Monday 27 August 2012

Talking Point: UK House Prices

Here's a sweeping statement which has the ring of spin about it: 
"State-backed housebuilding drive would cause price crash, warns Fathom.  A state-backed housebuilding boom would not deliver the sought-after economic recovery, a leading consultancy has warned, but cause prices to crash and tip Britain's banks back into crisis."
Well.  I like to think I have a fair grasp of the laws of supply and demand; but also a bit of an intuitive reality-checker.  Can we really imagine house-building on a scale compatible with "tip Britain's banks back into crisis" ?

(a) we are already 'back in crisis'
(b) this needn't be a zero-sum game
(c) . . . ?

I am sure there are other arguments to be raised.  Have at it !



andrew said...

Not sure.

If it was social housing, then those people are not likely to buy a house at any price

many have said that UK housing is overpriced as it is - certainly more expensive than france.

I noticed a lot of homeless people in france. I thought it was supposed to be a socially 'together' country?

Sackerson said...

I said years ago, whatever you treat like an investment will behave like one. All those Johnny foreigners buying into UK property to keep it away from their taxgatherers and their governments, plus bank pumping, have created the situation we're in.

The sooner we get proper price discovery on houses (including the inventory of properties repossessed or that should be) and the sooner the corrupt and reckless banks go under the better.

Besides, as I've said before now, there is no housing shortage, merely a housing misallocation (loads rattling round in houses too big and too expensive to maintain) - plus lots of people who've been told, but not made, to leave the country, plus wild expectations of young people to have their own houses plus families that don't even try to stick together, plus families that don't care for their sick and elderly.

Post WW2: now THERE was a housing shortgage. Soldiers returning and living in caves in Worcestershire and squatting in airfield barracks etc. For a while my Mum and me were in a Nissen hut with several other families, and an empty white spirit drum as a fireplace.

Housing shortage, my breeks.

Anonymous said...

It is not that there are no houses available, I can only speak of my area of course, only if you have a high than average wage/salary for the area can a first time buyer hope to buy a house of any description, this applies I should imagine as you get closer to London when you meet stratospheric levels. In my own area there are houses that have been on sale for years, the letting market has almost come to a halt, "to let" notices abound, sometimes for a long time, maybe rents too high for the income of a lower paid worker and with the employment situation on a knife edge folks do not want to commit a length of time. Social housing is usually snapped up but again rents are high (compared to what they used to be). All this talk of building more houses the builders prefer to build expensive houses not houses for starters, and I believe we have been here before over the past 30 years and the government of the day takes the bait every time.

Anonymous said...

Nothing to worry about here.

Any social housing that gets built will be immediately taken up by Third World immigrants.

The same applies to any more beds provided in the National Health Service.

All courtesy of the British taxpayer.

Electro-Kevin said...

I know people on 45k pa who are unable to save up for deposits.

They have children and the cost of rent is exorbitant.

This is an area of high unemployment and the average salary is 26k. Most people earn around 15k in reality.

Why are average houses costing 8x average salary ?

I'm with Sackerson. Excellent comment.

Budgie said...

Well, I'm not with Sackerson, EK. It is not his business, nor yours, nor anyone else's what size house I live in.

Houses became overpriced because Brown set interest rates too low by following the Chinese Prices Index.

QE has kept asset prices from crashing, but property prices are dropping outside London. Even if only as a result of inflation with a nominal price standstill.

Steven_L said...

The thing is ND, all housebuilding has to be state backed, as you need planning permits.

Up here in Aberdeen a 1 bed flat costs at least 6k a year to rent, so at a 6% yield (pretty decent for well located UK housing) it should sell for 100k.

They cost more like 50k (if that)to build, so surely all the council have to do is issue planning permits and let the investors and builders get on with it?

Well funny you should mention this, as I had the 'corporate induction' today and had to listen to the director of housing talk a load of twaddle. In the Q&A I picked him up on complaining that central government weren't 'giving them money' for house building.

He tried a few weasel get outs (blah blah blah affordable housing strategy etc) but I'm pretty familiar with this debate and the figures and kept butting back in.

He droned on about another master plan - the council will provide the land and some money for building. "So you're giving them the land, the planning permit and some money?" I said "That sounds like you're just giving money away." And he looked uncomfortable at that point.

In the end he had to resort to the old 'the banks won't lend to builders' and I left it there rather than talk about corporate bond markets, global savings gluts and equity investors. Even though he had just been boasting about how his colleague had been on a round the world jolly to 'bring business to the area'.

Middle aged people really piss me off with their attitude to housing. The only funny side is when they come to see me looking for sympathy / assistance with some 'house of horrors' home improvement gone wrong.

I honestly sometimes struggle to stop myself laughing as they nearly burst into tears showing me photos of how some itinerant has ruined their roof / driveway etc.

