Houses are not an essential commodity, they are an asset with a market worth. Why are you trying to compare?

“OWNING houses is not an essential commodity”

@1,2 “OWNING houses is not an essential commodity”.

No, but having a roof to live under is. And distorted prices affect housing at all levels, with a knock on effect that include the rented sector and the state of council dwellings.

By the way, anything – even water, electricity, food and education – is “an asset with a market worth”. Does it mean it’s ok to distort value to stupid levels?

I absolutely guarantee you that if food starts to become short in supply, aside from humanity being generally screwed by that point, food prices will rise. I think that’s the issue you’re missing.

Most landlords have a mortgage on the property and are also trying to make a profit. Housing is an “asset with a market worth” but it shouldn’t be because a significant number of people have been completely screwed by that attitude. My income after housing costs (rent, bills, tax) hasn’t been more than £100 a month in 10 years. The only people I know who aren’t in debt have parents who are millionaires (and I’m not including a mortgage in that statement. I mean credit cards, overdrafts, personal and student loans) and that’s because of the cost of housing. I guess that’s the effect of living in London, if you’re not making £30,000 simply to support yourself at the moment than you can’t really afford to live there.

Short in supplies?
In 2004 there were 800,000 empty homes…

Claude: were those homes that people wanted? It’s no good there being 800,000 empty houses if they’re in the middle of nowhere, or are falling into the sea, or have no roof, or are being used as crackhouses, or possessed of some other equally undesirable trait. Supply needs to meet the demand that actually exists, rather than being some arithmetical exercise in totting up a few aggregates and declaring the problem solved.

Ok, Lee and Philip. You’ve convinced me. You talked me into the sacred dogma: property speculation is good and just. Actually, it’s holy too.

Who’s that ejit who said “ideology is dead”?

Empty homes are a disgrace, I agree, however many of them are tied up by the government and won’t be released in to the market, or are in areas that are essentially no-go areas now due to security concerns (the housing being too close to energy stations, etc, go figure).

The empty homes issue is an important yet separate one. Even if the homes were all released to the public, which would be unlikely, it would only solve our current situation, not the future.

It also doesn’t actually disprove that housing is in short enough supply for the market to inflate prices disproportionate to inflation…the market itself shows that there is a shortage of housing where people want to actually live in a condition that people are willing to move in to.

Of course there *are* cheap houses out there, and if you’re happy to live in a half dilapidated crime hot spot that is miles away from any real amenities and transport links then you’ve got a bargain on your hands.

Hang on, I thought there was no problem with a rapidly rising population.

Now you tell me house prices are too high?

Who knew?!

On house prices, try this from the FT in January:

“Britain’s leading economists are almost unanimous in their view that house prices are still too high.

“Of the 70 who answered the question, 13 believed residential property prices were now fairly valued, while 55 said they were not and two did not express a view.

“The judgment that the housing market remains overinflated sits uncomfortably alongside extensive evidence that prices are rising rapidly. But the general view is that the recent surge in prices reflects low interest rates and low levels of supply – a situation that cannot last for long.”
http://www.ft.com/cms/s/0/ade2abbe-f8a9-11de-beb8-00144feab49a.html

There isn’t a “housing shortage” – there are too many people. Imagine how much they will cost when the population hits 70M in the next decade.

“There isn’t a “housing shortage” – there are too many people.”

Toe-mah-toes toe-may-toes

There is no housing shortage? The peak of UK house building was 1968. We have housing bubbles for the simple reason we do not build enough houses. We have more single occupancy houses than ever before because we have more elderly people than before. Changing relationship structures also lead to more single occupancy. We have the NIMBY brigade. We have planning laws restricting green belt building. As a consequence less larger family houses are built. Developers are encouraged to over supply brown field flats. Flats attract buy-to-let speculators who inflate the market until the bubble bursts Unless supply increases in line with demand prices rise in every market known to humanity. Why on earth should property react any different to any other market? There is no such thing as too expensive. A house is no different to a banana, it is worth what someone is prepared to pay for it i.e. it has a marginal utility.

Re: 1 & 2

Someone’s got to own them in order for someone else to pay them rent. If one gets inflated, so will the other. You don’t have to be a lefty to believe that.

Re: 4

Food can be imported, and it’s grown all over the world. Houses in Britain, er, can’t and aren’t. By all means continue comparing the incomparable though.

Re: 10 & 12

You guys, always with the problems and never any solutions! Surely population growth would be alleviated if there wasn’t a housing shortage, hmm? Hmm?

Too many people?

Kate Barker, in her Review of Land Use Planning, concluded that local planning authorities were holding up the release of land for development:
http://www.communities.gov.uk/documents/planningandbuilding/pdf/154265.pdf

Whenever I’ve been flying anywhere, on looking out of plane windows, there’s lots of greenfield land which could be developed. The problem is more that housewowners pressure their local councils to restrict development in order to push up house prices. The result is that Houses are less affordable than 50 years ago although the quality of homes has improved, according to the Halifax.

