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Is The UK Really Heading For A Property Bubble?
Homeowners are cheered by positive house price indices but experts say recovery in the property market is still slow outside London. by Michelle McGagh on May 28, 2013 at 14:36 A lack of new properties is pushing up house prices but rises in London have skewed the market, which means that contrary to some reports, the UK is still a long way from a replay of the 2007 property bubble. Followers of house price indices will have been cheered by news of a recovering market with commentators making encouraging noises about how this year will play out for property. Four years of historically low interest rates and more recently the government’s Funding for Lending scheme – which has given lenders access to cheap funds – have pushed mortgage rates to all-time lows and increased competition in the home loan market . Lenders are falling over themselves to take on new business but there is a snag; the supply of property on the market is not keeping up with demand which has pushed up the prices of property available. Data from property analytics company Hometrack shows the number of sales agreed is outstripping supply. Nationally new supply grew 2.8% this month while sales agreed jumped 8.2% higher. This lack of supply is the key driver of increases in property prices but there is also disparity in the way indices record house price movements. Property website Rightmove has the most optimistic outlook on the market, stating that the average UK house price hit a record high of £250,000 this month. However, Ray Boulger of mortgage broker John Charcol, said the Rightmove data was the ‘least reliable’ of the indices as it was based on asking prices rather than actual prices achieved. The more reliable house price indices from Nationwide and Halifax paint a more subdued picture of the UK housing market. Nationwide’s data showed a typical home actually declined in value by 0.1% between March and April, but was 0.9% higher than April 2012. It estimated a typical home is now worth £165,586, far below the £250,000 estimated by Rightmove. Halifax’s index puts the average house price at £166,094, more in line with the Nationwide estimate, but its figures show house prices increased by 1.1% in April. All house price indices operate on their own calculations but one key factor that cannot be ignored is the Bank of England’s mortgage approval statistics, which is a leading indicator of completed house sales. Between February and March this year mortgage approvals increased 3% following two successive monthly falls, but approvals in the first three months of 2013 were still 1% lower than in the previous three months. No bubble yet If demand continues to outstrip supply then house prices will continue to increase but according to the experts, the UK is still a long way from a property bubble. Boulger has revised up his predictions for growth in property this year from 3% to 5% and tentatively expects the same in 2014 but said: ‘We are not near bubble territory yet, we are flat-lined and in real terms house prices have gone up less than inflation.’ However, he added that sellers were being ‘ambitious’ in their asking prices and that as consumer confidence grows in the property market, higher house prices will become ‘a self-fulfilling prophecy’. Craig McKinley, mortgage director at Halifax, part of the Lloyds Banking Group, said the UK was ‘very far from a property bubble’ and predicted growth of between 0% and 2% this year, with house prices expected to rise in 2014. He said that consumer confidence and the economy were still too weak to cause a property bubble. Lenders would also be constrained by new rules coming into force next year that will force them to give a lot more information to borrowers. ‘We are not seeing evidence of a UK property bubble,’ he said. ‘Next year will be when we get a national recovery but we are not expecting runaway growth because the economy and consumer confidence remain weak.’ Philip Croggan of The Economist is more optimistic in his outlook for house prices and said that low interest rates usually translate into a property bubble. ‘In a year or two we will have an equity [stock market] bubble and I would not be surprised if we have another property bubble,’ he said. ‘London house prices are still going up, the yield on commercial property is good and when we have low interest rates it generally turns into a property bubble. ‘In a year or two there will be someone trying to sell you a property fund on the back of two years of [house price] growth.’ Two-speed market As Croggan points out, talk of a property bubble has been centred around price rises in London and the South East but rises in those areas do not reflect the rest of the country . Hometrack figures show that average prices increased 0.3% in April but this figure was skewed by the 0.7% rise in Greater London. Out of the 10 regions Hometrack analyses, which excludes Northern Ireland, four saw no increase in prices in April, the North East saw a 0.1% fall, and the remaining four regions did not see a rise above 0.2%. McKinley said there was ‘definitely a two-speed market of London and the South East versus the rest of the country’ and that in some areas prices were still declining. ‘London and the South East have been affected by external factors like overseas interest and wealthy individuals in the eurozone looking to protect their money,’ he said. ‘There is a lot of foreign money in London that is not in the rest of the country.’ Future increases London-style increases may be a long way off for the rest of the country but there is confidence that property values will continue to tick up next year thanks to the introduction of the government’s Help to Buy scheme. From January 2014 the scheme will offer interest-free loans to buyers and guarantee the mortgages of first-time buyers with 5% deposits, meaning the market will be boosted with more eager buyers. The International Monetary Fund (IMF) has warned that the rush of buyers will be counter-productive . In a report on the UK economy, the IMF said: ‘This measure may temporarily help boost confidence in the housing market, but there is a risk that, in the absence of an adequate supply response, the result would ultimately be mostly house price increases that would work against the aim of boosting access to housing.’ Boulger shared the IMF’s concerns and said the Help to Buy scheme could cause a bubble if the government does not control it or fails to provide an increase in new build homes. Without the housing stock to soak up the increased number of buyers he said the Help to Buy scheme could ‘stoke up house prices to an unhealthy level’ and warned the government may have to cut the three-year long initiative short. However, McKinley holds the opposite view and does not think the Help to Buy scheme will mark the beginning of a property bubble. ‘We do not see that happening in the short-term but it could have an impact over the longer term ,’ he said. ‘We are seeing new builds increase but the question is whether they are building fast enough. ‘We are not overly concerned [that Help to Buy will increase property prices]. There will be more buyers but not exponentially more and they will still need a deposit and credit assessments, which are becoming stricter.’ Continue reading
Sustainable Agriculture — No Silver Bullets, But Maybe Some Silver Buckshot
by Elton Robinson in Farm Press Blog Agriculture’s future challenge is to provide enough food to feed 9 billion people by 2050. Environmental groups are sure to want more rules and regulations, but these rules cannot handcuff agriculture’s freedom to innovate, say experts. Producing enough food to feed 9 billion people by 2050 could be the biggest test sustainable agriculture has ever faced. The difficulty is balancing the preservation of natural resources with the technological development needed to meet these goals. To get it done, David Cleary, director of agriculture for The Nature Conservancy, says there must be collaboration between agriculture and environmentalism. During a panel discussion on sustainability at Monsanto’s Media Days, Cleary clearly understands that, well, we’re all in this together. “It is critical for the health of the world’s food system that the American agricultural system maintains yield and productivity gains over the past 40 years to 50 years,” Cleary said. “It’s also critical for the health of the world’s food system that the United States continues to play its historical role as the biggest center for technological innovation.” On the other hand, Cleary is unapologetic in blaming agriculture for not paying enough attention to the environment in the past. “Historically, yield and productivity gains have been bought at the expense of topsoil. You can extend that to water as well. The science is pretty unambiguous if you’re looking at hypoxia in the Gulf of Mexico, or algal blooms in the Great Lakes. There is an agricultural contribution to that. “Looking forward, I think there has to be some kind of grand bargain between agriculture and the environmental side of the equation. There’s a huge amount of devil in the detail. It’s not as though there is a single silver bullet. But there may be some silver buckshot. There are solutions out there that we can deploy.” Rick Tolman, chief executive officer, National Corn Growers Association, cited recent studies indicating that U.S. corn producers have discovered and implemented quite a few nuggets of agricultural sustainability over the last 30 years. “Since 1980, the land that it takes to produce one bushel of corn has declined by 30 percent, the soil loss per bushel has declined by 67 percent, the water used to irrigate a bushel of corn by 53 percent and the energy use to produce a bushel of corn has been reduced by 43 percent. “We have made continued improvement, we still have room to grow and improvement will continue. It’s been a great story of sustainability and it has been done scientifically,” Tolman said. The next 35 years will demand that agriculture continue to shrink its environmental footprint while doubling food production. Environmentalists are sure to want more rules and regulations. Agriculture – the freedom to be innovative. “We need to be very careful that we don’t take away the solutions to the problem,” Tolman said. “Some well-meaning proposals would take away some of the tools that have allowed farmers to intensify agriculture.” Hopefully, the twain shall meet in a reasonable place for everyone. Continue reading
The Challenge of Feeding 9 Billion People
