The argument against 'Lack of Supply' being the main reason for HPI

[winkie]

The supply is the land supply with permissions......why would those who hold land build on it, to sell it, then it is gone......when they know those who want to buy it cant buy it at the price they are prepared to sell without help....so hold it and store it, let it create its own value whilst sitting on it doing nothing.....

[Venger]

 

28 minutes ago, Pieman Pieface said:

Certainly wasn't suggesting conspiracy. But that doesn't mean that numerous cultural and economic factors don't come together all at once to make people view Housing as the essential place to put your money. In that environment you can see that peoples sense of value goes out the window. Tulips.

 

1 hour ago, slawek said:

I would say the root cause is the fact that houses become an investment product. It causes a shortage properties for FTB as they have to compete with investors for available stock of properties on the market. Additionally the stock of properties is reduced by property hoarders, people who keep their old properties or don't downsize because they believe this is a good investment.      

All this might be so....  I can offer up other excuses for buyers read on HPC over the years.... 'because I am worth it' - 'you only live once' - 'going to get big payrises' (it happens... pal from 2011/12 is on twice the income today)... 

And no fear but view of ForeverHPI.   What's David Miles view for HPI again?

Many happy and asset wealthy older owners views for house prices going forward?

Quote

 

Daily Mail

Average UK house price to hit £780,000 by 2040, says leading think tank

Kilo Charlie, My World, 9 hours ago

We purchased a property in 1983 for £72,000.........today it's worth £650,000 plus. It's certainly possible and quite likely.

Sam, Bucks, 3 hours ago

Bought house in ,74 for 16k added extention about £8k now valued at £480k you do the maths?

 

Yet FTBs or upsizers don't have to compete.  No buyers and prices fall.  Or measures to stop BTLers (and some big ones brought in recently to do just that, and test the finances of those BTLers who have doubled down into it.

I won't buy at these prices, in this area.   By a long long way.   Other people have done so, and continue to do so.  Their choice.  However they see prices, and whatever their reasoning.

Into my 9th year of people offering up excuses for buyers decisions, every single house I have added to Rightmove (Track) has sold at a much higher price than we are willing to pay, and for those 2008 buyers, and wider values here 40% higher today.

Fact of the matter they have their reasons and they make their adult market participant choices to buy and pay the prices they offer/choose.  No bank dragging them in and forcing them to take out a mortgage.  Individual.   And for many buyers, they have been very happy with their choices.  Perhaps the concern could at least be left until/if we get some HPC for once?   Then we can have a repeat of 2008-2009 'They didn't know what they were doing.' 

Some see spare homes, not worth selling (at mad-mad-gainz) etc.  Market.  And of course the BTLer double down to capture Generation Rent Forever.   Let's see how that works out against Section24 beginning this year.

 

[Venger]

27 minutes ago, PopGun said:

They've decided to partake, you didn't. from a purely market perspective, what's the problem?

i suppose those selling at artificially high prices facilitating the loose credit demand are completely blameless...

the winning move was to not take part, granted. They've subjected themselves to 25 +years of debt bondage out bidding you as the market (sic) demanded it for participation.

Nothing from my POV.  

The only problem I have is excuses offered for the buyers, as though they are not active in their own choices.  Who knows their minds and financial positions and their outlook for the future better then them, as market participants?

There are winners and losers in this market.  The winning move was to resist, and be renting forever, vs mad-gainz?   Not really.  Some made their stand against housing financialisation to extremes but doesn't mean they have come out on best side of it, at all, vs levels of HPI+++ (always set by buyers willing to pay more, in their active own choices).  

Many of those who bought into Labour's house price trebling are supremely financially better off than having rented.  Going further back, many are mad-gainz in - which they could sell to money, but inventory in may area is low-low-low.  (No one drags anyone in to bank to take advantage of a mortgage.   It's the buyers own choice in a market.  There isn't really much 'loose credit' in this market as it is now (MMR), for houses, vs what the buyer is willing to take on as promise to repay, in outbidding all others in market.)  

 Not against the level and pace of housing financialisation we saw.   It's not about winning for me, with HPC, but setting things right, and making things fairer.

Edited February 4, 2017 by Venger

[Wayward]

18 hours ago, PopGun said:

It's strange that when the credit crunch happened builders stopped building, yet prices dropped 20% in just six months. The key reason: an instant and massive tightening of lending. 

