Monday, Dec 10, 2007
House prices will plummet if Brown insists on building millions of homes
This is London: House prices will plummet if Brown insists on building millions of homes, says leading economist
"Prof Bernhofen said much of the spectacular rise in house prices in recent years had been driven by investors seeking to increase their assets. That means now, with the credit crunch, fewer people will buy to let, buy to renovate and sell or buy with a view to waiting for appreciation and moving on." So where is the supply shortage? Where is that prize i@iot of Professor Nickel? Where is Yvette Copper?
Posted by confused76 @ 02:43 PM (2767 views) Add Comment
51 Comments
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1. confused76 said...
"That's why the government should be careful that it's not getting confused between need and demand."
so it was all about confusing "demand" with "needs" and the "demand" contained a large component of BTL investors' demand... what a bunch of ignorant i@iots:
Yvette Copper, Professor Nickel, Kate Barker, David Smith....
AHHH AHHAHAHHAHHAH AHHHH HAH HA HAHA H
AHHH AHHAHAHHAHHAH AHHHH HAH HA HAHA H
AHHH AHHAHAHHAHHAH AHHHH HAH HA HAHA H
AHHH AHHAHAHHAHHAH AHHHH HAH HA HAHA H
AHHH AHHAHAHHAHHAH AHHHH HAH HA HAHA H
AHHH AHHAHAHHAHHAH AHHHH HAH HA HAHA H
AHHH AHHAHAHHAHHAH AHHHH HAH HA HAHA H
AHHH AHHAHAHHAHHAH AHHHH HAH HA HAHA H
AHHH AHHAHAHHAHHAH AHHHH HAH HA HAHA HAHHH AHHAHAHHAHHAH AHHHH HAH HA HAHA H
AHHH AHHAHAHHAHHAH AHHHH HAH HA HAHA H
AHHH AHHAHAHHAHHAH AHHHH HAH HA HAHA H
AHHH AHHAHAHHAHHAH AHHHH HAH HA HAHA H
2. Papabear said...
I read this article myself earlier and couldn't believe my eyes! Such incredible ignorance. Not to mention the disturbing message coming out: Sod the generation(s) that can't afford to buy, house prices must be maintained at all cost.
3. paul said...
Yes its funny how the housing bulls are now seeking refuge from the slew of bad news by asking us to listen to their jiggery-pokery with the numbers to make it all look okay again.
4. Spiderchannel said...
Yes. People will no longer be able to treat housing as a gambling casino with only a few lucky winners while the rest of us lose the shirts off our backs to stay in the game. For some of us the "decent place to live" motive is better than the "asset motive". Let's not forget the basic idea - houses are for human beings to live in - not chips on the gaming table - radical thought that.
5. This comment has been removed as it was found to be in breach of our Blog Policies.
6. drewster said...
"House prices will plummet if Brown insists on building millions of homes"
Good!
Imagine if the headline read: "Electricity prices will plummet if Brown insists on building thousands of wind farms", and you get an idea of how twisted people are when it comes to property.
7. Terri said...
oh no! don't build homes because you'll hurt all those poor speculators ! Stuff families having to live in cramped accommodation! Get your priorities right, pleazzze!
8. This comment has been removed as it was found to be in breach of our Blog Policies.
9. Terri said...
yes, twisted is the word!
10. nopensionnohouse said...
I can’t believe this article. What a Tw@.
I can only presume the author is safely on the housing ladder…
Mean while at the bottom of the pile I’m busy working like a dog in order to get on to the ladder in the first place. A fall is exactly what I NEED!!
This is a case of “I’m alright Jack…. Pull the ladder up”
Rather pathetic and AaaaaaaaaHahahahahahaha!
Karma will prevail.
11. Hpwatcher said...
I can't see an idiot like that having the slightest effect on the recession which is about to hit us.
12. Kevin Monk said...
Ahhh ha ha ha Ahh haa haa haa.
.......WU HA!!! HAH HAH!!!
Sorry. I just wanted to join in.
.....................................
a prudent long time lurker.
