Jump to content
House Price Crash Forum
The Eagle

Paul Cheshire (Emeritus Professor At The Lse), A True Hpc Hero

Recommended Posts

I found the following two articles by Paul Cheshire on City A.M. and thought you might like them too.

In the first one he argues why the Greenbelt only serves the lucky few who live in it (mostly the wealthy few) while it pens in the common people and has no environmental benefit:

http://www.cityam.com/article/1384144642/greenbelt-sacred-cow-it-pens-poor-no-environmental-gain

In the second article he explains why Britain's housing crisis is turning into a catastrophe and how

nothing short of radical reform will improve housing affordability:

http://www.cityam.com/article/1401818202/why-britains-housing-crisis-risks-turning-catastrophe

Share this post


Link to post
Share on other sites

There's the same old assumption that the demand is coming from people wanting a home and therefore the solution is to build more homes (here a slightly more astute twist, build more homes people want to and can afford to live in).

If that were true, then yes this strategy would work, eventually, because of slack in the supply side and inelesticity in the demand side (restricted by new household formation).

If the demand is investor driven by money chasing yeild, as I am convinced, then the demand is way more elastic than the supply side can ever be, any slack will be immediately taken up and the net effect on prices will be zilch.

Share this post


Link to post
Share on other sites

It has little to do w/ building or not. It is almost entirely down to ease of lending.

Yet HPCers continue to buy the same claptrap the liblabcon want people to believe. Go figure.

Soaring building did not stop rising prices in Canada China Spain Ireland. The credit crunch did. As it did here till HTB.

Share this post


Link to post
Share on other sites

+1 over 25 years IO part bought with a friend and 20% deferred interest from the taxpayer.

Share this post


Link to post
Share on other sites

The two responses above both make essentially the same argument, if we look from an economic theory perspective.

All, including the professor agree that prices are because of increased demand. Where there is disagreement is on the reason for that demand.

The professor thinks there is genuine demand, whereas the responses point to more speculative reasons.

Either way, increased demand can be met by increased increased supply. If like Ireland or Spain people realise that they have built more houses than they need, prices will fall very sharply.

I think that HPI has been a result of a number of reasons and singling out a single core reason is difficult and all the reasons are highly interrelated.

My guess is:

Low interest rate environment: 40%

Increased population: 40%

BTL culture and other speculation: 20%

Even the third reason is really only a reaction to the first two.

Share this post


Link to post
Share on other sites

You are both partly right;

The demand outstrips supply so the houses price will be set by how much money the people are able to afford (or borrow). So building a small number of houses will only have a minor impact on price. However if the supply outstripped supply then the prices would be effected hugely.

For example, if you needed 300,000 houses within 1hours commute of London and you only built 180,000 houses the house price for a basic home would be approximate what the the bottom 120,000 cannot afford. Nicer houses will obviously sell for more due to competition with the people who can afford a house.

Due to this under supply; the current affordable houses schemes are worse than useless. They simply shuffle around the queue of people wanting a home. They end up putting up the cost of building and reduce the number of properties built. However due you know politicians love then as they get a photo opportunity with one a few people benefiting; a claim they have made a differenceand never the flake for the damage done by undue supplying planning permission.

Unless the government meant is willing to build at a higher rate than required or build infrastructure to move houses within the commuting zones ( for example cross rail, hs2) the problem will not be resolved.

The impact of building on a small scale is almost negible on the cost; That does not mean that the each person gaining improved living standards from the new home will not be glad that the house was built.

Share this post


Link to post
Share on other sites

of course there is genuine demand

The issue is what is paying for the demand.

we all want a place to live

we all want it to be nice. we want it to be comfortable and hold all our things and allow us to do what we want, at the time we want it and how we want to do it.

however, the place to live market has been 100% financialised by the banks...therefore, for 99% of people looking to achieve some of the above, they have no choice but to bring in the middle leach of the banker. They cant save because a leveraged deposit simply outruns the saving, and high rents means the savings are used to provide the housing the actually need.

