A policy agenda in pieces
Making sense of the latest trends in property and economics from around the globe
4 minutes to read
Scrapped
The UK's pension schemes are in better health this morning but the government's policy agenda could do with an emergency intervention. Michael Gove and Grant Shapps lead a group of fourteen conservative MPs that have publicly come out against the plan to scrap the 45p rate of income tax. The vote is likely to be delayed until at least after the budget on November 23rd, according to the Telegraph, though as I write this the FT has reported it will now be scrapped altogether.
According to the Sunday Times, Downing Street has scheduled eight announcements covering childcare, immigration, business regulation, mobile broadband, energy, financial services, agriculture, and of course housing — all due before the end of October. Those announcements would help nudge economic growth to at least 2% in 2023-24, the government hopes.
All of that will no doubt be trailed in the papers over the coming fortnight, so I'd expect more detail soon on the vague promise to “liberalise planning rules” plus the inner workings of "investment zones".
Inflation broadens
Eurozone inflation hit 10% in August, well above expectations. Price increases have broadened from the volatile food and energy sectors into nearly all segments of the economy.
That raises the prospect of another 0.75% rate hike from the European Central Bank this month. Markets see the key rate hitting around 2% by the end of the year, before leveling off at a little over 3% around spring of next year, according to Reuters.
The European numbers aren't the only metrics showing peak inflation looks some way off. The US Personal Consumption Index, regularly cited as the Fed's preferred measure of inflation, hit 6.2% in August, down slightly from 6.4% in July. Strip out food and gasoline, however, and inflation accelerated to 4.9%, from 4.7% a month earlier.
All eyes will be on the latest jobs market figures, due out Friday, which economists believe could show signs of cooling.
Ultra-prime
A mansion built on Palm Jumeirah island has become Dubai's most expensive home, according to developer Alpago Properties and reported by Bloomberg. The villa sold for 302.5 million dirhams (US$82.4 million) back in July.
Dubai's handling of the pandemic and its golden visa scheme have fuelled rapid growth in its prime property market since 2020, but it's the ultra-prime market - defined as those valued at at least US$10 million - that is setting new records. There were 82 ultra-prime deals during the first six-months of 2022, rapidly approaching last year's all-time record of 93 sales.
A shortage of supply is driving prices higher. Across ‘Prime Dubai’, which Knight Frank defines as the Palm Jumeirah, Emirates Hills and Jumeirah Bay Island, just 8 new homes are expected to be completed between 2023 and 2025. Prime residential prices have climbed 70.3% in the last 12 months.
Australia
House prices fell 1.4% across Australia last month and have now dropped 5.5% since the central bank started hiking interest rates, according to new data from CoreLogic. Sydney continues to record the largest falls, with values down 9% from the city's January peak.
Australia, like New Zealand and Canada, recorded substantial price growth through the pandemic and have become the first to cool meaningfully in the face of tightening monetary policy. Australia recorded gains of 25% over the course of the crisis before the latest eight consecutive months of declines. The Reserve Bank of Australia is widely expected to raise rates by 50 basis points this week to 2.85%.
Still, even with double-digit declines, pricing in most major markets will remain significantly higher than levels previously seen in early 2020, which should keep a floor under levels of negative equity - in contrast to previous financial crises.
“RBA data suggest that even with a 20% national price decline the share of loans in negative equity would be modest (~2.5%), allaying much of the financial stability concerns, at least at this early stage of the cycle,” said Chris Read, Australia economist for Morgan Stanley, tells Bloomberg.
Wealth taxes
The Government of Spain on Thursday announced plans for a Wealth Tax to help pay for inflation relief measures.
This so-called “solidarity” tax will affect some 23,000 people, or 0.1% of taxpayers, and raise €1.5 billion for the state over a two year period. The move follows the regional Andalusian Government's decision to scrap its wealth tax for local residents and second homeowners in the region, which took effect from 21 September.
In other news...
S&P puts UK credit rating on notice with ‘negative outlook’ (FT), China’s demographic crisis looms over Xi Jinping’s third term (FT), The bond market massacre of September 2022 (Chartbook), and finally, FCA chief Nikhil Rathi warns banks need to restart the mortgage market (Sunday Times).