Free Market For Housing, Telegraph Article

[madmax2]

http://www.telegraph.co.uk/finance/11518584/How-about-a-genuinely-radical-housing-policy-a-free-market.html

most suggestions in line with what I have been thinking....remove all props and let it resolve itself.

Also very interested in the comments, as again it seems HPC is not such a radical idea anymore

[TheCountOfNowhere]

http://www.telegraph.co.uk/finance/11518584/How-about-a-genuinely-radical-housing-policy-a-free-market.html

most suggestions in line with what I have been thinking....remove all props and let it resolve itself.

Also very interested in the comments, as again it seems HPC is not such a radical idea anymore

Or we all read the telegraph

[Guest_northshore_*]

And via the comments: http://blogs.independent.co.uk/2012/08/28/why-exactly-are-homes-so-expensive/

...Australian Economist, Steve Keen, who is responsible for the studies says in an article entitled ‘House Prices and the Credit Impulse’: “Population dynamics – even immigration dynamics – have nothing to do with house prices. What determines house prices is not the number of babies being born, or immigrants – illegal or otherwise – arriving, but the number of people who have taken out a mortgage, and the dollar value of these mortgages. For changes in house prices, what matters is the acceleration of mortgage debt...”

[wonderpup]

For changes in house prices, what matters is the acceleration of mortgage debt...”

So-to be consistent with free market principles in the housing market we would also need to abolish all capital reserve constraints on the banks and allow them to lend however much they like to whomever they like, as any attempt to limit mortgage credit via regulation is just another interference in the market.

The problem is that we know how that would end- the bankers would get rich, blow up the economy and walk away unscathed as the cost's were dumped onto the public via bailouts and 'austerity'.

So there's no way to have a truly free market in housing as long as the private banks are interposed between the buyers and the sellers because they have a huge incentive to inflate prices by lending as much money as possible to those competing for homes.

The need to impose some kind of cost on the bankers for their irresponsible lending practices is far more important than worrying about the trivial impacts of the various government schemes that are tiny amounts of money compared to the amount being lent out.

The issue is less moral hazard than actual hazard- we need individuals to see real consequence for them and their families if they fail to lend responsibly- and that means that their personal wealth and assets must be on the line if a bank fails- before any bailout is made those in positions of authority and control in the banks concerned should be wiped out, their assets seized to pay some of the cost.

The free market is about losing as well as winning- and as things stand now even if the institutions they work for fail the individuals involved rarely suffer the consequences of that failure- so for them there is no free market- just a guaranteed win.

[Guest_northshore_*]

The quote isn't from the OP article. But the championed rather than mythical free markets are also a specific set of government institutions and their mates, so I wouldn't overanalyse it.

[R K]

"Free market" in houses is meaningless when the land is owned by the Crown, the Church, the Lords and all their chums.

[Captain Tightwad]

Decent piece, but there's one huge prop/intervention he doesn't even mention: Housing Benefit.

I'd be happy (well, slightly less glum) if all the rest came to pass, though.

[moedo12]

Funny how they don't mention the funding for lending scheme but then it's the Telegraph.

[olde guto]

And via the comments: http://blogs.independent.co.uk/2012/08/28/why-exactly-are-homes-so-expensive/

Quite interesting that blog, not seen it before.

This bit of it hits the nail on the head:

Between 1995 and 2007 the UK population increased by 5%, the housing stock increased by 10% and house prices increased by 350%, meanwhile mortgage lending by banks increased by 630%. Which of these figures is more likely to have led to a 350% rise in house prices: a 5% rise in population growth which is matched by an increase in supply of housing; or an unprecedented increase in mortgage lending from the banks?

I still think lack of supply is part of the problem as I doubt all of those houses have been built where they are most needed and many where built in the right area got snapped-up by BTL LLs and so needs this to be dealt with. However, the really guilt party are the banks and now the banks + government through HTB.

