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Who Gets Hurt By High House Prices?

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"Taxpayers suffer – in all kinds of ways

Last but not least, we all suffer as taxpayers. The Government spends £20 billion a year on housing benefit, £15 billion in building, maintaining and subsidising social tenants' rents, and at least £7 billion in welfare payments, due to higher unemployment rates among social tenants. These costs have shot up in line with rising housing costs.

These costs have shot up because Taxpayers now pay out to private 'Housing Associations" who charge up to local market prices for the poorest in society's housing!

These costs have shot up because of successive Govt crimes from the days of the Thatcher sell-offs which withdrew sustainable housing for the poor, who are far more likely to be on temporary/made redundant on the spot jobs (once the local council houses were paid for, the rent money used to be recycled to build new houses for any expanding generation and to keep rates down in the local community!)

They had another massive effect - they 'restricted' house prices (pissing off the bankers & elites who would gain most!)

We've all been led down a certain groups selfish "garden path"

Edited by erranta

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Good article in some ways until you get to the bottom and read this:

"The number one reason housing costs have risen is the constriction of supply."

no it isn't. It is the supply of easy credit. When are people going to get it?

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Good article in some ways until you get to the bottom and read this:

"The number one reason housing costs have risen is the constriction of supply."

no it isn't. It is the supply of easy credit. When are people going to get it?

I guess Its just a mammoth and bizarre coincidence that this credit effect only really operates on items that have severe supply problems (like houses)

Car purchases also experienced large credit availability, but car prices didn't change much

.

Edited by Stars

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Higher house prices

leads to

Increased cost of living

leads to

pressure on wages to keep up

leads to

less competitive workforce when compared to lower paid foreign workers

leads to

more companies under pressure to move offshore to China etc or import cheaper migrant labour.

leads to

loss of jobs, particularly wealth creating jobs for UK workers

eventually leads to

economic collapse.

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Higher house prices

leads to

Increased cost of living

leads to

pressure on wages to keep up

leads to

less competitive workforce when compared to lower paid foreign workers

leads to

more companies under pressure to move offshore to China etc or import cheaper migrant labour.

leads to

loss of jobs, particularly wealth creating jobs for UK workers

eventually leads to

economic collapse.

Absolutely spot on

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I think a better question to ask is who gets hurt by the forces that have created high house prices? house prices are high for a reason and restricted supply can't be the main one because the change in population since say the 1960s don't explain the price changes by themselves.

And it can't just be credit either. This is the herengracht index of real house prices (inflation adjusted) along one well-to-do canal in amsterdam since 1682.

IMG0014_1779296.PNG

I'm not aware there was a very major ponzi credit industry for purchasing houses in middle 18th century yet real house prices in that time seem on a par with where we are today.

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There are no artificial VI driven reasons to limit the production of cars in the way there is with houses. In a word 'planning permission' coupled with easy credit that allows people to pay more.

Forget the reason, think about the means

Planning permisiion is not the only restriction here; the ownership of a house or a of real estate physicaly blocks a total replacement being offered by a competitor

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Who influences policy makers>?

leads to

Bank of England policy makers

leads to

Bank of England sets rates

leads to

Low interest rates

leads to

Easy credit

leads to

Higher house prices

leads to

Increased cost of living

leads to

pressure on wages to keep up

leads to

less competitive workforce when compared to lower paid foreign workers

leads to

more companies under pressure to move offshore to China etc or import cheaper migrant labour.

leads to

loss of jobs, particularly wealth creating jobs for UK workers

eventually leads to

economic collapse.

Keep digging far enough, and we can blame someone. Don't own too much £ ok?

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Who influences policy makers>?

leads to

Bank of England policy makers

leads to

Bank of England sets rates

leads to

Low interest rates

leads to

Easy credit

leads to

Keep digging far enough, and we can blame someone. Don't own too much £ ok?

Excellent addition. HPCers are cool!

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I think a better question to ask is who gets hurt by the forces that have created high house prices? house prices are high for a reason and restricted supply can't be the main one because the change in population since say the 1960s don't explain the price changes by themselves.

And it can't just be credit either. This is the herengracht index of real house prices (inflation adjusted) along one well-to-do canal in amsterdam since 1682.

