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Why There Will Never Be A Hpc - Ever


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I've been away from a computer since my original post but i have manged to read through the responses.

my comments are as follows:

1) yes i did write the article. I'm a planner by trade so understand the key arguments well.

2) some of you noticed my spelling and i can confirm that i am slightly dyslexic

3) Some people still kept on making reference to the amount of properties available on the market as an indicator of housing supply. If people consider the supply of housing to be such a blank and white issue, then so be it

4) Reference was made to the previous crashes and while didn't the lack of supply count then. My response to this is that there was still 'slack' in the market and that its been the 30 years under supply which is the issue

5) Market sentiment was pointed at as being vital - to which i totally agree. There are a number of factors which determine demand which i did not list because the post would have been even longer.

6) The majority of people (but not all) dismissed that supply really has to do with market price movements. i can't really say much about about that except read a basic economics book

7) I am not an estate agent or IFA

8) I can understand why the dynamics of supply are not vary obvious to people because they are not exposed to it on a regular basis, unlike say interest rate movements which affect everyone (including me)

9) some of you even looked at the Barker Report. If a key government document stating that we need between 70k and 120k extra homes pa does not demonstrate that we need more housing, then so be it

10) a geniune thank you to everyone who gave good arguments and informed the debate

11) last ....but not least.......no one countered my argument with hard evidence (something along the lines of "we do in fact build enough homes and here is the evidence") so maybe, just maybe this housing market is one complicated mother....................................

Good post and discussion dgl1001 - the posts are coming quicker than I can read! So will post quickly.

All markets are driven by supply and demand and the constant movements in these factors will determine market prices. The housing market is very complex as there are many factors that affect both supply and demand and so it is difficult to identify which factors are relevant at a particular time. So some factors can be relevant at some times and not at others - this is particularly relevant to the state of the housing market - rising prices or falling prices etc.

dgl1001 and others have identified most of the key factors affecting housing supply and demand but there are a couple of other factors that are particularly relevant at the present time - ie booming house prices. The first of these is housing speculation. As an asset price increases over a short period of time - people/investors/speculators will notice and start to buy - for the sole reason that they expect prices to rise further. This is no different in the hosing market. As house prices accelerate a growing number of speculators will enter the market with expectation of making a quick profit on the rising prices. So housing demand is pushed up to artificial levels which results in even higher prices as more people join the buying frenzy. But this demand is short lived by nature and will not last - the speculators will watch very carefully for the top of the market and try to sell at the top to realise thier profits. This will then artificially lower demand as they leave the market thus placing many properties on the market and suddnly increasing suppy. This alone could be enouth to crash the market IMHO.

Another factor that is not often mentioned is related to your last point - lack of housing supply. What about all of the invisible houses? Eh! Well not houses but accommodation units - flats and bed-sits! Most housing stats are concerned only with new build but there is a very large number of conversions going on - year in year out. At any time in any town there are a steady number of houses being converted to smaller units. This amounts to a significant number of units in any year but I can't find any figures for this. There are round 300,000 planning applications per year for small alterations to houses but many of these are for extensions etc. But a signicant number of these will be for conversion into smaller units. This figure could be as high as 30,000 - 40,000 and would increase the housing unit stock signicantly. This is a reflection of the growth in the number of households in the country - ie more but smaller households. This one way that supply can be (and is being) increased rapidly and easily - as planning permission for conversions is fairly easy to obtain.

Ancedotally I live in a central part of Exeter - recently in my street a flat and a three storey hose have sold - both are still empty. Speculators? Two other houses are being converted to flats and student houses - increase in supply

So IMO - no lack of housing and many housing speculators equal a HPC - soon!

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Good post and discussion dgl1001 - the posts are coming quicker than I can read! So will post quickly.

All markets are driven by supply and demand and the constant movements in these factors will determine market prices. The housing market is very complex as there are many factors that affect both supply and demand and so it is difficult to identify which factors are relevant at a particular time. So some factors can be relevant at some times and not at others - this is particularly relevant to the state of the housing market - rising prices or falling prices etc.

dgl1001 and others have identified most of the key factors affecting housing supply and demand but there are a couple of other factors that are particularly relevant at the present time - ie booming house prices. The first of these is housing speculation. As an asset price increases over a short period of time - people/investors/speculators will notice and start to buy - for the sole reason that they expect prices to rise further. This is no different in the hosing market. As house prices accelerate a growing number of speculators will enter the market with expectation of making a quick profit on the rising prices. So housing demand is pushed up to artificial levels which results in even higher prices as more people join the buying frenzy. But this demand is short lived by nature and will not last - the speculators will watch very carefully for the top of the market and try to sell at the top to realise thier profits. This will then artificially lower demand as they leave the market thus placing many properties on the market and suddnly increasing suppy. This alone could be enouth to crash the market IMHO.

