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Imp

Why We Need House Price Boom And Bust

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Many people on this forum seem upset at the idea of either the house price boom we have been seeing, or the fall (in real terms) of prices which we may see in the future. If we didn't have this cycle, the quality of the housing stock would deteriorate, especially in impoverished areas.

A house is not only an asset, but also a liability. Every year householders spend thousands of pounds upgrading their house. Without doing this the value of their house would fall compared with similar houses. Examples of this include creating indoor bathrooms, upgrading kitchens to fitted kitchens, installing a TV arial, installing plumbing for a washing machine/dishwasher etc. All this costs money.

Many home owners, especially the old, don't spend money regularly to update their homes. In a market where prices are stable and low, a house will eventually reach a state where the cost of upgrading it is greater than the value of the upgraded house. There is no incentive for anybody to buy these houses. Just a few years ago this was the position ofor houses in Welsh valleys. A dilapidated 4 bedroom house could be bought for £19,000 but one which had been kept up to date could be bought for £25,000. Nobody will buy the £19,000. Even given away it would have cost more to update it than just buying a maintained one.

Then we have a house price boom. Owners MEW to upgrade their homes, and developers buy run down houses and refresh them. The overall quality of the housing stock goes up. The prices cannot be sustained, so either they stay the same or fall till we are back at square one, but updated houses are affordable.

So in summary, a boom is good for everybody.

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If we didn't have this cycle, the quality of the housing stock would deteriorate, especially in impoverished areas.

Rubbish. In an environment where house prices are roughly stable, everyone can see the differential between a house in good condition and a house in bad condition; in the bubble that we have recently experienced prices are rising so fast that derelict houses go for almost the same price as refurbished ones-in fact in the latter stages of the bubble derelict houses were going for MORE than refurbished houses at auction, due to every Tom, Dick and Harry having watched Property Ladder etc and thought "Loadsamoney!!!! The route to quick riches is to do up a 2-bed semi! in Chorley!".

Every year householders spend thousands of pounds upgrading their house. Without doing this the value of their house would fall compared with similar houses.

Most owner-occupiers do this for the amenity value to themselves, not to maintain some notional value for their house.

There is no incentive for anybody to buy these houses.

Again rubbish. For someone who can afford a £19K house but not a £25K house there is every incentive to buy one of these houses. They simply require more work.

a boom is good for everybody.

Except FTBers, families looking to trade up for more space, second-time buyers, public services (nurses and teachers priced-out), etc etc etc.

Edited by IPOD

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Banks need boom and bust so that they can screw generations in perpetuity.

The real economy gets destroyed by boom and bust, one day the banks will go too far and then their game will be over too.

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Really simple reply.

By investment I mean putting real money in to do something, such as build new oil rigs, plant fields of potatoes etc.

If something is expensive, people will invest in it. Expensive oil, people invest in oil. Expensive tobacco, people invest in tobacco. Expensive potatoes, people invest in potatoes. Expensive houses, people invest in houses.

Victorian terraces need to be invested in to keep them habitable. Therefore they have to become expensive - boom. During a bust part of the cycle, I can buy one which is still habitable to live in, but it is only habitable because it has been expensive in the past. During this boom part of the cycle, lots of developers have improved the houses I will be buy during the bust part of the cycle. Happiness all round.

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Rubbish. In an environment where house prices are roughly stable, everyone can see the differential between a house in good condition and a house in bad condition; in the bubble that we have recently experienced prices are rising so fast that derelict houses go for almost the same price as refurbished ones-in fact in the latter stages of the bubble derelict houses were going for MORE than refurbished houses at auction, due to every Tom, Dick and Harry having watched Property Ladder etc and thought "Loadsamoney!!!! The route to quick riches is to do up a 2-bed semi! in Chorley!".

Most owner-occupiers do this for the amenity value to themselves, not to maintain some notional value for their house.

Again rubbish. For someone who can afford a £19K house but not a £25K house there is every incentive to buy one of these houses. They simply require more work.

Except FTBers, families looking to trade up for more space, second-time buyers, public services (nurses and teachers priced-out), etc etc etc.