Sackerson said...

To clarify (@ Budgie etc): my view is that housing needs are largely subjective these days. The perception is also influenced by the gradual breakdown of the social fabric which Big Government cannot possibly afford to patch with social benefits.

But there are also "issues around" social exclusion - ha ha, I rode the inflation train and I've got my Buck House, touhg on you.

I had a go at tackling this subject 4 years ago:

The price to rent ratio suggests the UK housing market is maybe 30% overvalued. We own our house outright, so I have no particular stake in wishing valuations would drop (except we'd like to move away from steel-shuttered shops and bin-burning vandals); but I think society would benefit if they did.

Electro-Kevin said...

Ditto, Sackerson.

Whatever is keeping house prices up it's not a shortage of bedrooms.

Budgie - They may be falling in terms of inflation but not nearly fast enough and most working people aren't getting pay rises.

We have to break loose of this notion that houses make an economy.

They should only ever be the product of an economy. Which leaves me dismayed as to how they're knocking down so many factories to create housing estates. And not bothering to include schools and shops on them.

Electro-Kevin said...

In this area we have the paradoxical situation whereby house prices are falling but rents are rising.

I speak to my friend in his early 30s on 45k (a fantastic wage here) and he says that the prospect of him buying a place is still an impossibility - showing just how out of kilter the situation is and how far it needs to fall for him to become a contender for a 3 bed semi.

We have the following situation for (I believe) the following reasons:

- an intransigent and established home owner/landlord class with no pressure to budge and a belief that the long-term prospect will see houses double in price again

- a distressed and over leveraged homeowner/landlord class which is assisted by uncharacteristically low interest rates, QE and bank forebearance.

If the latter were exposed to true market forces then the correction would take place.

What is coming through is a class of educated young people with massive tuition debt, a poor prospect of a decent wage, unaffordable housing, a looming energy crisis and rising inflation. Where will the 'doubling' of prices come from ?

Those that are lucky enough to have parents rich enough to bail them out will manage but this will be done - by and large - through the release of housing equity. Either the sale/gifting of housing or equity release loans.

This country is going to get piss poor all of a sudden if it doesn't get its act together.

Anonymous said...

There is only a housing shortage in the South of England because 4million people have moved to the UK in the last 10 years. Build more houses now and all that will happen is we will have the scope to import yet more people from impoverished parts of the EU that refuse to monetise their debt problems away. We are rapidly becoming the only solution for a f*cked up EU - we should realise this is the case and get out of it before lifeboat Britain sinks under the weight of its own generosity.

idle said...

The market is irrational, obviously. Quite why a British government (of any hue) wishes to preside over a situation where 90% of Londoners cannot afford to buy property in their own city, whilst foreigners bid it up yet higher, using money they almost certainly have not paid tax on back home.... well it staggers me.

There is a lot of rot talked about these foreign buyers bringing prosperity to London, wealth trickling down etc. Rubbish - most of these properties stand empty for 300 days a year.

An immediate non-resident stamp duty of 15% and annual duty of 5%, RPI-linked, would have the effect of greatly enhancing tax take, and may even help pop the bubble.

Outside London, nominal sideways movement over five or ten years will be the most likely way to correct the market in real terms.

andrew said...

As others have pointed out, many treat their homes as an investment.

I would therefore tax capital gains in the same manner as other investments and charge an estimated amount on a year by year basis if the house is owned by a company.

I would also allow local authorities to re-band all the properties (throw a few million at zoopla etc) and add a 'higher rate' of rates that goes to central govt on properties over 1m

This should at least put some gentle downwards pressure on house prices - it took 20 years to get to this point so you cannot unwind the position overnight.
But as others have noted, that we cannot all live in a nice 3 bed semi with garage in a nive suburb does not equate to a housing shortage.
I would be interested to know what Stephen_L would do as he seems to have background

Demetrius said...

The number of comments indicates that the mention of house prices always touches a nerve. Basically the UK situation is yet another fine mess. The 2002 Leasehold Act added to this and it is going to be very difficult to get out of it all without a lot of people getting hurt. One other point is that when the huge expansion of universities happened did anyone factor in the impact on the housing market of decanting millions of teenagers into rented property?

Sackerson said...

Dead right about the student accom scam, Demetrius.

Budgie said...

I am astounded at the "I don't approve of your house choice, so I will control you" attitude of some on here.

Sackerson in particular tries to justify this stance because of a visceral disapproval of those who, he says, crow "ha ha, I rode the inflation train and I've got my Buck House".

Once started on the road of allocating "housing by need" we cement our position as serfs to the state.

It is the state, in the form of politicians, who have got housing wrong for years, so why give them even more power because of their mistakes. Stop taking it out on the house owner, and aspiring house owners.

