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canbuywontbuy

This is Why House Prices Are Extortionately High in the Western World

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Population control.  High house prices make people have less children.  Whether that is deliberate or a mere "consequence" is what is up for debate here.

If house prices were lower, people would be buying family homes in their 20s and having 2 or 3 kids (because they could afford to).  Now when you talk about kids, people shudder.  They're expensive - they require bigger homes to live in.  As it is now, the average FTB won't buy a family home til their 40s (if ever at all) - indeed many couples in their 40s still rent.

Immigration has filled in the economic gaps from falling birth rates, but immigrants TOO will have smaller families in western countries due to expense.  I know some will say "benefits makes women have more kids" - but statistically women are having less and less children in western countries in aggregate - and I think expense is the biggest reason why that is.  In the affluent 60s, women were having between 2 to 3 kids (average) - now it's falling and falling. 

House prices could have been easily controlled to be affordable:-

  • ban foreign ownership
  • tax the living daylights out of BTL/2nd home ownership from day one
  • be far far stricter on bank lending - "liar loans" wouldn't have been a thing - governments gave it a pass
  • HTB wouldn't have been a thing
  • build more homes
  • energy prices could have been capped
  • slash / get rid of stamp duty
  • actively talked about low house prices being a good thing, not a bad thing.  Instead they do the polar opposite and ramp house prices.

All of the above are under the government's control - they could easily have made house prices cheaper, but instead squeezed the entire economy to near-death in forcing people to spend huge amounts of their income on rent/mortgages at the expense of every other economic sector.  Now we have couples who are both working and putting off having children until "sometime in the future" - they end up having one kid in their mid-30s with some fertility treatments or none at all.  High house prices are pure poison to the economy as a whole, so why would western governments - almost unanimously - favour high house prices? I can only think it's a social measure - to force people to have less children.  Certainly that is one of its consequences.  I don't buy the simplistic "to help the banks" reason.  The banks are struggling.  They'd love cheaper housing. 

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20 minutes ago, canbuywontbuy said:

I don't buy the simplistic "to help the banks" reason.  The banks are struggling.  They'd love cheaper housing. 

It's really not that complicated.

Because of short-term profits and poor regulation, the banks loaned as much money as they could up until 2007.

Because of the way the money system works, removing this excess money (by letting house prices fall) would cause great pain for the economy (in the short term - i.e. an election cycle), so it is avoided at all costs.

 

 

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2 minutes ago, Eddie_George said:

It's really not that complicated.

Because of short-term profits and poor regulation, the banks loaned as much money as they could up until 2007.

Because of the way the money system works, removing this excess money (by letting house prices fall) would cause great pain for the economy (in the short term - i.e. an election cycle), so it is avoided at all costs.

 

 

After a decade, I think they could. Most of the loans on the edge are underwritten by HTB, the Government. I guess they just don't want the bad debts adding to an already massive public debt, which was largely a result of debt deleveraging (in real terms) from 2007-2014 crashing the economy and the Government taking up the spending slack.

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Because of short-term profits and poor regulation, the banks loaned as much money as they could up until 2007.

Because of the way the money system works, removing this excess money (by letting house prices fall) would cause great pain for the economy (in the short term - i.e. an election cycle), so it is avoided at all costs.

 

How does falling house prices affect the money that was leant out (mortgages)?

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There's a bit of an inevitability about it to reflect lower standards of living and the type of economy the UK has become as a whole - to some extent linked to globalisation.  The developed countries and most undeveloped countries have on average become far more equal.

It's a form of indirect and disguised impoverishment for large parts of the community living in the UK - accepted that the increasing house prices does enrich holders of property in a one off manner but enrichment implies that at some point they'll sell and hold less UK property.

It would be easy to have cheaper housing but that would imply a generally more better off country with a more balanced economy and not being so reliant on scams like QE etc etc.(for the manipulated gdp stats etc).

Population control might be an intended factor but then they would come close to possible accusations of some genocide depending if the intent could be proved.  For sure there's been an intent to keep house prices high in the UK (perhaps more so than any other country) and there's no doubt that on average there is a negative effect on population as that has been confirmed in a recent research paper.

Edited by billybong

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29 minutes ago, billybong said:

Population control might be an intended factor but then they would come close to possible accusations of some genocide depending if the intent could be proved.  For sure there's been an intent to keep house prices high in the UK (perhaps more so than any other country) and there's no doubt that on average there is a negative effect on population as that has been confirmed in a recent research paper.

Of course intent could never ever be proven.  Instead, it could only be "nutjobs" like me coming up with theories on a random internet forum about it.