13. techieman said...
Ladder?
14. nopensionnohouse said...
Snake!
Please Please Please Please Please Please Please!
15. fahrenheit451 said...
Luv to agree, but as always there is another side to spin ... it should be considered, probably.
Starting with the premise that GBH honestly does not know what he is doing and this is just hype to make him look good. (At least in the USA the politicians admit they are just actors, and do not try to pretend that they are doing anything useful, most of the time.) And just because Mr Bernhofen is a "professor" does not necessarily mean that he is correct, it just means that he submitted a long essay some time back. He gives himself away by not writing proper prose, and considers that every sentence is of equal importance and deserves a new paragraph! (Er… ok in bloggin’ prose goes out the window, but …)
I point to the way that on a larger scale London prices are different to those in the Outer Hebrides, then draw on the old motto “Location, Location, Location”. Due to the inventiveness (and slow wittedness) of developers, planners and the establishment in general, we are now building on marshland, flood plains and literally anywhere that will support a structure of 2 or more stories. And finally, consider how the average person usually shows more gumption that they are credited with.
We are actually seeing various developers shelving their plans for more mass housing on derelict light-industrial sites, in favour of … the “lets wait and see” approach. The message is actually getting through, that bedsit-land (for that is what they are creating) is a very niche market for students and those just entering the employment market. And there is only so much of the stuff that is needed.
What we actually need are more proper “2LK” (2-bed, Living room & Kitchen) terraced houses or “3LDK” (3-bed, living, dining, kitchen) terraced & semi-d houses, all with half decent gardens, If you actually add a smattering of "4LDK" you do not push up the price of 4-bed housing, you actually push down the price of 2-bed accommodation !!! But a lot of this goes out the window (pun?) if the growth of the population is not controlled.
Now I know that this is not what people want to hear, but unless “proper” accommodation is not built, we will get a repeat of the tower block syndrome, where all the micro-apartments with kitchenettes (and en-suite showers) will be the new wasteland of the property market. (And there goes all those lovely "Inside Track" and "Prime Invest" properties down the swanny, because they bought some flats in the wrong location outside Leeds, Manchester, Oxford, Glasgow, etc.)
Ok, if it’s in central London it will probably survive, but if it is not in a prime location, it will soon become the next ghetto to be (re-possessed and) redeveloped after a possession order for exceedingly long emptiness.
--- End of Epistle ---
16. handle_it said...
Well he might just have a valid point you know ? Perhaps we should consider reducing the current housing stock till prices start moving up again ? Should we destroy whole towns/city's at a time or just pick postcodes at random.... Anyway I'm sure he's thought it all thru..
17. Tiggerthetiger said...
I am in awe of the self interest and ignorance that is continuously shown by these so called experts.Have they never heard of compassion,common sense,and cohesion in society. ?
Let house prices plummet and stay down.Build more homes.
Lets treat people in their homes with dignity and not look upon houses as just another part of the financial system, but as a basic need along with our bread and butter.
18. planning4acrash said...
About the wind farms, I think you are actually close to the truth no doubt the lack of them so far is exactly because the additional supply will harm contracts of international companies who benefit from Britain's lack of energy independence and from firms who want stupidly high subsidies to run useless nuclear power plants.
19. confused76 said...
It s been picked up by the press and are making a big noise about
http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=501026&in_page_id=1770
"Gordon Brown risks sending house prices into crisis if he insists on building millions more homes in Britain, a leading economist warned today.
The government is pressing ahead with plans to create three-million new homes by 2020 and recently unveiled a fresh funding boost for the scheme."
then have a look at the 26 comments that were posted to the article some are quite telling
as usual the government will change their plans and renege on the earlier targets
20. confused76 said...
WHAT A F@CKUP
He added: "People only have to look around their neighbourhood to see a big part of the housing demand has been driven by the asset motive, largely financed by cheap credit.
Now things have started to change, with flattening and even falling prices in some areas, and the asset demand for housing has already started to dry up.
