The real reasons for high house prices

[btd1981]

Apart from 'homeowners seem to like it that way', it's crossed my mind that there are some surreptitious reasons why house prices are pumped by the government :

1) The government is on the hook: thanks to help to buy,  if house prices fall,  they carry the burden.  Best stop that from happening then. 

2) The elderly care system would collapse: given that the estate of most elderly people is first to be raided to cover care fees,  what better way to cover these costs than to pump up the value of an asset using loose lending.  And basically get someone else to pay for a person's care while they think they're just buying a house. 

Any others?

[Wayward]

1 hour ago, btd1981 said:

Apart from 'homeowners seem to like it that way', it's crossed my mind that there are some surreptitious reasons why house prices are pumped by the government :

1) The government is on the hook: thanks to help to buy,  if house prices fall,  they carry the burden.  Best stop that from happening then. 

2) The elderly care system would collapse: given that the estate of most elderly people is first to be raided to cover care fees,  what better way to cover these costs than to pump up the value of an asset using loose lending.  And basically get someone else to pay for a person's care while they think they're just buying a house. 

Any others?

You don't need to look any further than the fact that the rich and powerful in the UK hold their wealth in land and property as they have for centuries...naturally they are going to seek to inflate its value.

[dougless]

1 hour ago, Wayward said:

You don't need to look any further than the fact that the rich and powerful in the UK hold their wealth in land and property as they have for centuries...naturally they are going to seek to inflate its value.

Spot-on.

I also love the myth that keeps getting perpetuated that we are a 'small and overcrowded island' which is often used to justify high land prices.  I seem to recall that less than 10% of the UK is built on and that includes roads.

Edited June 28, 2019 by dougless

[Si1]

We never reformed following the credit crunch, just leveraged central banks to underscore and increase inequality.

[jiltedjen]

no hard money means people save in something with a true restricted supply. 

houses end up a value store. They are a value store. 

massively unfair as a stupidly high entry price. and those who created the situation and won have broke the social contract of making the future better for their children. 

soft fiat money is the cause of HPI.  

but fiat also means we can fund hospitals etc, and allows a smoother society, and allows us to be lazy and unproductive. and allows a few to be one super rich while the average joe still gets all the services he expects regardless or not if it’s actually paid for. 

I would argue that our system works fine, fiat is a necessary evil. 

The only thing that needs to change is the value store. we need some hard money. Something with a restricted supply which can’t be printed at will (like gold) and is transparent. 

a world where everyone wins, where the value store is open to everyone at whichever increment no matter how small, (not £300k entry price!) where hospitals are still funded, and boomers cant just destroy the young and break the social contract, with unearned wealth. 

a tweeked system. not earth shattering. 

but would bring fairness back. 

Edited June 28, 2019 by jiltedjen

[Arpeggio]

In my view a big reason is it’s simplicity. The stock market, bonds, funds etc. comes across as complicated to most and would have a limited pool of useful idiots if you want to start off a ponzi like Bernard Madoff.

Everyone has to live somewhere, it’s the building in which they reside, it feels arms length. HPI is so easy to get the public into. Saying “prices always go up” and “Demand and supply innit” start to appear credible phrases from people who have no idea what’s really going in the financial system / economy etc. and would get laughed at in other arenas.

It’s the “Everyman” ponzi.

[A.steve]

9 hours ago, btd1981 said:

Any others?

The presumed value of real estate underpins the asset-backed "securities" that constitute our monetry supply. Falling real-estate prices pave towards a systemic failure of the debt secured opon this asset class - and, with that, a linked failure of state and currency. 

[winkie]

Because people can keep borrowing more against it, quality security for debt.....people feel richer holding it so spend more into the economy, it can make more money annually than working doing a full time job......an income today, a future pension, future living/care provision.....an inheritance......money for doing nothing......Oh! and you can also live in it.

......but nothing always stays the same always.?

[nome]

I never get tired of posting this vid when people talk about the real reason for high house prices...

 

 

[Wayward]

28 minutes ago, nome said:

I never get tired of posting this vid when people talk about the real reason for high house prices...

