How Much Do You Think It Should Cost To Give Someone A Home

[gf3]

Just wondering if the government bought an acre of land for £10,000 and built studio flats 3 story max. How much do you think a week they would have to charge to cover the costs over the lifetime of the flats. Assuming they print the money ie don't pay interest on the original money.

I would have thought £40 a week would cover it. Am I way out.

[Corruption]

Just wondering if the government bought an acre of land for £10,000 and built studio flats 3 story max. How much do you think a week they would have to charge to cover the costs over the lifetime of the flats. Assuming they print the money ie don't pay interest on the original money.

I would have thought £40 a week would cover it. Am I way out.

If it costs 70K to build a 3 bed semi and it lasts for 100 years, thats 700 pound a year and add on another grand for maintenance/admin. So 1700/52= £32.70 a week, excluding land!

An acre should fit 8 semi detached houses on.

You can see why the banks didnt want Maggie building any more council houses.

[crashmonitor]

Just wondering if the government bought an acre of land for £10,000 and built studio flats 3 story max. How much do you think a week they would have to charge to cover the costs over the lifetime of the flats. Assuming they print the money ie don't pay interest on the original money.

I would have thought £40 a week would cover it. Am I way out.

In the days before we decided to create loads of non-jobs may be . The Housing Association that takes these on will need a Chief Executive on 6 figures, an equal Opportunities Officer on at least 50k and a minimum wage for clerks of 20k....then we have to consider the final salary package for all of these. £2,000 isn't even going to cover the service charge with this lot running it, and I doubt there will be any money left for anybody to actual maintain the properties after the HA has taken its slice (in achieving its objective of creating jobs for middle class worthies) let alone build the bloody things.

Edited April 16, 2014 by crashmonitor

[worzel]

Just wondering if the government bought an acre of land for £10,000 and built studio flats 3 story max. How much do you think a week they would have to charge to cover the costs over the lifetime of the flats. Assuming they print the money ie don't pay interest on the original money.

I would have thought £40 a week would cover it. Am I way out.

I just did a fag packet calculation, which may have one or more errors, but was as follows

an acre is 4046 m2, assume you build on half of it, that's 2023, multiply by 3 for three stories, allow 70 m2 per flat (inc allocation of communal space), build cost of 626 per m2 (from web), gives build cost per studio of £44k, assume its repaid over 20 years, should last longer but may require major maintenance after this time, this gets back to £42 per week. I ignored the costs of the land since you could get 87 studios per acre according to my maths.

There could be a massive hole in my figures, and I have no real experience in building.

[Smyth]

If it costs 70K to build a 3 bed semi and it lasts for 100 years, thats 700 pound a year and add on another grand for maintenance/admin. So 1700/52= £32.70 a week, excluding land!

An acre should fit 8 semi detached houses on.

You can see why the banks didnt want Maggie building any more council houses.

You are forgetting about opportunity cost, as are most other people in the thread.

If you build a house for £70k that means that you have £70k sitting in a house rather than generating returns elsewhere. So the rent paid by the tenant needs to cover that. If you assume that £70k invested in stocks would make around 10% a year (long term stock market average), then thats an extra £7k the rent has to cover to break even, or £134 a week.

Now, its not quite that simple because the house itself will go up in value so its not like you are making 0% from that. But houses are very risky investments due to their illiquidty and generally not a sensible way of investing (at least if you are buying in cash - buying with a mortgage makes it reasonable because you can get cheap leverage). So lets say that the house price rises at the rate of inflation - in practice it will be a bit more than that because the investor needs compensation for the illiquidity and increased risk, but we can risk-adjust that in a very crude way by just using the inflation rate . Subtracting inflation, the £70k invested in stocks would make around 7% a year, so thats £4900 rent the tenant should be paying to cover the opportunity cost. Now throw in the £1000 maintencena for the house as you say, and we are up to £132 a week rent that must be charged.

Note that £132 a week isnt far off what it actually costs to rent a house in places where you can build for £70k. If you wanted to build in a desirable location (eg inside a mjaor city) then you would need a lot more than £70k since you are paying to buy the land, as well as the bricks. Lets say that buying a plot of land for a house costs £100k near a city that isnt London (I just made that figure up, I have no idea) and the bricks cost £70k. So thats £170k for the house, and you need to recoup 7% a year to break even after risk-adjusted opportunity cost. Along with £1000/year, maintenance, that works out as £248/week you need to charge. Is that really far from the current market rate?

Unsurprisingly, markets are broadly efficient.