By Greg Page May 29, 2013 11:00 PM America’s breadbasket, on the heels of last year’s severe drought, abounds with predictions of record corn and soybean harvests. The juxtaposition of the hope for this growing season against the reality of last year should give us reason to consider the lessons learned in 2012. With grain stocks low, farmers have responded to higher prices and planted more. Although rising commodity prices are often viewed only as harbingers of inflation, they also motivate farmers to produce more. “The cure for high prices,” as the commodities-market adage goes, “is high prices.” In late March, the U.S. Agriculture Department predicted farmers would plant the most corn since 1936 — about 97 million acres — and 77 million acres with soybeans, although estimates may fall because of the slow pace of spring planting. All that acreage is predicted to deliver a record 14 billion bushels of corn and a near-record of more than 3 billion bushels of soybeans. The forecasts are predicated on a return to normal yields and moderate weather during the growing season. We have been here before. Last year, from January through the first week of June, the price of the most important food crops fell 20 percent in anticipation of bountiful harvests. Then the rains stopped. By August, corn and soybean prices in the U.S. reached record highs in anticipation of what proved to be the smallest corn and soybean harvests in six and nine years, respectively. Summer Drought Many consequences of last summer’s drought are still affecting agriculture and the economy. Cattle ranchers responded to increases in feed prices by thinning herds. By the start of this year, the U.S. cattle herd was the smallest since 1952. Packers now have insufficient animals to process. As a result, feed lots and packing plants have been idled, some closed for good. The herd reduction kept beef prices low temporarily, but prices have now begun to rise. An Agriculture Department report shows that prices for poultry, other meats, eggs and dairy also have increased since September 2012, while food prices in other categories have been little changed. Food prices aren’t the drought’s only impact. With corn in short supply, 20 of the country’s 211 ethanol plants halted production. Meanwhile, low water levels on the Mississippi River made shipping corn, soybeans and other commodities by barge more expensive in late 2012 as traffic was restricted to one lane in some areas, and barges couldn’t be loaded to capacity. If we are going to ensure that the 9 billion people on the planet by 2050 have access to safe, affordable and nutritious food — and that we can produce that food in an environmentally responsible way — we should learn some important lessons from the drought of 2012. Here are four to consider. First, free trade is essential and makes food more affordable. Despite the severity of last year’s drought, world food production contracted by only 1.4 percent from a year earlier. A dry Iowa alone doesn’t create a world shortage. We will produce the most food, the most efficiently, if farmers plant the crops best suited for their regional growing conditions, and if we trade the surpluses with one another. Food must be able to move from times and places of surplus to times and places of deficit. Net Exporter The U.S. benefited from this last year. Historically the world’s largest net corn exporter, the U.S. will import even more corn during the 2012-2013 crop year than China , according to Agriculture Department forecasts. Imported corn prevented last year’s herd thinning from being more pronounced than it was. Drought-related food-price increases are being mitigated today partly because U.S. beef, pork and poultry producers used corn from Latin America to feed their animals. In an increasingly interconnected world, export bans, trade-distorting tariffs and inconsistent import standards hinder the free flow of food, worsen local shortages and contribute to price increases. There are more than 1,300 tariff-rate quotas in agriculture and food products filed with the World Trade Organization, including more than 100 in the European Union on important foodstuffs such as animal protein, rice and dairy products. All of them harm consumers. The second lesson is that markets are better than mandates at allocating food supplies. Commodity prices elevated by low supplies told farmers everywhere — not just in the U.S. — to plant more crops. But in times of tight supply, a mandated diversion of a crucial crop, such as corn, into biofuel production creates unintended consequences for food and feed affordability in poorer countries. I believe biofuels have a role to play, but we need policies to be more responsive to supply and demand. A third lesson is that we must embrace technologies that help farmers to grow more from less. Food production must increase at least 70 percent, by some estimates, in the next four decades to meet population growth. Optimally we should achieve that increase without bringing sensitive lands into production, by reducing greenhouse-gas emissions, and by using less water and fewer chemicals. This is possible only if we gain society’s permission to use sound, proven science — including genetically engineered crops — to produce food. But the most important lesson from the drought of 2012 is this: Our world can’t take food production for granted. Producing food will always be subject to all the uncertainties and unpredictability of the weather. We won’t have a food-secure world if we compound the inherent risks with poor policy. (Greg Page is chairman and chief executive officer of Cargill Inc. The opinions expressed are his own.) To contact the writer of this article: Cargill_Incorporated@cargill.com To contact the editor responsible for this article: James Greiff at jgreiff@bloomberg.net Continue reading