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1 hour ago, canbuywontbuy said:

House prices could have been easily controlled to be affordable:-

  • ban foreign ownership
  • tax the living daylights out of BTL/2nd home ownership from day one
  • be far far stricter on bank lending - "liar loans" wouldn't have been a thing - governments gave it a pass
  • HTB wouldn't have been a thing
  • build more homes
  • energy prices could have been capped
  • slash / get rid of stamp duty
  • actively talked about low house prices being a good thing, not a bad thing.  Instead they do the polar opposite and ramp house prices.

 

The underlined point is the key though.

90% of the house price inflation we're seeing is down to low interest rates and the ease of bank lending. Why accept 1% rates for keeping cash in the bank when you can just buy a load of houses with a 5% yield? Not only that, you can use use your cash as a deposit and just take out an easy to get loan to juice the returns. It's this easy lending environment with low interest rates that has generated most of the HPI.

Not only that, but since Brexit, the situation has gotten worse. The Bank of England the government have been complicit in acting together to stoke inflation and maintain easy lending standards. With the focus on Brexit for the next 2 years, I think the government are likely to be totally asleep at the wheel for when the next crash comes.

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I had a very interesting conversation with a guy in India on birth rates.

His view was that the modern post-feminist middle classes (and India has a clearer distinction than we do - the masses doing manual work are far lower paid and more numerous) in the main, don't want many kids, or kids before their 30s. When they have sufficient education, access to contraception, and disposable income to socialise and travel, they tend to go off the idea of losing their lifestyle. His view was that the larger the middle class in India gets, the less kids people will have.

I don't think he is far wrong & the same thing applies here to a large extent. The only people I know with 3 or more kids are either

1) Rich enough for childcare and nannies

2) Muslims whose attitudes are resolutely pre-feminist

3) Working class & happy to live on a sink estate.

Edited by disenfranchised

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28 minutes ago, canbuywontbuy said:

If I have a mortgage of £150,000, how does that change if my house price drops (or, indeed, rises)?

If your house drops to below the value of the mortgage, the bank has lost its guarantee that it'll get the money back, since a repo will not recover the full value of the loan. On the other hand, if the price rises, the bank is very happy for the same reason.

In addition, if the value falls below the loan, this probably indicates rising IRs, and the house-owner will also end up on the SVR, which will dent their ability to repay.

So, bottom line, once the values start dropping, the loan is more vulnerable to defaulting in arrears.

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25 minutes ago, tomandlu said:

If your house drops to below the value of the mortgage, the bank has lost its guarantee that it'll get the money back, since a repo will not recover the full value of the loan. On the other hand, if the price rises, the bank is very happy for the same reason.

In addition, if the value falls below the loan, this probably indicates rising IRs, and the house-owner will also end up on the SVR, which will dent their ability to repay.

So, bottom line, once the values start dropping, the loan is more vulnerable to defaulting in arrears.

None of the above changes the total of my mortgage.  That was my point.  Of course a rise in IRs will affect the ability to pay - but there are MANY reasons why IRs might rise.  IRs rise and fall regardless of house price rises and falls.  Furthermore, the ability to pay in itself is affected by myriad outside influences. If house prices are some "one way ratchet" simply because they MIGHT trigger an IR rise, then there's something inherently wrong with the system itself.

Edited by canbuywontbuy

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5 minutes ago, canbuywontbuy said:

None of the above changes the total of my mortgage.  That was my point.  Of course a rise in IRs will affect the ability to pay - but there are MANY reasons why IRs might rise.  IRs rise and fall regardless of house prices rises and falls.  Furthermore, the ability to pay in itself is affected by myriad outside influences. 

IRs rise and fall regardless of house prices rises and falls - not sure this is true. ..you are looking at the nominal value i.e the number £100,000. But money rises and falls in value just like any other commodity. And when it is scarce, interest rate rises mean that you will pay more of your disposable income towards borrowing your £100,000. Income which you could have used to make yourself richer (i.e invest/save it) or to buy something you want that has value to you. Interest rate changes also do not affect this £100,000 in a linear fashion i.e a graph with a 45 degree line for money owed vs interest rate - there is a property called convexity which shapes this graph. So in the beginning it can rise much more steeply before levelling off. Money is simply a concept you believe in, it rises and falls in value based on the belief of the majority on the ability to spend it on what you need, and the acceptance of others. That £100,000 is changing in value all the time because what you can buy with it changes.  

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31 minutes ago, disenfranchised said:

I had a very interesting conversation with a guy in India on birth rates.

His view was that the modern post-feminist middle classes (and India has a clearer distinction than we do - the masses doing manual work are far lower paid and more numerous) in the main, don't want many kids, or kids before their 30s. When they have sufficient education, access to contraception, and disposable income to socialise and travel, they tend to go off the idea of losing their lifestyle. His view was that the larger the middle class in India gets, the less kids people will have.

I don't think he is far wrong & the same thing applies here to a large extent. The only people I know with 3 or more kids are either

1) Rich enough for childcare and nannies

2) Muslims whose attitudes are resolutely pre-feminist

3) Working class & happy to live on a sink estate.