Edited April 16, 2014 by Smyth

[porca misèria]

Folks here are forgetting all the main costs, like maintenance, and infrastructure.

It was maintenance that killed off council housing, as the rents for rapidly-rising swathes of it weren't even covering routine maintenance (let alone repairs) even with the capital costs being written off.

[R K]

Just wondering if the government bought an acre of land for £10,000 and built studio flats 3 story max. How much do you think a week they would have to charge to cover the costs over the lifetime of the flats. Assuming they print the money ie don't pay interest on the original money.

I would have thought £40 a week would cover it. Am I way out.

Real interest rates are so low it's virtually free money anyway.

Government can easily borrow and build all the houses required, make more than enough to cover maintenance, there's no opportunity cost 'cause the money is borrowed for free, and it reduces the transfer payments to mostly Tory landlords in London by c. £24,000,000,000 per year.

The last bit is of course why the won't do it.

[Smyth]

Real interest rates are so low it's virtually free money anyway.

Government can easily borrow and build all the houses required, make more than enough to cover maintenance, there's no opportunity cost 'cause the money is borrowed for free, and it reduces the transfer payments to mostly Tory landlords in London by c. £24,000,000,000 per year.

The last bit is of course why the won't do it.

No, that isnt how money works.

Short term interest rates are low now, but you need to borrow over the life-span the house, so you need to use the interest rate which would be charged on a 100 year loan, not the short term interest rate. Now, there's no such thing as a 100 year gilt, but for reference the current yield on a 2 year gilt is 0.66% while the current yield on a 30 year gilt is 3.44%, so as you can see, it goes up sharply. A 100 year gilt (if it existed) would be substantially higher than the 30-year, probably around 5% if we do a crude adjustment.

But even ignoring that, the opportunity cost argument is still relevant, because even if borrowing was low cost, the government could still be borrowing that money for other purposes.

Edited April 16, 2014 by Smyth

[Dweller]

Folks here are forgetting all the main costs, like maintenance, and infrastructure.

It was maintenance that killed off council housing, as the rents for rapidly-rising swathes of it weren't even covering routine maintenance (let alone repairs) even with the capital costs being written off.

There is increasing evidence that taxpayers' cash is propping up landlords. An analysis of official statistics for Karen Buck, the Labour MP and a parliamentary expert on welfare found that between 2011-12 and 2013-14 £35bn of housing benefit will be spent on private landlords, £13bn more thn previous three years.

The number of employed people claiming housing benefit in England has risen by 104% since 2009 with a further 310 added every day, at a total cost to the taxpayer of more than £12 billion over the period or £1.7 million a day.

I wonder if some of this was ploughed back into social housing rather than put in private landlords pockets if sustainable homes could be a thing of the future.

[whitemice]

How about buying the land, dividing it up into say quarter acre plots, building roads, services (drainage / sewage / electric / phone lines), planting trees, setting up schools, etc.

Then letting people bring in private companies to build their own houses to spec. **

Charge an annual fee, based on the size of the plot. Hey, instant garden city!

** Max house size proportional to plot size, must be primary residence, etc.

[crashmonitor]

How about buying the land, dividing it up into say quarter acre plots, building roads, services (drainage / sewage / electric / phone lines), planting trees, setting up schools, etc.

Then letting people bring in private companies to build their own houses to spec. **

Charge an annual fee, based on the size of the plot. Hey, instant garden city!

** Max house size proportional to plot size, must be primary residence, etc.

That's what happened after the war, farmers in Kent sold bombed out Londoners 1/4 acre plots. Unfortunately tin shacks went up and shanty towns developed....culminating in planning laws that have hobbled development and increased land prices ever since.

[(Blizzard)]

You are forgetting about opportunity cost, as are most other people in the thread.

If you build a house for £70k that means that you have £70k sitting in a house rather than generating returns elsewhere. So the rent paid by the tenant needs to cover that. If you assume that £70k invested in stocks would make around 10% a year (long term stock market average), then thats an extra £7k the rent has to cover to break even, or £134 a week.

Now, its not quite that simple because the house itself will go up in value so its not like you are making 0% from that. But houses are very risky investments due to their illiquidty and generally not a sensible way of investing (at least if you are buying in cash - buying with a mortgage makes it reasonable because you can get cheap leverage). So lets say that the house price rises at the rate of inflation - in practice it will be a bit more than that because the investor needs compensation for the illiquidity and increased risk, but we can risk-adjust that in a very crude way by just using the inflation rate . Subtracting inflation, the £70k invested in stocks would make around 7% a year, so thats £4900 rent the tenant should be paying to cover the opportunity cost. Now throw in the £1000 maintencena for the house as you say, and we are up to £132 a week rent that must be charged.

