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Realistbear

Never Ending H P I Boom-- Did Brown Pull It Off?

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http://www.lovemoney.com/news/make-good-property-decisions/house-prices/house-prices-are-invincible-5112.aspx?source=1000441

House prices continue to defy logic and rise - are they simply invincible?
House prices haven't fallen as expected
Perhaps the most astonishing thing about the credit crunch is the relatively mild impact it has had on the housing market. Prices did fall by around 16% as the UK tipped into recession, but forecasts of a 30% or 40% drop were well wide of the mark...../
Although not wholly irrational, because it still conforms to the laws of supply and demand.
After all, the population grew by an extra 394,000 people last year, and they all need somewhere to live.

Sounds like the article was written by someone who fails to see the merit in HPI but asks the question as to whether it is now ingrained into our culture and economy. In other words, Brown pulled off a miracle of never-ending-HPI fuelled by a constant stream of new migrants who have to live somewhere. These new migrants essentially fill the gap that young people and FTBs would have filled but for their inability to get a foot on the first rung.

This was the same logic applied to Southern California and we all know what happened to that market (down 47% from peak). Ah-some will say--but California is different and it has unlimited land and no migration. Wrong on both counts. The only desirable land in SoCal is along a 20-30mile strip running from LA to San Diego. No migration? Could not be further from the truth--they poured in from the other 49 and from across the Rio Grande in the 100's of thousands.

So what went wrong? It did an Ireland. As house prices grew the cost of living rose (as it is in the UK relative to the EU) despite frozen wages. Pretty soon well over 50% of income was being ploughed into the housing market starving the local economy of productive investment. People could no longer afford to work in CA so they began putting their houses up for sale and the rest is recent history.

Could we be pricing ourselves out of the market place with our never-ending HPI? Sure the migrants are still piling in but what good will it do if our economy becomes increasingly more dependent on fuelling a non-productive bubble--just like SoCal?

There is no such thing in the real world as economic perpetual motion. Even Brown's dream of a bustless ever-rising HPI economy has an Achilles heal. That heel is global competition. The higher our house prices the less competitive we become in the real world. Look to SoCal and learn.

Edited by Realistbear

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Good article RB.

This should add to the debate - it was property speculation wot did it!!

http://www.guardian.co.uk/business/2010/jul/05/government-borrowing-public-sector-cuts

MSM catching up at last. Wonder how this will go down in the Treasury this morning - oh sorry they only read the Daily Mail :blink:

QUOTE from article:

In 2007 Germany's indebtedness amounted to 65% of national income, higher than the UK's 44.7%. In France the figure was 63.8% and Italy 103.5%. Japan ran consistent deficits with the result that by 2007 it owed 167.6% of national income. By contrast Spain could boast a debt to national income ratio of 36.1%. Ireland kept the figure to 26%. What unites Britain, Spain and Ireland is not profligate state spending. That was the preserve of continental countries which had long ago reached levels of debt we now characterise as unsustainable.
The common thread that connects these nations is private sector borrowing to fund speculative property development.

And that level of toxic speculation was fuelled by increasing the supply of new demand through migration. Without the co-operation of an unregulated and corrupt banking system it would not have worked.

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I think a shortage of supply here has helped arrest the slide. The fact is we don't have shed loads of decent size, habitable empty houses in this country. This has meant that ZIRP, QE and government spending to shield us from the recession, has been able to have some traction. However, we all know these fixes won't be able to be kept up. They might get away with ZIRP for quite a while, but excessive government spending is ending. And there won't be a rally with mortgages. Most Journalists ignore the funding gap, and think credit conditions will keep improving. I think they're wrong, otherwise we'd be back to irresponsible lending practices again. And there is no money.

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Immigration can only push up prices if the new arrivals have the money to buy into the marketplace. Canada has had a small amount of this with high wealth Chinese buying there mainly to get a visa advantage (so I'm lead to believe - I haven't researched this so if anyone knows more please tell - my source is anecdotal from friends over there)

This has occurred in London where people have arrived to work in well paid jobs. To a large extent its like the SoCal example in that the new arrivals are often from other parts of the same "country" (United "Kingdom"/States). It has also been a large factor in the retirement areas of the UK, Devon and Cornwall for example. Where we live here in the south of France there is also a large number of cash buyer retirees which is driving a building boom (we will have water problems soon as a result - due to lax planning controls)

Poor immigrants need low cost housing and low rents plus basic jobs that do not need high level skills. This is and always has been the area of resentment from the low skilled and poorer sections of society. The better off just see this as a new source of tenants and therefore profit.

Housing benefit and the privatisation of the UK social housing stock have IMHO had much more of a direct effect on the HPI than the limited increase in demand at the bottom end due to increasing population figures. It would be interesting and enlightening (probably why it hasn't been done ;)) to contrast the growth in low income immigrant households with the ageing population to see if they have simply taken up the slack from older people going into retirement homes or nursing care. I would make a fair bet that the demographics have driven the boom in retirement homes and properties reserved for the oldies but at the same time seen a decline in the "demand" for housing at the bottom end as older people vacate their family homes.

Since the figures are not readily available its kind of hard to say what the true picture is. For sure the 100,000 or so "new" people every year is an insignificant percentage overall and cannot really make that much difference except in small areas specific to individual groups of people.

