What's really driving house prices? COVID in Australia may prove a point!

[scottbeard]

8 hours ago, slawek said:

I've presented data showing that there were enough new houses built.  See my earlier post.

No, you presented data that shows over recent years we’ve just about built enough houses to be in the same position we started.

Yet everywhere I look there are grown up children living with parents, immigrants living in cramped houses and many people homeless altogether.

Just imagine how much better the U.K. housing situation would be if we had built the 3 million houses you noted had been built but NOT  also had the 3 million immigrants. 

 

[henry the king]

3 minutes ago, scottbeard said:

No, you presented data that shows over recent years we’ve just about built enough houses to be in the same position we started.

Yet everywhere I look there are grown up children living with parents, immigrants living in cramped houses and many people homeless altogether.

Just imagine how much better the U.K. housing situation would be if we had built the 3 million houses you noted had been built but NOT  also had the 3 million immigrants. 

 

Yeh we do need to build more homes. Its not going to solve the "crisis" but its important nonetheless and it will help

[slawek]

11 minutes ago, scottbeard said:

No, you presented data that shows over recent years we’ve just about built enough houses to be in the same position we started.

Yet everywhere I look there are grown up children living with parents, immigrants living in cramped houses and many people homeless altogether.

Just imagine how much better the U.K. housing situation would be if we had built the 3 million houses you noted had been built but NOT  also had the 3 million immigrants. 

 

Yes, the situation didn't get worse as the number of new houses kept with the population growth. 

I've also showed that higher wages/lower IRs explain almost all of HPI since 2000 leaving only 6% for other factors.  

You wouldn't have 3m of additional houses without 3m of immigrants.  

[scottbeard]

3 minutes ago, slawek said:

I've also showed that higher wages/lower IRs explain almost all of HPI since 2000 leaving only 6% for other factors.  

You wouldn't have 3m of additional houses without 3m of immigrants.  

Oh yes interest rates and two income mortgages explains most of the price rise I know that.

it’s the people who say immigration has NO impact I dispute.  It does have some because mathematically it must do.

and you wouldn’t have had ALL the 3 million homes without any immigrants but we could and should have had SOME.

Let me say it again - you have 27 year olds still living with their Mum.  The only way to resolve that ridiculous situation is building houses FASTER than population grows.

[Riedquat]

25 minutes ago, slawek said:

Yes, the situation didn't get worse as the number of new houses kept with the population growth. 

I've also showed that higher wages/lower IRs explain almost all of HPI since 2000 leaving only 6% for other factors.  

You wouldn't have 3m of additional houses without 3m of immigrants.  

So we'd be in no worse a situation on the house price front but with the advantage of less development sprawl making a mess of the place, and all the demand that puts on everything else (services, infrastructure etc.)

What we'd have probably had is not that much building, but not none either, so going ahead of instead of matching population growth, which again would've been a better situation than we've actually got.

Population growth, which is almost entirely immigration-driven in the UK, has meant that building couldn't do better than keep prices steady (whilst the pressures from elsewhere shot them skyward).

[slawek]

1 minute ago, scottbeard said:

Oh yes interest rates and two income mortgages explains most of the price rise I know that.

it’s the people who say immigration has NO impact I dispute.  It does have some because mathematically it must do.

and you wouldn’t have had ALL the 3 million homes without any immigrants but we could and should have had SOME.

Let me say it again - you have 27 year olds still living with their Mum.  The only way to resolve that ridiculous situation is building houses FASTER than population grows.

To be precise I meant immigration didn't contribute to HPI we have experienced. 

Yes, you would have had some new houses but it is difficult to say how many and what would be their impact on HPI.

My guess is the house prices would increase practically in the same manner, the only difference would be that rich people would own more properties. So your 27 year old would need to rent from them.

Decreasing IRs created a relatively safe asset that returned around 7% in the real term over the last 20 years.  A very good investment for people who don't want to invest in the stock market, which is much more volatile. The asset which is also easy to leverage 10 times giving you return 70%/pa with the UK government practically providing a protection against the housing market going against you. 