Note that £132 a week isnt far off what it actually costs to rent a house in places where you can build for £70k. If you wanted to build in a desirable location (eg inside a mjaor city) then you would need a lot more than £70k since you are paying to buy the land, as well as the bricks. Lets say that buying a plot of land for a house costs £100k near a city that isnt London (I just made that figure up, I have no idea) and the bricks cost £70k. So thats £170k for the house, and you need to recoup 7% a year to break even after risk-adjusted opportunity cost. Along with £1000/year, maintenance, that works out as £248/week you need to charge. Is that really far from the current market rate?

Unsurprisingly, markets are broadly efficient.

This is why rents are exactly the same in London as they are in inner City Glasgow or Liverpool.

[porca misèria]

There is increasing evidence that taxpayers' cash is propping up landlords. An analysis of official statistics for Karen Buck, the Labour MP and a parliamentary expert on welfare found that between 2011-12 and 2013-14 £35bn of housing benefit will be spent on private landlords, £13bn more thn previous three years.

£35bn over what period? Such nebulous claims might - or might not - carry more weight if at least sourced.

I wonder if some of this was ploughed back into social housing rather than put in private landlords pockets if sustainable homes could be a thing of the future.

Careful what you wish for. Help To Buy is money to help people buy rather than line landlords' pockets. Is that what you want? No matter what you call it, social housing creates nasty anomalies. That of course includes both Landlords Benefit and zero-interest-rate mortgages just as much as Mugabe-style land redistribution.

[whitemice]

That's what happened after the war, farmers in Kent sold bombed out Londoners 1/4 acre plots. Unfortunately tin shacks went up and shanty towns developed....culminating in planning laws that have hobbled development and increased land prices ever since.

Where are these shanty towns?

You won't be building a tin shack when you're paying full service costs on the land.

[Bland Unsight]

Note that £132 a week isnt far off what it actually costs to rent a house in places where you can build for £70k. If you wanted to build in a desirable location (eg inside a mjaor city) then you would need a lot more than £70k since you are paying to buy the land, as well as the bricks. Lets say that buying a plot of land for a house costs £100k near a city that isnt London (I just made that figure up, I have no idea) and the bricks cost £70k. So thats £170k for the house, and you need to recoup 7% a year to break even after risk-adjusted opportunity cost. Along with £1000/year, maintenance, that works out as £248/week you need to charge. Is that really far from the current market rate?

Unsurprisingly, markets are broadly efficient.

Unsurprisingly, when you make up numbers to support your conclusion, your numbers support your conclusion.

Anyway, you're off topic. The topic is not 'Given our pre-commitment to an infantile markets are efficient dogma, how can we rationalise how much it does cost?"

If you apply a suitable progressive tax on that land, its cost would fall to the opportunity cost of not using it to grow oil seed rape, which sells for £2.38 per kg, giving the land needed for a house a price of £3,430, (I just made that figure up, I have no idea). As the principle cost of maintenance is labour, if you made houses more affordable, nominal wages could fall by 20% and people would still be better off by £235 pcm on average (I just made that figure up, I have no idea).

Of course, I'm joking. You are right. Markets are broadly efficient, which is why we have captive lenders of the major banks using FLS money to make interest only BTL loans so that we can establish exactly how much people can afford to pay for their homes, in order to rescue the banks from their self-inflicted insolvency.

Oh wait, now I'm off topic - the thread isn't "How much can we be made to pay for our homes?".

[swissy_fit]

Unsurprisingly, when you make up numbers to support your conclusion, your numbers support your conclusion.

Anyway, you're off topic. The topic is not 'Given our pre-commitment to an infantile markets are efficient dogma, how can we rationalise how much it does cost?"

If you apply a suitable progressive tax on that land, its cost would fall to the opportunity cost of not using it to grow oil seed rape, which sells for £2.38 per kg, giving the land needed for a house a price of £3,430, (I just made that figure up, I have no idea). As the principle cost of maintenance is labour, if you made houses more affordable, nominal wages could fall by 20% and people would still be better off by £235 pcm on average (I just made that figure up, I have no idea).

Of course, I'm joking. You are right. Markets are broadly efficient, which is why we have captive lenders of the major banks using FLS money to make interest only BTL loans so that we can establish exactly how much people can afford to pay for their homes, in order to rescue the banks from their self-inflicted insolvency.

Oh wait, now I'm off topic - the thread isn't "How much can we be made to pay for our homes?".

