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Annually How Much A Year Does The Financialization Of Housing Cost The Uk Public?

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Annually how much a year does the financialization of housing cost the UK public?

We all have heard how the cost of housing has increased way above inflation. It’s an accepted fact. The increase is so great that housing has to be excluded from CPI/RPI.

If this financialization had never occurred it’s accepted that housing would be far cheaper. So annually what is the premium that the banks suck out of the UK?

Anyone able to put a figure to that.

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they clearly dont make a profit, they just recycle their gains in more unpayable debt, and use the rest to pay out on old claims.

The underlying assets remain.

Its just the debt that gets bigger.

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Over the years the debt has increased over and above inflation which has allowed banks to take more and more from pay packets.

What I'd like to know is how much banking run HPI creams out of the economy each year.

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That's a very good question. There may be some smart enough heads here to work it out, who knows?

I would love to be able to talk to some HPI worshippers and point out to them that the cost of their little addiction each year is equivalent to the NHS budget or the defence budget or something like that. I think that would make it much more tangible for people to understand.

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Over 40's gain billions

Under 40's lose billions (non owners)

So from that you believe, overall banks haven't benefited from HPI.

I think that if I lent someone £10,000 I'd earn more interest than if it was £1000.

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I think housing is 50% overpriced (ie a one third correction in prices from current levels to hit some semblance of justifiable 'value' is needed, at least). £160k house should be more like £100k in essence.

Total mortgage book is about 10,000,000 accounts averaging £100k each, or £1 trillion pounds, very roughly speaking.

First rough estimate of financialisation costs would be one third of that lot, plus interest, plus tax paid to get the earnings to pay the mortgage. Using 8YI's lady rule we're back to £1 Trillion pounds, spread over the mortgage term of those that have the debt, say £250/month/household for 30 years. I accept there are more holes than a Swiss cheese to pick at here, but as a first order guestimate it seems like a starting point.

Private renters are shafted differently, maybe harder to calculate. We have £25Bn housing benefit bill, and this distorts rents for others who don't get it too. Reckon fair value for the place I rent wrt local wages might be £150/month less than the current market rate. Would be about one third of gross local wages for a decent three bed semi in an ok area. Add the tax paid in earning the dough and we're back to £250/month, roughly.

Social tenants likewise, shafted with RPI rent reviews etc.

I reckon the two thirds households who do not own outright are paying an average of ~£250/month over the odds, so circa £55Bn per annum to banks in interest payments, directly via mortgages, channeled via BTL or via housing associations (not all of which will make it to banks)

Feel free to tear this fag packet calculation apart...

edit made error, now amended.

Edited by Joan of The Tower

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That's a very good question. There may be some smart enough heads here to work it out, who knows?

I would love to be able to talk to some HPI worshippers and point out to them that the cost of their little addiction each year is equivalent to the NHS budget or the defence budget or something like that. I think that would make it much more tangible for people to understand.

That's the point. Too often any discussion on HPI is neatly sidetracked by either arguments about supply and demand or one of the many dead ends.

I'd like to be able to say "HPI allows the banks to take £xx billion every year from your pocket"

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That's the point. Too often any discussion on HPI is neatly sidetracked by either arguments about supply and demand or one of the many dead ends.

I'd like to be able to say "HPI allows the banks to take £xx billion every year from your pocket"

which they invest in more financial products.

There is no limit.

If they were actually producing, then there would never be a crash in the sector, no need for bail outs, no need for secret funding from the central bank.

as we have had all of these, you can see clearly they make nothing, and cream the tokens they create as a system while actual wealth in the Country buys more and more tokens

One day, the tokens will be worthless, the wealth will remain.

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How about making the calculation this way:

How much does it cost to build a new house? Let's say £50k.

Total value of UK housing places the average property at £200k.

(£200k - 50k) x number of houses in UK = extra cost of housing stock because of the various market distortions.

If we had to hire or rent this out, that's the cost of a £150k mortgage for every home in the UK (about 30 million?).

Or am I way off?

Getting a figure, such as 'more than the NHS', would be excellent to have...

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Does it actually cost anything net.....one man's ball crunching first time buy or second move up the ladder with a nightmare mortgage is another man's capital gain.

Yes it does.

All the additional debt attracts interest (on notional money that banks conjur up out of nothing), plus fees, plus protection plans, plus insruances on elevated values which they can also seel / attract commission on etc etc etc.

Not just the household sector either. Same applies to business land, property and premises.

The more they inflate the debt pile the more they have to feed off and the more they are likely to get their hooks into the penalty payment game - overdrafts, other late payment fees, emergency funding, secondary loans.

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Of course, borrowing money means it costs you money.

and who lends you the money?...the ones with access to credit of course, at lower rates...the banks and mega corps, pension funds etc etc.

The wealth required to pay off the debt trickles up.

Hence, the rich get richer, and the poor get poorer.

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What a great question in the OP. I had never thought about it as explicitly before.

