Monday, May 12, 2008
Seven reasons why property is not the automatic route to riches
Independent: Stephen King: As safe as houses? How harsh realities are dispelling the home market myths
A reaction rather than a prediction about the housing market. This could have been written by a HPC contributor years ago. That said, I like this bit: "First, even more so than in earlier episodes, the downturn was preceded by an extraordinary period of house price in-flation. Relative to people's incomes, house prices are now ludicrously high."
Posted by quiet guy @ 01:14 AM (412 views) Add Comment
9 Comments
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1. amjidk said...
"the chickens are coming home to roost" i think sums it up fairly well...
2. Ijjhall said...
Stephen King is managing director of economics at HSBC
Er..is it HSBC who has just written down billions more on sub prime debt ? What was this guy's contribution when all that was going on ?
3. also sold to rent said...
That's about as good a summary as I've read. Something I hadn't really though about is
"notwithstanding the absence of any 1970s-style inflationary surge, rising food and energy prices are reducing people's take-home pay. This reduces still further the ability of people to buy houses or, for those already on the property ladder, to service their debts"
As a peak oiler I think energy and food inflation are here for a long while. With an inflation target the bank keeps rates high to tame inflation, but that just means mortgages are expensive along with food and fuel... so people default. If the bank allows inflation to increase then at least in real terms their mortgage payments go down as rates are low and also the payments go down as inflation shrinks the debt in real terms. I suppose that's bailing out debtors at the expense of savers though.
4. Sneaker said...
Where the article says "Sixth, in contrast to the 1970s, the Bank of England has an inflation target"
Oh please - do you seriously believe that the CPI number is actually reflective of a reality that the average person experiences?
The Bank of England is being led up the garden path with a false inflation target, and everybody outside the world of professional economists knows it. There's no point having a target if it's not a useful target, and the reason the government is so hated at the moment is, amongst other things, that the PM keeps clinging on to these false statistics despite the truth being as clear as day.
5. bystander said...
"I suppose that's bailing out debtors at the expense of savers though."@sold to rent
.......YUP.
6. Landedgentry said...
Sums up the facade that we have been trying to expose all along, don't thank us all at once :-)
7. Landedgentry said...
Thought this would be a horror story as it is written by a "Stephen King", more like a fairytale with a happy ever after :-)
8. Chilli said...
I'd like to challenge the asumption that property prices will generally go up as there is a shortage of land.
The UK is 12% urbanised. In the 200 years since the industrial revolution we have only urbanised 12%. Does this strike anyone as a shortage of land? Also, in other countries the predominant mode of housing in the inner city is appartment blocks. The UK has a curious aversion to apartment blocks. I can sort of understand why. In the UK, housing seems to be built for the desperate (social housing) or the greedy (property developers). Not for the people who will actually want to live in those houses. If this were true, housing quality would go up, and flats, I suspect, might actually have some appeal. We can't really enjoy our back yards anyway. A swimming pool and enclosed communial space on the top floor can add wonders to everyone's sense of living standard. All that is required is a little imagination.
Back to my point; urbanisation will grow at a geometric rate, its true. So the other 88% of our country might not last 200 years. But that's only if we continue to build in the same fashion as we have done in the past. Out rather than up. Also; the population has more or less stagnated (excepting immigration).
We have no reason to fear over urbanisation. What we should fear is poor quality housing and squalor.
I think the true factors that affects housing in this country is; limited investment in transportation links, a media induced hysteria and fear centered around environmentalism, nepotism, the political hazard in sending fools into negative equity. VIs hyping the property shortage myth to their own ends. Government over-regulation.
Good article though. Wish this reached the general public a couple of years ago.
9. letthemfall said...
Good analysis. Stephen King has been writing columns in the same vein for a while now.
I don't think the Bank will deliberately let inflation take off, although they may not be able to prevent it. It will be interesting to see its response if CPI does start to rise a lot more. At the moment it's expected to go above the letter-writing level. Interest rate rises in a few months?