Share this post


Link to post
Share on other sites

There's the same old assumption that the demand is coming from people wanting a home and therefore the solution is to build more homes (here a slightly more astute twist, build more homes people want to and can afford to live in).

If that were true, then yes this strategy would work, eventually, because of slack in the supply side and inelesticity in the demand side (restricted by new household formation).

If the demand is investor driven by money chasing yeild, as I am convinced, then the demand is way more elastic than the supply side can ever be, any slack will be immediately taken up and the net effect on prices will be zilch.

exactly. These people pushing a supply problem have a monetarist agenda to recapitalize their bust financial institutions. They will never consider that giving away free money will entice people to buy one, two, three, or 20 houses each to rent out, and mostly in the same areas as the recapitalizing bust financial institutions. Edited by evetsm

Share this post


Link to post
Share on other sites

of course there is genuine demand

The issue is what is paying for the demand.

Building homes is relatively cheap;

The difficult things are:

Getting permission to build

Building infrastructure:rail and road.

Share this post


Link to post
Share on other sites

of course there is genuine demand

The issue is what is paying for the demand.

we all want a place to live

we all want it to be nice. we want it to be comfortable and hold all our things and allow us to do what we want, at the time we want it and how we want to do it.

however, the place to live market has been 100% financialised by the banks...therefore, for 99% of people looking to achieve some of the above, they have no choice but to bring in the middle leach of the banker. They cant save because a leveraged deposit simply outruns the saving, and high rents means the savings are used to provide the housing the actually need.

+1

Cash buyer are responding to this and depositing money in the "place to live" asset class as it appears that the banks and government are underwritting it.

Share this post


Link to post
Share on other sites

There's the same old assumption that the demand is coming from people wanting a home and therefore the solution is to build more homes (here a slightly more astute twist, build more homes people want to and can afford to live in).

If that were true, then yes this strategy would work, eventually, because of slack in the supply side and inelesticity in the demand side (restricted by new household formation).

If the demand is investor driven by money chasing yeild, as I am convinced, then the demand is way more elastic than the supply side can ever be, any slack will be immediately taken up and the net effect on prices will be zilch.

So that's not a building supply / demand issue.

It's a distributional / tenure issue.

Both need radical change.

You only have to look back at the charts of the reduction in local authority housing v failure of private sector housing to see this.

For those advocating a collapse in credit to cure the problem KB, one wonders why you don't simply look at what happened to private sector supply from 2009. It collapsed and hasn't yet recovered. So that completely destroys your argument that restricting credit supply helps to increase supply of housing. Yet 250k new households form each year irrespective. Sudden stop in credit markets obviously causes a temporary reduction in demand and hence prices, but for that to continue one would have to advocate an ongoing collapse in demand in the economy on that scale, which is an insane argument to be making. Not least in your profession!

Share this post


Link to post
Share on other sites

The two responses above both make essentially the same argument, if we look from an economic theory perspective.

All, including the professor agree that prices are because of increased demand. Where there is disagreement is on the reason for that demand.

The professor thinks there is genuine demand, whereas the responses point to more speculative reasons.

Either way, increased demand can be met by increased increased supply. If like Ireland or Spain people realise that they have built more houses than they need, prices will fall very sharply.

I think that HPI has been a result of a number of reasons and singling out a single core reason is difficult and all the reasons are highly interrelated.

My guess is:

Low interest rate environment: 40%

Increased population: 40%

BTL culture and other speculation: 20%

Even the third reason is really only a reaction to the first two.

Yes you are right, of course there is genuine demand. Of your 3 causes of demand, only the middle is genuine.

And of course supply needs to increase to meet demand, but *only* genuine demand. Anything more constitutes a misallocation of capital.

The rest of the demand has to be dealt with in other ways, since the mechanism of free market captialism has been broken by government policies regarding acess to credit and land, it needs to be fixed by government policies regarding access to credit and land.

