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Sub prime problems - and opportunities 2007

2007
We hear a lot these days about the American Sub Prime mortgage situation. Why should we in Nottingham care? It's a complex and long chain but each link in it is strong one. It could result in us losing not only our green open spaces but also lower the re-sale value of our own homes.

Our house prices, in Nottingham as well as all over the country, have been rising month on month for years now. They go up each month on average more than a person would pay as interest repayments on a 100% mortgage. In anyone's book this is a good deal. But, in America this is not true any longer. It was true, and people with poor credit ratings (sub prime in American speak) were given mortgages in huge numbers.

When the economy changed for the worse as many would think, or 'stabilised' as is a better way of thinking about it - then all of a sudden the maths of growth stopped working and big financial institutions started to lose money. Here the word 'lose' does not mean having less money than before, it means gaining not as much money as they expected. If a normal person loses money they have less of it after the loss. In big financial worlds, losing means not gaining as much as expected.

The expectation thing is the point here, seeing the future allows planning and thus investment. If your financial crystal ball develops a crack then you lose confidence in the safety of it's predictions and you get more careful about who you lend money to. The big banks, all over the world, have now lost so much confidence that they won't even lend money to each other for fear that the other banks have massive unrecoverable debts due to lending money to the 'Sub Prime' amongst us.

We in the UK and particularly Nottingham have an extra link in the chain to think about. Here, as Norman Lamont, an ex Chancellor of the Exchequer indicated on the BBC Radio 4 Today program this morning, our housing market is not as vulnerable to this lack of confidence as for example in America. America has lots of space and no considerations against building on any of it.

So, the more houses they build, the easier it is to find one, demand drops as the pressure to buy at any cost diminishes and so the pressure on house price rises also falls - if this goes on for any length of timeĀ  house prices themselves can fall too. This is global financial instability at work, a bit like over steering in a skid, you swing one way then hard back the other - damaging things as you go.

We British live in a small country and quite like the parts we have not built on yet. We also like our houses to keep their value - negative equity is a nasty word and a worse reality. But, we hear from the Government that more homes need to be built. What will happen if they are? Frankly, unless we are either careful or very lucky we shall go the same way as America - lose our open land and also lose the value of our homes.

It does not have to be this way. If there is a demand for places to live (rather than an opportunity to make money selling property which is a different thing by the way) this can be met in other ways. It may come as a surprise to read that building on 'Brown field' sites is not one of them. When you learn that the definition of a 'brown field site' includes not only your back garden but also the place you are living in at the moment, the picture changes somewhat. If it meant what the term sounds as if it means, building on old industrial land, then that's OK. But this land is heavily polluted by it's industrial past - which is why it's not been built on already. Do you want to live on a toxic waste dump? Many people already are and that is another story.

The answer from environmentalists (who have been working on this problem for decades before most groups have even accepted there was a problem) is to make better use of what buildings we have. For example, the spaces above shops in city centres are often not only empty but in some cases open to the sky. Having been left to ruin by years of neglect. Landlords have not been able to make a 'decent' profit on the upper floors in shopping areas and so have not bothered to do anything with them. The roofs have fallen in in some places while the shops stay open several floors below.

That situation has begun to improve, but is still a real issue and a real opportunity. Rates should and could be changed to make it financially worthwhile to open up this mass of unused City centre space for people to live in. This will have the effect of bringing the Cities back to life and also win back the streets from hoards of marauding bored people who make it frightening to go out at night. This revitalisation will stimulate worth while and sustainable growth. There is a real way for people to make good money here.

So, when you hear the call to build on the land East of Lady Bay, or anywhere else for that matter, think what effect it could have on the value of your own property. Can you afford to let that happen? I can't.

P. S. Since writing the above, Northern Rock has suffered a 30% or more fall on the stock market. The instability is getting worse by the minute. Today also the Government is saying it will bribe local councils to build on land against the wishes of local residents. What did I tell you?

Interesting...