[gf3]

This may deserve a thread if some one wants to start one.

http://www.moneysavingexpert.com/vote/07-04-2015/how-old-were-you-when-you-bought-your-first-home-or-have-you-never-bought-one?utm_source=MSE_Newsletter&utm_medium=poll&utm_term=07-Apr-15-v1&utm_campaign=vote&utm_content=3

[Guest_northshore_*]

Quite interesting that blog, not seen it before.

I still think lack of supply is part of the problem as I doubt all of those houses have been built where they are most needed and many where built in the right area got snapped-up by BTL LLs and so needs this to be dealt with. However, the really guilt party are the banks and now the banks + government through HTB.

Neither had I. Supply is a massive part of the problem. Just that there's no real market in land and housing so affordability sets price and everything else flows from that. If land and profit income from it were honestly taxed as monopoly rents relative to working hard for a living, or there was a significant social housing alternative to private housing then prices and to a lesser extent supply/demand would be completely different. But as you say where we are is due to deliberate government choices and policy (all governments for quite a while).

[FallingAwake]

...Australian Economist, Steve Keen, who is responsible for the studies says in an article entitled ‘House Prices and the Credit Impulse’: “Population dynamics – even immigration dynamics – have nothing to do with house prices. What determines house prices is not the number of babies being born, or immigrants – illegal or otherwise – arriving, but the number of people who have taken out a mortgage, and the dollar value of these mortgages. For changes in house prices, what matters is the acceleration of mortgage debt...”

Who take out mortgages? People. Stuff more people into a country, you increase the pool of potential mortgagees. Not that they can automatically get a mortgage, but since most immigrants are playing a fantastic and productive role in our economy (according to LibLabCon), they should be able to at some point.

Besides, people who take out a mortage include BTLers... who rent their properties out. An increasing population provides the fuel for BTLers.

Also, what about people or institutions who don't need mortgages? Are the Russian oligarchs taking out mortgages?

So while I agree with Keen in that the main driver of house prices is mortgages (i.e. leverage), an increasing population means more people competing for resources, more people who need places to rent, more incentive for BTLers, and ultimately more people who could potentially take out mortgages on UK housing stock.

Ergo... some effect on house prices

[porca misèria]

Decent piece, but there's one huge prop/intervention he doesn't even mention: Housing Benefit.

I'd be happy (well, slightly less glum) if all the rest came to pass, though.

Good summary.

One more missing ingredient: a level of tax to discourage hoarding. But that comes outside the scope of a free market, which would itself be a huge improvement on the status quo.

[porca misèria]

The Torygraph has history on slamming stupid government intervention.

For example, from November 2011:

You really could not make it up. Government proposals for taxpayers to underwrite looser mortgage lending for first time buyers may help buy-to-let landlords exit the housing market with handsome profits before house prices fall further. But they are unlikely to be of lasting benefit to anyone encouraged to take on excessive debt before interest rates rise from their current historic low and more homebuyers find themselves in negative equity.

[Guest_northshore_*]

Who take out mortgages? People. Stuff more people into a country, you increase the pool of potential mortgagees. Not that they can automatically get a mortgage, but since most immigrants are playing a fantastic and productive role in our economy (according to LibLabCon), they should be able to at some point.

Besides, people who take out a mortage include BTLers... who rent their properties out. An increasing population provides the fuel for BTLers.

Also, what about people or institutions who don't need mortgages? Are the Russian oligarchs taking out mortgages?

So while I agree with Keen in that the main driver of house prices is mortgages (i.e. leverage), an increasing population means more people competing for resources, more people who need places to rent, more incentive for BTLers, and ultimately more people who could potentially take out mortgages on UK housing stock.

Ergo... some effect on house prices

That doesn't counter the point that house prices are equal to the most that will be lent against them, subject to deposit leverage, and supplied at a rate equal to that of new sales.