A distressingly accurate (apart from the made up figures of course) assessment.

[Smyth]

This is why rents are exactly the same in London as they are in inner City Glasgow or Liverpool.

Rents are higher in London because land costs more.

If you want to reduce house prices/rents then the best solution is to lower the cost of land. The best way to do that is either scrapping green belts, or allowing more high density development.

[Smyth]

Anyway, you're off topic. The topic is not 'Given our pre-commitment to an infantile markets are efficient dogma, how can we rationalise how much it does cost?"

The topic is "how much does it cost to give someone a home". Opportunity cost is a real cost, and needs to be included. DItto for the cost of land, since (at least in majori cities) that costs a substantial amount of the house.

If you apply a suitable progressive tax on that land, its cost would fall to the opportunity cost of not using it to grow oil seed rape, which sells for £2.38 per kg, giving the land needed for a house a price of £3,430, (I just made that figure up, I have no idea). As the principle cost of maintenance is labour, if you made houses more affordable, nominal wages could fall by 20% and people would still be better off by £235 pcm on average (I just made that figure up, I have no idea)

This is wrong, because some plots of land will always be inherently more valuable than others. A square mile in the centre of London will always cost a lot more than a square mile in the North of Scotland. Waving your magic fairy-land wand does not change that..

You can already live in the UK and pay a very low rent, by relocating to Skegness. Its very cheap up there, you can get a 3 bed detached house for less than £700 a month. So if you are annoyed about paying a high rent, why do you not move there instead? Probably because you dont want to live in Skegness. Guess what - neither does anyone else. Thats why its cheap there, and more expensive in more desirable places. Not everyone can live in Mayfair.

Edited April 16, 2014 by Smyth

[Dweller]

£35bn over what period? Such nebulous claims might - or might not - carry more weight if at least sourced.

Careful what you wish for. Help To Buy is money to help people buy rather than line landlords' pockets. Is that what you want? No matter what you call it, social housing creates nasty anomalies. That of course includes both Landlords Benefit and zero-interest-rate mortgages just as much as Mugabe-style land redistribution.

Sorry to have offered "nebulous claims" , I just remembered the quotes and my thoughts at the time were something like : how did this country once upon a time afford to give people social housing on significantly lower rents and how much social housing could be built and maintained with the figures being quoted. Perhaps I am just showing my lack of education and naivety.

The references were from 2012 article Here

And December 2013

I feel a bit confused by your response. HTB not only stops people putting money in landlords pockets it helps to put money into developers pockets and worse still, artificially keeps house prices high and unaffordable by vast swathes of the population, so I can can't really see what this has to do with social housing? A nearby new housing estate said that 5 of the 9 sales (the slightly cheaper houses) were HTB all overpriced in my opinion. I thought the estate was supposed to be providing "affordable" housing, but turns out "affordable" means less than £240,000! ! And as for "anomalies", what housing does not create "anomalies"? So I am not sure what you are saying but that is probably because I am not the brightest ! . This thread asked how much it would cost to build housing and then rent it at low rents to people, yes? Perhaps this is not called social housing? Simply reasonably priced places to live )

[Bland Unsight]

The topic is "how much does it cost to give someone a home". Opportunity cost is a real cost, and needs to be included. DItto for the cost of land, since (at least in majori cities) that costs a substantial amount of the house.

...

Let me introduce you to a powerful technique of the internet age - we call it "Copy and paste". I select what you claim the title is, then I copy and paste.

The topic is "how much does it cost to give someone a home".

Now I do the same thing with the thread title as it appears above...

How Much Do You Think It Should Cost To Give Someone A Home

Now the words SHOULD DOES TROLL go onto the clipboard..

SHOULD DOES TROLL SHOULD DOES TROLL SHOULD DOES TROLL SHOULD DOES TROLL SHOULD DOES TROLL SHOULD DOES TROLL SHOULD DOES TROLL SHOULD DOES TROLL SHOULD DOES TROLL SHOULD DOES TROLL SHOULD DOES TROLL SHOULD DOES TROLL SHOULD DOES TROLL

[Smyth]

Ok fine, I think it should cost £0.01 to give someone a home. If its a 7 bed detached house in Mayfair then i think it should cost £2.17. I also think it should cost £3.48 to give everyone a yacht and a pony.

Unfortunately in the real world in which we live, there are costs and allocation problems associated with the provision of non-scare goods, and someone has to pay for these. Any realistic answer to the question has to be framed as "what is the minimum amount we could pay", not "how much could we pay in fantasy land where nothing costs anything and we can wave a magic wand to make houses appear out of the ground". That answer obviously needs to take into account the cost of providing the goods, which includes all material/labour costs (including the land), along with the opportunity and funding/borrowing costs.