 

 

Yes but why does he have to look so silly when presenting one of the most important messages of our times...

[Wayward]

You also need conditions of scarcity and competitive bidding for housing...so S&D does play a role alongside easy credit.

[spyguy]

Why?

Simple. The way UK money creation works is that BoE prints money, loans it to banks, who lend it to plebs.

The plebs pay bank the bank, who pays by the BoE, who then unprint the money.

Money is created and pushed out. Then its pulled back in.

Tides of fiat.

Sorts of worked, since the end of the gold standard and all that.

How does it go wrong?

Simple - banks are meant to lend money to a wide number of activities, hopefully  wealth creating.

However ... commercial lending is hard n risky.

So what  happens is that banks lend to real estate be it homes or shopping centres.

The book value goes up, the person can borrow more money, the bank is happy as they have collateral (they think), so they lend more.

In 2008, I cannot remember the exact figures but something like 80% of bank lendign was going into real estate.

Then the banks funding went pop!. Theyd lent too much to too illiquid. Banks went bust.

Whats happened since is pretty significant in terms of UK banks - MMR ties mortgage lending to income.

The Basel3 rules also increase the risk weighting of real estate, esp commercial.

UK banking 1972 -> 2008 is over. Dead.

You can see it in the decimation of jobs and banks branches.

Banking/finsec used to be a *massive* employer - several 100k. Employment is still lurching down n down n down.

You can see this change by the very low housing transactions. Low IR are keeping book value house prices high.

However, when they come to be transacted the house seller runs into a massive lack of mortgage money.

Assuming the world IR carries on liek it will - US will continue to do well, raising rates, putting more pressure on BoE to raise,.

China blows up further, rapidly switching from being an exporter of disinflation and capital, to one that starts exporting inflation and sucking up capital, then you are likely to see a paid turn oud of ZIRP.

Us is in a very good position, never being much of an importer / exporter bar its currency, which the world *pays& to use.

EU is in a terrible position, as academic economists continue their failed strategy, whilst the EU and nations governments just do no t address the fundamental problems - EURO does not work, most Med countries need massive wage adjustments down.

UK is somewhere between, treading carefully as its big money spinner -financial services, are eaten more n more by software.

 

 

 

 

 

 

[DarkHorseWaits-NoMore]

Cheap money, leveraged up fractional reserve banking system, debt must increase

Restrictive planning system, creating a lack of supply

Land hording, slow construction by design, rigged market for big builders

Captured democracy, funded by banks and builders, no real resolution by policy allowed

Globalisation without planning and resource allocation

Uninformed misdirected electorate, dumbed down/silent media reporting

 

[Captain Kirk]

2 hours ago, spyguy said:

In 2008, I cannot remember the exact figures but something like 80% of bank lendign was going into real estate.

I wonder if it is the same today? Perhaps mortgage lending should be restricted to, say, 30% of a bank's lending? Perhaps also, mortgages should be restricted to new builds and extensions only? That way, money expansion would relate to economic activity. It probably would need thinking through, but something along those lines may be a solution.

[nightowl]

It's easy to think HPI us a UK only phenomena and focusing purely on HTB for example, but it's also been seen in many other places around the world too making harder to put a finger on it.

[Captain Kirk]

6 minutes ago, nightowl said:

It's easy to think HPI us a UK only phenomena and focusing purely on HTB for example, but it's also been seen in many other places around the world too making harder to put a finger on it.

Could it be that all countries have fiat currencies, all of them have loose monetary policies, and the money sloshing around has to go somewhere?

[GreenDevil]

4 hours ago, nome said:

I never get tired of posting this vid when people talk about the real reason for high house prices...

 

 

Excellent vid. 

[nightowl]

Just now, Captain Kirk said:

Could it be that all countries have fiat currencies, all of them have loose monetary policies, and the money sloshing around has to go somewhere?

Quite likely, but each country has it own unique agitations on top. Japan curiously has no HPI despite low interest rates and helicopter money.

