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Atma

Understanding the housing market latest research finding

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This is an interesting paper presented this week in Bristol on the housing market . I don't know how to do link but article in times today.if you go to royal economic society page or google it will come up. 

Would welcome any views . Atma 

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This is an interesting article. I have found the links.

What do you think.

The authors conclude: ‘Market crashes are hardly an optimal policy response to improving affordability, given the wider effects on the economy. If reliance on supply expansion is inadequate, then this implies the need for more integrated housing policies, where housing issues play a wider role in macroeconomic policies.’ 

UNDERSTANDING THE NEXT HOUSING CRISIS: Housing risk will ...

www.res.org.uk/details/mediabrief/10502510/UNDERSTANDING...

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This is an interesting article. I have found the links.

What do you think.

The authors conclude: ‘Market crashes are hardly an optimal policy response to improving affordability, given the wider effects on the economy. If reliance on supply expansion is inadequate, then this implies the need for more integrated housing policies, where housing issues play a wider role in macroeconomic policies.’ 

UNDERSTANDING THE NEXT HOUSING CRISIS: Housing risk will ...

www.res.org.uk/details/mediabrief/10502510/UNDERSTANDING...

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Well, it opens in a refreshing burst of honesty rarely seen in the dreaded MSM

Quote

High UK house prices increase the probability of a crash – and it's this factor which may make houses more affordable in the long run

Later on...

Quote

The authors conclude: ‘Market crashes are hardly an optimal policy response to improving affordability, given the wider effects on the economy.

Which as much as I would like a crash... I would agree, in the long term anyway. Optimal policy would see avoiding the boom being as important as avoiding the bust.

Anyway, there was a Bloomberg story (covered elsewhere on HPC) which quotes Reading Uni as the source, as does this so I suspect the more active posters have already covered this in the Bloomberg thread, but tis all grist t'mill.

Also, top work on upping your post count :lol: 

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11 hours ago, Atma said:

This is an interesting paper presented this week in Bristol on the housing market . I don't know how to do link but article in times today.if you go to royal economic society page or google it will come up. 

Would welcome any views . Atma 

Good find! Thanks!

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So people do not consume more when they think their homes are increasing in value, they consume more when they expect their wages/income to rise, I would say incomes are stagnant, with very many having lower potential earning prospects......;)

 

Quote

analysing data on the Danish housing market over an economic cycle, the research finds that homeowners do not respond to rising house prices by increasing their consumption. Rather, people increase their consumption when their earnings prospects improve – and people who expect higher earnings are also willing to pay more for houses, thereby pushing house prices higher.

 

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.

Quote

 

 ‘Market crashes are hardly an optimal policy response to improving affordability, given the wider effects on the economy.

 

It's a bit of a bind when housing/the housing market/house prices and related debt is the economy.  Then the statistics will never be in favour of a market crash or even a slight downturn for that matter.

Edited by billybong

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How come there is policy to 'target' 2% general inflation, but no equivalent for the housing market, in which inflating volatility is similarly destructive?

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I'm not sure that the paper's use of the word "affordability" is correct.  The text in the link seems to suggest that in using that word they really mean price - whereas affordability as used by the authorities in the UK is usually related to interest rates and government props such as Help to Buy and not price.  

Their definition of the word "affordability" would have been useful.

Quote

The formal conditions required to stabilise affordability are now known; in the long run, the housing stock must grow at the same rate as real household income. This condition is straightforward but probably impossible to achieve – in practice, the housing stock grows much more slowly than the economy as a whole

Is that really "known".  It might have been known at some times in the past (it was achieved from time to time in the past) and in a reasonably regulated market where an effort is made to ensure that relationship - but currently house prices are almost entirely dependent on levels of credit and government props and they weren't mentioned.

Real household income has apparently been flat to negative for years now (emphasis on the word real) so are they suggesting that affordability can be stabilised with flat to negative growth in the housing stock.  That doesn't seem to make sense let alone be a "known".

The link is apparently a "Media Briefing" so the actual paper might (or might not) cover those questions.

Edited by billybong

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1 hour ago, btd1981 said:

How come there is policy to 'target' 2% general inflation, but no equivalent for the housing market, in which inflating volatility is similarly destructive?

The RICS proposed a target of 5% for HPI a few years ago...their point being that anything above that was destabilising but (assuming RPI under control and everything else being equal) 5% HPI still means the wealthy get nicely wealthier every year and cruise is not cancelled..

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29 minutes ago, Wayward said:

The RICS proposed a target of 5% for HPI a few years ago...their point being that anything above that was destabilising but (assuming RPI under control and everything else being equal) 5% HPI still means the wealthy get nicely wealthier every year and cruise is not cancelled..

+1

Destabilising and from past performance 5% is the point above which inflation can increase very rapidly and get even more out of control.  See how rapidly it escalated when it broke through 5% after about 1970. 

Chart - historic CPI inflation Great Britain - long term inflation development

 

When the 2% figure for UK inflation was chosen one of the reasons reported was to align the UK with the inflation rate of successful economies like Germany a country that had successfully kept inflation under relative control since World War 2 and its economy had massively benefited from that.  That's one of the reasons reported to justify giving the interest rate job to the BoE as they would make decisions for the benefit of the UK and independent from political issues and electioneering.  

That independence has all gone by the board now and they seem no more independent than the political troughers "running" things and they allowed excessive inflation at their very first challenge after getting the job and it's heading that way yet again.  The inflation indices are in any event just pretences of reality with the indices and their constituents being swapped around to try to pretend to meet the target and largely omitting items with massive inflation such as house prices. 

Edited by billybong

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