IMG0014_1779296.PNG

I'm not aware there was a very major ponzi credit industry for purchasing houses in middle 18th century yet real house prices in that time seem on a par with where we are today.

there are 2 growth spurts there, the first relates to the tulip bubble in 1630, then decline,

the second incorporates mississippi scheme and the daddy of them all the south sea (which is effectively what we have the equivalent of today, the result will also likely be the same one way or another, a 250 year event, much bigger/more wealth destroying than the depression in likeliness). (whilst not dutch specific these were global (european)bubbles, the idea of a global market place/trade border expansion despite what is believed is not new,globalisation/expanding trade borders is a common trait of most bubbles throughout history,the globalisation then collapses as the bubble bursts as no doubt this one will, nod to particle man,, Whilst not property specifically, they were credit bubbles and all credit bubbles find their way into property, they arent known as property bubbles because well tulips and a dud company are more spectacular but any analysis of these bubbles will show property/land loans also playing a main role in collapse

no doubt they were just as likely sustainable to the participants on the way up and down then to, im sure historians wont even bother with the south sea and tulips in 100 years time, this one is much more hilarious academically from a sustainability point of view

Edited by Tamara De Lempicka

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I guess Its just a mammoth and bizarre coincidence that this credit effect only really operates on items that have severe supply problems (like houses)

Car purchases also experienced large credit availability, but car prices didn't change much

.

Cars are a depreciating asset so there is no demand for people to buy more/bigger houses than they actually need.

Houses are investments

tim

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Cars are a depreciating asset so there is no demand for people to buy more/bigger houses than they actually need.

Houses are investments

tim

They are investments because they go up in price.

You now have a distinction based on circular reasoning

To put what you have said another way ; Houses are not like cars because unlike cars they go up in price and so cars don't go up in price

Yes i know, i was asking why we see such a stark distinction between the two, if not because of supply

Edited by Stars

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The number one reason housing costs have risen is the constriction of supply. Our tight planning laws have made it difficult to build new houses – even though polls show people all over the country think we need more.

Pure common sense and great to see in the mainstream media.

Yes yes, easy credit has played it's part. But no way is it solely responsible. If houses were as plentiful here as they are in America, you know they'd be cheap as chips.

And the argument stands even if credit did play the bigger part, because more supply can only aid lower prices even more during times of less credit.

Build more now, and lets see prices come crashing down.

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Pure common sense and great to see in the mainstream media.

Yes yes, easy credit has played it's part. But no way is it solely responsible. If houses were as plentiful here as they are in America, you know they'd be cheap as chips.

And the argument stands even if credit did play the bigger part, because more supply can only aid lower prices even more during times of less credit.

Build more now, and lets see prices come crashing down.

please explain how, when population goes up maybe 2 or at mas 4-5 % every 10 years, house prices went up 100% in 10 years. how?

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Pure common sense and great to see in the mainstream media.

Yes yes, easy credit has played it's part. But no way is it solely responsible. If houses were as plentiful here as they are in America, you know they'd be cheap as chips.

And the argument stands even if credit did play the bigger part, because more supply can only aid lower prices even more during times of less credit.

Build more now, and lets see prices come crashing down.

the idea of short supply along with taxation weakness may be a reason for more delusion in the uk and a larger number of speculators still being drawn in causing a greater bounce(in sterling terms, in other currencies they have fallen as far as anywhere) but it was clearly not the reason for the bubble, that was pure credit supply, it is why ireland rose further despite having so much supply they are knocking them down

Edited by Tamara De Lempicka

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Higher house prices

leads to

Increased cost of living

leads to

pressure on wages to keep up

leads to

less competitive workforce when compared to lower paid foreign workers

leads to

more companies under pressure to move offshore to China etc or import cheaper migrant labour.

leads to

loss of jobs, particularly wealth creating jobs for UK workers

eventually leads to

economic collapse.

Gordon Brown would say its different this time because labour has maintained affordability through low interest rate policy (leaving us completely screwed if we need to combat inflation, as in 2008 when all hell broke loose as interest rates reached the dizzy heights of 5%)

I sometimes wonder if Gordon actually knew what interest rates were or what they mean.

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Wars were a major factor too. If we were at war they would bubble. If we were at war with them, they would collapse. :)

EDIT:

http://arno.unimaas....w.cgi?fid=10696

EDIT2:

And of course credit was a key factor. The Dutch invented the 'central bank'. We copied it when William of Orange assumed the throne in the 17th century.

hotairmail - thanks for the link above and thanks tamara de L too.

I'm not sure I buy both of your explainations though. Even with the greatly expanded credit in the 20th century compared to the 18th century, the average real house price in the 18th century was much higher than in the 20th century. In fact it would appear from the graph that roughly 1960 represents a historical low in house prices for the entire period in the graph with the sole exception of the first half of the 19th century. The impact of the south sea bubble and the subsequent collapse in the second spurt doesn't seem to have altered the basic trend of high real houseprices in the 18th century - much higher than the 20th century average.

