Uk Housing Market Not Overvalued Says Nickell

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

http://www.bloomberg.com/apps/news?pid=206...ZI&refer=uk Edited June 7, 2007 by gruffydd

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

and then I stumbled across this:

http://business.guardian.co.uk/story/0,,2096931,00.html

I think I'm gonna die laughing

[Wad]

Professor Stephen Nickell is Warden at Nuffield College Oxford and is therefore likely to be living in a house provided free of charge by the college. He was born in 1944 and will therefore like most people of his generation enjoyed the benefit of free healthcare and free education for himself and his children (if he has any).

If he had bought a house in his early adult life he would also have benefited from the high levels of inflation that quickly paid of mortage debt in the 1970s and also enjoyed a lifetime of low risk relatively well paid employment.

He is therefore unlikely to have ever personally experienced the kind of affordability issues that young FTBs face today.

I have just seen him on the news he said that the only way to get house prices down was to build more.

He is undoubtedly a very learned man and a fine economist and I do not wish to imply a personal criticisism of him but from looking at his CV I think he is mainly a labour market economist.

[BoomBoom]

Professor Stephen Nickell is Warden at Nuffield College Oxford and is therefore likely to be living in a house provided free of charge by the college. He was born in 1944 and will therefore like most people of his generation enjoyed the benefit of free healthcare and free education for himself and his children (if he has any).

If he had bought a house in his early adult life he would also have benefited from the high levels of inflation that quickly paid of mortage debt in the 1970s and also enjoyed a lifetime of low risk relatively well paid employment.

He is therefore unlikely to have ever personally experienced the kind of affordability issues that young FTBs face today.

I have just seen him on the news he said that the only way to get house prices down was to build more.

He is undoubtedly a very learned man and a fine economist and I do not wish to imply a personal criticisism of him but from looking at his CV I think he is mainly a labour market economist.

I'm rather less charitable. He's either lost the plot or he's on the payroll of the money lenders. Housing is a commodity, when any essential commodity becomes too expensive for the average person society has a big problem. If shortage of supply is the problem why is it I see hundreds and hundreds of empty new build city centre flats in Liverpool? why is the same glut of supply in any big city? Why are there new build estates with over half the houses empty? If there was a shortage of supply these [roperties would be snapped up. Price is the problem.

[Smell the Fear]

I'm rather less charitable. He's either lost the plot or he's on the payroll of the money lenders. Housing is a commodity, when any essential commodity becomes too expensive for the average person society has a big problem. If shortage of supply is the problem why is it I see hundreds and hundreds of empty new build city centre flats in Liverpool? why is the same glut of supply in any big city? Why are there new build estates with over half the houses empty? If there was a shortage of supply these [roperties would be snapped up. Price is the problem.

The government WANT to build loads of new houses. This "pity your children" stance being put forward now is an attempt to soften middle england for an onslaught on the green belt.

Why? As the economy tanks the building industry will soak up the unemployed and keep economic growth on an even keel.

[the_austrian]

...wonder if Nickell has seen this

1. Return to 100% reserve banking where the ratio of loan assets to total assets should not exceed 50%.

2. Have a free market for interest rates including short-term rates.

3. Use the taxation system to put more money into circulation or to take it out as required.

http://www.economicsreform.blogspot.com/

[Assurbanipal]

He claims that is "no supply response". What's about highrise boom than?

An example: list of completed, under construction and proposed highrises in Leeds:

http://www.skyscrapercity.com/showthread.php?t=124076

(see whole thread for recent projects)

Edited June 8, 2007 by Assurbanipal

[Guest Shedfish]

the UK market not overvalued?

http://property.timesonline.co.uk/tol/life...icle1898876.ece

Fiona Leteney needed a home for her divorce settlement, but was priced out of Stoke-on-Trent. Determined to find a means to bolster her pension savings, she found an apartment in Florida within her price range.

where Stoke is probably one of the cheapest areas in the UK, and Florida is toppy by any measure (and tanking)

[the_austrian]

daily mail "The average house will cost ten times people’s annual earnings within 20 years, experts have warned"

Daily updates on the Fiat Money Empire click here

Also click here

[Guest DissipatedYouthIsValuable]

daily mail "The average house will cost ten times people’s annual earnings within 20 years, experts have warned"

Daily updates on the Fiat Money Empire click here

Also click here

Haha. Likely story.