Changing household numbers has been another big trend. Divorce has increased dramatically since the 60s and more parents live alone and apart and more single people are living away from the parental home for work or university than ever before.

If you want to understand "demand" you need to look at all these factors not just the raw data of numbers of human beings in the geographic area called "United Kingdom", plus - of course - the ability of those that wish to buy to access the credit to make the purchase.

If you look at all these factors then IMO the "push" factors have all run their course. Many will stop and some turn negative to become "pull" factors, decreasing demand. Immigration may well fall dramatically over the next few years as the UK becomes less attractive as a place to start a new life. London's high octane economy may fall out of favour as the big finance companies find the opportunities are greater in Asia. The next immigration problem may be Europeans flocking to China :D

So no - Brown didn't pull off the never ending HPI boom. Its clear the new government would dearly like to restart it though - their growth projection figures depend on it. I think I'll stay under the "bear" label a bit longer.

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printy printy £4500 per head of population, including pets, zero percent interest rates = no need to sell.

Also, what the hell else are you going to 'invest' in? stocks? HA! Savings accounts??? HAHAHA

Gold??? All time high, commodities???

Thanks, Gordo.

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Anecdotal:

North Dorset.

Prices plummeting.

Not invincible. Not invincible.

Message ends.

Anywhere nice?

(5beds 6 acres for 250k would be nice)

:)

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Yeah, i dunno... at an instinctive level the intuition that a lack of housebuilding must feed through into prices is seductive...

But so is the intuition that only one particular aspect of the demand side [namely mortgage lending multiples especially & also LTVs] is much more important...

This link is quite interesting. I suggest that readers use the longest time frame possible to compare UK, Spanishm and Irish pwoperdee prices...

If housebuilding were as important as UK HPI apologists will have you believe, it's difficult to avoid the suspicion that:

(1) trends in different countries' house prices would only be fairly weakly correlated over time because country-specific factors would be paramount, and, secondly, that the UK; and

(2) the UK bubble would have been a fair bit bigger than the Spanish or Irish ones, due to insufficient homebuilding.

but as it is... the lines look eerily similar, suggesting that a common factor [namely loose lending] has been at play... Ireland's prices look to have gone down by so much in % terms simply because their peak was so astonishingly high... and the extent by which houses have become less affordable [price to income ratio] is actually slightly greater in ireland than in the UK...

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Immigration can only push up prices if the new arrivals have the money to buy into the marketplace.

?? Where do they live then?

Example where I live: next door neighbour died 3 years ago and daughter inherited the property. She rents it out and now 8 Polish people live in it. It was never sold on, a family never had the chance to purchase it. 1 less property on the market.

So it doesn't matter if poor or rich people come to the UK, they all need somewhere to live, it's just that the poorer you are the more have to live in one property. But it still CONSTRAINS SUPPLY which drives up prices.

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<br />Good article RB. <br /><br />This should add to the debate - it was property speculation wot did it!!<br /><br /><a href='http://www.guardian....lic-sector-cuts</a><br /><br />MSM catching up at last. Wonder how this will go down in the Treasury this morning - oh sorry they only read the Daily Mail <img src='http://www.housepricecrash.co.uk/forum/public/style_emoticons/default/blink.gif' class='bbc_emoticon' alt=':blink:' /><br />
<br /><br /><br />

I use "wot" as a piss-take out of madman/liar Blair(& his cronies) 'war-on-terror'

The only "terror" they uncovered was their >own< Orwellian style supa_spy state!

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?? Where do they live then?

Example where I live: next door neighbour died 3 years ago and daughter inherited the property. She rents it out and now 8 Polish people live in it. It was never sold on, a family never had the chance to purchase it. 1 less property on the market.

So it doesn't matter if poor or rich people come to the UK, they all need somewhere to live, it's just that the poorer you are the more have to live in one property. But it still CONSTRAINS SUPPLY which drives up prices.

Rubbish. How has this pushed up house prices? If anything its pushing them down as the neighbourhood is now full of HMO accommodation (irrespective of their nationality).

Eight people in one house that used to have one in it. Your maths are pretty sh1t if you think this is a reduction in supply. Repeat this across the UK and half the property would be empty.

Nice try. Fail.

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 RB, you forgot to mention all the immigrants  getting local housing allowance and therefore propping up the rental market, especially in London.

 Clearly the foundation of a free and undistorted market as created by the Brown Government.

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http://en.wikipedia.org/wiki/Pyramid_scheme

A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, without any product or service being delivered. Pyramid schemes are a form of fraud.[1]

http://www.mathmotivation.com/money/pyramid-scheme.html

Why Are Pyramid Schemes Such a Bad Thing?

In short, pyramid schemes that do not provide new members with a product that is fully worth the "membership fee" will result in a majority of all members losing their money. If we look at the 8-Ball Scheme, there are twice as many members in each new level. The bottom 3 levels always lose their money, and as shown below, this will be at least 7/8 ≈ 88% of the total of all participants.

In short, if 1million immigrants came to the UK and bought a house....you'd need another 2 million to support that million...then another 4 million.....

Simple arithmetic...the housing market is unsustainable.

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  • 150 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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