“The lender, now owned by Lloyds Banking Group, said that over the last five decades UK house prices have risen by 2.7% a year, allowing for inflation. This was above the 2% annual increase in real earnings over the same period.

“Prices increased the most in the last decade, and separately lenders warned that lending to first-time buyers would be constrained for ‘some time to come’.”
http://news.bbc.co.uk/1/hi/business/8468605.stm

Yvette Cooper, an economist trained at Oxford, Harvard and the LSE, was minister of housing 2005-2008.

“Someone’s got to own them in order for someone else to pay them rent. If one gets inflated, so will the other. You don’t have to be a lefty to believe that.”

Rental properties are long term investments, so house prices rising *now* is not going to affect rental prices, only interest rates will do that (assuming the owner hasn’t already paid off the buy-to-let).

“Food can be imported, and it’s grown all over the world. Houses in Britain, er, can’t and aren’t. By all means continue comparing the incomparable though.”

Thanks for entirely proving my point.

Richard W

> Unless supply increases in line with demand prices rise in every market known to humanity.

Not if the ability to get more money to buy the item, doesn’t also increase – which happens if the item price is a high percent of income, and not a disposable income spontaneous purchase.

Just 2-3 years back, some ecomomists were predicting average house prices to be £1M by 2015 or 2020 or whetever. They look silly now!

If these factors apply:
i) decreasing birth rate
ii) shift of industry and business and hence jobs to India/China etc => hence reduced immigration

Then I guess there is potontially a case to make that in 20 years the population will be no higher than today.
=> supply may not rise

And another corollary of (ii) is that wages are going to fall in real terms as the jobs go elsewhere.
Which means that the amount the average family can afford for the average house will fall.

=> ability to pay will fall.

Yes, Bob, let’s concrete over those nasty green fields.

‘And distorted prices affect housing at all levels, with a knock on effect that include the rented sector and the state of council dwellings.’

The knock-on effect on rent is hardly comparable to the rise in house prices, is it?

‘Ok, Lee and Philip. You’ve convinced me. You talked me into the sacred dogma: property speculation is good and just. Actually, it’s holy too.’

Somehow you’ve failed to make a case for property *ownership*. Without that you aren’t really in a position to argue against property *speculation*.

I don’t own a house, I have no prospect of ever owning a house and I really don’t give a shit. I’m not homeless.

“You guys, always with the problems and never any solutions! Surely population growth would be alleviated if there wasn’t a housing shortage, hmm? Hmm?”

Well up to the point where it becomes physical impossible to build any more houses, yes. But only in terms of housing, I don’t think this is actually a chicken and egg problem – it is clear that the demand for housing is linked to population size, but population size does not vary due to demand for housing. Hence population size governs demand for housing (or to be completely accurate, is a major factor in determining demand for housing). So population growth would not be allievated just reducing the shortfall in housing.

We’re a long way off it becoming impossible to build new houses. For a start we haven’t even begun to look in to the possibility of converting existing council housing (rather than council flats, etc) in to two property house/maisonettes. The fact that we’re only really starting to see the end of physical land on the ground we can build on is just one stage of the limits of housing potential.

We may need to collectively readjust our expectations of what “housing” means in this country, but we are realistically nowhere near our “limit” as far as population housing is concerned.

18. Just Visiting

Richard W

‘ > Unless supply increases in line with demand prices rise in every market known to humanity.

Not if the ability to get more money to buy the item, doesn’t also increase – which happens if the item price is a high percent of income, and not a disposable income spontaneous purchase.’

In the case that finance was constrained then demand would be falling. It does not change the fundamental dynamics when demand is greater than supply prices rise. Moreover, with a bursting bubble supply also falls. Therefore, when the cycle starts all over the stock is even smaller. The best way of dealing with a bubble is not to have one i.e. build more houses.

Re: 17

At the risk of flogging a lifeless mare with the wrong end of the proverbial, was your point that food markets can’t be distorted in a global economy in the same way housing can in local economies?

I totally missed it in your earlier post, I apologise unreservedly.

Re: 21

Man, that was fucking stupid wasn’t it? I should have said ‘overpopulation’ not ‘population growth’. What a schoolboy howler.

“Hang on, I thought there was no problem with a rapidly rising population.”

“Yes, Bob, let’s concrete over those nasty green fields.”

Jesus. So your right to a nice view trumps other concerns?

80% of this country is rural/fieldy. I live in the countryside, I absolutely love these green and pleasant lands (especially now the sun is out, wonderful cycle rides) but I can see that there’s a case for sacrificing 10% or so of that so I might one day be able to afford a house, so that cities are less crowded \nd so the right shut the fuck up about immigration (Although I imgaine that the Asylum Seekers eating our farms story would run for a while).

The alternative is of course closing the borders, which would be more or less impossible, and changing the way we all live our lives so that the rise in single occupancy decreases, which is deeply illiberal.

