Thursday, Apr 24, 2008
The myth of housing under-supply
Defaqto: The myth of housing under-supply
the UK, the idea that house prices go up in value seems to be so entwined into the British psyche that we sometimes don’t even question this reasoning. We make assumptions about how the house will rise in value, in the same kind of way we assume the sun will rise tomorrow.
Capital Economics has released a report suggesting that actually many homes in the UK are under-occupied, and maybe, therefore, the argument that house prices are likely to be driven upwards over the long-term is contradicted by this finding.
Posted by michael baxter @ 09:27 AM (590 views) Add Comment
3 Comments
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1. hpwatcher said...
I never believed that myth. I would like XXX; so if cheap money was available specifically to purchase XXX, then everybody would want XXX's and the price of XXX would go up.
We have seen a bubble and now we are seeing the bust.
2. uncle tom said...
I did my own calculations on this a while back, and came up with a simple fact that is easy to remember:
'On any given night, the majority of bedrooms in the UK have no-one sleeping in them'
Otherwise, the piece makes the valid point that the habit of sitting in a house that is bigger than you need, simply because you think it will go up in value, is not an insignificant factor, and is likely to come to an end.
3. European-bear said...
The tax advantages of owner occupiers and the "always increase in value" means many people do not buy for a place to live but for an investment. I know someone who recently was divorced and is now in his early 50s. He is living alone but has sold in London to buy in Yorkshire. He brought a very large 5 bedroomed house in which he is living alone. When I asked him why did he buy such a big house which is clearly not needed, his reply was "I brought as big a house as I could afford. Then the capital gains will be much bigger than if I brought a small house and when I am 65 I will downsize and use the profits as my pension"
Now consider what he might have done if there was capital gains tax on residential property. Perhaps he would have brought a 2 bedroom cottage and invested the rest in something more productive....