House Price Rises Caused By Lack Of Houses. Utter. Tosh.

[Guest]

That's not what houses are for. That's just something you may as well do with them while waiting for the price to rise.

Oh I know, I'm so old fashioned!

[BorrowToLeech]

But in a truly free market, dynamic and productive companies and individuals will take note of those rising prices and increase the supply.

They can't. The supply of land is fixed by geometry and, because not all locations are equal, the supply of useful land is fixed and scarce.

Fixed supply, fundamentally, is why the land market is not like the market for cheeseburgers and these sort of naive economic arguments fail.

I'd guess that actual houses are cheaper than ever, judging by the quality anyway, it's the land cost that has soared.

Land is a cartel, you want some you have to buy from a landowner. There's no other way of entering the market, so no undercutting on price.

This is caused by state intervention, since all landowners are mini states and states are just uber landlords.

Libertarians like to rail against 'the state' but all that does is hide their real politics - usually fascism - behind their definition of 'the state'.

[sleepwello'nights]

I would also say the price of land is manipulated by the house builders cartel. I've said before that around where I live single building plots are very scarce and when any become available they sell for very high prices. However if I wanted to build an estate, say 100+ houses, then I could have my pick from several locations. The unit price for a single house on one of these areas is a fraction of the price I would have to pay for one of the occasional single plots that become available.

The major house builders tie in land owners with options that exclude other buyers and then sell off the bits they don't want to some of the other major house builders. All very cosy.

[long time lurking]

I would also say the price of land is manipulated by the house builders cartel. I've said before that around where I live single building plots are very scarce and when any become available they sell for very high prices. However if I wanted to build an estate, say 100+ houses, then I could have my pick from several locations. The unit price for a single house on one of these areas is a fraction of the price I would have to pay for one of the occasional single plots that become available.

The major house builders tie in land owners with options that exclude other buyers and then sell off the bits they don't want to some of the other major house builders. All very cosy.

Its all true, but ultimately the buyer sets the price ,if there was no credit whatsoever houses would cost next to nothing

They can ask whatever price they like, but will only get what someone can afford to pay, so the more that someone can borrow at a repayment rate they can cover the higher the achievable price will be

Everything else are strategies designed to take full advantage of above ,they are the symptoms not the cause

[porca misèria]

Its all true, but ultimately the buyer sets the price ,if there was no credit whatsoever houses would cost next to nothing

Yep. Back to the situation before the building society movement started, where the rich could buy but the majority couldn't, and were subject to the luck of the draw in what (if anything) they ended up with.

As soon as buying on credit started, we were on a slippery slope. Not of course a uniform slope, and there was a huge glitch for war and its aftermath when a government grab and giveaway gave rise to a new oligarchy. But we're still on a long-term trend where prices and credit drive each other ever upwards.

[long time lurking]

Yep. Back to the situation before the building society movement started, where the rich could buy but the majority couldn't, and were subject to the luck of the draw in what (if anything) they ended up with.

As soon as buying on credit started, we were on a slippery slope. Not of course a uniform slope, and there was a huge glitch for war and its aftermath when a government grab and giveaway gave rise to a new oligarchy. But we're still on a long-term trend where prices and credit drive each other ever upwards.

Well yes that's the the other extreme ,but the building society model served us well ,it was when the commercial banks got involved the train lost it`s driver

[Bland Unsight]

Yep. Back to the situation before the building society movement started, where the rich could buy but the majority couldn't, and were subject to the luck of the draw in what (if anything) they ended up with.

As soon as buying on credit started, we were on a slippery slope. Not of course a uniform slope, and there was a huge glitch for war and its aftermath when a government grab and giveaway gave rise to a new oligarchy. But we're still on a long-term trend where prices and credit drive each other ever upwards.

The historical building society movement did actually lead to the building of houses.

I think also that to the notion of the slippery slope constrains one's thinking in a way that is not entirely helpful. An economy can suffer because it is under-banked and doesn't allow those who wish to save to lend to those who wish to borrow; credit growth is not in and of itself a bad thing.