Another factor that is not often mentioned is related to your last point - lack of housing supply. What about all of the invisible houses? Eh! Well not houses but accommodation units - flats and bed-sits! Most housing stats are concerned only with new build but there is a very large number of conversions going on - year in year out. At any time in any town there are a steady number of houses being converted to smaller units. This amounts to a significant number of units in any year but I can't find any figures for this. There are round 300,000 planning applications per year for small alterations to houses but many of these are for extensions etc. But a signicant number of these will be for conversion into smaller units. This figure could be as high as 30,000 - 40,000 and would increase the housing unit stock signicantly. This is a reflection of the growth in the number of households in the country - ie more but smaller households. This one way that supply can be (and is being) increased rapidly and easily - as planning permission for conversions is fairly easy to obtain.

Ancedotally I live in a central part of Exeter - recently in my street a flat and a three storey hose have sold - both are still empty. Speculators? Two other houses are being converted to flats and student houses - increase in supply

So IMO - no lack of housing and many housing speculators equal a HPC - soon!

It's an interesting 'model' that you are presenting but in reality we don't know if there are enough of these type of speculators and if they will be selling in significant enough numbers to have the effect you are suggesting in terms of a massive crash across the entire market

For example some of the effects may be localised

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dgl1001 and others have identified most of the key factors affecting housing supply and demand but there are a couple of other factors that are particularly relevant at the present time - ie booming house prices. The first of these is housing speculation. As an asset price increases over a short period of time - people/investors/speculators will notice and start to buy - for the sole reason that they expect prices to rise further. This is no different in the hosing market. As house prices accelerate a growing number of speculators will enter the market with expectation of making a quick profit on the rising prices. So housing demand is pushed up to artificial levels which results in even higher prices as more people join the buying frenzy. But this demand is short lived by nature and will not last - the speculators will watch very carefully for the top of the market and try to sell at the top to realise thier profits. This will then artificially lower demand as they leave the market thus placing many properties on the market and suddnly increasing suppy. This alone could be enouth to crash the market IMHO.

Taking about the market generally DCLG Survey of English Housing[1] is an absolute gold mine of stats about the wider market. Table S353 for example shows when MEWer's originally purchased, interestingly enough the largest market is for borrowers that should be near to repayment of a normal 25 year term.

Table S304 shows the taping out of endowments mortgage in preference to repayment followed by the HPI years marking the rise of pure IO.

Tables S315 & S343 Appear to show that boiled frog is alive and well.

[1] Owner occupiers (including second homes)

[2] S358 - Whether increased amount borrowed (and how) by year bought accommodation.

[3] S304 - Type of mortgage by year bought (chart)

[4] S315 - Reasons for mortgage arrears

S343 - Problems with mortgage payments by year bought accommodation

Another factor that is not often mentioned is related to your last point - lack of housing supply. What about all of the invisible houses? Eh! Well not houses but accommodation units - flats and bed-sits! Most housing stats are concerned only with new build but there is a very large number of conversions going on - year in year out. At any time in any town there are a steady number of houses being converted to smaller units. This amounts to a significant number of units in any year but I can't find any figures for this. There are round 300,000 planning applications per year for small alterations to houses but many of these are for extensions etc. But a signicant number of these will be for conversion into smaller units. This figure could be as high as 30,000 - 40,000 and would increase the housing unit stock signicantly. This is a reflection of the growth in the number of households in the country - ie more but smaller households. This one way that supply can be (and is being) increased rapidly and easily - as planning permission for conversions is fairly easy to obtain.

A point I hadn't thought but yes the DCLG live data stats don't show the number of housing conversions post 2001.

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Its a clever tactic which people are using to discredit the supply and demand argument. Essentially your focusing on a minor aspect of demand and then blowing it out proportion to convince yourself and others, that the supply of housing is not the issue here. The people who are best at this are the ones who have been on this forum for several years. What i would say is that these people have been predicting a crash for a long long time and guess what.......its not here yet.