I couldn't express the entire problem with all its complexities, counter arguments, regional variations and so on in a quick forum post, I have to simplify it.

But hopefully between us all we can collaberatively form a cohesive picture of the both the problem and the solution.

Share this post


Link to post
Share on other sites

Speaking from personal experience, I know plenty of people who are underhoused in London. I know multiple families who are raising small children in converted flats which are essentially one floor of a small terraced house. When those terraces were built they were designed for a family to occupy both floors. In theory these families are not poor, they are professional workers with gross household incomes in the £80-100k pa range.

Some of you may follow Neal Hudson on Twitter. He frequently posts maps showing the number of flat conversions in London/SE, e.g.

Bk7vwI4CcAAtTO7.jpg

The rich in west and southwest London and Surrey can afford to merge flats into single dwellings, while growing numbers of the 99% are being packed ever more densely into the same amount of living space.

It's all very well to say "oh but there's no need to build, we have loads of empty terraces up in the pit villages and former industrial cities" or "there's no need to build, the problem is single pensioners occupying 5 bed detached houses in Surrey by themselves" but neither of those observations will help somebody find a decent place to live within commuting distance of an employment opportunity. We don't know how to move jobs to the North and getting pensioners out of their family houses would probably require harsh and coercive measures.

We need more built residential space in London/SE.

Edited by Dorkins

Share this post


Link to post
Share on other sites

We keep hearing the mantra build more.

On the Isle of Portland a developer bought the old naval flats some 8 years ago. here is a picture http://en.wikipedia.org/wiki/Isle_of_Portland#mediaviewer/File:Uk_dor_portharbour.JPG

Well, there are not many locals who can afford to pay 185k for a studio flat. As far as I can see work has ceased, with what seems less than half of the development completed.

About five years ago there was media coverage saying that some suppliers had not been paid, and as far as I know there has been no progress since.

Now there is not a great deal of well paid employment around Portland, opportunity to create some good social housing was totally over looked in favour of maximizing a profit, and it seems to have gone pear shaped.

So the answer to build more is balderdash, if people can't afford it.

Share this post


Link to post
Share on other sites

Allow only very low density building of social housing with the green belt. Legislate that this state owned housing can never be privately owned and only rented at rate that those eligible can afford.

Share this post


Link to post
Share on other sites

We keep hearing the mantra build more.

On the Isle of Portland a developer bought the old naval flats some 8 years ago. here is a picture http://en.wikipedia.org/wiki/Isle_of_Portland#mediaviewer/File:Uk_dor_portharbour.JPG

Well, there are not many locals who can afford to pay 185k for a studio flat. As far as I can see work has ceased, with what seems less than half of the development completed.

About five years ago there was media coverage saying that some suppliers had not been paid, and as far as I know there has been no progress since.

Now there is not a great deal of well paid employment around Portland, opportunity to create some good social housing was totally over looked in favour of maximizing a profit, and it seems to have gone pear shaped.

So the answer to build more is balderdash, if people can't afford it.

Of course some can afford it or it would not be built.

Unfortunately houses will always go to those with the most resources (from the people who want them). This means that the people with the least money are the people who loss out by the lack of construction. There are two ways to solve the problem.

1. Increase supply (build more)

2. Reduce demand

- free up under used homes; will be politically untenable you will have to force people in private accommodation under occupying builds to either take tenants or move; no one would seriously even consider this(I would not support a gouv

Share this post


Link to post
Share on other sites

Of course some can afford it or it would not be built.

Unfortunately houses will always go to those with the most resources (from the people who want them). This means that the people with the least money are the people who loss out by the lack of construction. There are two ways to solve the problem.

1. Increase supply (build more)

2. Reduce demand

- free up under used homes; will be politically untenable you will have to force people in private accommodation under occupying builds to either take tenants or move; no one would seriously even consider this(I would not support a gouvernment willing to do this)

- immergation has an impact but it's overstated so any blocking of this will not resolve the problem.

