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gruffydd

Prof Steve Keen On House Prices - It's Debt Driving Prices!

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In Ireland they built, and built, and built, and built... prices dropped when they stopped building, when the mortgage debt tap was turned off... so record levels of construction had little impact on house prices! It's logical really. Without mortgage debt how many people are able to buy houses?

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It really is commonsense isn't it - the house building numbers thing is merely trickery... unfortunately it confuses nearly every commentator I know... open your eyes people!

Edited by gruffydd

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Build homes but make it unprofitable for external money (debt/credit from abroad ) to partake for storage purposes in the home market......that should help. ;)

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not so good for the balance of payments though

getting nice chunks of money into the UK from overseas sources is no bad thing

Exporting our land and buildings is a short-term emergency measure.....not a healthy long-term for prosperity and stability measure.......when it is gone it is gone......drastic times= drastic measures.

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It's perfectly possible to have a housing supply problem and a credit-driven house price bubble at the same time, the two are not mutually exclusive. Housing construction has been very low in the UK over the last 40 years compared to similar European countries.

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Exporting our land and buildings is a short-term emergency measure.....not a healthy long-term for prosperity and stability measure.......when it is gone it is gone......drastic times= drastic measures.

leasehold - with the freehold being retained by a UK resident would do nicely here wouldn't it?

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not so good for the balance of payments though

getting nice chunks of money into the UK from overseas sources is no bad thing

Indeed. But what happens when it stops?

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In Ireland they built, and built, and built, and built... prices dropped when they stopped building, when the mortgage debt tap was turned off... so record levels of construction had little impact on house prices! It's logical really. Without mortgage debt how many people are able to buy houses?

Same can said for Spain ,over /under supply is irrelevant if there`s easy credit anyone in doubt of this only needs to look at what /why UK prices stopped falling ..HTB FLS until they appeared prices were on a downward trajectory all be slower than the others quoted as we did not have a massive over supply

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Indeed. But what happens when it stops?

that depends on what happened to the money in the meantime

if, as seems the way with the UK, it gets spunked, then it doesn't look so good

if, as seems the way with Norway for example, it gets saved, then it isn't so bad

like oil money

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How much does it cost to build a house? How much is it selling for?

Imagine a world where we paid what it cost to build a house. A family home for less than £150K or indeed much less in some circumstances.

What would that do to the economy ?

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Rich overseas people setting UK house prices does nothing for the UK economy or UK competitiveness. It means people's wages have to be higher (maybe supplemented by benefits) and then they and the companies that employ them can't compete with overseas and then they also have less to spend in the UK economy.

It's a proxy export of course but the disadvantages far outweigh the advantages and ultimately it only benefits a select few - mainly those in power or those who influence those in power.

Edited by billybong

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This would probably explain the housing boom since HTB? Sudden availability of credit with governbankment backing 20%, effectively creating sub prime borrowers who have very thin margins.

On a side note I know someone who has a HTB new build (2013) and he's had water coming from under the downstairs floor, possibly from waste water pipes or drainage. When asked a while ago if he could afford any repairs, he said 'no'. Living the debt slave dream :lol::lol::lol::lol:

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In Ireland they built, and built, and built, and built... prices dropped when they stopped building, when the mortgage debt tap was turned off... so record levels of construction had little impact on house prices! It's logical really. Without mortgage debt how many people are able to buy houses?

You have that ar5e about face. Risin prices leads to an increase in supply until there is an over supply. The credit crunch was simply the catalyst which caused a sudden demand shortfall. With the extreme over supply v demand prices crashed, exactly as one would expect. As building stops & inventory starts to be run down prices settle at a new (lower) equilibrium.

So record levels of construction (overbuilding) did indeed result in a price crash, just as increased US oil production has resulted in an oil price crash & excess supply.