There's the odd oligarch but of the rest most still had to first sell their former house to a borrower. When fewer people can afford to buy and transaction levels are down it's not hugely surprising that the relative proportion of cash buyers might be higher, but that doesn't necessarily infer any absolute change to the numbers of them.

I've been browsing this site for quite a while and have never read anything beyond medialand proving a mismatch between the flow of new housing and net new people. Correlation isn't causation, but if you know of any studies that do I'd like to read it. Seriously.

[billybong]

Who take out mortgages? People. Stuff more people into a country, you increase the pool of potential mortgagees. Not that they can automatically get a mortgage, but since most immigrants are playing a fantastic and productive role in our economy (according to LibLabCon), they should be able to at some point.

Besides, people who take out a mortage include BTLers... who rent their properties out. An increasing population provides the fuel for BTLers.

Also, what about people or institutions who don't need mortgages? Are the Russian oligarchs taking out mortgages?

So while I agree with Keen in that the main driver of house prices is mortgages (i.e. leverage), an increasing population means more people competing for resources, more people who need places to rent, more incentive for BTLers, and ultimately more people who could potentially take out mortgages on UK housing stock.

Ergo... some effect on house prices

Not only more people competing for mortgages (and with 600,000 new people each year - those that they've actually counted - entering the UK for many years or about 1700 each day along with the general population growth all needing housing virtually immediately on entry and many simultaneously even during the cold winter months - some into rentals but quite a few into buying with prices set at the margin) - but also lenders competing to provide the mortgages and competing to provide the biggest mortgage because most everyone seemed to know that the bigger the mortgage (on the flimsiest justification) the bigger the fees and the more expensive the home the more eventual profit.

At the same time you could virtually write your own amount of mortgage through stuff like liar loans and if the borrower needed more they could go next door to the competitor lender/broker. They only had to mist a mirror and sometimes not even that.

It was matterless what the mortgage size was to the lender because the risk was offloaded into the dodgy derivatives. Light touch regulation.

Credit was the main reason but the structure of the population growth interfacing with the dodgy lending system had an aggravating influence. Whether it'll be any different as time goes on only time can tell but they said all the problems had been sorted out after the 80s/90s economic collapse only for it all to come back worse than ever.

Edited April 9, 2015 by billybong

[goldbug9999]

While you have a supply shortfall, prices are set by the relative ability and willingness to pay of competing buyers. If you have a supply surplus, cost of production becomes the dominant price driver. Ergo credit is only a factor because of supply shortfall (although the actual degree of shortfall doesnt matter that much).

A thought experiment that will help to understand these dynamics:

Scenario 1: 10 millionaires who love baked beans simultaneously visit a shop which has the last 9 tins on earth.

Scenario 2: ditto with 10 millionaires and 11 tins.

(you need to assume for whatever reason that each buyer only desires one tin)

In scenario 1 the base price is set by the "spare" buyers willingness to bid against the others.

In scenario 2 the situation is reversed, the price is set by the single surplus tin.

Edited April 8, 2015 by goldbug9999

[billybong]

From the OP's telegraph link

================================================================
Quote

Even the Greeks have more space to live in than we do.

The average Irish home is 15pc bigger, a Dutch one 53pc, and a Danish one 80pc more spacious. Those are huge differences, given that many of those countries are poorer than we are, and just as densely populated.

================================================================

It's completely untrue to try to suggest that "many" of those four countries are poorer than the UK.

According to Wikipedia on a GDP per Capita basis of those countries only Greece is financially poorer than the UK - the rest are significantly better off.

So not only is the UK significantly poorer than three out of those four countries but the UK has significantly smaller homes than all of them.

If he's comparing the UK's GDP per Capita with say eu members from the eastern block/old soviet block etc then he might have a point.

Edited April 9, 2015 by billybong

[billybong]

The Labour Party appears blissfully unaware that its last spell in government saw a massive increase in the population combined with a decline in the number of new homes built (in 1997, there were 198,000 new builds but by 2009 that had dropped to 124,000).

