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R K

Why High House Prices Are Partly Down To Austerity - Wren-Lewis

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No truer word...

+1

I have no political affiliation. Thats the true word. From the horses mouth. Wont stop you lying though will it.

This was a thread about macro economics & the housing market of relevant to anyone interested in te topic.

You are a troll who adds nothing to the debate (such that there exists any debate anymore on this site, its mostly been reduced to trolls like you & an endless stream of adhoms).

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He's a troll. He has to be. Do what I did. Mute him.

If we cant post and discuss blog posts of Oxford Professors of economics on the macro economics influencing house prices without invoking a tirade of abuse & adhoms then one really has to wonder what on earth this site is all about any more.

Your attacks have become quite bizarre & increasingly objectionable.

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The reason for this that everyone focuses on, understandably, is stagnant housing supply. However, housing can also be seen as an asset. Just as low real interest rates boost the stock market because a given stream of expected future dividends looks more attractive, much the same is true of housing (where dividends become rents). Stock prices can rise because expected future profitability increases, but they can also rise because expected real interest rates fall. With housing increasingly used as an asset for the wealthy, or even as a way of saving for retirement, house prices will behave in a similar way. A shortage of housing supply relative to demand raises rents, but even if rents stayed the same falling expected real interest rates raise house prices because those rents become more valuable compared to the falling returns from alternative forms of wealth.

So the problem is speculative demand.

Kill speculative demand, by one means or another, kill the problem.

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So the problem is speculative demand.

Kill speculative demand, by one means or another, kill the problem.

Aren't these serious academics just trolling the internet with stuff like this?

If Wren-Lewis has anything genuinely interesting and novel to say he puts it in a book or an article. If he has some piece of whimsy that he might use to prod a Sixth Former being interviewed to read Economics (or perhaps with an equation thrown he could use it to put an undergraduate through their paces) he might think later about spinning it out into a blog post if he thought there was nothing to it really.

It's an interesting take on things, but surely you're supposed to argue back? Isn't it supposed to be a grain of sand introduced to an oyster? If houses become first and foremost assets targeted by investors and the best investment returns are rents then we are saying that capitalism can no longer deliver more for all so you'd better look to how you can best use any present advantage in order to own other people.

Nice subversive piece. I like it.

Edited by Idlewild

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Aren't these serious academics just trolling the internet with stuff like this?

If Wren-Lewis has anything genuinely interesting and novel to say he puts it in a book or an article. If he has some piece of whimsy that he might use to prod a Sixth Former being interviewed to read Economics (or perhaps with an equation thrown he could use it to put an undergraduate through their paces) he might think later about spinning it out into a blog post if he thought there was nothing to it really.

It's an interesting take on things, but surely you're supposed to argue back? Isn't it supposed to be a grain of sand introduced to an oyster? If houses become first and foremost assets targeted by investors and the best investment returns are rents then we are saying that capitalism can no longer deliver more for all so you'd better look to how you can best use any present advantage in order to own other people.

Nice subversive piece. I like it.

Serious academic? He's an economist!

If-you-watch-Godzilla.jpg

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simon wren-lewis ‏@sjwrenlewis

Why high house prices are partly down to austerity http://goo.gl/fb/nGj8eS

snip...

Emphasis mine. Agree with all of it.

Weird, seems counter-intuitive while at the same time 'obvious'.

On the ground it's the story you keep hearing from investors. My question is are the governments hands tied ? Is it 'austerity' regardless, just a question of how much government induced coupled with failing economic performance ?

Also isn't this 'austerity' drive in reality just theatre to cover a bit of costly state-cutting ? Hence the simultaneous tax cuts to keep the need for austerity going as well as a stimulus. Which in reality presumably get hoovered up by hpi...

The only way out of the 'crisis' I can see is through social housing, mainly as a short to medium term fix to prices and security of tenure, but could this have a positive macro-economic effect too ?

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WHAT AUSTERITY??? HAHAHAHAHAHA

1. 70% of public spending ring-fenced.

2. Total spending UP!

Largest twin deficits in developed world. Austerity? :lol:

'Austerity' is a media buzzword used to sell cuts in welfare and public services to the dumb, unquestioning electorate. The same principle as selling the ongoing erosion of civil liberties as being 'security'.