Who is Kate Barker?

To put this supply and demand issue into context i think its time to use an example. Im my original post I made reference to the Kate Barker Report - thats right, the report which took over 2 years to produce by a then member of the board which sets the UK's interest rates. Its fare to say that Kate knowns her economics because she had such an important

role in the UK's economy at the time. Now please don't anyone be offended by this next statement but........ a member of the board which sets the UK's interest rates will know more about economics than anyone who posts on this forum. sorry, but true

and what did she say?

In nut shell she said that there has been a massive under supply of housing and that we need to produce an extra (extra means in addition to what we are already producing) 70,000 houses a year to ease out demand but a further 120,000 homes if we are to do a proper job and balance out the housing market. You can find it at

http://www.hm-treasury.gov.uk/consultation...arker_index.cfm if you don't believe me.

So what does an extra 70,000 homes pa equate to

Kate told us that we need to, at best, provide an additional 70,000 homes for families just to start balancing out the housing market and meet demand. This is just to meet demand, not to bring it back to normal which she says would be 120,000 households. The government now considers that, on average, 2.2 people form the typical household size. I should tell you that this 2.2 figure has been tested and accepted at a number of planning examinations and is well debated. This means the UK is creating an additional 70,000 households pa and going on the governments own figures of 2.2 people per household, equates to 154,000 people.

Oxford

A quick look on wikipedia tells me that 134,248 people live in Oxford, which is quite close to the 154,000 target. Therefore every year a population greater than Oxford needs to be housed - this is how much we need to provide if we are to meet demand. So, a city the size of Oxford needs to be build every year just to keep up with demand from household formation - and guess what - we haven't been providing it.

Supply and Demand

So what do all of these 154,000 people do? Well, they have no choice except to live in rented accomodation, stay at home with parents, go on Council waiting lists etc etc unfortunately the list goes on on. Its a sorry state of affair but this demand does not just go away. The simple law of supply and demand tells us that where supply is constrained, demand and prices will rise. Let me spelling it out for you..... every year a city larger than Oxford would have to built just to keep up with demand - and its been going on for years. With is in mind you may what to think

1) Is it possible for a HPC to occur when there is such a high level of demand

2) is it such a surprise that we have seen such a high level of HPI

Oh - i forget to mention. The Barker Report did not to account for the change in EU policy which has brought a huge number of east europeans into the country - so the 154,000 figure is an under-estimation!!!!!!!!

Your going to be waiting for a long long time ladies and gents for the HPC - best of luck

dgl1001

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I think its time to hear a counter argument to all of this HPC talk. This web site has been established for years now and still you are no closer to realising your goal - a HPC. Just perhaps, this housing market may be a little more complex than you all think and maybe, just maybe, your assumptions about a crash are miss-guided.

So why won't the housing market crash?

In simple terms, the market will not crash because there is an insufficient supply of housing to meet housing need. The demand for housing will fluctuate up and down and will impact on price. If the demand for housing is reduced, by say interest rate rises, then house prices may fall (as i'm sure they do in the future). Housing supply and housing need are very very complex areas which use computer modeling to try to estimate.

If anyone tells you their is no housing supply problem because 1) they looked on Rightmove and theres load of houses 2) there are loads of flats which are vacant in my area - therefore loads of housing 3) looked outside a saw loads of housing; then frankly they know nothing. If on the other hand some tells you they are a professor of demographic studies with the backing of a University behind them and undertake modeling work on a regular basis to inform housing supply debates at Examinations in Public, then they will know plenty about the complexity of housing need and supply. I am not one of these people, but i do employ them to try a convince the Government to increase the supply of housing.

The failure of the planning system - for the last 30 years

The amount of housing which is built is determined by the planning system, which is Plan led. Although a complex process in itself i can simplify it by saying that the level of housing need is debated and the Panel of inspectors will give their final report which is then adopted. The key points you need to know are:

a) determining housing need is a complex area with a number of factors from immigration, birth rates, average household size etc etc

B) Local authorities are against providing housing because it is not popular with local voters - who can keep them in power

c) the models used have always tended to under-estimated demand

d) the projections are made over 15 to 20 year timescales which cannot foresee future changes in government policy - eg UK opening up the boarders to other EU states; so no housing is provided for them

e) this failure of the system has been going on for about 30 years

Very interesting post.. thank you.