And then the state props came to play, zirp and QE. Interest rates sunk from 5 to 0.5%, with the state underwriting risk, the banks begin loosening lending again..  then what do you know... house prices began increasing again.

it really isn't that difficult to work out. Supply is and always was a myth.

if 10 people want one of those five houses, but none can afford the price due to restricted wages and mortgages, the price would have to come down accordingly.

yes when you have conditions of scarcity and bidding between buyers the price is set by the credit available. Credit availability tightens and prices will fall, I think we are all agreed on that. What we don't seem to agree on is what happens when supply of housing increases to the point that there are more sellers than buyers or demand collapses (eg if mass emigration and falling occupational demand). My position is that regardless of availability of credit prices will fall. Supply and demand is not myth. We just don't see it in play because tptb ensure constant chronic conditions of scarcity so we only see the role played by credit.

[Venger]

It so often comes back that yeah... "house prices batshit mental, but only other choice is for people to rent, and can't expect anyone to do that"

On 5/7/2016 at 10:32 PM, canbuywontbuy said:

If you give people a choice of cheap housing or cheap goods, 99% of people will take cheap housing because you can at least plan your life if you can buy a house. 

 

On 5/8/2016 at 5:33 AM, StainlessSteelCat said:

Plainly not true. People have had the ability to make that choice by not participating in an overheated market (which would have brought down prices) over the last couple of decades. But almost everyone was "happy" to pay inflated prices - often on the expectation that the prices would continue to further increase. Also there have been almost no protests about it either (unlike say the price of petrol)..

 

On 5/8/2016 at 9:04 AM, StainlessSteelCat said:

I think my point is that if you want cheap house prices the rational choice at the moment is for everyone not to buy - a buyers strike - regardless of whether the bank will lend you the money. As Venger regularly reminds us - no-one is forced into taking the bank's shilling.

If no-one's buying, prices will fall. In the absence of sensible government policy and bank lending - collection action by striking and protest is the only rational choice - and one which could have been exercised at any point in the last decade and a half. But people don't take that route so ergo they actually want high prices. It's a cliche that almost every house buyer wants prices to be low, until they have one. That's because individual's need to treat a house as an investment vehicle and a source of prestige seems to take priority over the collective need for cheap shelter.

Its batshit insane in my view - and is essentially eating our young. But successive governments are giving voters what they apparently want - which is high house prices. If 99% of us wanted cheap housing, we would have it. We regularly see that a few whingers is plenty enough to get the government to do a policy u-turn.

 

On 5/8/2016 at 8:13 AM, canbuywontbuy said:

Doesn't that back up my point about how important owning a house is for most people that they'll borrow as much as possible to do so? Also, groups of people don't "act collectively" when buying property - they act individually. For most people, if the credit's available, and the monthly payments can be met for the forseeable future (i.e. this month and next month), they'll go up to their necks in debt. You make it sound like available credit ISN'T the reason for HPI. It's all about available credit. Nobody's "happy" to go deep into debt, but they also want to plan their lives out - owning your own home allows you to do that MUCH more than living contract-to-contract renting.

Their own individual market choice to pay prices they pay in buying, regardless of amount of mortgage debt they could qualify for on application!  Who knows their position better than they do?  

They don't need to get authorisation from any HPCer to buy, with far-out views, and constantly wrong about HPI anyway, since all this began ('forced' / 'victims' / 'conditioned' / 'controlled' excuses), with prices up another 50% in many an area.    Prices are prices.  We can all see the asking prices.

Owning a house is important to me, but not important enough that I am willing to pay these prices, in a market which has been saturated by BTLer competition, buying up 2 million homes since 2010, to turn would-be owners into renters.  Other people have been and are willing.   I thought ex-pal paid top what in 2014 for their forever home, but it's now back to market asking £120,000 more.   It's a market out there.

People make their own market choices.  Not forced into anything.  All on them.  Active when they buy.  And it has worked out well for many who chose to buy, even during last few years.   (Allowing for some areas where buying may make sense, but extreme prices in many other areas, going on to reach new extremes).

 

On 5/8/2016 at 11:21 AM, canbuywontbuy said:

People have been forced into this way of thinking in that they are gambling their entire life savings + future earnings on one single asset. If house prices were much much lower, we'd not have this level of selfish thinking. The human mind is very flexible - it can bend to good and bad influences. But....force a hard dilemma on people (to buy or not to buy a property), and you pander to the worst aspects of human behaviour. High house prices are polluting our minds, whether you own one or not. There are only two positions to choose, and each position is steadfastly opposed to one another.

Not forced.  They can see the world as they see the world.  Prices are prices.   The selfish thinking is what we've had and got.  The worst aspects of human behaviour is still individual behaviour for some people, but not all people by a long way.  Not 'purest innocence' and trying to find someone else to blame for it, because somehow 'they've been misled by upbringing / winning side, and bought at ever more extreme prices/gone multiple BTL' - in a market others refused to be active in and rented and paid for in other ways).     There are two positions, and we take our choices.   I am opposed to easy-life no responsibility, blame someone else for greedy/high risk choices.  

