Mainly Macro - academic discussing interest rates driving house prices and reasons why journalists and politicians focus on supply and demand

[jan81]

Read this blog over breakfast this morning and thought it was a very clear discussion of how interest rates/monetary policy drive house prices but the mainstream discussion focuses on supply and demand. Thought it might be of interest to the forum.

 

https://mainlymacro.blogspot.com/2020/01/evidence-and-persistence-of-mistaken.html

[The Spaniard]

27 minutes ago, jan81 said:

Read this blog over breakfast this morning and thought it was a very clear discussion of how interest rates/monetary policy drive house prices but the mainstream discussion focuses on supply and demand. Thought it might be of interest to the forum.

 

https://mainlymacro.blogspot.com/2020/01/evidence-and-persistence-of-mistaken.html

Genius level insight from the University of the Bleeding Obvious.

[Si1]

"My question is why this point is almost never made in the popular discourse on the house price problem?" - because it requires second order thinking which most people would rather avoid.

[Arpeggio]

"Secular stagnation is used by most macroeconomists to describe the current era where real interest rates appear to be permanently lower than they were decades before. The uncomfortable conclusion would be that as long as this era lasts, house prices will remain at levels that are unaffordable for many young people. Building more houses on any reasonable scale is not going to change that very much."

Providing house prices simply stay high and don't continue to rise, this means that a large chunk of voters will be out of the sphere of benefactors. Maybe the only profit to make now being from building new houses on land / owning land on which housing is to be built.

This could be a 99% fall in the pool of benefactors, leaving perhaps a very small 1% (or less) group who would still gain in such a stagnation. Maybe the many Baby Boomers (not all of them) won't be on VI's side forever.

Less young people able to afford to buy a house of their own = less profiting from housing (inheritance) because they will need to live there or use it to buy somewhere equally as over priced. Perhaps getting young people on to the "Ladder" at any cost is also an attempt to mitigate that, in efforts to try to keep the ponzi going.

[Si1]

6 minutes ago, Arpeggio said:

. Perhaps getting young people on to the "Ladder" at any cost is also an attempt to mitigate that, in efforts to try to keep the ponzi going.

Perhaps?

It was a core tenet of Cameron's appeal to the boomer vote in 2015.

 

[nothernsoul]

Media and polictical narrative one. House prices are high purely because we need to build more. Its just a demagraphic inevitability, nobody is to blame, it will take years to sort out, hopefully somebody will get round to it. Eventually. 

Media narrative two. House prices are unaffordable for one group because we have deliberately  used financial engineering to benefit one group in society over another. This could all be solved instantly if the BOE raised rates. 

Both mainstream media and political class have interests in keeping status quo, so pretty obvious which narrative they want to push. 

On a similar theme, i read an article by economist dean baker. He claimed that in many different ways financial engineering is used to benefit the rich in society. Governments and the rich dont want to highlight this for obvious reasons, and the left makes the fatal error of focussing on redistribution of tax revenues instead. 

[dugsbody]

6 hours ago, Si1 said:

"My question is why this point is almost never made in the popular discourse on the house price problem?" - because it requires second order thinking which most people would rather avoid.

That and because it doesn't suit the agenda of the right wing press. It's so much better for them to blame immigrants, and people naturally want to anyway.

For evidence, see 50% of people on this site. Still blaming immigrants from the EU for the global house price boom.

Edited January 26, 2020 by dugsbody

[Will!]

1 hour ago, dugsbody said:

That and because it doesn't suit the agenda of the right wing press. It's so much better for them to blame immigrants, and people naturally want to anyway.

For evidence, see 50% of people on this site. Still blaming immigrants from the EU for the global house price boom.

I see posters on this site blaming mass immigration.  It's been at least a couple of years since I've seen any posters blaming immigrants.

Edited January 26, 2020 by Will!
grammar, innit

[Riedquat]

36 minutes ago, Will! said:

I see posters on this site blaming mass immigration.  It's been at least a couple of years since I've seen any posters blaming immigrants.

That's because it doesn't suit some peoples' agenda to properly distinguish between the two...

[Arpeggio]

7 hours ago, Si1 said:

Perhaps?

It was a core tenet of Cameron's appeal to the boomer vote in 2015.

