indeed, the government as the property market will seize up under the force of this adjustment.
By forcing prices down, the government/RICS are deluding themselves that the affordability factor will energise the market which will absolutely not be the case due to the work and financial instabilities experienced by the poorer sections of the country and the refusal of banks to part with their cash, particularly on investments that have a high probability of going belly up.

The causes of the coming market freeze up are best demonstrated by an example provided by a local estate agent.
Your house is marketed at £280K. A sale is agreed at £270K. RICS come in and value the property at £240K.
If the seller accepts this paltry price, the distortion is transferred to the property that they in turn are purchasing but it only needs one cog in the chain to refuse to accept this devaluation and the whole strategy tumbles into a market freeze.
The chain is distorted and, more crucially, made increasingly volatile.

Furthermore, nobody may escape this structure as to sell and bank the money awaiting property prices falling further is a highly risky strategy when government guarantees of banking deposits are worth nothing at all. When the euro implodes, there can be no government guarantee - exactly how will a bust state rescue a bust bank?

The double dip is done deal.

And that is exactly what this is. A deal...
Any coordinated action in a marketplace by institutionally powerful operators results in opportunities for insider trading based on the systemic market maniplulation - a surveyor thinking of selling his/her property would have had a going to market timing advantage denied to the rest of us and would rake in the £270K insider price rather than the £240K mug price.

So what is in this for the free marketeering government?
The long term impact will undoubtedly be a bifurcation of the housing market into the standard neo-con template of the privatised elite and the masses left to struggle. Just like the privatisation of health, education, utilities, this is a wealth grab .
By combining this underhand manipulation with the National Planning Policy Framework (NPPF), the government further bifurcates the market.
When the Tory antisocials were having their chins-wags in Manchester recently, apparently there was uproar from the commuter belt/countryside lobby about the potential relaxation of planning in the country. As a result, any extension of planning will occur in areas already disenfranchised or areas that are to be blighted with future disenfranchisement.
A Big Society this is not...

For a creed that believes in free markets, these people do an awful lot of unfree market manipulation!

Aside from the impacts of the Depression undermining this pitiful strategy, there are much more concerning signs across the Atlantic where the sub-prime outrage began.
As the Financial Times is kind enough to inform us: "Sub-prime mortgage-backed securities dipping below par, or full value, as measured by the ABX index, arguably prefaced the financial crisis of the last decade... [I]ts steadier sibling the PrimeX, which follows higher quality US mortgage-backed securities, is now threatening to dip below par, a worrying sign for the US economy."

Being a client state of the US, albeit with a time lag, is it sensible for the Old Boys to be pulling the rug from under the middle classes just when systemic impacts are pulling that rug equally violently?

And, if the Old Boys are so confident as to the efficacy of their ruse, we ask once again - Why The Secrecy?