"The squeeze in the credit market has put a halt on cheap credit, and many landlords will be forced to sell when they face higher interest rates on their adjustable mortgages.
"This will accentuate the flattening of the price curve. On the basis of historic market cycles, I would expect a stagnation for four or five years and maybe even more.
"Japan had a property boom in the '80s, and prices stagnated for 10 years. We had a blip in UK house prices in the fall of 2004, but they recovered.
"This time I think we're seeing something really persistent - and the government has to be careful not to encourage building more homes than we actually need."
21. jack c said...
The Government (continually seeking more Tax revenues) has a huge vested interest in keeping the UK property “boom” ticking along and avoiding a crash/correction. In the first instance you have Stamp Duty land Tax (SDLT) which is currently 1% over £125k (on whole amount) 3% over £250K (on whole amount) and 4% over £500K (on whole amount).
A couple of people I know moved house in the last 6 months – one paid £550k which is £22k SDLT and another bought at £440K which is £13.2K – now a 30-40% reduction in prices would hammer SDLT receipts.
In the second instance you have Inheritance Tax, which is levied on death where the value of the estate is currently in excess of £300K i.e. a flat rate of 40% applies on the excess above £300K. The rise in house prices has pulled a lot more “ordinary” people into the IHT bracket and the Gov’t won’t want to lose the potential additional Tax receipts that have been building up in recent years. (They did introduce a rule change recently in response to the Tory proposals but in essence they gave people nothing that could not have been achieved anyway with a quick bit of Will planning).
My guess is that they will soon be backtracking on building copious amounts of new housing for green and environmental reasons – I can just see the National Trust opposition card coming over the horizon.
22. techieman said...
Well no pension no house - the whole issue is that the whole economy is built on debt. A quick example between 2000 and 2007 in the US HALF the consumption was financed by Equity Withdrawal. They had real prices of around 100 between 1860 and 2000. (allowing for a couple of "blips" either way). BUT between 2000 and 2007 things doubled - i.e. the index in real terms was at 200. Now what we have had has been longer, more pronounced and more extreme. Do you really think ANYONE that owns a house wants prices to fall? Obviously not so basically all owner occupiers and all "investors" want a rise. But things cant rise exponentially because at some point no-one can afford the lowest priced properties. In the states - partly because of inventory build up and Sub prime hitting at the same time - things have got very nasty (well i suppose very nice from your perspective) very quickly. The issue though is when the bubble is just a bubble its not really a problem for the whole economy (although to a certain extent that depends on the size of the bubble). In the US the problem is it will impact the wider economy because you have lost 50% of the consumption of the last 5 years going forward. So although wishing for a HPC is fine and dandy the problem is the Housing market here is very much linked to the general economy. So the government (sorry the MPC of the BOE - what am i thinking!!) think - well we can keep this going we need to cut rates. What they should have done was put up rates earlier to stoke off house price inflation. Now its for various reasons - most of which people have commented on here - too late. Yes its - in part political - but really before everyone else here berates the Labour party ask yourself what would the tories have done? The answer is exacly the same. For a start Thatcher started to destroy the public rental sector with the right to buy initative in the first place!! Dont get me wrong I have no time for politicans but to think they can overcome the business cycle is at best naive. They CAN prolong it and they CAN distribute wealth differently, oh and they CAN obviously perform public sector functions such as Health Education Defence etc. But thats it. Really the BofE should have been given UNFETTERED monetary policy long ago. That MIGHT have let us off the hook. Where we are now is a very very bad place.
23. techieman said...
Sorry i meant when the bubble is just an asset bubble in a different asset class - eg. Fine Wines, Painting , Tulip bulbs etc. - thats not too bad for the bubble to collapse, but when its in property.,....
24. wdbeast said...
Let's be clear about this.
Gordon Brown does not build houses, builders and developers do.
They are the ones who have the landbanks and they control how much land is released and built on at any time.
If we were to release more land for development it will ultimately end up in this landbank, the devopers will only build on it when it is best for them to do so.
Of course we could always nationalise the building industry, we would also have The Northern Rock to sell the morgages!