So he buys the idea that Labour are/were unaware that there was a massive increase in population combined with a decline in the number of new homes being built when the figures are/were readily available each year from the Office of National Statistics (ONS).

"Blissfully unaware" even - pull the other one.

Edited April 9, 2015 by billybong

[billybong]

The Conservative have better intentions – but hardly better policies. The Help-To-Buy scheme was perhaps unfairly criticised – kick-starting the housing market is one of the few sure-fire ways of helping the UK economy. But it added yet another layer of distortion. So does the new Isa scheme.

yeah right whilst cutting new home building drastically and manipulating a mega bubble in London and trying to do the same elsewhere etc etc etc.

Ok the free market idea might be a good one but it's a bit late in the day to be pushing it just 4 weeks before the general election in tomorrow's fish & chip wrapping.

Who in the LibLabCon is going to have that one in their manifesto - UK people will be lucky if they publish how many new homes a year they might build never mind if they actually carry out any manifesto "promises" on house prices/new home building.

Edited April 9, 2015 by billybong

[workingatthepyramid]

"Free market" in houses is meaningless when the land is owned by the Crown, the Church, the Lords and all their chums.

This.

Nothing will fundamentally change in this country until all those institutions and individuals are consigned to history where they belong. I am not holding my breath.

[richc]

This.

Nothing will fundamentally change in this country until all those institutions and individuals are consigned to history where they belong. I am not holding my breath.

You mean houses are free in France? Who knew?

[pig]

http://www.telegraph.co.uk/finance/11518584/How-about-a-genuinely-radical-housing-policy-a-free-market.html

most suggestions in line with what I have been thinking....remove all props and let it resolve itself.

Also very interested in the comments, as again it seems HPC is not such a radical idea anymore

Fascinating article - intellectually abandoning hpc ship through solid right wing values while tossing out a raft for the Tory and Kipper readership.

Although personally, find it laughable to consider that the former have 'better intentions' or the latter are in any shape or form 'sensible' !

[pig]

Quite interesting that blog, not seen it before.

This bit of it hits the nail on the head:

Between 1995 and 2007 the UK population increased by 5%, the housing stock increased by 10% and house prices increased by 350%, meanwhile mortgage lending by banks increased by 630%. Which of these figures is more likely to have led to a 350% rise in house prices: a 5% rise in population growth which is matched by an increase in supply of housing; or an unprecedented increase in mortgage lending from the banks?

I still think lack of supply is part of the problem as I doubt all of those houses have been built where they are most needed and many where built in the right area got snapped-up by BTL LLs and so needs this to be dealt with. However, the really guilt party are the banks and now the banks + government through HTB.

Wow - can we pin that quote on the front of every page on this site until the election is over ?

[Guest_northshore_*]

While you have a supply shortfall, prices are set by the relative ability and willingness to pay of competing buyers. If you have a supply surplus, cost of production becomes the dominant price driver. Ergo credit is only a factor because of supply shortfall (although the actual degree of shortfall doesnt matter that much).

A thought experiment that will help to understand these dynamics:

Scenario 1: 10 millionaires who love baked beans simultaneously visit a shop which has the last 9 tins on earth.

Scenario 2: ditto with 10 millionaires and 11 tins.

(you need to assume for whatever reason that each buyer only desires one tin)

In scenario 1 the base price is set by the "spare" buyers willingness to bid against the others.

In scenario 2 the situation is reversed, the price is set by the single surplus tin.

Sort of, but there doesn't necessarily have to be a supply shortfall for affordability to determine price in this monopoly market.

Scenerio 3: 10 millionaires who love baked beans simultaneously visit a shop which has the last 10 tins on earth.

Assuming they just can't live wihout baked beans the seller can and will sell each tin at the highest price each buyer can afford to pay. It's also likely the seller could do the same with 11 tins if he's the only tin seller and in no hurray to sell them because the millionaires still love beans and it costs nothing for him to store the extra can and wait.