I do have one pitfall that I would love you to answer? If we have problems with our planning system, then WHY have house prices rocketed worldwide????

Are their planning systems the same as ours and have gone Pete Tong?

I think the global scale of HPI is 'MAJORLY' due to speculation and money supply. I am not saying that your reasons are not valid, but if we mix the two together we could say there is a shortage of housing coz of speculators buying 10's if not 100's of houses. THIS HAS TO STOP.

We could also argue that immigaration is out of control and we are letting too many people into the country, making a housing shortage for the British Citizen.

These things CAN be resolved.... Unfortunately we have a Government of sh*thouses (no pun intended ;) ) that are too PC.

TB

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Its a clever tactic which people are using to discredit the supply and demand argument. Essentially your focusing on a minor aspect of demand and then blowing it out proportion to convince yourself and others, that the supply of housing is not the issue here. The people who are best at this are the ones who have been on this forum for several years. What i would say is that these people have been predicting a crash for a long long time and guess what.......its not here yet.

Who is Kate Barker?

To put this supply and demand issue into context i think its time to use an example. Im my original post I made reference to the Kate Barker Report - thats right, the report which took over 2 years to produce by a then member of the board which sets the UK's interest rates. Its fare to say that Kate knowns her economics because she had such an important

role in the UK's economy at the time. Now please don't anyone be offended by this next statement but........ a member of the board which sets the UK's interest rates will know more about economics than anyone who posts on this forum. sorry, but true

and what did she say?

In nut shell she said that there has been a massive under supply of housing and that we need to produce an extra (extra means in addition to what we are already producing) 70,000 houses a year to ease out demand but a further 120,000 homes if we are to do a proper job and balance out the housing market. You can find it at

http://www.hm-treasury.gov.uk/consultation...arker_index.cfm if you don't believe me.

So what does an extra 70,000 homes pa equate to

Kate told us that we need to, at best, provide an additional 70,000 homes for families just to start balancing out the housing market and meet demand. This is just to meet demand, not to bring it back to normal which she says would be 120,000 households. The government now considers that, on average, 2.2 people form the typical household size. I should tell you that this 2.2 figure has been tested and accepted at a number of planning examinations and is well debated. This means the UK is creating an additional 70,000 households pa and going on the governments own figures of 2.2 people per household, equates to 154,000 people.

Oxford

A quick look on wikipedia tells me that 134,248 people live in Oxford, which is quite close to the 154,000 target. Therefore every year a population greater than Oxford needs to be housed - this is how much we need to provide if we are to meet demand. So, a city the size of Oxford needs to be build every year just to keep up with demand from household formation - and guess what - we haven't been providing it.

Supply and Demand

So what do all of these 154,000 people do? Well, they have no choice except to live in rented accomodation, stay at home with parents, go on Council waiting lists etc etc unfortunately the list goes on on. Its a sorry state of affair but this demand does not just go away. The simple law of supply and demand tells us that where supply is constrained, demand and prices will rise. Let me spelling it out for you..... every year a city larger than Oxford would have to built just to keep up with demand - and its been going on for years. With is in mind you may what to think

1) Is it possible for a HPC to occur when there is such a high level of demand

2) is it such a surprise that we have seen such a high level of HPI

Oh - i forget to mention. The Barker Report did not to account for the change in EU policy which has brought a huge number of east europeans into the country - so the 154,000 figure is an under-estimation!!!!!!!!

Your going to be waiting for a long long time ladies and gents for the HPC - best of luck

dgl1001

That was about the most patronising post I have ever read on this board.

This is one annoying troll.

Ole! :P

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Very interesting post.. thank you.

I do have one pitfall that I would love you to answer? If we have problems with our planning system, then WHY have house prices rocketed worldwide????

Are their planning systems the same as ours and have gone Pete Tong?

I think the global scale of HPI is 'MAJORLY' due to speculation and money supply. I am not saying that your reasons are not valid, but if we mix the two together we could say there is a shortage of housing coz of speculators buying 10's if not 100's of houses. THIS HAS TO STOP.

We could also argue that immigaration is out of control and we are letting too many people into the country, making a housing shortage for the British Citizen.

These things CAN be resolved.... Unfortunately we have a Government of sh*thouses (no pun intended ;) ) that are too PC.