Meanwhile, loads of money being borrowed to spend on all manner of wasteful government contracts or supporting favoured industry sectors or starting wars. But then, the people in power get very nice kickbacks from that.

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The idea that house prices are tied down by the ability of first time buyers to borrow (and therefore to real wages or productivity, modified by changes in the risks lenders were willing to take) seems appropriate to a world where the importance of the very wealthy was declining, and most people could imagine owning their own home. We now seem to be moving to a more traditional world (remember Piketty) where wealth is more dominant, and with low interest rates that may also be a world where renting rather than home ownership becomes the norm for those who are not wealthy and whose parents are not wealthy.

This is the key point. This system is evident in low rate economies, the wealthly own all the assets because if you are close to the money you can get more for cheap. Switzerland is a land of renters and astromoical house prices. So now is the UK.

Yes, but there are some very strong laws in Switzerland to protect the security of renters ... and when you do the sums, assuming that you can come up with the ~20% deposit needed to secure a mortgage the actual amounts you pay if buying are very similar to the costs of renting. Expensive, yes, but Switzerland is a high wage/high cost of living country.

There are also financial restrictions regarding reselling your property and pocketing a quick profit, making 'flipping' houses pretty difficult unlike the UK where it's a quick way to make tax free gains and open to abuse with people designating their primary residence how they please.

On top of that, they have property taxes which make it very difficult to simply sit on top of a large amount of property wealth without an income (a major grumble of priced-out buyers in the UK who complain about older, retired people in large expensive houses).

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Going through the motions of buying a house recently I've worked out that under MMR as a FTB I can only pay up to around 38% of my monthly income towards a mortgage.

Under renting however I'm paying practically 50% of my monthly income on rent before any other bills. Other people probably pay even more.

In my opinion we could ban HTB, RTB, BTL and put renters and buyers under MMR. House prices down, rents down. :D:P

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He must seriously believe what he says (even if he's wrong or even if he's right) or he would lose all credibility even if on the internet.

From the blog link

Professor of Economic Policy at the Blavatnik School of Government, Oxford University, and a fellow of Merton College. This blog is written for both economists and non-economists.

Indeed "austerity" does lead to high house prices when it includes massive increases of debt, low interest rates and massive amounts of QE/money printing and house price props galore etc. It just depends on the definition of the word "austerity" and how it's constituted. In the old days some would call it spendthrift (and even refer to the paradox of spendthrift - it'll come to no good etc etc you're just funding the bankers and their cronies when it's gone its gone do you think you'll get another loan from the bank) but the money only being spent on certain people and being taken off other people. The policy really needs a different word or expression to fully describe the extravagance of the austerity.

One answer is to build more houses, but another is to run better macroeconomic policies. That house prices continue to rise during a period of fiscal austerity is not an anachronism. It is not a bug but a feature of an age of austerity.

Indeed more houses and run better macroeconomic policies but they've been banging on about that sort of stuff for years and decades. Still waiting waiting and in the meantime things just get worse and worse.

High house prices beget austerity and austerity begets high house prices.

Edited by billybong

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From the blog at the start of it


Diane Coyle, in reviewing Rowan Moore’s book Slow Burn City: London in the 21st Century, focuses on the idea that forever rising house prices could gradually kill off what is now a vibrant city

Seems a bit out of date. Hopefully there'll soon be an updated book about how forever rising house prices killed off a once vibrant city and turned it into a dump.

Edited by billybong

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Austerity in France. Prices and rents falling for last 5yrs or so.

Austerity in Ireland. Ditto.

Austerity in Spain. Ditto.

Austerity in Greece......you know how that looks.

Austerity in the UK. Wonderful for home owners and property speculators. None of that rubbish EU style austerity for us. Oh no!

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He must seriously believe what he says (even if he's wrong or even if he's right) or he would lose all credibility even if on the internet.

From the blog link

Indeed "austerity" does lead to high house prices when it includes massive increases of debt, low interest rates and massive amounts of QE/money printing and house price props galore etc. It just depends on the definition of the word "austerity" and how it's constituted. In the old days some would call it spendthrift (and even refer to the paradox of spendthrift - it'll come to no good etc etc you're just funding the bankers and their cronies when it's gone its gone do you think you'll get another loan from the bank) but the money only being spent on certain people and being taken off other people. The policy really needs a different word or expression to fully describe the extravagance of the austerity.