Sorry. Of course it was always generally to keep the ponzi going as we all know, but what I specifically meant was that things like HTB might have also been to get more young people profiting from property inheritance, by making them home owners and therefore potentially future 2nd home owners and therefore future HPI vested interests......as opposed to simply people who can't afford to buy a house and inheritance only resulting in somewhere to live.

The kick in the nuts insult via the product of their loins (their children) to the over 60s obviously acceptable to those of whom get satisfaction that their children can't afford a house, because they aren't working hard enough / spend their money on iPads and Avacado on toast etc.

[Arpeggio]

2 hours ago, dugsbody said:

That and because it doesn't suit the agenda of the right wing press. It's so much better for them to blame immigrants, and people naturally want to anyway.

For evidence, see 50% of people on this site. Still blaming immigrants from the EU for the global house price boom.

This might correlate with my earlier post here where I said:

"Providing house prices simply stay high and don't continue to rise, this means that a large chunk of voters will be out of the sphere of benefactors. Maybe the only profit to make now being from building new houses on land / owning land on which housing is to be built."

The issue isn't a lack of housing (as the original article says), therefore for those that can still profit from the housing bubble, the need for building new houses needs to be justified.

[Ballyk]

9 hours ago, Arpeggio said:

"Building more houses on any reasonable scale is not going to change [that] very much."

 

Building more quality houses certainly will change things.

In SE England, London and increasingly parts of SW England, with population growth and a fairly static housing stock, everyone has to 'budge up' and compromise.  People in every socio economic group move into smaller and less attractive housing than their parents.  That has been going on for decades, to the point that unless you inherit, experience massive economic upward mobility, or move to a gentrifying area, your quality of life will almost certainly be lower than the previous generation (in housing terms at least).  

In other areas, Northern Ireland for example because I know it, there has been a great deal of building quality houses, so the housing stock has pretty much kept up with population growth.  This means that, should they wish to, most people can afford to live in the same houses and areas as their parents.  Obviously some choose to move out from Belfast to the countryside, where a lot of high quality new houses have been built.  This takes the pressure off established areas, so their prices have not got out of hand.

Of course low interest rates mean that prices settle at a higher equilibrium price, as everywhere else, but 'average' people can still live in 'average' homes like their parents.

Also, there are no very large housebuilders in Northern Ireland, instead there is meaningful competition on quality between smaller housebuilders.  And there is no shortage of skilled people, who are often to be found working on high end projects in London.

Also, not having Help to Buy has helped NI.

It is worth taking a look at the NI property portals to see what I mean, www.propertypal.com and www.propertynews.com (NI property tends not to be listed on the main UK portals).  

NI has a more equal distribution of income and wealth (due partly to the undesirably enormous public sector), and there is not a huge disparity in house prices across the country.  There are a couple of 'prime' areas, BT9, BT18 and parts of BT23 and BT34.  But even these areas are not particularly special.  Rents are generally exceptionally low for quality houses, due to the supply / demand relationship.

'Happiness' is also highest in NI of all regions, although not by as much as it was (possibly something to do with Brexit and not having a functioning devolved government).   But having a decent home to live in greatly outweighs those factors.  See - 

https://www.ons.gov.uk/peoplepopulationandcommunity/wellbeing/bulletins/measuringnationalwellbeing/april2018tomarch2019

[Si1]

4 hours ago, Ballyk said:

Building more quality houses certainly will change things.

This is fair. Also not subsidising the elderly to carry on living in all the nice big family houses might help too.

[Locke]

15 hours ago, dugsbody said:

it doesn't suit the agenda of the right wing press

So what are the left wing press ( i.e. The Grauniad, which I am sure you would agree has a slight leftie bias) saying?

[iamnumerate]

19 hours ago, Will! said:

I see posters on this site blaming mass immigration.  It's been at least a couple of years since I've seen any posters blaming immigrants.

 

18 hours ago, Riedquat said:

That's because it doesn't suit some peoples' agenda to properly distinguish between the two...

+1

 

Obviously if immigration causes problems it is not the immigrants fault - it is the politicians who let them in who are responsible.  If a boat sinks because there are too many passengers - no one would blame the passengers - just the person who sold the tickets.

 

I saw a programme on the Wilsons and a lot of their tenants were immigrants.  If they weren't here wouldn't the Wilsons get less rent?  

