slawek

3mln properties to house 800k people? That is 10 times more than needed.

Don’t blame EU immigrants for high house prices. Since 2000 around 800-900k people from new EU countries have come to the UK, they needed 350k properties assuming 2.5 occupancy rate. That’s only 1% of all properties in the UK (28mln). This additional demand was easily offset by increased emigration of British Citizens which was also around 1mln. Net effect is close zero. In the same period of time around 3mln properties were bought by investors. They priced you out.

A picture is worth thousand words. As Lo-Fi noticed British migration more less offset by EU migration. Roughly 40% of EU net migration is from EU15.

Suprisingly only one third of immigrats since 2000 are from EU. More details in this just releases ONS report http://www.ons.gov.uk/ons/dcp171778_362934.pdf

You are right, there is some contribution from the EU immigration. Before 2000 there was more new properties per year than annual increase of population. After 2000 the annual change ratio increased to over 2 which is roughly what is when you divide population by dwellings. The immigration stopped the population/dwellings ratio falling. (For UKIP voters) The immigration contributed 2-3 mln to the UK population. The peak in 2011 is probably a census adjustment. I think the immigration provided additional demand for private landlords, allowing it to flourish. Landlords most likely front ran immigrants and will sell them their portfolios in the futures.

My point is this is an investment bubble. Pop it and you will have 200k/300k reduced demand plus supply coming from investors selling their portfolios. Investors buy properties for capital gains (BTLs) or capital gains/income (cash buyers). Right now the split is roughly 100k BTLs, 200k cash buyers (5% yield is attractive if you compare it with low interest rates). The whole situation is subsidized by government providing house benefit (1.5 mln out of 4mln rented). Without this some BTLs couldn't pay their mortgages and cash investors would have to accept lower yields. Poor FTBs are priced out of the market as their income is not increasing as fast as house prices. Deposits and monthly payments become too high. They are forced to rent and some to use house benefit. Investor are less price sensitive. BTLs are pushing the cost on FTBs/government. Cash buyers are probably part of 1% who benefited from QE, they have excess cash they need to invest.

2000 dwellings 25.319 mln, population 58.9 mln, ratio people/dwelling 2.28 2012 dwellings 27.767 mln, population 63.2 mln, ratio people/dwelling 2.33 Dwelling stock data https://www.gov.uk/government/statistical-data-sets/live-tables-on-dwelling-stock-including-vacants

The main driver is investment demand. 200-300k a year, around 3mln over last 15 years. It is not lack of housing, total dwellings have been increasing at around 200k a year over last 20 years, I think property recycling has not changed much either, people didn't stop dying. Immigration from the UK to more sunny places provided some additional supply. Immigration into the UK could have added no more than a few hundred thousands aggregated demand over last 10 years. Total population of the UK increased since 2000 by around 4.5 mln, assuming 2.5 people per a dwelling that is less than 2mln demand. It is less than 2.5mln increase in the dwellings over the same period of time.

Just bringing property investors demand to levels before the bubble would provide 200-300k/year homes for FTBs. Currently supply is around 600k/year (new building, people dying, leaving UK etc). 300k is bought by FTBs and the other 300k is hoarded by property investors. In 2002 split was 600k FTBs vs 100k investors. Property investors' demand increased from around 50k/year to 200-300k/year 10-15 years ago and has stayed at this level until now.

I would first introduce some incentives for landlords to start selling their stock. That would provide 4,000,000 homes for FTB at greatly reduced price.

I don't believe there will be a proper crash in the nearest future. For this to happen property hoarders need to start dumping their holdings. They accumulated 2-3mln properties since 2000 and they still doing this at a pace 200-300k/year. The 2008 financial crash didn't change this behaviour, it rather reinforced their view that a property is a good long time investment. Even high leveraged property investors were saved by low interest rate and a political decision not to repossess mortgages with negative equity. Increasing supply will mostly likely be absorbed by property investors. It will help keep house prices in check but not trigger an immediate crash. However it will amplify a crash when it happens when oversupply will be dumped in a short period of time (Spain scenario). Restricting demand by reducing mortgage supply will cause market to cool down and enter low volume regime we have seen after the crisis. Increasing interest rates could trigger a sell off if leveraged landlords were not being able to increase the rents. With negative cash flows property investor demand would drop.