Edited April 16, 2014 by Smyth

[@contradevian]

You can already live in the UK and pay a very low rent, by relocating to Skegness. Its very cheap up there, you can get a 3 bed detached house for less than £700 a month. So if you are annoyed about paying a high rent, why do you not move there instead? Probably because you dont want to live in Skegness. Guess what - neither does anyone else. Thats why its cheap there, and more expensive in more desirable places. Not everyone can live in Mayfair.

£700 isn't cheap at all for Skegness by any stretch of the imagination.

[@contradevian]

Ok fine, I think it should cost £0.01 to give someone a home. If its a 7 bed detached house in Mayfair then i think it should cost £2.17. I also think it should cost £3.48 to give everyone a yacht and a pony.

Unfortunately in the real world in which we live, there are costs and allocation problems associated with the provision of non-scare goods, and someone has to pay for these. Any realistic answer to the question has to be framed as "what is the minimum amount we could pay", not "how much could we pay in fantasy land where nothing costs anything and we can wave a magic wand to make houses appear out of the ground". That answer obviously needs to take into account the cost of providing the goods, which includes all material/labour costs (including the land), along with the opportunity and funding/borrowing costs.

There is no need for the scarcity though. Plenty of land, and plenty of materials to build homes with. Most of the existing homes near me were made out of stone dug out of local quarries (obviously this took a fair amount of energy and labour to extract).

Most of the land in this country was allocated during feudal times or during the land enclosures, and not by 'free markets' at all. Where did Prince Charles get all of his land? He inherited it. Where did the Windsors get their land? They stole it. Why are we still honouring these ancient property rights obtained through State sanctioned theft?

If you are a true exponent of 'free markets' that you claim, lets reset the Monopoly ™ board. There is nothing free or fair about land ownership in the UK. Its about stitching up the local populace with debt on p*ss poor pockets of land, and then letting the City leverage up and gamble with the resultant mortgage debt.

Edited April 16, 2014 by aSecureTenant

[fluffy666]

If you are a true exponent of 'free markets' that you claim, lets reset the Monopoly ™ board. There is nothing free or fair about land ownership in the UK. Its about stitching up the local populace with debt on p*ss poor pockets of land, and then letting the City leverage up and gamble with the resultant mortgage debt.

I like the monopoly analogy..

It's a bit like continuing to play monopoly long after one player has got hotels on Park lane, Mayfair and the green spaces. Soon all the other players will have handed over everything they have to that player, and their salary pretty much the moment they get it. Since this is entirely within the rules of the game (in fact pretty much inevitable given the rules), it's 'fair'.

Except, of course, that in real life you don't get to stop playing.

[Bland Unsight]

Ok fine, I think it should cost £0.01 to give someone a home. If its a 7 detached house in Mayfair then i think it should cost £2.17. I also think it should cost £3.48 to give everyone a yacht and a pony.

Unfortunately in the real world in which we live, there are costs and allocation problems associated with the provision of non-scare goods, and someone has to pay for these. Any realistic answer to the question has to be framed as "what is the minimum amount we could pay, in order to break even". That answer obviously needs to take into account the cost of providing the goods, which includes all material/labour costs (including the land), along with the opportunity and funding/borrowing costs.

There's something very revealing about the way that you brush off the interesting question asked by the OP and quickly retreat into your conceptually empty "I think it should cost what it costs" answer, (BTW that is the actual logical structure of your post - "it should cost what it costs"),

Anyway, back to demolishing your cant. You're ignoring the past before the past is even really the past. What actually happened in the economy to justify house prices adjusted for inflation almost tripling in ten years?

Did the population triple? Did we knock down two out of every three houses? Did we develop new productive capacity?

What happened - the only material change - was the expansion of the money supply. Who expanded the money supply? The private banks. How did they do this? They lent money to people so that they could buy houses and they lent money to people against the houses they already had (MEW - i.e. cash-out refinancing).

In the real world, the actual world we live in, the price of land is not fixed by some facile, begging the question notion of "breaking even" - it is determined by the existence or absence of someone who thinks that the price will go up and the existence, or absence, of a willing lender happy to finance their speculation. Welcome to the real world of highly financialised capitalism, where an almost insolvent government seeks to maintain ludicrous house prices in order to defend actually insolvent, corrupt TBTF banks and people like you can be found who are foolish enough to buy the nonsense or morally flexible enough to pimp it to the unwary.