My Dad is a very experienced Housing Consultant. He has metioned something similair to me a number of times. Along the lines that the boom was orchastrated to caused private sector companies to rebuild and repair the housing stock in the country.

I would say IMP has a very good point.

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My Dad is a very experienced Housing Consultant. He has metioned something similair to me a number of times. Along the lines that the boom was orchastrated to caused private sector companies to rebuild and repair the housing stock in the country.

I would say IMP has a very good point.

That's a fantastical theory, with all due respect to your father. Far more likely that it was orchestrated to generate a feel good feeling that would support the economy.

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I would agree with IMP up to a point. As he has mentioned, slowly rising house prices is helpful in bringing

private money investment to the housing sector. However, the current housing bubble is not helping

anyone except the vested interests; it obviously is not helping in the development of good houses- only an

outside makeover of the house by developers for quick profits does not improve the standards.

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My Dad is a very experienced Housing Consultant. He has metioned something similair to me a number of times. Along the lines that the boom was orchastrated to caused private sector companies to rebuild and repair the housing stock in the country.

I would say IMP has a very good point.

I think what Imp is saying is that housing demand (i.e. the requirement for housing) is not enough in itself to stimulate sufficient housing supply (i.e. new build and renovation). He is saying there must also be periods of speculative demand in order to drive housing supply.

Is the business of building / renovating houses such a precarious and knife-edge industry that it is only worth doing in a climate of rising asset prices? Can't builders and renovators just take raw materials, expertise and labour and add value at a profit, like everyone else in business?

frugalista

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I can see IMP's POV but houses already rise with inflation. A well maintained house meant it would be easy to sell and may raise more money than the current Market Value. Not any more!

Where his arguement fails is some of the sh*thouses that are for sale for silly money. See the classic thread "The most expensive sh*tholes" http://www.housepricecrash.co.uk/forum/ind...?showtopic=3533

All houses should have a ceiling price. IE in 1 street the very best may be £100K (The ceiling price) or £70K a sh*thole. Before 2001 there would NOT be a 30k difference in a street. Maybe £15K max coz of a conservatory or extension. But nowadays EVERYBODY thinks their house is worth the ceiling price. Even the sh*tholes!! So your theory of better quality housing holds NO weight whatsoever. They still want £100K if its a sh*thole or £150K coz its NOT a sh*thole.

TB

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I may have got this wrong because my memory may be fading but I think in Germany there a special saving schemes and tax breaks to 'do up' houses - that's why they take could care of them and they generally look nice. I think it goes along the line of some sort of high interest savings account (as long as it is used for house renovation).

Any way, the general idea is that every 10-15 years people can afford to replace windows, kitchens, bathrooms etc and houses stay in a good state of repair.

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To an extent I agree with Imp.

The prospect of untold riches encourages speculative investment in infrastructure that might never occur otherwise. Even if boom turns to bust, the infrastructure remains for future consumers who were never party to the speculative boom.

A very good example of this is the Internet. I suspect most of us here never got suckered in by the Internet boom, but I doubt the Internet would be what it is today without the the swathes of infrastructure that were built speculatively with money from private investors, even though the rewards turned out to be fools gold for the vast majority of them.

So a boom & bust can benefit society as a whole in the long run, but to say a boom is good everybody is clearly nonsense. Just ask anyone who put their pension money into dot com funds in early 2000.

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I may have got this wrong because my memory may be fading but I think in Germany there a special saving schemes and tax breaks to 'do up' houses - that's why they take could care of them and they generally look nice. I think it goes along the line of some sort of high interest savings account (as long as it is used for house renovation).

Any way, the general idea is that every 10-15 years people can afford to replace windows, kitchens, bathrooms etc and houses stay in a good state of repair.

The reason that many houses in Germany are in a good state of repair is that

A. They are built very well in the first place..very very well.

B. Many are rented and so need to be kept well by the landlord, due to very strict tenancy laws

C. There are some tax incentives but its not as good as it used to be.

You also see houses that are never finished externally as they can be counted as a work in progress and so can receive preferential tax treatment on any interest paid, although this again may have changed in the last 2 years as lots of housing tax benefits /'loop holes' were removed. This led interestingly to many landlords selling up, which again impacted prices negatively as the obvious investment values of renting dropped.

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  • 301 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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