Looking at historical data housing problem in the UK is more the result of higher investment demand than lower supply. Privately rented stock started rising 200k per year since around 2002. This demand stimulated building, all dwellings annual change increased from 150k to over 200k per year in 2008, then collapsed back to 150k after the financial crisis. Privately rented stock was still rising at 200k pace after 2008 causing owner occupied stock to decrease 50-100k per year. I would blame BTLs and other private investors, they compete with people wanting to buy a home to live. 200k per year investment demand is a big chunk of the whole market, my guess is there is around 400-500k sales transaction in England (for the whole of the UK that's around 600k). Source https://www.gov.uk/government/statistical-data-sets/live-tables-on-dwelling-stock-including-vacants

He seems to be very honest in this audio. That doesn't mean I agree with everything he has done. I think he has learned his lessons about free market, it needs rules (values) otherwise you have wild west where the strongest and unscrupulous takes all. He is supporting glass-steagall.

A good man. He says as it is. This world needs more people like him.

Why isn't this guy so honest about UK? Europe is in mess but UK and other Western countries as well. The only difference UK/US is safe for now is that financial system is run from NY/London and guys there protect their own turf. Of course Europe doesn't help itself by being slow and torn by political battles, contrary to UK where BOE pushes a panic button preemptively to buy time.

The total outstanding notional is around 1 trillion now and it grows around 10% per annum. We are in the middle of QE2 so my conservative estimation is 20% of the market. There are rumours that they will add another 50bln to 275bln in Feb which would bring total to around of 30%. This blog link has similar numbers.

There is one big buyer of gilts called BOE which has already bought 20% of the market. I wonder what will happen when in a few years it will own all the gilts.

To be precise banks have accounts at their NCBs. If a NCB lends the money to one of its banks then it credits the current account of the bank and books the loan as its asset. ECB is not involved. If the money is transfered from a bank in another country then NCB credits bank account of its bank to which cash was transfered and book an asset which is a claim on ECB. ECB has a claim on a NCB in a country from which the money was transfered.

You were disagreeing that high usage of deposit facility is a result of runs on banks in peripheral countries (outflows from those countries greater than inflows). You were explaining it by refinancing needs. Where German banks get excess liquidity to lend it back to Bundesbank? My claim it flows from the rest of Europe.

How would you explain then that German banks have in total 250bln in current account + deposit facility + term deposit when they need only around 50bln for required minimum reserve (this is in Nov before the latest LTRO)? link. If you look at the asset side of Bundesbank balance sheet you will notice that liquidity German banks borrowed using MRO+LTRO dropped from 200bln to 20bln between Jan 2010 and Nov 2011. link The German banks don't need to borrow from ECB/NCB, they are flooded with liquidity flowing from the rest of Europe. They can't do anything with it but move it to deposit accounts as they are too afraid to lend money to other banks. They can't return it to ECB/NCB either because they didn't borrow it.

For banks outside Eurosystem (not ECB or NCB) a liability of any Eurosystem entity can be used as the clearing asset. In the bilateral model a bank from country A moving money to bank in country B could use a liability of NCB of country A to settle the transaction. Based on the link I sent before that was the system until 2000. Now it looks like only ECB liabilities are used.

Based on this ECB document link TARGET2 is mostly technical upgrade. It doesn't mention any changes to the accounting of the payments.

I have found this link. It looks like in 2000 they changed the accounting of TARGET claims/liabilities from bilateral to netted through ECB. and this link on the deposit facility. They claim that deposit facility is operated by NCBs so TARGET imbalances and deposit facility usage are related.

I think it is more like EUR is an overnight liability of a consolidated entity made up of ECB and NCBs. Within this entity you can have direct claims between any banks, which means that ECB is not a clearing bank of NCBs.

TARGET2 liabilities between central banks are another manifestation of runs on the banks. If the money flow from a bank in country A to a bank in country B they create liability between CBs in these countries because when a bank borrows from ECB it gets liability (money) of its country CB. 350bln of German CB TARGET2 claim is quite close to 450bln of deposit facility. The difference could be explained by claims of some other safe CBs, some liquidity safety margin over minimum reserve and front loading of reserve during a maintenance period (banks put more money than required minimum reserve initially and then less at the end of a maintenance period which creates gradually more excess liquidity during a maintenance period) The excess reserve (usage of deposit facility) was accumulated over some time. Only around 200bln of the last LTRO was new money the rest was switched from MRO. My guess is that these 200bln was mostly borrowed to replace borrowing from other banks, which was for a shorter term and probably more expensive than from ECB.