[zugzwang]

12 minutes ago, slawek said:

Yes, the situation didn't get worse as the number of new houses kept with the population growth. 

I've also showed that higher wages/lower IRs explain almost all of HPI since 2000 leaving only 6% for other factors.  

You wouldn't have 3m of additional houses without 3m of immigrants.  

 

The situation did get worse! It got significantly worse in London and the South East because the number of new houses didn't keep up with the growth in population.

The result has been the creation of a boomerang generation of 18-45 yr olds some 4m strong still living in the parental home, unable or unwilling to rent or buy. Had they been able to contribute to the market prices and rents would have risen even faster.

When are we going to build in sufficient quantity to accommodate them?

 

[henry the king]

6 minutes ago, zugzwang said:

 

The situation did get worse! It got significantly worse in London and the South East because the number of new houses didn't keep up with the growth in population.

The result has been the creation of a boomerang generation of 18-45 yr olds some 4m strong still living in the parental home, unable or unwilling to rent or buy. Had they been able to contribute to the market prices and rents would have risen even faster.

When are we going to build in sufficient quantity to accommodate them?

 

Yeh the housing shortage is regional. The shortage is just in the S/E. Everywhere else its not a problem except holiday places but that is due to second home BS.

[zugzwang]

33 minutes ago, henry the king said:

Yeh the housing shortage is regional. The shortage is just in the S/E. Everywhere else its not a problem except holiday places but that is due to second home BS.

Yes, second homes and holidays lets in the SW have also priced young people out of the market.

[slawek]

40 minutes ago, zugzwang said:

 

The situation did get worse! It got significantly worse in London and the South East because the number of new houses didn't keep up with the growth in population.

The result has been the creation of a boomerang generation of 18-45 yr olds some 4m strong still living in the parental home, unable or unwilling to rent or buy. Had they been able to contribute to the market prices and rents would have risen even faster.

When are we going to build in sufficient quantity to accommodate them?

 

Do you think we would have those 4m living with parents if the population was stable and no new houses were built?

[zugzwang]

Just now, slawek said:

Do you think we would have those 4m living with parents if the population was stable and no new houses were built?

New houses would still have been built but on average they'd have been a LOT cheaper.

[slawek]

7 minutes ago, zugzwang said:

New houses would still have been built but on average they'd have been a LOT cheaper.

I don't think that is true. There would be less new houses and they would be as expensive as now.

New houses would be bought as an investment or to speculate by people wealthy enough or having enough income to borrow money.   

[dugsbody]

4 hours ago, scottbeard said:

Just imagine how much better the U.K. housing situation would be if we had built the 3 million houses you noted had been built but NOT  also had the 3 million immigrants. 

That would not have happened. Building rates are strongly correlated with demand. Always have been.

[dugsbody]

2 hours ago, zugzwang said:

New houses would still have been built but on average they'd have been a LOT cheaper.

It seems common sense to me that when interest rates go from 7% to 2% and salaries almost double in that time, this would have an enormous upward impact on house prices.

Likewise, if zero dwellings had been built but we had an extra 5 million people, it would have an enormous upward impact on house prices.

How much cheaper do you think houses would be now if we'd had net zero immigration since 2000? Have you got some example country we could use as a reference?

[scottbeard]

1 hour ago, dugsbody said:

That would not have happened. Building rates are strongly correlated with demand. Always have been.

Funnily enough it now sort of HAS happened, since the 3 million homes are still here, and the immigrants are all going home (and taking their HGV licenses with them, but that’s another story!)

So hopefully whilst Brexit and COVID are both bad news one silver lining is less housing pressure. 

[scottbeard]

5 hours ago, slawek said:

My guess is the house prices would increase practically in the same manner, the only difference would be that rich people would own more properties. So your 27 year old would need to rent from them.

Maybe to some extent. I’d still rather have rented when I was 27 than lived with my parents. 

[Riedquat]

5 hours ago, slawek said:

I don't think that is true. There would be less new houses and they would be as expensive as now.

New houses would be bought as an investment or to speculate by people wealthy enough or having enough income to borrow money.   