25. Davros said...
What's the deal? It makes sense to me. Don't shoot the messenger.
26. p. doff said...
Did 5 BTL valuations today, all on the same new development - AND ALL THE SAME BUYER. The buyer is no novice either.
As for finance, there is still a glut of willing BTL lenders. Paragon may be out of the frame, but even Halifax has jumped in - (which doesn't make sense to me as HBOS already has BTL products under other brands such as Bank of Scotland and Birmingham Midshires).
I am told by a local BTL landlord with 15 properties that the recent 1/4% rate cut has eased his particular situation, but the next cut is already anticipated.
BTL still alive and well?
27. Turnbull2000 said...
What's with the stupid laughing headline? I'm seeing this quite frequently on the HPC.co.uk front page. It's quite frankly embarrassing and does this site and it's cause no favours.
28. paul said...
Fair opint p.doff, but 15 properties is not amateur BTL. That's a professional landlord because maintaining anything more than about five properties is a full time job.
It's the amateur BTL that has one or two properties who got into it "because a cabbie told her it would be a good idea" that will suffer the most - and rightly so, especially if their portfolio was put together in the last few years.
29. confused76 said...
P.doff
rents are declining. at least here in london. there is so much on the market just everywehre, because they have improved properties just everywhere from Battersea, to West Hampstead, Kilburn, Queens Park, Golders Green, Chelsea... there is so much on the market (I have to give credit to BTLers for once) that prices have been commoditized. So forget growth in rentals, then this big lie about the house price rising forever will come down
In equity when earning forecasts go down stock prices go down
the main difference with BTL is that BTLers are prize i@iots with no education whatsoever
they have improved the housing stock on their account, then they have priced themselves out of the market .... what GENIUSES!!
as a tenant i say THANK YOU
as an investor I say AHH AHHAH HHHAHHA AHHA HAHHAHHAHAHH
30. voiceofreason said...
Excess of credit = house price bubble.
What is so complicated about that ?
31. inbreda said...
Techieman said:
"I have no time for politicans but to think they can overcome the business cycle is at best naive. They CAN prolong it..."
The government/BoE could have done something. They could have prevented the bubble from inflating in the first place. It is all based on cheap credit, and they could have prevented that one long ago. They didn't because they wanted to encourage spending to keep the economy afloat. THAT was a mistake. A little pain then has been avoided, resulting in a lot of pain very soon.
Politicians just care about the next election. They love it when everything is going well and don't want to think about the good times coming to an end. If they had the guts, and if they had the best long term interests of the public at heart, then things would have been very very different.
32. Amyalta said...
Just to put the other pov, if house prices crash it will indeed be a disaster for some of us. Why? Well, thanks to this Labour Govt, our pensions are s***, our jobs are s***, our prospects are s*** - and all we have in terms of investment is our houses. Why should we not profit? I bought my first home for £11,200 26 years ago, and my present home is worth £600,000 - this has not been speculation, I have improved on and loved every house I have lived in - not to mention paying a whacking great mortgage for it! House prices must not crash - property is all that stands between the so-called 'middle classes' and a revolution!
33. happyrenterz said...
Anyone buying BTL now wont be a "professional" for long, he will be broke with negative equity!
34. bystander said...
I find this absolutely amazing as only a few months ago we were being told that property prices would only ever go up unless the government built more houses, and now we are being told, by an 'expert' that if the property quota is reached then property prices will crash. I'm really confused and think I will go for a lie down.
35. techieman said...
i fink thats what i did say inbreda - "What they should have done was put up rates earlier to stoke off house price inflation". My point was you cant stop Boom and Bust - particularly in the UK economy, but you can prolong it or ease the extent of the boom and bust (as you suggest). So in effect I fink we agree. Overall i believe in cycles and the K-Wave. Not being dogmatic thats just what i think.
36. maddison said...
Its all about timing. If we built lots of houses in the 90's and early 2000 we wouldn't be in this position now. Supply rarely meets demand in the property market and that is true the other way round in a downturn.
37. denzil said...