[SeenItAllBefore]

I’d be really interested to find out what percentage of UK current home owners could actually cope with the monthly outgoings on a 25 year repayment mortgage for 100% of the current price of their houses. I don’t know anyone who could, most people I know could barely manage half of that. How can this point to anything but a ridiculous bubble?

How ironic is it that Nickell is leading a group purporting to “champion the interests of people priced out of the housing market”? Even though the MPC accepted a measure ludicrously rigged to under report inflation they still let it get out of control because of decisions made when he was a member. If they’d done what common sense was telling them to do at the time and raised rates in the autumn of 2005 the housing bubble would have burst and that would have been that. Instead he voted for a cut to try and keep a badly corrupt pattern going and now things are even worse.

When this situation finally falls in on itself I hope the architects of the mess get pilloried and Professor Stephen Nickell is one of the main culprits.

[SeenItAllBefore]

This is just about the truest thing that's ever been said in the press on this issue. Suriprising to read it in the Times!

Secretly, we do not want a rational housing market. A shortage suits so many people, including existing homeowners, all the main banks that lend and roll up interest to maintain demand, and the mortgage brokers and estate agents on ad val-orem commissions.

The haves wring their hands over the plight of the have-nots. Their paranoia is reserved for the threat that house prices might stop rising, if only in real terms or for a couple of years.

On another note, can someone explain to me how the hell they measure all this "household formation" that's driving up demand? How can households form without houses to form them in? And once again if demand is so high why are there so many empty, new-builds around? It's not just flats, there are plenty of empty houses in many places as well.

[b0rk]

On another note, can someone explain to me how the hell they measure all this "household formation" that's driving up demand? How can households form without houses to form them in? And once again if demand is so high why are there so many empty, new-builds around? It's not just flats, there are plenty of empty houses in many places as well.

Professional sharers would count as multiple households living in one dwelling same for adult offspring living at home. i.e. these people under more normal conditions would have formed independent households rather than shared living. Regarding empty dwellings some will be left empty by the owner because it suits them, others are empty because there aren't enough potential buyers at whatever price point the owner is looking to sell it at.

[SeenItAllBefore]

Professional sharers would count as multiple households living in one dwelling same for adult offspring living at home. i.e. these people under more normal conditions would have formed independent households rather than shared living. Regarding empty dwellings some will be left empty by the owner because it suits them, others are empty because there aren't enough potential buyers at whatever price point the owner is looking to sell it at.

So, if a pair of professional males and a pair of professional females share a pair of 2-bed flats we have 4 households but, after boy meets girl, we ended up with two couples living together in the same 2 flats we'd only have 2 households. Is that how this works?

Edited June 9, 2007 by SeenItAllBefore

[b0rk]

So, if a pair of professional males and a pair of professional females share a pair of 2-bed flats we have 4 households but, after boy meets girl, we ended up with two couples living together in the same 2 flats we'd only have 2 households. Is that how this works?

Basically yes, the DCGL/ONS household formation figures assume no supply side constraints which is how they end up with more households than homes and why DCLG backed housing reviews push for more supply.

[Selling up]

So, if a pair of professional males and a pair of professional females share a pair of 2-bed flats we have 4 households?

Now what if all four of them got drunk and uninhibited one night?

This statistics thing is a minefield!

[southsea13]

Now what if all four of them got drunk and uninhibited one night?

This statistics thing is a minefield!