[spyguy]

20 minutes ago, Captain Kirk said:

I wonder if it is the same today? Perhaps mortgage lending should be restricted to, say, 30% of a bank's lending? Perhaps also, mortgages should be restricted to new builds and extensions only? That way, money expansion would relate to economic activity. It probably would need thinking through, but something along those lines may be a solution.

No.

Bank's books are rapidily shrinking as OO  mortgages are paid off.

MMR and Basel3  are driving massive structural shift occurring in UK property lending. Yet, despite the evidence, the properdee crown still bang on.

There was a massive, quiet shuift as soon as TFS and the like ended.

Look at EAs - falling to bits due to lack of sales.

Look at banks - doign stupid Ads to try and shift their mortgage.

Look at London Down ~20-30% + record low trasnaction. Yet none seems to have clicked.

Look atthe no5rthern places I follow. Prices have been flat for 15 years now.

 

 

[Riedquat]

16 hours ago, dougless said:

Spot-on.

I also love the myth that keeps getting perpetuated that we are a 'small and overcrowded island' which is often used to justify high land prices.  I seem to recall that less than 10% of the UK is built on and that includes roads.

a) 10% includes Scotland, which certainly isn't overcrowded.

b) Even 10% is a sign of being overcrowded and overdeveloped, it's a terribly high number for an overall level of development. Also compare that number with what it would've been just within living memory - a truly scary rate of change.

It's beyond me how anyone who's even travelled around the country more than a tiny bit could not find it overcrowded; you've got to be really oversimplifying to treat that as "well I can see lots of bits that aren't built on" when you're rarely more than 20 miles from somewhere large.

Fair enough about the "small" bit though, as far as islands go it's a fairly large one.

Edited June 29, 2019 by Riedquat

[Riedquat]

17 hours ago, Wayward said:

You don't need to look any further than the fact that the rich and powerful in the UK hold their wealth in land and property as they have for centuries...naturally they are going to seek to inflate its value.

"As they've done for centuries" therefore suggests that they're not why house prices have gone really bonkers this century.

[Clarky Cat]

Isn't part of it due to imputed rent being a significant proportion of GDP? Pump this up and you get "growth" measured via GDP.

[cnick]

17 hours ago, Wayward said:

You don't need to look any further than the fact that the rich and powerful in the UK hold their wealth in land and property as they have for centuries...naturally they are going to seek to inflate its value.

To point where they have so much wealth they an afford to own appreciating assets and are not concerned about any lack of yield.... They can afford to deprive others of the use of said assets.

makes me sound socialist ..... I'm not. I'm just interested in the fair honest and reasonable distribution of capital free from any threat of violence of taxation that supports the banking system.

https://www.dailymail.co.uk/news/article-7193187/The-multi-million-pound-homes-Londons-billionaires-row-left-rot-crumble.html

[Captain Kirk]

34 minutes ago, spyguy said:

No.

Bank's books are rapidily shrinking as OO  mortgages are paid off.

MMR and Basel3  are driving massive structural shift occurring in UK property lending. Yet, despite the evidence, the properdee crown still bang on.

There was a massive, quiet shuift as soon as TFS and the like ended.

Look at EAs - falling to bits due to lack of sales.

Look at banks - doign stupid Ads to try and shift their mortgage.

Look at London Down ~20-30% + record low trasnaction. Yet none seems to have clicked.

Look atthe no5rthern places I follow. Prices have been flat for 15 years now.

 

 

It all sounds good. Someone needs to let the debt slaves and wannabe rentiers know.

[nightowl]

16 minutes ago, cnick said:

To point where they have so much wealth they an afford to own appreciating assets and are not concerned about any lack of yield.... They can afford to deprive others of the use of said assets

Buying already overpriced assets that return no yield and at risk of devaluation could only be explained by is safer than in a bank account. 

Too much money seems to be tied up in totally unproductive activity to me and redistrubuting it via a productive economy is more sustainable than taxation. Funny thing is depending on the idiology of anyone I say this too either thinks I'm a socialist or a capitalist ?

Edited June 29, 2019 by nightowl