Edited February 5, 2017 by Venger

[Venger]

18 hours ago, PopGun said:

They've decided to partake, you didn't. from a purely market perspective, what's the problem?

i suppose those selling at artificially high prices facilitating the loose credit demand are completely blameless...

the winning move was to not take part, granted. They've subjected themselves to 25 +years of debt bondage out bidding you as the market (sic) demanded it for participation.

 

Also I have to laugh a bit at this, because when it was still HPC hope, in 2011, you along with others casting the buying side down as innocents.    

You've got it right now... they decided to take part (buyers).   Now it's all looking HPI++++ locked in good.   They're the winners and  "you didn't decide to take part".

Except you then turn it to winning move not to take part?  Given house price around me, the 'winning move' (sadly - in financial terms) was to lie and cheat and collude with a 'just wanted a home' (at batshit mental price) because renting is dead money and should get bailouts.

 

On 11/4/2011 at 2:24 PM, PopGun said:

My take is on it differs slightly:

Bankers/Politicians: 80%

Media: 15%

General Public: 5%

Debt/credit is/was no substitute or compensation for falling relative incomes in the great capital wealth grab.

 

On 11/4/2011 at 4:22 PM, PopGun said:

When you live in a region where the average wage is <£20,000, and a modest 2 bed terrace without boarded windows is >£100,000 relative risk goes out of the window.

What were they all supposed to do, rent? What have rent prices done since the banks have suddenly become a bit more fussy?

When you build an economy around debt, sell and invest in debt, guess what happens?

I thought you were a banker shill. However you just sound more like another resentful HPCer who has hedged their bets and lost*, your last few lines are quite telling.

*By doing what used to be called, 'the right thing' in good company.

Yes, rent.  By not doing so, the buyers are active in their own choices in buying, with responsibility.  Responsibility that comes with buying and borrowing.  No one forced them to take out that much debt against their local incomes, or similarly at higher ends of the market.   And it's worked out well for so many of them, for the moment.   You can't have it both ways though.  

2016: "They decided to take part as buyers, where you didn't."   (But think of the latest buyers paying new peaks).

2011: "What choice did 'the innocents' have but to buy at mad prices?"

Edited February 5, 2017 by Venger

[Eddie_George]

I think a simple answer is that supply and demand is a valid theory for items bought with only cash, but it does not hold when credit is involved.

[billybong]

8 hours ago, Eddie_George said:

I think a simple answer is that supply and demand is a valid theory for items bought with only cash, but it does not hold when credit is involved.

+1

Just to add that cash is often the result of debt.  So in an economy where debt is everywhere including public sector debt, financial sector debt and corporate debt as well as household debt it all adds up when the investment du jour is housing.

But that's a bit off the topic of supply/demand v credit being the driver of hpi.

Edited February 5, 2017 by billybong

[iamnumerate]

The problem with this

https://capx.co/there-is-no-uk-housing-crisis-and-there-never-was-one/

Is that they don't seem to realize that a household is the number of people living in a house.  If a 20 something wants to leave home but can't because of house prices they don't count as a household.

https://en.wikipedia.org/wiki/Household

 

This might be true

Quote

What we need is to be able to live in houses, and as we’ve seen already the cost of renting houses has not been rising particularly rapidly. 

But until recently buying was cheaper than renting.*  So saying what was the more expensive option is not much more expensive than recently, is like saying "first class train travel is the same as before" - not much comfort if second class is more expensive

 

*I bought in 2001 and despite the beginning of the Blair boom my mortgage was £450 pcm for a 3 bed flat - renting a one bed flat was £600 pcm!

BTW renting similar is now £1100 pcm.

[goldbug9999]

22 hours ago, Eddie_George said:

I think a simple answer is that supply and demand is a valid theory for items bought with only cash, but it does not hold when credit is involved.

Credit is demand, you can read Waywards last post for a explanation from someone with more patience than I have left. 

[PopGun]

On 05/02/2017 at 11:31 AM, Wayward said:

yes when you have conditions of scarcity and bidding between buyers the price is set by the credit available. Credit availability tightens and prices will fall, I think we are all agreed on that. What we don't seem to agree on is what happens when supply of housing increases to the point that there are more sellers than buyers or demand collapses (eg if mass emigration and falling occupational demand). My position is that regardless of availability of credit prices will fall. Supply and demand is not myth. We just don't see it in play because tptb ensure constant chronic conditions of scarcity so we only see the role played by credit.

Remember the credit came after the high prices, then they fed on each other in a vicious tail eating circle leading to crazy prices.

Edited February 7, 2017 by PopGun

[PopGun]

On 06/02/2017 at 11:14 AM, goldbug9999 said:

Credit is demand, you can read Waywards last post for a explanation from someone with more patience than I have left. 