Any "solution" that calls for more state power ends in tears.

Electro-Kevin said...

Sackerson - And welfare housing boosting values in areas of high unemployment - a monthly yield plus a capital gain expected by the Govt 'agents' for council house provision.

Idle - I suspect the govt don't want a rebalancing of the housing market in London and see the foreign investment as a lifeline.

I was unable to re-join Eurostar at 60k pa (basic) recently as this would have meant a substantial drop in the standard of living for my family and my boys talking like Ali G.

Nibilik said...

Crazy isn't it.
60k is only enough for a modest home in a decent area in the Home Counties.

yet when the government suggested national pay deals and benefits should reflect the cost of living in different areas they were roundly attacked as assaulting 'the poorest'

Sackerson said...

Budgie: land is a resource like any other, but has been heavily interfered with by government and financial institutions.

As a result of which, aspiring house owners - whom you rightly wish to defend - are stuffed.

Anonymous said...

It would be fun to watch budgie's sphygmomanometer if someone mentioned LVT round about now.......

Sweepstake on the high / low, anyone?

Humour apart, I agree completely with his contention that it's no one's business but his what sort of house he chooses, or can afford, to live in. Surely no one in their right mind wants MORE State control?

CityUnslicker said...

nice debate all. re mortages and rents. Buy to let mortgages are very expensive and going up. QE may keep headline rates down with the BOE but major banks are limiting a buy to let resurgence which cost them so much in 2009/10 by keeping rates high and supply of BTL mortgages low.

This means rents can increase even as house prices fall as we are seeing - the price of finance being the real dictator.

we do need more houses in the UK, but it is not Government's role to build them but to issue permits. Planning is the real scandal, with NIMBYISM a key problem and a failure to use Government policy such as they can to re-balance the economy. If everyone want to live in the SE of the Country prices here will remain extreme forever. tax breaks and incentives for investment in cities that could readily expand again like Liverpool must come into the mix.

So much can be achieved just by lowering the right taxes.

Budgie said...

Personally, I am sick to the back teeth of my neighbour crowing about his superior food mixer. "Ha ha", he says, "my food mixer is bigger and better than yours".

Right! We must have a Food Mixer Allocation Unit run by the government. Until that desirable state (!) is reached, all you food mixer owners should be taxed with a FVT (Foodmixer Value Tax).

Blue Eyes said...

Strange beast, the property market.

I hear people complaining that first-time buyer homes are too expensive, especially in London. And yet when I point out how much you can buy a good quality two-bed flat in my block for they don't believe me.

"There's nothing under £250k" they tell me. And yet a quick spin around Rightmove proves that completely false.

There's nothing under £250k in an already desirable area...

I think there's a snobbery. But many of those same areas which are now desirable were crapholes ten, twenty, thirty years ago. Notting Hill was cheap and unfashionable, once.

Yes, London needs more cheap housing and councils should allow it to be built. But for some reason professionals think they need a sub to get onto the "ladder" as well.

Electro-Kevin said...

There are certain factors which are needed for an area to become desirable - period features, a parade of shops, low-level living...

(Barbican tower blocks excepted, but this place comes with it's own theatre and concert venue after all.)

Snobbery ?

No. I think it's vision - and that vision includes knowing when an area doesn't have the potential to improve.

There are plenty of those in London.

Blue Eyes said...

Right, so it is every professional's human right to have built for them an ideal urban setting with housing that they decide is acceptably priced?

My point is that there is no shortage of first-time-buyer-priced housing in London, it just might not be in Clapham.

Electro-Kevin said...

I don't doubt the price. So why is there considered to be a crisis ?

There's nothing snobby about refusing to live in a block with gated doorways and barred windows.

George Washington said...

Some people here clearly arent understanding the import of high house prices and the resentment caused by pooling of wealth in the 'boomer' generation.

Put it this way;
As soon as the next set of riots kick off, there'll be a load of unemployed graduates added to the pool. These graduates will be excluded from the bounty their parents enjoyed and will be highly motivated.
What does that mean?
It means the rioters will have an 'officer class'.
Then youre fucked.

Look to Northern Ireland in the 1960s for what happens when you have a highly educated underclass who are refused the benefits afforded to others by deliberate govt policy. And they'll be right. It'll start with an 'Economic Rights' movement akin to the Civil Rights movement in NI. For these students Sedition is the new flower power.
I suspect that the decades of computer gaming and violence on TV produced by the boomers will prove to be good training for these kids too.

If you dont see this coming to the UK, youre a mug.

Good luck kids.

This or a serious dose of Bird Flu - a pensioner cull - is whats needed to rebalance the economy.

Sackerson said...

Food for thought there, GW.

Nick Drew said...

Too right, Sackers

one of the most interesting comments we've had in many a long month