SHELVED, NOT SOLVED

Evening Post, Volume CXXVIII, Issue 118, 15 November 1939, Page 8

SHELVED, NOT SOLVED

A highly significant statement appears in the report issued by the Under-Secretary for Justice on the relief of urban mortgagors. It is stated that tlie future maintenance of the values on which mortgage adjustments were made depends on continuation of a state pf general employment at a wage level and on the maintenance of a price level not less than ruling in October, 1936, and so long asthese conditions exist or do not materially change, there should be no call for any further adjustment. What can be understood from this, except that the adjustment, or'reduction, of mortgages is regarded, not as an unprecedented emergency measure, but as one which may be repeated? If the price level changes materially, then a further adjustment may be contemplated. This denotes a great and most serious change in the interpretation of contracts. Formerly^ a contract to buy arid sell^ or borrow and lend, was held to be dependable and enforceable. The Legislature changed this during the depression and made provision either for general review (as with mortgages) or for wholesale reduction (as with public loans). To many people this appeared unwise, because it weakened the basis of contracts* But they reassured themselves with the thought that the action was the product of the great depression and would never be repeated. The sanctity of contracts was really recognised and no change had been, made in the principle. But this assurance goes, if adjustments are to be repeated as the price level varies. What stability can there be under such conditions? If debts are to be varied according to wage and price levels, transactions have no foundation; they just float on a raft. Shrewd speculation may turn this' to profitable 'account; by gambling on the future price level. But real investment wilj be discouraged, for what small investor will want to risk his savings if there is a doubt as to the amount to be repaid? If he lends when the price-level is high, the borrower may say: "I.had £100 from you, but. wages and prices have now fallen. You must be satisfied with £90." • It is not even a fair risk, for a debtor-minded community is unlikely to say: "You lent £100 when it was worth £l 00; now prices have risen, so you will be paid £110." ' The \ consequence of this uncertainty must be to diminish confidence and discourage-investment in mortgages. It will add a new complication to the housing problem. It will help to make worse the conditions which it is intended to better. In this it will follow the same course ,as another- form of State intervention —rent restriction. Tlie report io which we are referring throws interesting light on that. Sales of houses at high prices on small deposits were due, the report states, to the inability of many people to obtain houses for rent. They were forced to buy, though their financial circumstances were such that they would have been wiser to remain tertants. Why could they not obtain houses for rent? The bedrock reason is that the business of house-letting had been solong hedged round with restrictions that the small investor had left it. If the profits of house-letting had been such as were often- stated, there can be no doubt tliat money would have flowed into the business and rental houses would have met the demand. But the profits were not such as to compensate for the uncertainty and the restrictions. So houses were not built or bought to let, and would-be tenants had to become house owners. The protection of tenants gave them a temporary benefit, but ultimately it made their posi tion worse. It is equally certain that if the "protection" of borrowers is sought by similar methods, bringing doubt into that which should be sure, the final result will be detrimental to the real interests of all who wish to obtain loans.