I'm also deeply suspicious about the idea that you have a long-term trend in real prices, (and a trend in nominal is for the birds really). I suspect, Porca, that you know one end of a differential equation from the other. If you strip the spurious trend line off this, what do you see?

It is about 1996 when you get a sudden transformation of UK mortgage lending practices leading to 12% of the stock of lending becoming interest-only BTL and 20% becoming interest-only lending extended to owner-occupiers who are making no provision for repaying the loan. Mortgage becomes fraud is rife, particularly to owner-occupiers, and prices explode. I think it's too early to call this 'new normal' sustainable and begin taking for granted the premise that these prices will be a stable base from future prices rise and the supposed trend continues.

[bushblairandbrown]

Just seen some possible comedy on rightmove:

"HELP TO BUY PRICE SHOWN"

What on earth is the help to buy price? I assume 80% of the real price...

If some air-head falls for this, that'll shove prices up a healthy... 20%. Oh wait, it's actually worse: 25%.

[porca misèria]

Just seen some possible comedy on rightmove:

"HELP TO BUY PRICE SHOWN"

What on earth is the help to buy price? I assume 80% of the real price...

If some air-head falls for this, that'll shove prices up a healthy... 20%. Oh wait, it's actually worse: 25%.

What do the Advertising Standards Authority have to say?

They do have some track record of taking action against false and misleading claims.

[Growlers2]

I wasn't able to see another thread dedicated to housing supply (which is surprising! Perhaps I missed it).

Couple of recent articles on supply I'd not seen this discussed:

1) Press release from Home Builders Federations re. a supply agreement or "ambition":

http://www.hbf.co.uk/media-centre/news/view/housebuilding-industry-and-government-announce-shared-ambition-to-increase-housing-output/

The Statement demonstrates house builders’ commitment to work closely with Government to build on the big increases in supply of recent years to deliver the Government’s target of building 1 million homes in this parliament, building on significant steps forward that have seen build rates on large sites double to help deliver 30% growth in supply in just two years.

HBF and Government have been in discussions for a number of months aimed at ensuring output continues to rise. The Government continues to respond to barriers to housing growth, including through reforms in the Housing and Planning Bill 2015-16; whilst the industry has pledged to continue to grow its businesses, invest more in training and provide more transparency around build out rates. HBF will also develop a ‘land exchange’ aimed at allowing larger builders to sell sites or parts of sites to smaller builders.

The past two years have seen big increases in supply with official figures/HBF research showing;

• Build rates on large sites have doubled since 2010
• Housing supply in 2014/15 reached over 180,000 (15/16 expected to be higher)
• The country’s biggest builders have increased output by C60% since their ‘troughs’
• By 2019 big companies will be building double what they did in 2010

I had to good around to find out what the last bullet equated to and I think it basically means c. 200k pa which AIUI is not considered enough by experts (I've read figures that range between 250k - 300k).

2) Two articles on the topic of Council building:

http://www.ft.com/cms/s/0/1212978e-1766-11e6-9d98-00386a18e39d.html

http://www.conservativehome.com/thetorydiary/2016/05/the-social-justice-queens-speech-4-if-were-to-boost-home-ownership-councils-must-build-more-houses.html

Sounds like the Queen's speech next week will be interesting.

Perhaps council building taken together with the 200k homes promised by the big builders will get us to 250k - 300k mark. I appreciate that many on HPC do not consider lack of housing supply to be the cause of high prices but it seems that the wider public do. If the government were able to credibly commit to high levels of house building it would most likely influence expectations of future HPI and speculative behaviour today.

[pig]

I wasn't able to see another thread dedicated to housing supply (which is surprising! Perhaps I missed it).