Perfectly illustrated in the film idiocracy...

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Just now, katchytitle said:

IRs rise and fall regardless of house prices rises and falls - not sure this is true. ..you are looking at the nominal value i.e the number £100,000. But money rises and falls in value just like any other commodity. And when it is scarce, interest rate rises mean that you will pay more of your disposable income towards borrowing your £100,000. Income which you could have used to make yourself richer (i.e invest/save it) or to buy something you want that has value to you. Interest rate changes also do not affect this £100,000 in a linear fashion i.e a graph with a 45 degree line for money owed vs interest rate - there is a property called convexity which shapes this graph. So in the beginning it can rise much more steeply before levelling off. Money is simply a concept you believe in, it rises and falls in value based on the belief of the majority on the ability to spend it on what you need, and the acceptance of others. That £100,000 is changing in value all the time because what you can buy with it changes.  

I understand that the value of money alters all the time, from many sources (exchange rate, how much you earn on a month to month basis etc) - but that doesn't mean a drop in the value of my home has to negatively affect me in a direct economic way.  IRs will rise and fall for many many reasons, and it's only those rises and falls that affect what I pay each month.  OK, if I am wrong, then house prices absolutely MUST be a one way ratchet and forever increase at LEAST if not more in line with inflation.  Then the UK has been doing very well in protecting home owners - all good!

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1 minute ago, canbuywontbuy said:

I understand that the value of money alters all the time, from many sources (exchange rate, how much you earn on a month to month basis etc) - but that doesn't mean a drop in the value of my home has to negatively affect me in a direct economic way.  IRs will rise and fall for many many reasons, and it's only those rises and falls that affect what I pay each month.  OK, if I am wrong, then house prices absolutely MUST be a one way ratchet and forever increase at LEAST if not more in line with inflation.  Then the UK has been doing very well in protecting home owners - all good!

If you don't have to sell an asset, you're absolutely right you don't have to give two monkey's what you paid for it (after you paid it off, and as long as you can afford to pay it off). You are right that asset prices only rise, that's what inflation does. Inflation is a built in obsolescence of money earned over time. keeping people on a hamster wheel. When did you last hear that bread that cost a tuppence is now cheaper? Or that a motorcycle with the utility functions that cost £1000 in 1945 costs less today. 

BUT, and a big but, as money expands to other parts of the world, and you need to print more of it, it loses its value so you need more of it to acquire the same product. So bread costs £1.50 and motorcycles cost £15000. Its not only that the value of motorcycles has gone up or down (it will do either with demand and supply) but that the value of the GBP/USD currency has gone down. The USD/GBP are good examples of this. The USD has lost 97% of its value since 1900, as it built an empire and paid its armies, who subsequently acquired more "land" (bringing workforces into the USD economy e.g south korea, taiwan, Japan etc). At some point you will die - that's a fact, and you will need to release money from your asset, at that point the house always wins and the culmination of your economic life will be at that value either to give to charity or your family. So if you bought an investment that did not keep pace with inflation, you give much less to the people you care about and the cycle begins again for them.

As the value of the currency declines, some items that you can purchase for money are required more/or les. Their relative value will change as the value of money fluctuates. Housing is a prime example of this. People need a place to stay warm, it is in demand and has become a british cultural veblen purchase (i.e you need a house to keep your status in society). Lenders used this culture to do what they do best and lend. The same thing that Coca cola does when it sells us sugar, or cigarette manufacturers do. Humans are animals after all, and entrepreneurs give people what they want e.g Facebook mindless chat for office workers as we no longer actually have enough physical demands for work, or the expansion of the leisure industry/coffee shops in general to keep us "busy".

So housing is worth more in these currencies that keep depreciating, they are worth even more than food and cars and other objects you can buy with money. So the price of housing increases and lenders make their cut.  For the value of housing to fall over time, no one would want a house, no one could see the value in having a house and land issues/ insurance / taxation could make them prohibitively expensive to own and renting becomes more cost effective at a middle class earning level. I'm not sure when that happens. 

From a banking perspective if I have 4% of my lending as a capital buffer (that's quite high compared to 2007, but soon to be 10% for large banks). Then I am leveraged 25 to 1. If I only lent money for houses then a 4% fall in house prices wipes out all my equity then I, as a bank, am bankrupt. Now when this happened, all hell broke loose and everyone got bailed out and then proceeded to lie about what houses were worth on their balance sheets. So I assume the same thing will happen again. The public rarely understand these things. Just look at the £2bn we supposedly made as a government on "our" Lloyds TSB shares. Its all ******** because the reality was, as lender of last resort we could have named our price - even Warren Buffett made more than £2bn for buying a much smaller chunk of Goldman Sachs during the crisis. We didn't make money, we lost the opportunity to make a lot of money, but it is sold to the public as a profit.