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I am not sure inventory of housing runs down does it? The houses aren't consumed in the same way as, for instance, cornflakes

Available inventory maybe reduces if there is sufficient demand to buy the houses or rent them

That depends on sufficient buyers being around

But given that Ireland has had net emigration (see chart below from http://emn.ie/emn/statistics) for the past 6 years, are there enough potential buyers / renters to fill the available properties?

2015_GrossNetMigration1.png

Edited by pipllman

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It's perfectly possible to have a housing supply problem and a credit-driven house price bubble at the same time, the two are not mutually exclusive.

So we're agreed that the high prices are caused by debt expansion, and levels of housebuilding don't affect prices (in the short term)

Do you really think that housebuilders are holding back from building in these circumstances?

Housing construction has been very low in the UK over the last 40 years compared to similar European countries.

Like Ireland and Spain? It's Europe that needs to look at why they are building so much.

In particular combined with the the visible evidence of an oversupply of dwellings around the country.

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You have that ar5e about face. Risin prices leads to an increase in supply until there is an over supply. The credit crunch was simply the catalyst which caused a sudden demand shortfall. With the extreme over supply v demand prices crashed, exactly as one would expect. As building stops & inventory starts to be run down prices settle at a new (lower) equilibrium.

So record levels of construction (overbuilding) did indeed result in a price crash, just as increased US oil production has resulted in an oil price crash & excess supply.

There was a massive over supply when prices were still going to the moon, prices did not fall considerably until the credit crunch (i would concede they were settling/ beginning to decline just before the event)

The oversupply did amplify the crash along with most of the Eastern European workforce leaving the sinking ship and reducing demand even further

Edited by long time lurking

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It really is commonsense isn't it - the house building numbers thing is merely trickery... unfortunately it confuses nearly every commentator I know... open your eyes people!

It's more like every commentator(that gets airtime in the msm )

is speaking on message. The message is, deflect away from debt driving the house price bubble and

convince the masses that house supply is the problem.

Follow the money has never been more apt.

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You have that ar5e about face. Risin prices leads to an increase in supply until there is an over supply. The credit crunch was simply the catalyst which caused a sudden demand shortfall. With the extreme over supply v demand prices crashed, exactly as one would expect. As building stops & inventory starts to be run down prices settle at a new (lower) equilibrium.

So record levels of construction (overbuilding) did indeed result in a price crash, just as increased US oil production has resulted in an oil price crash & excess supply.

Except that US shale oil production would never have happened on the scale it did without the flood of cheap credit behind it.

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Imagine a world where we paid what it cost to build a house. A family home for less than £150K or indeed much less in some circumstances.

What would that do to the economy ?

How would it be if most homes were owned outright......they were that cheap that they could be paid for fairly easily on 30% gross income over 20 to 30 years ....and only one owned per person at any one time........owned outright items are not good for debt providers....debt is their bread and butter, they would rather you not own it only service it.........

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It's perfectly possible to have a housing supply problem and a credit-driven house price bubble at the same time, the two are not mutually exclusive. Housing construction has been very low in the UK over the last 40 years compared to similar European countries.

If there's enough cheap credit there will never be enough supply. Btl speculatorsspeculators will buy 3 houses if they have 2 , 4 houses if they have 3, 11 if they have 10, 100 if they have 70.

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You have that ar5e about face. Risin prices leads to an increase in supply until there is an over supply. The credit crunch was simply the catalyst which caused a sudden demand shortfall. With the extreme over supply v demand prices crashed, exactly as one would expect. As building stops & inventory starts to be run down prices settle at a new (lower) equilibrium.

So record levels of construction (overbuilding) did indeed result in a price crash, just as increased US oil production has resulted in an oil price crash & excess supply.

Credit kept the bubble blowing, the demand increasing and so on... if the mortgage tap had never been turned on... no housing affordability crisis - it runs in cycles for sure, yet mortgage debt drives the affordability crisis, and so on - the mortgage debt creates the supply issues and so on. Until the cycle turns... unlikely you can build yourself out of a disaster created by every-increasing mortgage debt riding on the back of rising prices (until the cycle turns, of course).

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