Taking a similar approach to Joan of the Tower, there are about 26,000,000 households in the UK. The average home price is around £180,000. Absent financialisation / manipulation, the average house price would be around £120,000.

The value of the total housing stock exceeds price by around £1.56 trillion. Amortising that over 30 years at a modest 6% means a misallocation of after tax income and savings of £9.33 billion a month or £112 billion a year unless things change. This is around 6.5% of current GDP which is about the same as we spend on the NHS.

I am sure that others will have differences of opinion about the right discount rate and the value of homes versus prices but I think that my rough guess is the right order of magnitude.

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What a great question in the OP. I had never thought about it as explicitly before.

Taking a similar approach to Joan of the Tower, there are about 26,000,000 households in the UK. The average home price is around £180,000. Absent financialisation / manipulation, the average house price would be around £120,000.

The value of the total housing stock exceeds price by around £1.56 trillion. Amortising that over 30 years at a modest 6% means a misallocation of after tax income and savings of £9.33 billion a month or £112 billion a year unless things change. This is around 6.5% of current GDP which is about the same as we spend on the NHS.

I am sure that others will have differences of opinion about the right discount rate and the value of homes versus prices but I think that my rough guess is the right order of magnitude.

just wondering how you reckon the average house price would be 120K without mortgages.

With the average salary around £26K, rent would take up some of the slack, so lets say in 10 years, the average buyer could save say 50K.

That would be your average house price...then again, wages would fall too.

In other words, financialisation provides the inflation people seem to desire, without it, your £ would buy today what it would buy in 50 years time.

moving back though, is an impossibility for any Government. thus, it is onwards and upwards until destruction.

That is the true cost of Financialisation. collapse.

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just wondering how you reckon the average house price would be 120K without mortgages.

With the average salary around £26K, rent would take up some of the slack, so lets say in 10 years, the average buyer could save say 50K.

That would be your average house price...then again, wages would fall too.

In other words, financialisation provides the inflation people seem to desire, without it, your £ would buy today what it would buy in 50 years time.

moving back though, is an impossibility for any Government. thus, it is onwards and upwards until destruction.

That is the true cost of Financialisation. collapse.

I admit to a logical error, I thought of finacialisation as excess financialisation.

I picked the £120k as where prices might be if we went back to the building society type of mortgage regime which I see as reasonable and stripping out securitisation, lax standards etc.

I agree completely that if people had to pay for their homes from savings, £120k is way too high and my cost estimates should be at least doubled.

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What interests me is how much extra the banking sector are sucking out of the economy.

I have to agree that the £120k figure for the average home is way off.

If a house was purchased for £26k in 1970 that would now be the equivalent of £373k yet that house was actually sold for £985k at the end of last year.

So the interest on the difference of £612k is the premium that we pay the banks.

This is the hidden destruction of fractional reserve banking. As it inflates housing costs it also sucks away liquidity.

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These thus far are just first round effects.

Doctor needs £250K salary to buy doctor's wage equivalent house. We have to pay for those doctors out of tax.

We have a £20bn housing benefit budget, why?

HS2 costs £10bn - why?

Everybody's required salary to lvive the same lifestyle / pay for same investment is increased thanks to banker's ability to play parasite off of debt production and the benefits (for them) that come with it.

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What interests me is how much extra the banking sector are sucking out of the economy.

I have to agree that the £120k figure for the average home is way off.

If a house was purchased for £26k in 1970 that would now be the equivalent of £373k yet that house was actually sold for £985k at the end of last year.

So the interest on the difference of £612k is the premium that we pay the banks.

This is the hidden destruction of fractional reserve banking. As it inflates housing costs it also sucks away liquidity.

If it is possible to make a reasonable calculation for your original question based on an assumption that the average price should be x, then it should also be possible to come up with a sliding scale. Which for me would be even more interesting.

Eg, if you think that houses are 20% overvalued, then the banking sector is sucking up tax payers cash to the equivalent of the education budget each and every year we sustain it. But if like me you think they are 35% overvalued then the banking sector are sucking up tax payers cash to the equivalent of the GDP of Belgium each and every year.

That would be a fantastic approach to debating with people instead of the usual methods, which let's be honest, are difficult to get through to the average HPI lover.

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Over 40's gain billions

Under 40's lose billions (non owners)

Yeah, but they don't really, do they...as they have to buy somewhere else to live if they sell the current place.

People with more than one home gain, and banksters gain by charging interest on things which they have no rightful interest being involved in.

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According to the HPC table

http://

www.housepricecrash.co.uk/indices-nationwide-national-inflation.php

1975 house price = about £10,400. After inflation that should be about £86,000

2014 house price = about £186,500

So since 1975 extra inflation for the average house of about £100,500.

26 million houses over-inflated by say £100,000 = about £2.6 trillion over-inflation - plus interest.

That is about £40,000 for every man woman and child in the UK - plus interest.

Edited by billybong

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