TB

I note your point about world wide HPI. Its not something i have the answer to as i do not know anything about it. On the other hand i do understand the supply issues in the uk. Agree with you that speculators and and perhaps immigaretion is not helping the problem

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dgl1001

what is your connection to Kate barker?

I have no connection whatsoever with Kate Barker. Im making reference to her work as because it has be key to changing government policy to build more houses. She is also an economist and through her 2 year report understands every aspect of the housing market

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Wow! Could that reply be any more patronising? Maybe we now know what Patricia Hewitt has been doing since she was fired ;)

Yes I have heard of Kate Barker. Have you heard of Eddie George?

Who is Eddie George?

He is the former governer of the Bank of England, who left this position in June 2003 after 10 years, and after presiding over the worst phase of the current house price bubble. Now please don't be offended by this remark, but I think he probably knows a little bit more about economics than Kate Barker

and what did he say?

"We only had two alternative ways of sustaining demand and keeping the economy moving forward: One was public spending and the other was consumption. We knew that we were having to stimulate consumer spending; we knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term. But for the time being, if we had not done that the UK economy would have gone into recession just as has the United States. That pushed up house prices, it increased household debt ... my legacy to the MPC if you like has been `sort that out'. We tried very hard not to do more than we needed to keep within the inflation target limits but we knew that that was going to cause problems later on which are still with us."

Over to you...

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Wow! Could that reply be any more patronising? Maybe we now know what Patricia Hewitt has been doing since she was fired ;)

Yes I have heard of Kate Barker. Have you heard of Eddie George?

Who is Eddie George?

He is the former governer of the Bank of England, who left this position in June 2003 after 10 years, and after presiding over the worst phase of the current house price bubble. Now please don't be offended by this remark, but I think he probably knows a little bit more about economics than Kate Barker

and what did he say?

"We only had two alternative ways of sustaining demand and keeping the economy moving forward: One was public spending and the other was consumption. We knew that we were having to stimulate consumer spending; we knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term. But for the time being, if we had not done that the UK economy would have gone into recession just as has the United States. That pushed up house prices, it increased household debt ... my legacy to the MPC if you like has been `sort that out'. We tried very hard not to do more than we needed to keep within the inflation target limits but we knew that that was going to cause problems later on which are still with us."

Over to you...

Hes talking about the wider economy with only a reference to the housing market. How is this specific to housing supply?

Over to you

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Hes talking about the wider economy with only a reference to the housing market. How is this specific to housing supply?

Over to you

In your original post, you suggest that an undersupply of housing has underpinned HPI.

ie

"In a nut shell

1) massive under supply of housing over the last 30 years

2) This has underpinned recent HPI"

Eddie George says that he stimulated consumer spending to levels "which couldn't possibly be sustained into the medium and long term", and "that pushed up house prices".

I don't don't that undersupply isn't playing some part, but it's interesting that it suddenly comes to the fore now that the affordability crutch has been kicked away.

Incidentally, all these people living in rented accomodation - why do you need to build a house for them? What's to stop a landlord just buying that one too?

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http://macromarkets.com/recent_news/articl...007_nytimes.pdf

WHAT would a definition of a housing bust tell us? First, it would help explain why, despite all the focus on the possibility of a bust, many people may feel that the housing market really isn’t all that bad right now. On average, and based on national surveys, price declines haven’t been that severe.

But if the pessimists are right that there’s more to come, look out. A 10 percent decline in prices is likely to feel pretty awful. And then everyone might agree on what a housing bust is.

http://www.centralbank.ie/data/FinStaRepFi...port%202006.pdf

Box C: The Importance of Capital Appreciation to Irish Buyto-

Let Investors

Page 27

Investors, unlike owner-occupiers, pose a risk to the stability of the housing market

insofar as they may attempt to exit the market completely and at short notice. This

may be an unlikely event at a time when the return to investing in property appears

relatively high.

Investors earn a return on their investment from two sources; rental income and

capital appreciation, but the main element driving the profitability of residential

housing investment is the high rate of capital appreciation. The strong rate of capital

appreciation is offsetting low rental yields.

The estimates of mortgage repayments for new and existing investors suggest that a

reduction in house price inflation could significantly affect the profitability of property

investment, particularly for new investors.