The overall premise of the prof's article I don't really disagree with. At present and in the near future I don't think a crash will be very deep. My reasoning is that:
Overall demand for a roof over the head is fairly strong.
IRs are low and will unfortunately probably fall on currect reckoning at least .5% by June 08
The economy is not in recession.
A still think nationwide falls will be 10% by close of 08 but that will represent a blowing of froth of a speculators market.
I do believe that a wholesale crash could possibly be avoided by trickling building land into the market. If the government go gung-ho into a house building program prices will plummet. I'd certainly be ecstatic about that.
38. The Baldman said...
p.doff ...I know several professional landlords who went bust in the last housing crash.....
39. techieman said...
Also inbreda you are absolutely right - they should be long term but sadly the electorate isnt long term. Once you put a Telly in the lounge its difficult to tell people you cant have one in every room when the other party says oh yes you can!! by making it really easy by relaxing credit and having a free market. Once you go down that road its very difficult to turn back. IF they had caused some pain would the electorate have voted them in next time? Really arent the politicians mostly (an albeit grotesque) mirror of the wishes of the people that vote them in? Its a balancing act between the two the problem is the politicians never do and never will in the long run get it right. At the end of the day they will always do the things they perceive they need to do to keep tthem in power. Thats what they are doing now - by reducing rates when they should (according to their reason d'etre) keep them stable. As before when they have to choose between inflation and deflation/ depression they will ALWAYS choose the former.
40. Martin38 said...
If house prices do crash and the 40 to 50 year old buy to letters loose money and sell there may be some good news, the 20 somethings at home with them may be able to buy leave home and give them some peace. Just goes to show you cant have your cake and eat it
41. Submedia said...
Nonsense article. Designed to sell papers. The economist is right but a crash in his thinking isn't probably what we are thinking. Besides, long term more homes can only be a good thing for the economy. Wouldn't be surprised if the economist is a little annoyed at how the Daily Mail may have sensationalised what he is trying to say. Oh and the supply of these houses sounds a lot but really they are only just about the acceptable rate for a healthy market.
42. techieman said...
Denzil they are not gonna add to supply if they think there is a crash on the cards - why would they? Now I'm confused!! I think you are extrapolating current conditions into the future. The point is IMO conditions are about to change. We are not in recession now but we are not talking about now, we are pointing to the future. The start of this fall is long overdue. The fact it is will make it a very high probability that things will eventually overshoot to the downside.
43. drewster said...
Builders will always build. They have a duty to their shareholders to build and sell as much and as fast and as efficiently as possible. During times of growth they can get away with sitting on their land-banks and watching the book value rise, thereby making the company rise; but in slow times they actually have to build more just to maintain the same level of profit.
44. enuii said...
No Mewing = No Money into the UK consumer society = no jobs at B&Q, no exotic holidays, no fancy new cars, no double glazing, no printed concrete drives, no meals out, no gadgets etc etc etc = Higher Unemployment.
If Joe Publics house goes down in value a good part of the UK economy goes with it and if you're on a low wage and unskilled your job will stand a good chance of going with it.
The whole lot is inextricably tied together like a bundle of string and everyone including FTB's who can't afford to buy will be affected and for normal people it will not be pleasant, very few winners and a hell of a lot of losers with Gordon Brown to mostly blame.
45. Hpwatcher said...
''The whole lot is inextricably tied together like a bundle of string and everyone including FTB's who can't afford to buy will be affected and for normal people it will not be pleasant, very few winners and a hell of a lot of losers with Gordon Brown to mostly blame''
And this is exactly the way I believe we are heading...
46. Skweem said...
techieman said:
"Do you really think ANYONE that owns a house wants prices to fall?"
I would only be too glad to see the value of my home plummet to help others buy a house. I'm sure I'm not the only one.
47. it_is_going_with_a_bang said...
A stupid article because it makes the assumption that Gordon Brown will even be around more than 2 / 3 years ( unlikely ) and that even if he was that would honour it ( unlikely ).
Apart from which everyone agrees that house prices are too high and basically unaffordable - so what is the problem?