Share this post


Link to post
Share on other sites

Speaking from personal experience, I know plenty of people who are underhoused in London. I know multiple families who are raising small children in converted flats which are essentially one floor of a small terraced house. When those terraces were built they were designed for a family to occupy both floors. In theory these families are not poor, they are professional workers with gross household incomes in the £80-100k pa range.

Some of you may follow Neal Hudson on Twitter. He frequently posts maps showing the number of flat conversions in London/SE, e.g.

Bk7vwI4CcAAtTO7.jpg

The rich in west and southwest London and Surrey can afford to merge flats into single dwellings, while growing numbers of the 99% are being packed ever more densely into the same amount of living space.

It's all very well to say "oh but there's no need to build, we have loads of empty terraces up in the pit villages and former industrial cities" or "there's no need to build, the problem is single pensioners occupying 5 bed detached houses in Surrey by themselves" but neither of those observations will help somebody in their 20s or 30s find a decent place to live within commuting distance of an employment opportunity. We don't know how to move jobs to the North and getting pensioners out of their family houses would probably require harsh and coercive measures.

We need more built residential space in London/SE.

I can't comment on your personal experience except to accept and note it.

I think the map though can be explained in terms other than demonstrating a lack of living accommodation.

Flats (and maisonettes) for example, in London especially, have been outperforming other property types significantly for a number of years going by mean prices in the LR paid prices data. So it stands to reason that more are being sold.

From memory, in London, everything other than detatched houses are cheaper than flats! I haven't figured out why yet, it's probably something to do with distribution.

Share this post


Link to post
Share on other sites

For example, if you needed 300,000 houses within 1hours commute of London and you only built 180,000 houses the house price for a basic home would be approximate what the the bottom 120,000 cannot afford.

A good point. Obvious, now you've said it, thanks.

Share this post


Link to post
Share on other sites

You are both partly right;

The demand outstrips supply so the houses price will be set by how much money the people are able to afford (or borrow). So building a small number of houses will only have a minor impact on price. However if the supply outstripped supply then the prices would be effected hugely.

Imagine that you have 10 millionaire shoppers who all want one tin of beans. If there are 11 tins available in 11 different shops the price ceiling is held steady by each shop knowing that they might be the one left with the unsold tin. If there are 9 tins of beans then the price is set by whatever the richest 9 millionaires are willing/able to pay in order to ensure they are not the one without a tin of beans. Hence ability/willingness to pay dominates price discovery in an under supplied market even if the under supply is very small, likewise cost of supply dominates price setting in over supply situations. Regarding speculation, there is generally no opportunity for peculating in an over supplied market unless some speculator is prepared to engineer an under supply situation by destroying/witholding the excess supply.

For housing it means that prices are dominated by ability to pay until such time as we have a supply surplus. In the even of excess supply a speculative premium could only be maintained by some investor being willing to bear the cost of sitting on empty houses to an extent with recreates a supply shortage (which is arguably what the banks are doing in spain).

Share this post


Link to post
Share on other sites

Flats (and maisonettes) for example, in London especially, have been outperforming other property types significantly for a number of years going by mean prices in the LR paid prices data. So it stands to reason that more are being sold.

That map is not the number being sold, it's the number in existence. Ordinary family houses like 2-up-2-down terraces are being split into flats. Where 20 years ago you might have had 2 adults and 1 child occupying a whole 2-up-2-down to themselves, you now have 4 adults and 2 children in the same living space (with a bit lost to extra access space so both flats can have a front door inside the building). I now live in a purpose-built flat, but I have lived in this type of conversion within the last couple of years. This is happening across London but it is not being widely reported by the media. It's invisible densification. Maybe it has to be seen first hand to be believed.

Another crazy thing about it is that these conversions show up in government statistics as increases in the number of dwellings, even though the method of conversion actually produces a loss of inhabitable space. Heaven forbid we should ever start measuring the price and supply of housing in £ per sq m or sq m per capita, that might start to show how broken the housing market in London/SE really is.