Table 2: Effect of House Price Growth on Investor Profits

Scenarios Number of years required to generate profit

No rental growth 6.2% rental growth

0% house price growth >50 23

2% house price growth 33 11

4% house price growth 5 4

6% house price growth 3 3

Current rate <1 <1

http://www.centralbank.ie/data/FinStaRepFi...fluences%20.PDF

Most of the comment so far has been about price developments relating to owner-occupation. The assessment here is that this is not at the moment a cause for concern from a financial stability perspective. This is mostly because the demand for residential property by homeowners is likely to remain unaffected by any fall in house prices even if there was an investment motive in the original house purchase. The services provided by possession of the house will remain unaffected by any such fall in prices. This is not the case for pure investors in the buy-to-let component of the property market. The picture here is therefore less benign.

The failure to uncover conclusive evidence of overvaluation does not mean that there is no cause for concern for financial stability. If, for whatever reason, fundamental variables identified here were themselves to be subject to severe negative shocks, coming from sources either external or internal to the Irish economy, then house prices could still fall substantially. House prices can fall without being overvalued and this is also a concern for financial stability. Apart from the occurrence of the type of shocks that would cause significant deterioration in fundamental variables, our key concern is with a continuation of the current strong rate of price increase which is less strongly underpinned

by fundamentals. If this continues, the risk of a sharp correction in prices in the future will increase.

The User Cost of Housing

http://www.phil.frb.org/files/br/br_q4-200...boom_bubble.pdf

For most homeowners capital gains on their primary residence is exempt from federal income tax. However, overly optimistic expectations for capital gains are the impetus for a bubble psychology, and they can drive prices above fundamental values.

http://213.86.34.248/NR/rdonlyres/805656A4...igration_FR.pdf

Across the market overall, Buy-to-Let demand has grown enormously since

these mortgages were introduced in 1999. Buy-to-Let now accounts for around 10% of all new mortgages in 2006 (CML., 2007). Research for the GLA

suggests that up to 70% of all new completions in the London region went to investors, of whom the vast majority are in the Buy-to-Let market (HoC,

CLGSC, 2007; London Development Research Ltd, 2007). More generally house prices rise because of increases not only in the numbers

of households but also because of rising incomes and expectations about future house price rises, as well as alternative investment opportunities.

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Its a clever tactic which people are using to discredit the supply and demand argument. Essentially your focusing on a minor aspect of demand and then blowing it out proportion to convince yourself and others, that the supply of housing is not the issue here. The people who are best at this are the ones who have been on this forum for several years. What i would say is that these people have been predicting a crash for a long long time and guess what.......its not here yet.

Who is Kate Barker?

To put this supply and demand issue into context i think its time to use an example. Im my original post I made reference to the Kate Barker Report - thats right, the report which took over 2 years to produce by a then member of the board which sets the UK's interest rates. Its fare to say that Kate knowns her economics because she had such an important

role in the UK's economy at the time. Now please don't anyone be offended by this next statement but........ a member of the board which sets the UK's interest rates will know more about economics than anyone who posts on this forum. sorry, but true

and what did she say?

In nut shell she said that there has been a massive under supply of housing and that we need to produce an extra (extra means in addition to what we are already producing) 70,000 houses a year to ease out demand but a further 120,000 homes if we are to do a proper job and balance out the housing market. You can find it at

http://www.hm-treasury.gov.uk/consultation...arker_index.cfm if you don't believe me.

So what does an extra 70,000 homes pa equate to

Kate told us that we need to, at best, provide an additional 70,000 homes for families just to start balancing out the housing market and meet demand. This is just to meet demand, not to bring it back to normal which she says would be 120,000 households. The government now considers that, on average, 2.2 people form the typical household size. I should tell you that this 2.2 figure has been tested and accepted at a number of planning examinations and is well debated. This means the UK is creating an additional 70,000 households pa and going on the governments own figures of 2.2 people per household, equates to 154,000 people.

Oxford

A quick look on wikipedia tells me that 134,248 people live in Oxford, which is quite close to the 154,000 target. Therefore every year a population greater than Oxford needs to be housed - this is how much we need to provide if we are to meet demand. So, a city the size of Oxford needs to be build every year just to keep up with demand from household formation - and guess what - we haven't been providing it.