More homes than we actually need!!!!!!!!!!!!!!!!!!!!!!!
What would be wrong with that ???
We slow/stop building houses when everyone can afford one. Simple as that. It is a basic human right.
48. confused76 said...
as reported by 4:
http://www.channel4.com/news/articles/business_money/pm+warned+over+home+building+plan/1166352
Gordon Brown is at risk of sending house prices into crisis if he drives through plans to build millions more homes in Britain, a leading economist has warned.
The Prime Minister outlined in July a planned programme to create three million new homes by 2020, and the Government recently unveiled a fresh funding boost for the scheme. But Professor Daniel Bernhofen, an economics expert at the Globalisation and Economic Policy Centre (GEP), said the proposals were courting catastrophe.
This is pure lunacy, collective madness. when one realizes the i@iocy of these statements and the space they are granted by the media I am afraid that the only sensible reaction is to laugh with disgust
aha hahhahhah ahahhah hahahhahhah hahha hah aha ha
aha hahhahhah ahahhah hahahhahhah hahha hah aha ha
aha hahhahhah ahahhah hahahhahhah hahha hah aha ha
aha hahhahhah ahahhah hahahhahhah hahha hah aha ha
aha hahhahhah ahahhah hahahhahhah hahha hah aha ha
aha hahhahhah ahahhah hahahhahhah hahha hah aha ha
aha hahhahhah ahahhah hahahhahhah hahha hah aha ha
to Amyalta "House prices must not crash - property is all that stands between the so-called 'middle classes' and a revolution!"
Do not feel bad about a crash. your beautiful home will still be the same after the crash, but I cannot accept that we have to collectively pay for your pension through rampant inflation. This is immoral and only a failed union leader, failed academic like our PM can conceive such a scam.
49. wiltshire said...
Amyalta said... "Just to put the other pov, if house prices crash it will indeed be a disaster for some of us. Why? Well, thanks to this Labour Govt, our pensions are s***, our jobs are s***, our prospects are s*** - and all we have in terms of investment is our houses. Why should we not profit? I bought my first home for £11,200 26 years ago, and my present home is worth £600,000 - this has not been speculation, I have improved on and loved every house I have lived in - not to mention paying a whacking great mortgage for it! House prices must not crash - property is all that stands between the so-called 'middle classes' and a revolution!"
Amyalta, you're right. Like many people your equity is not based on your personal speculation. However, you HAVE benefited (so far) from the Liebour Government allowing rampant speculation within the housing market and the wider economy. Had HPI been kept under control your home might be worth around £400,000 and the economy might be in much much better shape.
You're right too that pensions, jobs, prospects are all s***. Sadly I believe we are reaching a point where the people of this country need to decide exactly what they want. Do they want to sit like zombies in their cosy gadget filled centrally heated homes rapidly plunging deeper and deeper into debt ("But the conversatory is so nice and the 4x4 is so comfortable and besides, everyone else has got one"). OR do they want to take some responsibility for their lives and ensure their elected politicans act in the best intentions of the whole of society rather than the 5% at the top of society? Every year we hear how the rich are getting richer, the CEO's are increasing their salaries at 20+% a year with multimillion £ pension pots on top. And the majority just sit there and let it happen.
Very few people in society can have their cake and eat it but for 10 years Liebour have convinced most that they can. Well, it's time to pay the ferryman.
50. Quiet Guy said...
@Amyalta
I'd just like to throw in my $0.02 here. The recent house price boom has, effectively, borrowed money from the next generation. I do not know what multiplier factor you bought your house on but somehow I doubt it was 6x, 7x, 8x or thereabouts. The very idea of encouraging young FTB to sell themselves into debt slavery at current house prices is hideous and immoral. Surely you can see that we cannot go on like this; we must learn to live within our means.
@confused76
Great post! You've really stirred up a great response this time.
51. Will said...
@Amyalta - "and all we have in terms of investment is our houses"
That is not my fault, and I don't see why FTBs should be punished due to other people's inability to save for the future.