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[Si1]

This is little more than another assertion, not an explanation.

You are going to need to do better than that. Or, is this the sum of your capacity to debate the topic?

well in that case it is up to you to explain why there IS pricing power - it is hard for me to prove something doesn't exist, maybe you should try to prove it does, in order to prove me wrong, and we can debate those details??

[thecrashingisles]

Why?

Rather than debate the logic you only have to look at what did happen to rents as the property bubble was inflating to see that you are wrong.

Late entry BTLs were relying totally on capital appreciation to make money. The sums using rental incomes had long since ceased to add up.

[Si1]

bought any shares yet?

interesting thought. I'm waiting to hear share rampers in my family but not heard any yet...

[tallguy]

well in that case it is up to you to explain why there IS pricing power - it is hard for me to prove something doesn't exist, maybe you should try to prove it does, in order to prove me wrong, and we can debate those details??

If a town has work, if people need to live in the town to stand a chance of getting work, if people are not living as singles but as families with children, if interest rates are low for the landlord thus enabling him to hold out for the rents he demands.

I could go on....

Rents need to drop for the same reason prices need to drop. The way in which both of these happens is also via the same reasons including:

Difficulty in obtaining easy, over-leveraged credit

Massive rises in unemployment (Although this is a double edged sword for obvious reasons. You might be one of them)

Significant rises in interest rates

Reducing housing benefit will then be a simple matter of following the market down in just the same way it previously followed it up. Because, of course, the housing benefit bill does indeed need to reduce drastically.

By thinking that reducing housing benefit before the above has happened will solve the problem of high rents, you have completely and utterly missed the point of why rents have risen so dramatically in the first place.

Edited October 28, 2010 by tallguy

[Stars]

Why not?

You end up with a situation in which the tenants that have places are secure etc, but there is a shortage

[tallguy]

i thought your sort was dead.

house price ramper in the deapth of market.

good luck to you sir

bought any shares yet?

I wouldn't touch real estate now with a bargepole.

However, it's fair to say my position is ever so slightly more subtle than yours appears to be...

[Si1]

If a town has work, if people need to live in the town to stand a chance of getting work, if people are not living as singles but as families with children,

these don't give pricing power per se to the landlord, if house prices go up for other reasons, then these are unrelated

if interest rates are low for the landlord thus enabling him to hold out for the rents he demands.

no - if he holds out then his yield drops, so why would he not accept lower monthly rents in exchange for lower voids? nah, no pricing power, or not much, here

I could go on....

please feel free

Rents need to drop for the same reason prices need to drop. The way in which both of these happens is also via the same reasons including:

Difficulty in obtaining easy, over-leveraged credit

Massive rises in unemployment (Although this is a double edged sword for obvious reasons)

Significant rises in interest rates

I think you have a point here actually - I know of renters pumped up on credit who would downshift their rented housing if they had to pay it down

Reducing housing benefit will then be a simple matter of following the market down in just the same way it previously followed it up. Because, of course, the housing benefit bill does indeed need to reduce drastically.

interesting - I will have to think about this

By thinking that reducing housing benefit before the above has happened will solve the problem of high rents, you have completely and utterly missed the point of why rents have risen so dramatically in the first place.

I will have to agree to disagree - I really do think that they have been sustained by HB

[thecrashingisles]

By thinking that reducing housing benefit before the above has happened will solve the problem of high rents, you have completely and utterly missed the point of why rents have risen so dramatically in the first place.

Rents haven't risen dramatically at all so the idea that excessive HB claims were somehow a necessary response to the housing bubble is ludicrous.

As a personal example, the flat I rented in the South East back in 2003 has just come on the market again at exactly the same monthly rent as I was paying 7 years ago.

Edited October 28, 2010 by thecrashingisles

[dhpcza]

You end up with a situation in which the tenants that have places are secure etc, but there is a shortage

Can a shortage be countered with social housing? (I don't mean sink estates, I mean a decent council house -- the sort I grew up in).

[tallguy]

Rents haven't risen dramatically at all so the idea that excessive HB claims were somehow a necessary response to the housing bubble is ludicrous.

As a personal example, the flat I rented in the South East back in 2003 has just come on the market again at exactly the same monthly rent as I was paying 7 years ago.

Below are the prices and rents up to 2005. At short notice I was unable to obtain the figures from 2005 to 2009 which, no doubt, will include the most significant rises of all.

Contrary to your uncorroborated "personal example", I am afraid reality says "no"

HP = average house price

rent index = average rent

gross = gross yield

Net = net yield

http://boards.fool.co.uk/historic-rental-yields-9757379.aspx

Edited October 28, 2010 by tallguy

[thecrashingisles]

http://boards.fool.co.uk/historic-rental-yields-9757379.aspx

Thanks Steve.