Nickell is a w*nker, la la la

[Selling up]

Nickell is a w*nker, la la la

Wasn't exactly what I had in mind.

[SeenItAllBefore]

Basically yes, the DCGL/ONS household formation figures assume no supply side constraints which is how they end up with more households than homes and why DCLG backed housing reviews push for more supply.

Ah, so it's a "want" based statistic rather than a "need" based one. Now I understand. I wonder if they allow for the fact that, with a lot of indian communities, it's traditional for the parents to live with the eldest son's families?

Something tells me that a few years of base rates at 7% would scupper the supply and demand argument taking high house prices with it despite all the new household formation. I guess when faced with the choice of adopting the lack of supply argument or admitting economic incompetence the powers that be have opted for the former. Not really a surprise is it?

[b0rk]

Ah, so it's a "want" based statistic rather than a "need" based one. Now I understand. I wonder if they allow for the fact that, with a lot of indian communities, it's traditional for the parents to live with the eldest son's families?

The future forecast is want based with some allowances for trends and patterns. Historical figures are based on calculations and actual survey data. The really interesting fact contained within the DCLG figures are that largest growth area between now and 2026 is to be in single living amongst people aged 45-64 in 2026 (25-44 today) yet this isn't matched a large increase in single parent households. However they don't forecast a decline in birth rate representative of the trend raising the question of where are the kids?

Are fewer women going to have more children each within traditional two parent families? are we going to manufacture children in factories? has future birth rate been over estimated? can the producers of the report do basic maths?

Something tells me that a few years of base rates at 7% would scupper the supply and demand argument taking high house prices with it despite all the new household formation. I guess when faced with the choice of adopting the lack of supply argument or admitting economic incompetence the powers that be have opted for the former. Not really a surprise is it?

I'd argue that there is lack of supply which has allowed rampant HPI due to the populous seeing houses as a safe (inflation busting) investment, had greater supply existed during the boom prices wouldn't have risen nearly as far or fast and would correct to mean very quickly. Sure overly accommodating IR's have added fuel to fire. Housing is notable as being sticky downwards unless supply seriously exceeds demand, vendors simply won't put the place up for sale unless they're forced too. A maintained high IR environment will be required to push prices down any significant level once distressed BTL'ers have been flushed from the system.

[SeenItAllBefore]

I'd argue that there is lack of supply which has allowed rampant HPI due to the populous seeing houses as a safe (inflation busting) investment, had greater supply existed during the boom prices wouldn't have risen nearly as far or fast and would correct to mean very quickly.

I disagree. If you have something that’s genuinely in demand you shouldn’t have to offer incentives in order to shift it, but developers have been forced into competing for buyers all the way through this boom. They weren’t forced to do this last time until the bubble had well and truly burst. All these cash back and gifted deposit sweeteners have been akin to the vendor finance schemes that companies like Cisco and Lucent offered during the dot com boom causing a massive, misplaced over investment in telecommunications equipment. The same thing has now happened in UK housing.

Sure overly accommodating IR's have added fuel to fire. Housing is notable as being sticky downwards unless supply seriously exceeds demand, vendors simply won't put the place up for sale unless they're forced too. A maintained high IR environment will be required to push prices down any significant level once distressed BTL'ers have been flushed from the system.

But lurid press reports of ruined landlords being “flushed from the system” will kill BTL as a reliable investment in Joe Public’s eyes removing a significant segment of the demand from the market in future. That’s got to have an effect on transaction volumes, property prices and the economy as a whole eventually. Weren’t there 300,000 new BTL mortgages last year?

[alex228]

whoever compares UK to Japan and Japanese ideas like 3-generation mortgages seems to forget the difference in natural environment

acc to wikipedia: http://en.wikipedia.org/wiki/Geography_of_Japan

Terrain: mostly rugged and mountainous

Natural resources: negligible coal, oil, ion resources, fish, and mineral resources

Land use:

arable land: 11%

permanent crops: 1%

permanent pastures: 2%

forests and woodland: 67%

other: 19% (1993 est.)

plus they have typhoons and earthquakes, they can't afford to build baloney British-style domiciles. single window pane, but double taps. Shower considered a "luxury" (quoting EA) Pffft!