Credit creates artificial demand for artificial prices. 

[billybong]

5 minutes ago, allornothing said:

Credit has always been part of demand since before Christ. So only as artificial as land ownership itself.

 

Plus Credit is only part of demand. Cash buyers is over a third, throw in bomad etc and you are struggling to the half way mark. 

Just to say that a lot of that cash is itself derived from earlier house related credit as is bomad cash.

[crazypabs]

Im trying to correlate the relationship between the overpriced housing, the Help To Buy schemes and the fact that Persimmon share price increase 2.5% this morning!

http://www.iii.co.uk/research/LSE:PSN

Am I missing something, was there something in the white paper that benefits the builders?

 

[billybong]

19 minutes ago, allornothing said:

 

Not sure I understand the point.

If I borrow money from a gangster and put it on a horse, the horse wins, and I cash the ticket. It's cash, regardless of how shakey the source?

The point being that the cash you were referring to (say bomad cash) was likely originally derived from credit/mortgages which helped to pump up prices for bomad's equity which allowed bomad's cash contribution to the children's house purchase.  

Bomad might even have taken credit/a mortgage out against their own house equity to get the cash - the cash that helps to set a higher than otherwise house price.

Considering the market as a whole rather than say the individual purchase - in considering whether it's supply/demand rather than credit that drives house prices..

 

Edited February 7, 2017 by billybong

[PopGun]

1 hour ago, allornothing said:

Credit has always been part of demand since before Christ. So only as artificial as land ownership itself.

 

Plus Credit is only part of demand. Cash buyers is over a third, throw in bomad etc and you are struggling to the half way mark. 

Credit crunch, the clue was in the name 

[iamnumerate]

3 minutes ago, PopGun said:

Credit crunch, the clue was in the name 

The prices in the credit crunch were still higher in real terms than in the 90s.

Obviously credit makes a difference but so does supply.  Imagine if a flu epidemic killed 90% of pensioners and Mark Carney were to increase credit as a result, would prices decrease or increase?   Almost certainly decrease as there would not be enough demand for the large numbers of houses being sold/rented out.

[billybong]

10 minutes ago, allornothing said:

Once you have crystallised the gains or losses buy selling a house or releasing equity,  that money becomes 'cash' indisdinsuiable form the money under your matress. Agree or disagree?

Whats your point about the credit crunch really? It was barely a blip on UK HPI. And UK mortgage lending is considerably tighter since then. Show me evidence it is looser? Tighter credit since the credit crunch has resulted in higher prices. So where is the evidence that tightening credit further would cause a crash?

My highlight.

Taking the market as a whole that cash might derive from earlier credit/mortgage driven house price valuations at the margin - as might the cash under the mattress be.

Regarding your second paragraph I believe the credit crunch comment was made by PopGun.

Edited February 7, 2017 by billybong

[billybong]

33 minutes ago, allornothing said:

Just in terms of looking at current drivers for demand for UK housing, do you think there is any value in differentiating between cash and highly leveraged mortgage purchase?

Hypothetically, what if 95% of house purchases were cash bought, or only 5%? Would that change anything? Or would credit rules still be the most important thing?

 

More cash would likely make the supply/demand relationship play a bigger part although in competition with limitless easy credit it's got a struggle to compete when the market is perceived as always rising.

The only point I want to make is that cash sometimes derives from valuations as a result of credit/mortgage transactions at the margin which can create equity elsewhere to be then be deployed as cash.  If bomad takes out a mortgage/2nd mortgage to raise that cash then it's also equivalent to a bigger mortgage by the children helping to bump prices up further.  

My position on the thread topic being that the level of credit is the main and overwhelming driver of crazy house prices but that demand/supply has a small role in it as well but it's a much more secondary and peripheral role.

Edited February 7, 2017 by billybong

[PopGun]

3 hours ago, iamnumerate said:

The prices in the credit crunch were still higher in real terms than in the 90s.

Obviously credit makes a difference but so does supply.  Imagine if a flu epidemic killed 90% of pensioners and Mark Carney were to increase credit as a result, would prices decrease or increase?   Almost certainly decrease as there would not be enough demand for the large numbers of houses being sold/rented out.

The credit got crunched/roll backed and prices dropped 20% in six months, and if it wasn't for state intervention (rightly or wrongly) I think we can all agree the trend would have continued downward.

Supply is a variable, but only one of many, such as credit expansion, landbanking, speculation etc.

look at the government white paper. Your new houses are going straight to the rental market. I've been saying on here for years that build to let was the end game of any sustained pro building campaign. I can't be bothered to find my posts saying this, maybe Venger can help me via his PopGun repository ..

 

Edited February 7, 2017 by PopGun