Wednesday, Aug 04, 2010
The view from outside
Arabianmoney: Housing an obvious investment bubble in the UK and Australia
US analyst tells the truth about the UK and Australia.
Posted by tenyearstogetmymoneyback @ 08:14 AM (703 views) Add Comment
5 Comments
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1. mrflibble said...
You can also see the housing bubble in absolute price terms. Why should a four bedroom home in a small English town cost $690,000 while a similar unit in Germany can be bought for $310,000? Population density in Germany is not so different from the UK, if that means anything.
Dunno but I suspect the answer contains the following word -Muppets.
2. str 2007 said...
Surprised to see so few comments on this article - it's worth a read.
From a banker that manages more money than George Soros it's apparently on the wall in 10 ft high letters that UK and Oz housing markets are both in significant bubbles.
Have a read to find out how big he thinks the bubbles are.
3. drewster said...
Yawn. Even a stopped clock is right twice a day.
Housing in the UK has been more expensive than in Germany for most of the last decade. That's not a sufficient reason to declare it a bubble.
4. str 2007 said...
Drewster
It surely raises questions as to why a strong economy and country of similar size and population has such a wide difference in the main fundamental requirement of mankind ie shelter.
Things in nature have a habit of balancing up.
If you suggest UK isn't in a bubble then would it be fair to suggest that Germany is indeed cheap.
Or is it as simple as sensible tenancy agreements (so far as the tenant is concerned) in Germany means that long term renting is a viable proposition there, where as the short term tenancy agreement here has simply revalued the housing market in the last 10 years at double what it was.
The main reason being banks will lend copius amounts because of the short term agreement based on the BTL business model of interest only payments ?
So far as I can tell that is the main difference between the two countries and lays most of the blame for our over valuation (against Germany) firmly at the doorstep of the BTL business model.
5. drewster said...
str2007,
I do think the UK is in a bubble. However I don't think just looking at the price-to-income ratio is enough to declare it a bubble. It's a very crude indicator which doesn't take into account interest rates, the cost of living, migration patterns, employment, tax oddities, etc. If you only look at price-to-income you might conclude that London is in an almighty bubble - and has been for the past three decades - whereas depressed former mining towns are a bargain just waiting to boom.
What makes the UK different from Germany? I'm still struggling to answer that myself. BTL didn't take off until the Assured Shorthold Tenancy came into law in 1996 (is that right?); whereas we've had boom and bust long before that. So I don't think we can blame the BTLers (at least not entirely).
We've also had very relaxed lending for the last decade (Northern Rock's 125% mortage). I don't know how easy it is to get a mortage in Germany.
Cultural differences certainly play a part. German TV has plenty of property porn, but it's more focused on DIY (think Home Improvement) than tarting it up for a quick sale. Germans spend longer in education, thereby habituating them into renting. The years after the Berlin wall fell were actually relatively tough years, when German incomes were stagnant and taxes (to pay for reunification) were relatively high.
Tax rules must surely make a huge difference. In the UK there are no capital gains due on your primary residence; and it's not too hard to avoid the gains (simply by declaring a different house as your "primary" residence every few years).
Fundamentally the British view housing as an investment, and thus throw every last penny into their house, whereas the Germans don't. If you give a Briton a £10,000 pay rise, he'll spend much of it on a better house; whereas the German will take a nice holiday or buy a new car.