British obstacles to affordable housing are institutional + mentality. all these homeowners opposing new development bc of "strain on roads and sewage systems" or "green belt" b0llocks! they just want their shoddy housies skyrocket even higher!

Edited June 9, 2007 by alex228

[b0rk]

I disagree. If you have something that’s genuinely in demand you shouldn’t have to offer incentives in order to shift it, but developers have been forced into competing for buyers all the way through this boom. They weren’t forced to do this last time until the bubble had well and truly burst. All these cash back and gifted deposit sweeteners have been akin to the vendor finance schemes that companies like Cisco and Lucent offered during the dot com boom causing a massive, misplaced over investment in telecommunications equipment. The same thing has now happened in UK housing.

I completely agree that it has lead to over investment but of BTL targeted dwellings rather than general oversupply. IMHO far to few houses have been built to satisfy latent demand which has been a factor in HPI for OO properties and may be factor in OO properties sticking rather than free falling.

The problem I have with the incentive argument is the incentives where almost certainly factored into the original asking price. Back in the early 90's I worked for one of the major house builders and was involved with developing a price management policy basically back then discounts good, the impression of discounts better. This was back when volumes where horrendous and open discounting was required to sell, what was discovered is that a higher overall price (and profit margin) could be achieved by creating the impression of a discount via various incentive and rebate schemes. These would be offered under the counter to the buyer should they push for a better (lower) price. As an example lets say the target (true) price/value is £100,000 but to realise that a 10% discount rebate and part-ex is required costing £16,000 thus the selling price would be inflated by say £20,000 to £120,000. Former colleagues still in house building tell me this practice continues regarding incentives.

But lurid press reports of ruined landlords being “flushed from the system” will kill BTL as a reliable investment in Joe Public’s eyes removing a significant segment of the demand from the market in future. That’s got to have an effect on transaction volumes, property prices and the economy as a whole eventually. Weren’t there 300,000 new BTL mortgages last year?

I oh do expect BTL to not be seen as wise investment by the majority once this has finished playing out. The question is what effect new build studio and 1 bed flats taking a kicking in value will have on the wider market. I'm not so sure that 3+ bedroom houses will be dragged down as far as they should be had rampant HPI not occurred, now BTL investors getting their main house repo'd to cover losses/CGT could change this.

[the_austrian]

He may be right, our bubble is quite unique given our highly restrictive planning system combined with our highly liberal immigration policy.

UK housing is a one-way bet compared to all other markets.

The reason it is a one-way bet is that you can always make money borrowing money which is less expensive than the market price. In a free market for interest rates, rates would be determined by supply and demand and the economic value of debt would be reflected in the price. Because money is sold at a price much less than it would be in a free market, there are always gains to be made from borrowing money.

Times article.

http://business.timesonline.co.uk/tol/busi...icle1896202.ece

Read this journalist's comment!

I see what you mean!! "Secretly, we do not want a rational housing market. A shortage suits so many people, including existing homeowners, all the main banks that lend and roll up interest to maintain demand, and the mortgage brokers and estate agents on ad val-orem commissions."

Strange because I thought the market was distorted by loose lending and artificially low interest rates. So can we expect house prices to defy gravity if interest rates are 8%? We all know the answer is no.

Even Kate Barker thinks so! click here

"You wouldn't immediately assume that a fall in interest rates would make housing less affordable..."

[nohpc]

Just Swap UK with Japan and 2007 with 1985 and you're spot on.

Exactly. Japan is more densely populated and it had a humongous crash so why should that be a factor in the UK? We are just as crash prone as all the other boom countries. Maybe not as much as NewZealand.