Fewer but probably not none.

[Pop321]

Simple supply and demand is a factor. More people and less house building can increase demand. But to be clear when I bought my first house in mid 80’s I paid 6.7x my income and had I had more I would have paid it.  When I sold and moved we paid 9.5x for the next home….and I would have paid 20 times had the bank let me. I was excited, wanted a nice home and tried to get the best I could. 

Demand is an important factor, but there has been high demand for decades….however due to the ability to borrow and leverage the price I will pay is determined by the highest bidder, (or maybe the second highest bidder pushing the first) what they can borrow and how much it costs a month.  

[slawek]

9 hours ago, scottbeard said:

Maybe to some extent. I’d still rather have rented when I was 27 than lived with my parents. 

If he/she can't afford to rent now he/she would have the same problem in the contrafactual scenario. 

[zugzwang]

11 hours ago, dugsbody said:

It seems common sense to me that when interest rates go from 7% to 2% and salaries almost double in that time, this would have an enormous upward impact on house prices.

Likewise, if zero dwellings had been built but we had an extra 5 million people, it would have an enormous upward impact on house prices.

How much cheaper do you think houses would be now if we'd had net zero immigration since 2000? Have you got some example country we could use as a reference?

 

Emphatically not! The economy would be much smaller than it is now. House prices and rents would have been proportionately lower.

And talk of interest rates going from 7% to 2% isn't entirely accurate either. The average SVR was a little over 5% twenty years ago. It's a little under 5% today.

[dugsbody]

1 hour ago, zugzwang said:

And talk of interest rates going from 7% to 2% isn't entirely accurate either. The average SVR was a little over 5% twenty years ago. It's a little under 5% today.

Only small number of people will be on SVR paying 5% today and back then. Most are on fixed or on base tracker + some small percent. And most importantly, sale prices are not conducted using SVR. I'd go as far as saying every new buyer will be taking a fixed rate.

7% and 2% is pretty accurate.

Edited October 5, 2021 by dugsbody

[iamnumerate]

18 hours ago, scottbeard said:

No, you presented data that shows over recent years we’ve just about built enough houses to be in the same position we started.

Yet everywhere I look there are grown up children living with parents, immigrants living in cramped houses and many people homeless altogether.

Just imagine how much better the U.K. housing situation would be if we had built the 3 million houses you noted had been built but NOT  also had the 3 million immigrants. 

 

+1

In the UK house price rises have really varied a lot between areas.Some places which were cheaper than others are now a lot more expensive. Obviously interest rates can't explain that.

 

Strictly speaking what causes houses to become more expensive is that politicians want them to be more expensive because they think it makes them popular.

If in 2008 as well as having low interest rates there had been controls on lending limits and changes to housing benefit to houses in expensive areas,  increased stamp duty on investment etc prices would not have risen.

However that didn't happen because a lot of people want HPI (or politicians believe that).

[scottbeard]

3 hours ago, slawek said:

If he/she can't afford to rent now he/she would have the same problem in the contrafactual scenario. 

But that's not true, is it?  If there were more houses and flats then the cost of renting would be lower.  Increase in supply reduces prices.  Economics 101!

[dugsbody]

2 hours ago, scottbeard said:

But that's not true, is it?  If there were more houses and flats then the cost of renting would be lower.  Increase in supply reduces prices.  Economics 101!

Last year I sold my house in London to move further out. Since I bought that house in 2012/2013 rents in the area pretty much didn't budge, but I sold it for 50% more than I bought it for.

[scottbeard]

1 hour ago, dugsbody said:

Last year I sold my house in London to move further out. Since I bought that house in 2012/2013 rents in the area pretty much didn't budge, but I sold it for 50% more than I bought it for.

I'm not sure what the point you're making here is?

My point is simply: if you build more houses then - all other things being equal - the cost of renting will fall.

Obviously a whole variety of different factors will have contributed to the position in that area to which your anecdote relates.  I'm not trying to pretend that building houses is the only influence on the market, but it seems odd that people appear to be disputing one of the most fundamental principles of pricing any commodity, namely that increasing supply reduces price.