Couple of recent articles on supply I'd not seen this discussed:

1) Press release from Home Builders Federations re. a supply agreement or "ambition":

http://www.hbf.co.uk/media-centre/news/view/housebuilding-industry-and-government-announce-shared-ambition-to-increase-housing-output/

I had to good around to find out what the last bullet equated to and I think it basically means c. 200k pa which AIUI is not considered enough by experts (I've read figures that range between 250k - 300k).

2) Two articles on the topic of Council building:

http://www.ft.com/cms/s/0/1212978e-1766-11e6-9d98-00386a18e39d.html

http://www.conservativehome.com/thetorydiary/2016/05/the-social-justice-queens-speech-4-if-were-to-boost-home-ownership-councils-must-build-more-houses.html

Sounds like the Queen's speech next week will be interesting.

Perhaps council building taken together with the 200k homes promised by the big builders will get us to 250k - 300k mark. I appreciate that many on HPC do not consider lack of housing supply to be the cause of high prices but it seems that the wider public do. If the government were able to credibly commit to high levels of house building it would most likely influence expectations of future HPI and speculative behaviour today.

The problem is getting the government to encourage building is a good thing , but at the same time you don't want them to think that that will solve the problem in itself.

Unfortunately that's where we are stuck right now - well actually worse because through applying the build at all costs logic they've actually evaded the key issues altogether and made things worse with H2B.

The housing bill seems to me to be something of a counter-productive disaster generally - I genuinely do not understand what they think they are doing. Can't help but be fascinated how the house-builders are selling themselves though.

[tinker]

Years of inflated land prices. Prices that will shoot up once all the new sites are allocated and start getting outline planning permission. If economy continues its limp growth, they won't get built. Will all the props be removed so that a market can operate - unlikely. Will the banks assess risk properly and return to sensible lending? Will population growth continue at its current rate.

It is credit that is the problem. Land appreciation and its worth on balance sheets. House-building rhetoric if usually just that. Building companies like banks too close to government, which itself should be closer to the people and screaming cheaper houses (and explaining why) as opposed to 'affordable' houses (schemes/deferred loans).

If all these houses were needed, they would be built. Since the 2000s it has always been about credit, leverage.and speculation. Homes needed not investment vehicles.

[pig]

Years of inflated land prices. Prices that will shoot up once all the new sites are allocated and start getting outline planning permission. If economy continues its limp growth, they won't get built. Will all the props be removed so that a market can operate - unlikely. Will the banks assess risk properly and return to sensible lending? Will population growth continue at its current rate.

It is credit that is the problem. Land appreciation and its worth on balance sheets. House-building rhetoric if usually just that. Building companies like banks too close to government, which itself should be closer to the people and screaming cheaper houses (and explaining why) as opposed to 'affordable' houses (schemes/deferred loans).

If all these houses were needed, they would be built. Since the 2000s it has always been about credit, leverage.and speculation. Homes needed not investment vehicles.

But supposing the banks have assessed the risk properly ? Supposing all this debt/credit is simply a disastrous but containable consequence of an accepted version of capitalism ? As the numbers all add up its OK: lives are ruined in a sort of tragedy of the commons but it's their free choice after all...

[frederico]

In my view building new houses adds a what seems like a small number but actually is a big percentage change to the number on the market.

As transactions are really low in number at the moment, the new build will tend to suck the money that can afford to buy out of the market.

This will hopefully accelerate a plunge of used house prices to the real level of general affordability.

Obviously this will be supplemented by bankrupt to lets.

[Guest]

I'm all for house building, but I think lack of house building has erroneously been cited by the government as the main problem (along with immigration and lack of land). These are just deflections away from the truth.

[Growlers2]

I'm all for house building, but I think lack of house building has erroneously been cited by the government as the main problem (along with immigration and lack of land). These are just deflections away from the truth.

I just think what harm can building a load of new houses do?! I totally accept that it wouldn't necessarily lower house prices but it probably would make the lives of the poor (and not so poor) better through lower rents.

[pig]

I just think what harm can building a load of new houses do?! I totally accept that it wouldn't necessarily lower house prices but it probably would make the lives of the poor (and not so poor) better through lower rents.

