Over the last few weeks we have seen a number of new rescue plans announced around the world which have taken in literally hundreds of billions of dollars of taxpayer’s money. To date there has been very little increase in economic activity and in the eyes of many these rescue packages have yet to kick in even though we were promised a short-term injection of liquidity and confidence back into the market. As a consequence there are literally hundreds of thousands of properties empty, many more developments partly finished and a massive problem on the property supply side. So what is the answer?
Many governments have recently announced plans to acquire substantial amounts of empty properly to take them out of the marketplace and try to firm up prices are little. But is this the way forward? Is this really how taxpayer’s money should be spent?
As we mentioned above, there have been literally hundreds of billions of dollars of taxpayer’s money spent trying to inject confidence and liquidity back into money markets. There has been limited success to date and many governments are now moving towards increasing their own property portfolios and taking some of the excess out of the market. The problem which many people have is the fact that the governments around the world would not have been in the market to acquire these properties if economies have been stronger and firmer.
So this begs the question if these properties were not required last year, how are they required this year?
One more concern which is likely to come in over the next few years is the fact that many countries have significantly increased their national debt to acquire these properties and unless they are sold on at some stage in the future there will be an increase in taxes worldwide as and when economies are deemed able to take them.
Location, location, location
The fact that so many governments around the world have and are looking to acquire more properties has opened something of a can of worms as property developers look to spin-off unsellable or unwanted properties to increase their own cash flow. There are concerns that the governments around the world are concentrating on the inner cities where rising property values over the last decade have been more marked, leaving many of the surrounding property markets to die a death.
Choosing where and when to acquire properties is proving very difficult and very controversial for many governments and leaves them open to claims of bias for and against certain areas and certain property companies. Let us not forget that the property sector around the world has made many people very very rich and some taxpayers are aggrieved that their funds are being used to bail out developers who may have taken undue risks in recent times.
Social housing is probably the main reason that governments around the world can justify the purchase of more and more empty properties. The fact is that as economies continue to fall, more and more people will lose their jobs and see their income reduced substantially which will see social security payments around the world mushroom over the next few years. This will see a massive increase in the need for social housing hence a growing market for the properties being acquired by governments around the world.
It could be argued that by buying these properties in a distressed market there is actually great value for money for taxpayers and the government in the short to medium term. However, when the worldwide economy picks up and the activity increases in domestic property markets will there still be such a demand for social housing?
Are governments investing to sell in the future?
While there has been no comment on this particular angle there is an argument to say that government investment into properly at this moment in time could and should result in a substantial capital increase in due course. This then begs the question whether the authorities should be retaining property for long-term social housing or slowly but surely drip feeding properties back into the market place.
Even though taxpayers would likely appreciate an increase in the value of taxpayer funded investments there is an argument as to whether this strategy stands well with the authorities seemed to be making money out of the bad times. Trying to find that balance between taxpayers funding, and how it is used, and not been seen to take advantage of difficult markets is a very difficult skill.
Historic housing policies around the world
Many countries around the world, including the likes of the UK, have been selling off social housing in droves for many many years. Often sold at sub-market rates to those on lesser incomes this has left a major gap in social housing policies in many countries. Many observers are now suggesting that the strategy of selling on social housing for short-term gain has now been exposed as having very little long-term benefit to society as a whole.
As the worldwide economy has grown over the last decade the need for social housing has lessened but this should not mask the difficulties experienced in the lower income market where life has not been as rosy as for those at the top end. Social housing is a vital part of any society and offers a very important backdrop for those who may be suffering or unable to climb onto the property ladder.
The decision by many governments around the world to increase their property portfolios in these distressed times has attracted differing comments and differing thoughts. Some see this as taking up the slack on the supply side at a time when buyers are at a premium while others see this as benefiting from the problems of others. Whatever your view of the situation there is no doubt that governments are unable to acquire enough property to move the market by themselves and in many cases the strategy has been nothing but a token gesture.
There is also the problem of what to do with these properties on a long-term basis, as making substantial gains on distressed property purchases would not reflect well with some groups of society. This leaves governments open to claims of abusing taxpayer’s money when it may have been better to return it taxpayers directly and try to stimulate more economic activity.