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3 hours ago, canbuywontbuy said:

High house prices are pure poison to the economy as a whole, so why would western governments - almost unanimously - favour high house prices? 

Because bankers captured government and now we have a governbankment instead.

Simon Johnson in 2009 https://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/307364/

and the update in 2014 https://economix.blogs.nytimes.com/2014/01/02/the-rich-country-trap/?_r=0

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2 hours ago, canbuywontbuy said:

If I have a mortgage of £150,000, how does that change if my house price drops (or, indeed, rises)?

If it drops you might not be able to change to a cheaper mortgage or move house.

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4 hours ago, canbuywontbuy said:

I can only think it's a social measure - to force people to have less children.  Certainly that is one of its consequences.  I don't buy the simplistic "to help the banks" reason.  The banks are struggling.  They'd love cheaper housing. 

I am not sure that it is correct as I know single mums who have been given housing because they have children - it only works if people don't decide to raise children on their own (possibly just on paper).

I think the Governments like high house prices because it gives the majority of home owners a warm glow - it does for my parents.

I don't think like that because

1) I would like to move up the housing ladder one day

2) I don't enjoy other people's suffering.  I might be happy because I win £10k but not because my friend loses £10k

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4 hours ago, canbuywontbuy said:

Population control.  High house prices make people have less children.  Whether that is deliberate or a mere "consequence" is what is up for debate here.

If house prices were lower, people would be buying family homes in their 20s and having 2 or 3 kids (because they could afford to).  Now when you talk about kids, people shudder.  They're expensive - they require bigger homes to live in.  As it is now, the average FTB won't buy a family home til their 40s (if ever at all) - indeed many couples in their 40s still rent.

Immigration has filled in the economic gaps from falling birth rates, but immigrants TOO will have smaller families in western countries due to expense.  I know some will say "benefits makes women have more kids" - but statistically women are having less and less children in western countries in aggregate - and I think expense is the biggest reason why that is.  In the affluent 60s, women were having between 2 to 3 kids (average) - now it's falling and falling. 

 

With respect this is twaddle. Its simply a case of high house prices benefiting the elite because they tend to be asset owners, thats its.

Edited by goldbug9999

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9 minutes ago, goldbug9999 said:

 

With respect this is twaddle. Its simply a case of high house prices benefiting the elite because they tend to be asset owners, thats its.

Do high house prices really benefit people like Warren Buffet or Rupert Murdoch or Bill Gates?  If prices were lower I would have bought my first car years ago - so it didn't benefit car manufactures.

I still thinks this is true

Quote

I think the Governments like high house prices because it gives the majority of home owners a warm glow - and makes them happier (it does for my parents. )

 

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4 hours ago, canbuywontbuy said:

Of course intent could never ever be proven.  

I agree possibly because the way the heirarchy is (apparently) structured with the overall policy makers being behind the scenes and not directly accountable - and accountable politicians and policy makers always having some plausible excuse.  Nevertheless the consequences of high house prices includes a negative effect on the population (on average) and this is a known consequence.  It's a consequence that never seems to be aired by politicians.

But there is suggestion that the general principle is considered in some elite quarters to be a desirable policy (the Geogia Guidestones for instance).  That wouldn't translate into proof about UK house prices and population effects of course.

Edited by billybong

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.

Quote


I think the Governments like high house prices because it gives the majority of home owners a warm glow - and makes them happier (it does for my parents. )

 

The economy surrounding high house prices also helps with the politically popular statistIcs such as GDP when referring to growth.  

The stat of GDP is much more politically popular than the stat of GDP per capita.

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1 hour ago, iamnumerate said:

I think the Governments like high house prices because it gives the majority of home owners a warm glow

 

I believe that this truly is the crucial element.

Rising house prices can make people with only limited education, limited skills, and a poor social or work network truly feel wealthy. All they need to do is leverage themselves up to the eyeballs with debt, and watch what seems a barely credible amount of wealth be swiftly created on their personal balance sheet.

And governments notice the resulting " feel-good" factor. Its like magic money.

You can be a school-teacher on 50 K GBP per annum, but with a little creative lying to your bank you can certainly borrow 8 to 10 times your income ( I personally know one couple with a combined income of 35 K who borrowed in excess of 600,000 pounds) and then you watch your house/s make more per annum in HPI than you ever will.

And that makes you feel smart. Perhaps even smarter than those of your peers who studied for years to achieve a high level of skill in some difficult-to-enter  University course and then avoided the housing market because they thought property valuations were ludicrous.

So in the eyes of governments, its a a sort of upward-leveller,  because dumb people can feel just as fortunate as smart people.

Its all a bright shining lie of course, and governments should bloody well know better than selling this truckload of horses**t to the general populace, but they don't have the moral fortitude to avoid the temptation.

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