Well - I think that's been answered above.

In terms of getting the poor and not so poor through the next couple of decades I'd argue for social housing.

[billybong]

Even if building extra new homes doesn't influence house prices at least it should help to reduce overcrowding - theoretically.

Edited May 15, 2016 by billybong

[long time lurking]

Building extra house will have very little effect on prices if we still have loose credit and the likes of HTB

See Ireland /Spain and the like for proof of that

But what it will do is make the bust when/if it happens much worse and harder to recover from see Spain for that

There was stats posted on here somewhere by Neverwhere on the ROI ,IIRC they are still building 1.5 units per head of population growth yet price have stabilised and are even rising in parts, this is on top of the oversupply they already had

Edited May 15, 2016 by long time lurking

[frederico]

Well - I think that's been answered above.

In terms of getting the poor and not so poor through the next couple of decades I'd argue for social housing.

The need for social housing is just a sign of a malfunctioning market, social housing could be used for say the disabled or infirm who cannot work.

Otherwise housing at some reasonable level must be affordable to all in full-time work.

This has been one of the real issues for decades.

[Blod]

The need for social housing is just a sign of a malfunctioning market, social housing could be used for say the disabled or infirm who cannot work.

Otherwise housing at some reasonable level must be affordable to all in full-time work.

This has been one of the real issues for decades.

The Big Bang of the eighties didn't go far enough. Banks should have been freed to fail so that they had to guard their solvency. If that had happened they would never have financialized and we wouldn't have a disconnect between housing and earnings.

The car industry is now in the grip of the cycle of the same problem. Any where banks can get between vender and consumer they'll suck out value for their own profit.

[iamnumerate]

Building extra house will have very little effect on prices if we still have loose credit and the likes of HTB

See Ireland /Spain and the like for proof of that

But what it will do is make the bust when/if it happens much worse and harder to recover from see Spain for that

There was stats posted on here somewhere by Neverwhere on the ROI ,IIRC they are still building 1.5 units per head of population growth yet price have stabilised and are even rising in parts, this is on top of the oversupply they already had

I am sorry but that is is not true. I have relatives in Spain and despite Ninja mortgages coming back prices are very low now.

[Neverwhere]

Building extra house will have very little effect on prices if we still have loose credit and the likes of HTB

See Ireland /Spain and the like for proof of that

But what it will do is make the bust when/if it happens much worse and harder to recover from see Spain for that

There was stats posted on here somewhere by Neverwhere on the ROI ,IIRC they are still building 1.5 units per head of population growth yet price have stabilised and are even rising in parts, this is on top of the oversupply they already had

Here you go:

In the above post I probably should have compared the amount of newly completed residential units with the amount by which the respective populations had grown (I blame the lateness of the hour ) which would be as follows:

The Irish population grew by 4,499 people over 2014, and 11,016 new residential units were completed in Ireland in 2014.

The UK population grew by 202,739 people over 2014, and 144,990 new residential units were completed in the UK in 2014.

So in 2014 the UK, with full tax breaks for landlords, built 0.72 new residential units for every new person added to our population and Ireland, with reduced tax breaks for landlords, built 2.45 new residential units for every new person added to their population!

Source

It's totally bonkers.

[Riedquat]

Who are you saying is bonkers? 0.72 per head sounds like a reasonable number (only 1.4 per house) and really makes the "not building enough" argument sound pretty feeble. 2.45 in an already over-supplied market on the other hand...

Still find those increases downright depressingly large though.

[Neverwhere]

Who are you saying is bonkers? 0.72 per head sounds like a reasonable number (only 1.4 per house) and really makes the "not building enough" argument sound pretty feeble. 2.45 in an already over-supplied market on the other hand...

Still find those increases downright depressingly large though.

Sorry, I wasn't being clear, I meant the Irish figures are bonkers!

Fully agree that 0.72 per head sounds like a reasonable number.