The way that rent index is calculated doesn't suggest that it's the most reliable source, using a mixture of straight RPI figures and other incomplete indices. I would rather trust empirical evidence.

Interestingly, the author of that piece seems to concur that the government does have a distorting effect on rent levels - "Since the seasonality component of the RPI (rents go up very strongly each april) is probably a result of “contamination” by annual public sector rent reviews"

[SHERWICK]

Interestingly, the author of that piece seems to concur that the government does have a distorting effect on rent levels

Isn't this bleedin' obvious?!?

[eric pebble]

Wall of credit LIAR LOANS leads to rises in house prices

Rise in house prices leads to rise in rents to cover cost of rise in house prices

This is not complicated

Finally, the majority of the housing benefit bill is to pay for the accomodation of families. They do not fall into your easy suggestion of moving back in with mummy.

Unless, of course, you are happy to see a return to the overcrowded, disease ridden slums of the pre-war era. Then again, maybe you are.

Perhaps you should clarify your position?

[gimble]

Below are the prices and rents up to 2005. At short notice I was unable to obtain the figures from 2005 to 2009 which, no doubt, will include the most significant rises of all.

Contrary to your uncorroborated "personal example", I am afraid reality says "no"

HP = average house price

rent index = average rent

gross = gross yield

Net = net yield

http://boards.fool.co.uk/historic-rental-yields-9757379.aspx

Rents increased 52% from 1996 (when the house price boom started in earnest) to 2005, house prices increased 164% in the same period. Does your own data not completely disprove your assertion that high house prices cause high rents?

[Traktion]

This approach also doesn't work!

The left are traditionaly dubious of free market solutions. However since the eighties the mainstream left have decided that they need some of those free markety type solutions and the real estate market is one that they (in their imagination) left rip a bit in this maner. The unfortunate thing is, the land market is kind of special amoungst markets in that is by definition not a free market; it is a market built upon a forceful government intervention called 'land ownership'. So even if the government merely enforced landownership and interveened in no other way , the land market would still not be a free market. Consequently, the left have two layers of confusion to recover from. First they have to realise their real estate thing of the last decade didn't work, then they have to figure out that the reason it didn't work was NOT because it was free market solution.

I think it is doubtful the well meaning part of the left will ever get out of this hall of mirrors despite the fact that the knowlege about the special problems with the land market were a large part of mainstream liberal thought only 70 - 100 years ago

+1

They don't need to tinker with fixing symptoms of the land/housing market, but need to see the bigger problem.

[Traktion]

Can a shortage be countered with social housing? (I don't mean sink estates, I mean a decent council house -- the sort I grew up in).

Price fixing leads to shortages. You could then build council houses to plug the gap, but it's another fix to stop the problem caused by the original price fixing. Then you have the debate about who should/shouldn't get said council housing, what benefits they should get etc.

It is preferable to have a working market based solution. This gives flexibility with supply and demand, including types of houses and sets prices accordingly. The problem is, the land market is broken, which is why we have the problems we housing and rental costs. Within our political framework, the best way to free the market is by implementing a Land Value Tax, then let the market fix itself.

IMO, we should always strive to fix the root causes, not the symptoms. Aside from the side effects, which may also need fixing, it doesn't solve the underlying problem.

[mdman]

Wall of credit leads to rises in house prices

Rise in house prices leads to rise in rents to cover cost of rise in house prices

This is not complicated

So riddle me this tallguy

If everyone went totally bananas and bought one bedroom flats in Plaistow for £2m, does that mean rents would reflect the price they paid?

It wouldn't.

There is a finite amount of money being paid into the rental market

How much money gets paid in depends on affordability for renters

While you're correct that cheap credit indirectly increased rents in the past, we are now in a credit bust part of the cycle. Unless we get wage inflation, rents will fall. Removing one of the sources of that landlord-bound money - housing benefit - will force rents down faster.

[dhpcza]

Price fixing leads to shortages. You could then build council houses to plug the gap, but it's another fix to stop the problem caused by the original price fixing. Then you have the debate about who should/shouldn't get said council housing, what benefits they should get etc.

But the problem would be solved, so what difference does it make to Joe Average? The ever long social housing waiting list shows the demand for social housing, lower rents and secure tenancies. If rents were capped and enough, good quality social housing (and yes, it's been built before and could be again) was built, then problem solved. I'm not rabidly anti-free market. But I don't see a problem with a massive amount of secure, rented accommodation for people.