Indeed more houses and run better macroeconomic policies but they've been banging on about that sort of stuff for years and decades. Still waiting waiting and in the meantime things just get worse and worse.

High house prices beget austerity and austerity begets high house prices.

Part of the problem is, it was going that way before the credit crunch: talk of investors - ordinary people for that matter - bothering less with the 'real' economy and going for property speculation.

But at the end of the day if the government then tells us that bankers and house prices are sacrosanct, QE basically ends up in houses, and not only is everything else is liable for 'actual' capitalism, public spending is going to be slashed (with reduced benefit due to tax cuts) or wasted on reorganising schools and hospitals etc what do you expect ?

Austerity = everything is fecked and any 'wealth' or savings generated - public or private - is sucked straight into a protected and ever voracious bubble.

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Just sounds like a verbose version of 'my house is my pension' and here's a few hundred words on me convincing myself I'm right.

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Part of the problem is, it was going that way before the credit crunch: talk of investors - ordinary people for that matter - bothering less with the 'real' economy and going for property speculation.

But at the end of the day if the government then tells us that bankers and house prices are sacrosanct, QE basically ends up in houses, and not only is everything else is liable for 'actual' capitalism, public spending is going to be slashed (with reduced benefit due to tax cuts) or wasted on reorganising schools and hospitals etc what do you expect ?

Austerity = everything is fecked and any 'wealth' or savings generated - public or private - is sucked straight into a protected and ever voracious bubble.

We told ourselves that property prices were sacrosanct. The august bodies you mention called it wrong having failed to take full cognisance of our collective conviction. They don't watch HUTH. The aren't f**king idiots. They overestimated us.

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Part of the problem is, it was going that way before the credit crunch: talk of investors - ordinary people for that matter - bothering less with the 'real' economy and going for property speculation.

But at the end of the day if the government then tells us that bankers and house prices are sacrosanct, QE basically ends up in houses, and not only is everything else is liable for 'actual' capitalism, public spending is going to be slashed (with reduced benefit due to tax cuts) or wasted on reorganising schools and hospitals etc what do you expect ?

Austerity = everything is fecked and any 'wealth' or savings generated - public or private - is sucked straight into a protected and ever voracious bubble.

You and others may have chosen to interpret it that way.

Many on HPC, expect market to turn, and those who believed it, doubled-down, to be found out.

Hmm well setting aside the moralising, it's always best to understand any contract you enter into. Obviously.

Irrespective of the mountain of threads on BtL of late, however, I'd rather individuals be encouraged to let out property if they have no current use for it - so I guess I'm at odds with a lot of posters on here.

And provided - looking at this a bit more generally - it doesn't undermine security of tenure, quality and condition of homes and a cost that doesn't suck half the economy away. Which we're obviously spectacularly failing at as a nation.

Government has not told everyone they house prices are sacrosant. Not at all. False premise.

And your 'as a nation' rather than accepting the market is full of individual market participants.

The housing haves and have-even-mores, and the have-nots and have even less..

I say no to your build more social housing, and price fix things, as your preferred way of solving things. HPC instead, and find out the BTLers and other smug HPIers. Market. C.24, higher stamp duty, Basel3 and all the rest creating pressure on the market. Prices don't always go up. I'm pushing back against your Authority false premises (not true, but interpreted that way by many who've doubled down and been complacent), and 'as a nation' post suggesting collective responsibility.

You already know that without any correction and measures to turn market (UK and globally), specuvestors would be all over new homes built, to rent out to the young. Thankfully some of the measures are coming in, to shake up people who you claim were told by Gov house prices sacrosanct. They made their own choices as individuals, with regard market values, debt, and BTL.

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Back on topic & to simplify/paraphrase op:

Fiscal tightening/consolidation (aka austerity) leads to-

1. under investment in much needed supply of new housing (as well as other stuff)

2. downward pressure on the real interest rate which in turn leads to higher asset prices

These are macro-economic outcomes not political statements. Since fiscal tightening/consolidation is a political choice, it has macro-economic consequences.

Nothing at all to do with "individual choices" or anything else for that matter.

Edited by R K

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