What worries me looking at this data is that the classic 3.5x multiple concept would appear to be derived at near a long run historical low of real house prices.

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I think a better question to ask is who gets hurt by the forces that have created high house prices? house prices are high for a reason and restricted supply can't be the main one because the change in population since say the 1960s don't explain the price changes by themselves.

And it can't just be credit either. This is the herengracht index of real house prices (inflation adjusted) along one well-to-do canal in amsterdam since 1682.

I'm not aware there was a very major ponzi credit industry for purchasing houses in middle 18th century yet real house prices in that time seem on a par with where we are today.

Think of the supply as more or less fixed and the price variations arise therefore from changes in the productivity of the economy which is enclosed by the real estate

A fixed supply vs a varying demand is quite close to what is actually going on

The missing part of the puzzle is that real estate encloses the economy and so can hold it hostage.

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Gordon Brown would say its different this time because labour has maintained affordability through low interest rate policy (leaving us completely screwed if we need to combat inflation, as in 2008 when all hell broke loose as interest rates reached the dizzy heights of 5%)

I sometimes wonder if Gordon actually knew what interest rates were or what they mean.

the low i8nterest rate is a result of the expanding credit,they are inverse, nobody has taken them down to this level before because it results in more malinvestment and a larger bubble and therefore a bigger collapse, theres a reason why bear markets are getting longer and bubbles bigger throughout modern history 300 years, expansion of govt intervention, weve probably never collectively as a species been this comically stupid before financially

Edited by Tamara De Lempicka

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Think of the supply as more or less fixed and the price variations arise therefore from changes in the productivity of the economy which is enclosed by the real estate

I think that makes sense but that doesn't help determine which the forces are that are changing productivity and therefore showing up in land prices. Surely land will always enclose the economy so that other fluctuations will drive its price up or down. So you could say equally land is a hostage to the wider economy could you not?

But once again the land price is systematically much much higher 1682-1800 than it is in 1800-2000. I want to understand the flucuations that are causing that difference.

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Cars are a depreciating asset so there is no demand for people to buy more/bigger houses than they actually need.

Houses are investments

tim

Houses are exactly the same as cars. They both depreciate over time.

The only reason we don't see the price going down, is because the home owner keeps maintaining and upgrading the house. Installing double glazing, central heating. Carpets, electrics, boilers. Always trying to bring the house up to modern standards. Without this expenditure, a house will gradually fall into disrepair, and "depreciate" just as a car does.

Trouble is, home owners forget about this massive outlay they have to keep providing.

The house loses its value much slower than a car. It can take decades, if not a century but it will lose it's value.

We maintain a car, but we don't tend to upgrade them. When the car buyer demands electric windows or power steering, the seller doesn't tend to install them. They just reduce their price.

The only element of a house that doesn't depreciate is the land, that has a residual value. But even that can lose value, if it happens to be in a place that becomes unstable politically, or environmentally.

Edited by worst time buyer

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hotairmail - thanks for the link above and thanks tamara de L too.

I'm not sure I buy both of your explainations though. Even with the greatly expanded credit in the 20th century compared to the 18th century, the average real house price in the 18th century was much higher than in the 20th century. In fact it would appear from the graph that roughly 1960 represents a historical low in house prices for the entire period in the graph with the sole exception of the first half of the 19th century. The impact of the south sea bubble and the subsequent collapse in the second spurt doesn't seem to have altered the basic trend of high real houseprices in the 18th century - much higher than the 20th century average.

What worries me looking at this data is that the classic 3.5x multiple concept would appear to be derived at near a long run historical low of real house prices.

the 20th century consisted of the depression(credit expansion induced) and 2 world wars, the memory and impact was so severe that govts were wary of expanding credit and were paying off war debts, by the 70s/80s (this is when comedy derivative/leverage banking products took off) (as always stated, this is not Browns bubble, he just got the inevitable blow off phase) it was all forgotten and thats when your credit expansion started revving up, youll probably have a similar period of zero credit expansion this time because of the effect (which we have not yet seen). Cause and effect in action

IMG0014_1779296.PNG

These show thew cyclical nature of credit expansion rather than trend you do it because everyone perceives they are wealthy, it collapses, it scares you doing it again (the public wont let you) until those that remember and participated are dead, in fact if you expanded it to 2007 the period 1600 to 1730 and 1800 to today are probably almost identical

Edited by Tamara De Lempicka

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  • 201 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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