Houses aren't like food, they aren't consumed quickly and gone forever. Once built, they can stand for decades. Build enough of them, there is no shortage. As for financing it, make it a priority and the money will be found (just like it will be for Trident or whatever else is deemed a priority). The majority of this country are low-wage earners and providing them with the option of decent social housing at fair rents would be a great thing imo. And, any housing benefit required by those out of work is also lower (because the rents are lower). Those in work would not require it, because the rent would now be affordable.

[Injin]

So riddle me this tallguy

If everyone went totally bananas and bought one bedroom flats in Plaistow for £2m, does that mean rents would reflect the price they paid?

It wouldn't.

There is a finite amount of money being paid into the rental market

How much money gets paid in depends on affordability for renters

While you're correct that cheap credit indirectly increased rents in the past, we are now in a credit bust part of the cycle. Unless we get wage inflation, rents will fall. Removing one of the sources of that landlord-bound money - housing benefit - will force rents down faster.

All discretionary spending would have to cease first though.

Last thing you stop paying for is shelter, generally. (Though some will prefer to hang on to the car to get to work near the end so they can move.)

You've got banks demanding from landlords and landlords demanding from the renters.

The only way there could be price competition would be if there were LL's around who had paid cash competing with those who bought with fantasy money. I doubt there are many of those knocking around.

[Fishman]

I my haste I got it worng I meant Attention Deficit Disorder.

The UK has a chronic case of Budget Deficit Disorder.

Medication includes a spoonful of Housing Benefit Cut Mixture.

[Stars]

All discretionary spending would have to cease first though.

Last thing you stop paying for is shelter, generally. (Though some will prefer to hang on to the car to get to work near the end so they can move.)

You've got banks demanding from landlords and landlords demanding from the renters.

The only way there could be price competition would be if there were LL's around who had paid cash competing with those who bought with fantasy money. I doubt there are many of those knocking around.

There is no need for these people to compete (not in the proper, production sense). They just set their rents with the general market which as you point out is governed by the average surplus income of renters

Land is something you only get to sell once; you don't get a volume advantage by selling cheap like a producer

Edited October 28, 2010 by Stars

[Injin]

There is no need for these people to compete (not in the proper, production sense). They just set their rents with the general market which as you point out is governed by the average surplus income of renters

Land is something you only get to sell once; you don't get a volume advantage by selling cheap like a producer

You sure?

State sells to landlord, who sells to renter. As long as the renter is the one paying the most then all is well, or sustainable ceteris paribus. State could sell to landlord who sells to several renters to achieve this.

[Stars]

You sure?

Yep

State sells to landlord, who sells to renter. As long as the renter is the one paying the most then all is well, or sustainable ceteris paribus. State could sell to landlord who sells to several renters to achieve this.

To achieve what?

I think we may have crossed wires

Edited October 28, 2010 by Stars

[tallguy]

Thanks Steve.

The way that rent index is calculated doesn't suggest that it's the most reliable source, using a mixture of straight RPI figures and other incomplete indices. I would rather trust empirical evidence.

Interestingly, the author of that piece seems to concur that the government does have a distorting effect on rent levels - "Since the seasonality component of the RPI (rents go up very strongly each april) is probably a result of “contamination” by annual public sector rent reviews"

I wouldn't disagree that the provision of housing benefit has some effect on rental rates in a given area. Obviously, there is bound to be some effect. However, I would argue that this effect is exacerbatory as opposed to primary.

It is true to say that over the last decade the following can be observed;

* rising rates of cheap credit

* rising house prices

* rising rents

* rising housing benefit claims

For me, the causal arrow starts at the top of that list and ends at the bottom of the list. I do not doubt that large housing benefit claims will provide a limited feedback-loop in terms of maintaining rents as high as they are in certain areas. However, the initial pressure for those rents to rise is certainly not the provision of housing benefit.

It follows from the above that if we want to see the housing benefit bill drop (which any reasonable analysis would not deny), then we need to tackle the first item on that list. If we do, the rest of the list will largely take care of itself.

If, on the other hand, we decide, as our government seems to have done, to tackle the last item on that list, all we will do is move the problem of unaffordable housing from one of an of an unsustainable burden on the taxpayer in the form of housing benefit to an unsustainable burden on society as a whole in the form of overcrowded, disease-ridden slums reminiscent of the pre-war era.

Is that what we really want?

Edited October 28, 2010 by tallguy

[tallguy]

All discretionary spending would have to cease first though.

Last thing you stop paying for is shelter, generally. (Though some will prefer to hang on to the car to get to work near the end so they can move.)

You've got banks demanding from landlords and landlords demanding from the renters.

The only way there could be price competition would be if there were LL's around who had paid cash competing with those who bought with fantasy money. I doubt there are many of those knocking around.

This is precisely it.

The housing market needs to completely collapse so that the costs are reduced all the way down the line.

Edited October 28, 2010 by tallguy