Or we build more houses, which people want, where there is space by relaxing planning laws and with a medium term plan for state led house building while credit conditions are largely buggered.

Re: 18

In fairness, if we’ve learned anything in the last 2-3 years, it’s that there are enough economists in the world that one can always be found who accidentally got something right, or hilariously got something wrong.

They call it the dismal science for a reason!

“Man, that was fucking stupid wasn’t it? I should have said ‘overpopulation’ not ‘population growth’. What a schoolboy howler.”

Either way, I’d say the same (without the bit about link to demand for overpopulation), as there are other effects of overpopulation – transport for example. And overpopulation is probably not the best term to use if we are concerned that some people here may be hinting at immigration as a problem in this context…

Re: 19

At the rate of immigration they’ll soon be brown fields etc

Re: 27

Indeed. I’m personally not convinced that overpopulation is the same as overcrowding, or that the latter proves the former by itself. These aren’t national population issues, but local infrastructure ones. No matter how crowded a London commuter train becomes, it won’t affect my life in Bristol.

24. “At the risk of flogging a lifeless mare with the wrong end of the proverbial, was your point that food markets can’t be distorted in a global economy in the same way housing can in local economies?

I totally missed it in your earlier post, I apologise unreservedly.”

It wasn’t quite my point, but was definitely along those lines 😉 No worries though, misunderstandings happen.

Equally, you’re spot on in 29. Infrastructure (or lack of development in it) is the problem almost exclusively when it comes to population growth. A cynic (like me) might argue that the Tories if they get in will ensure infrastructure doesn’t grow with demand just so that they have a bigger chorus of anti-immigrant voices to back their “shut the borders” wishes.

Claude: no ideology, and I don’t own a house. I’m not holding a candle for home-owner-ism. I just don’t think quoting 800,000 empty houses proves anything. If all those houses were on the Isle of Skye (unlikely, I grant!), then they wouldn’t be much good to homeless people in London, would they? You need to drill down beyond the bare statistic to look at the facts which underlie it.

#31
Because of course, Peter, those empty properties are all on the Isle of Skye.

—
Alas, people are reading straight from their ideological hymnsheet on this thread.

House prices haven’t gone up because shortage in supply, like #4 wrote. That is utter bollocks, if you pardon my French.

Just drop that Free-Market Theory Book and look at the real figures. You can’t go wrong. The average house price in the first quarter of 1998 was £81,722, but at the peak of the market in the third quarter of 2007 the average price was £219,256…

If that was due to supply shortage, would Lee Griffin seriously argue that in nine years – NINE YEARS- the UK population quadrupled?

House prices have skyrocketed because of an unprecedented Real Eastate bubble – the devastating effects of which we are still feeling. Amazing how so many people on ‘Liberal Conspiracy’ appear to have already forgotten that too many lenders began offering loans of increasing multiples of income like never before.

House prices quadrupled because the entire population being increasingly showered with readily available, often ridiculous and irresponsible, credit/mortgages. If people can’t borrow any money then the “effective” demand reduces, if people can borrow more than the demand goes up.

Hence the staggering rise in cheaply built houses, increasingly smaller, which started to cost an arm and a leg.

If there was anything that distorted the Free Market, it was that.

@32

Thank you, Claude, for hitting the nail on the head. There are a lot of brainy idiots posting on this thread. Wilfully missing the point or simply living in an ideological bubble?

Its about time someone started talking about house prices. Lets hope they talk more sense than the ideologues posting on LC.

“If that was due to supply shortage, would Lee Griffin seriously argue that in nine years – NINE YEARS- the UK population quadrupled?”

That’s not how the market’s work, but nice hyperbole.

“House prices have skyrocketed because of an unprecedented Real Eastate bubble”

House prices have skyrocketed in popular areas because those areas are popular and there are not enough houses in those locations. For example, around schools here in Bristol house prices can be in the region of £50k (or 25%) more expensive than houses that are 5 minutes walk away on a main road and outside the acknowledged “catchment area”.

Meanwhile housing in poorer areas has not skyrocketed, and remains relatively cheap due to the fact that people simply don’t want to live in areas of high crime, with low access to schools and other services.

There has also, in the last decade, been a surge in demand for “complete” homes, homes that look like American show homes, which add premiums to the house price that are more reflective of the value of conventional desires on decor and finish than on the value of the property as an abode with a set amount of square feet and bedrooms.

And finally homeowners. Between 1997 and 2002 homeowner numbers increased by almost 700,000. Since then the number of homeowners has barely changed. The number of homeowners in the market is significant given the likelihood of those people to be competing for the same properties.

You are, very competently, over simplifying the whole issue.

Quote:

“American house prices rose 124% between 1997 and 2006, while the Standard & Poor’s 500 index fell by 8%; half of US growth in 2005 was house-related. In the UK, house prices increased by 97% in the same period, while the FTSE 100 fell by 10%.”
Source: Robert Skidelsky: Keynes – The Return of the Master (Allen Lane 2009) p.5.