A friend traded up in 2005 and part of the money he used to buy his house - he had got from renting rooms out to lodgers who were all immigrants.  If they had not been here - he would have had less money to spend on a house (not sure how much because he might have been more frugal without them).  However according to him immigration certainly did affect the amount of money he had to some extent.  Obviously this is an anecdote and not data - maybe no one else has ever done this.

Spare room gives the impression that immigration has made the lodger market better - if you are a landlord!

 

Disclaimer I am not blaming immigrants in any way.  Any problem caused by too many people in a place is caused by the person who let them in there without thinking about what would happen - and in some cases (yes Tony Blair I do mean you) decided to profit from the problems rather than deal with them.

 

[winkie]

Will there reach a tipping point when work nolonger pays unless paying for a house??

[nothernsoul]

Fergus wilson wouldn't have any properties, or any tenants, immigrant or otherwise, if rates hadnt been slashed to near zero level. He has publicly admitted so himself. He was not able to service the debt at anywhere near historically normal levels. 

[dugsbody]

 

3 hours ago, iamnumerate said:

Obviously if immigration causes problems it is not the immigrants fault

*sigh*

Talk about missing the point.

[iamnumerate]

4 hours ago, nothernsoul said:

Fergus wilson wouldn't have any properties, or any tenants, immigrant or otherwise, if rates hadnt been slashed to near zero level. He has publicly admitted so himself. He was not able to service the debt at anywhere near historically normal levels. 

True - but what about my friend. He got £20 K due to immigration which went to a house

Also of course immigration must have an effect on landlord's profitability - which of course affects housing.  (He only rented out rooms because he thought otherwise he would never be able to move up the ladder - which he thought was because immigration would put prices up).

 

2 hours ago, dugsbody said:

 

*sigh*

Talk about missing the point.

Yes - you have - by saying people are blaming immigrants that implies people are racist - there is a big difference.  If  you want people to get your point - use the right.

Edited January 27, 2020 by iamnumerate

[dugsbody]

1 hour ago, iamnumerate said:

Yes - you have - by saying people are blaming immigrants that implies people are racist - there is a big difference.  If  you want people to get your point - use the right.

You're serious. Wow.

[iamnumerate]

8 hours ago, dugsbody said:

You're serious. Wow.

Good job of avoiding the point, please answer this

Quote

I saw a programme on the Wilsons and a lot of their tenants were immigrants.  If they weren't here wouldn't the Wilsons get less rent?  

 

14 hours ago, nothernsoul said:

Fergus wilson wouldn't have any properties, or any tenants, immigrant or otherwise, if rates hadnt been slashed to near zero level. He has publicly admitted so himself. He was not able to service the debt at anywhere near historically normal levels. 

No one can service any debt without tenants.  I am not saying that interest rates are not partly responsible for high house prices but not 100% responsible.

Edited January 28, 2020 by iamnumerate

[Locke]

8 hours ago, dugsbody said:

You're serious. Wow.

Wow just wow it's 2020 people

[Gigantic Purple Slug]

I read this guys blog occasionaly and I like it.

Can't help feeling though that the economics is viewed with a strong political bias.

Maybe it's true to say that politics and economics go hand in hand, but it's almost impossible to find a good neutral analysis.

[iamnumerate]

1 hour ago, Locke said:

Wow just wow it's 2020 people

Very good.

14 minutes ago, Gigantic Purple Slug said:

I read this guys blog occasionaly and I like it.

Can't help feeling though that the economics is viewed with a strong political bias.

Maybe it's true to say that politics and economics go hand in hand, but it's almost impossible to find a good neutral analysis.

True.  He also ignore the fact that there are places in the UK where prices are relative to inflation similar to 1997 - despite interest rates being a lot lower.

[spyguy]

On 26/01/2020 at 18:15, dugsbody said:

That and because it doesn't suit the agenda of the right wing press. It's so much better for them to blame immigrants, and people naturally want to anyway.

For evidence, see 50% of people on this site. Still blaming immigrants from the EU for the global house price boom.

There;s multiple factors, all slightly different, depending on which country you are in.

In the US, their HPI -and bust -was caused by their magic new finance.

In Swden is IO mortgages. Still.

In Oz/NA, its Chiense money and a local craze to own 3 houses, all encourages by insane tax policies.

In the UK its a combination of vastly inflated banking assets 199->2004, which blow up, leaving the housing bubble in tact, IO BTL idiots and immigration, under written by large in-work benefits.