Edited by Dorkins

Share this post


Link to post
Share on other sites

No I understand it's flats in existence and not sold. My point was that higher prices for flats is evidence of increased demand for flats, and increased supply of flats is evidence of the supply changing to meet that demand at higher prices, rather than supplying the less lucrative semis and terraces.

Share this post


Link to post
Share on other sites

We keep hearing the mantra build more.

On the Isle of Portland a developer bought the old naval flats some 8 years ago. here is a picture http://en.wikipedia.org/wiki/Isle_of_Portland#mediaviewer/File:Uk_dor_portharbour.JPG

Well, there are not many locals who can afford to pay 185k for a studio flat. As far as I can see work has ceased, with what seems less than half of the development completed.

About five years ago there was media coverage saying that some suppliers had not been paid, and as far as I know there has been no progress since.

Now there is not a great deal of well paid employment around Portland, opportunity to create some good social housing was totally over looked in favour of maximizing a profit, and it seems to have gone pear shaped.

So the answer to build more is balderdash, if people can't afford it.

Whether or not people have enough money does not change an imbalance of housing requirements. If a developer overpays for a site and then finds he cannot turn a profit, it doesn't mean that building is wrong in principle. It just means he overpaid.

In the example you gave, social housing would have resolved the market failure. It is often pointed out how few council houses have been built, but housing associations are quite active still and are building and buying.

Share this post


Link to post
Share on other sites

No I understand it's flats in existence and not sold. My point was that higher prices for flats is evidence of increased demand for flats, and increased supply of flats is evidence of the supply changing to meet that demand at higher prices, rather than supplying the less lucrative semis and terraces.

Obviously houses are being converted to flats because it's more profitable to do that than to sell or rent them as whole houses. Are you saying that this is evidence that people have suddenly decided they prefer living in smaller properties? Kirsty's argument is that under 40s are renting for longer because they just love renting so much. Do people eat less during famines because they just decide they don't like food that much?

The demand for housing in London/SE has risen hugely over the last 20 years, both in terms of the number of people chasing housing there and the amount of money people are willing and able to pay for housing. The supply has changed very little. Reducing the supply of credit might change the amount of money people are willing and able to pay for housing, but it won't necessarily change the number of people chasing housing. You could end up with house prices falling but families still being wedged into tiny flats because there simply isn't anything else available.

Edited by Dorkins

Share this post


Link to post
Share on other sites

Obviously houses are being converted to flats because it's more profitable to do that than to sell or rent them as whole houses. Are you saying that this is evidence that people have suddenly decided they prefer living in smaller properties? Kirsty's argument is that under 40s are renting for longer because they just love renting so much. Do people eat less during famines because they just decide they don't like food that much?

The demand for housing in London/SE has risen hugely over the last 20 years, both in terms of the number of people chasing housing there and the amount of money people are willing and able to pay for housing. The supply has changed very little. Reducing the supply of credit might change the amount of money people are willing and able to pay for housing, but it won't necessarily change the number of people chasing housing. You could end up with house prices falling but families still being wedged into tiny flats because there simply isn't anything else available.

Is it obvious though? Or is it a truism? There's the costs of conversion, seperate costs for each sale, the marketing. I don't know, I've never even sold a property.

I'm not saying it's evidence that people suddenly prefer to live in smaller properties. I did say above that I don't understand why flats are more expensive than terraced or semi's in London. It's beyond me, except to hazard a guess that it's something to do with distribution.

It wouldn't take much to break it down by borough on a chart and maybe you could shed some light as I don't know London.

Perhaps there is some perverted preference for smaller dwellings. I did spit my tea all over the lounge floor though when I heard Kirsty make that ridiculous comment!

But what I'm really saying is this - my data shows that HPI is stronger in flats in London for whatever reason, and maybe that's why they springing up all over the place. It's a reasonable train of thought isn't it?

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   212 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.