Supply and Demand

So what do all of these 154,000 people do? Well, they have no choice except to live in rented accomodation, stay at home with parents, go on Council waiting lists etc etc unfortunately the list goes on on. Its a sorry state of affair but this demand does not just go away. The simple law of supply and demand tells us that where supply is constrained, demand and prices will rise. Let me spelling it out for you..... every year a city larger than Oxford would have to built just to keep up with demand - and its been going on for years. With is in mind you may what to think

1) Is it possible for a HPC to occur when there is such a high level of demand

2) is it such a surprise that we have seen such a high level of HPI

Oh - i forget to mention. The Barker Report did not to account for the change in EU policy which has brought a huge number of east europeans into the country - so the 154,000 figure is an under-estimation!!!!!!!!

Your going to be waiting for a long long time ladies and gents for the HPC - best of luck

dgl1001

I'm very sure that the Barker report is very worthy and addresses many of the issues involved in HPI. But it is a macro economic report that deals with the situation from the 'big picture' point of view - it uses gov. stats and models at the national level. These are used for strategic level policy making but there is not enough detail to judge what is really going on - it glosses over important factors that are very important especially at this point in the housing cycle. These are not trivial factors; they may not drive the market but there effect is significant IMHO! (Havn't read the whole thing)

The report does not mention housing investors - aka speculators! But there is plenty of evidence that people buy houses in a boom just to make a profit. But this is sort of an uncomfortable fact which is difficult to measure and which there are no statistic for. This speculation makes it appear that there is more demand than there really is and as result prices become even more inflated. It is rampant in many new inner city developments - I have seen estimates of 60% of some London develoments but I don't have the link. To be fair to Ms Barker - this is only a recent occurence and only happpens when the boom is well underway. Speculation is a major factor in any 'bubble' wether it is houses or tulips! Sooner or later these positions will unwind and the speculators will sell at or near the top of the market ie now! I would guess that a large number of EA and other VIs fall into this category. Buy up an undervalued property, get a good mortgauge deal, keep it for a couple of years and sell it on - easy money, know what I mean, guv!

The figures for the supply side all relate back to the rate of household formation which are national estimates These stats are very difficlt to measure and change constantly - you can't put to much emphasis on them. For example take a household of two parents and two kids; both kids leave home to go to uni - suddenly there are 3 households! The kids return home after uni and there is one household. Imagine that multiplied across the country.

If you look closely at the report see chart 1.3 you will see that the largest increase in households is of one person hh. Are these hh going to live in their own houses - probably not they'll end up in small units formed by converting houses to smaller units. So a major point - much of the increase in the number of households will be accommodated not in new houses but in smaller units, converted from existing houses. There is a large Victorian era house over the road from me which was a single three story house. It has been refurbished and a rear extension addded and it is now 10 small flats and bed-sits.

There is no shortage of supply!

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Essentially your focusing on a minor aspect of demand

Surrendering to the sweet delusion, the more people think it will go down, the more it does, the housing market will go down because of HPC.co.uk

OK the Undersupply will be constant and so the demand as Baker said, there is no problem with the long-term demand, but with the short term demand.

The short term demand is influenced by signals, Buy or Sell, if there is as signal to hold – recalculation or reconsideration occurs. It doesn’t matter what the demand is in long term, current situation is changed by a signal, if all these BTL businesses go Bust, there will be a clear signal for everyone – hold on - something is happening.

There could be a drop in price, why fall but not increase as before, simply because the BTL Landlords and investors could walk out if things go south.

It’s not happening yet but this is what people in HPC have pointed - BTL Investors are playing significant role in today’s Housing market, watch for mass exodus, this would be a clear signal of downturn. If there is a considerable period on the market for these dumped properties, extensive loses will occur and somebody have to either lower the price or go bankrupt. Another signal occurs as a result – prices are going down – hold on why?

So in stable ascending market what come to mind is only positive signal and positive expectations. In the same way when the markets are shifting down the negative signals can build up creating a stagnant situation, this is why is so important for all EA, Developers and BTL investors to keep the signal in the optimistic side (Prices always go up, you will never lose from property investment).To determine what is happening right now we need independent indicators and indexes not the biased Media Publications and Researches. Many people have stated that the Builders indexes are important indication, if they aren’t doing so well increase in layoffs of construction workers should be expected.

Prices in short-term would not change because there is a change in demand but change in attitude.

In long term I still want to buy a house, but in short term I better wait because if there is a adjustment in the future what can I lose, few thousand vs. being burned by negative equity.

Of course in long term people will go back to the market looking for properties but then you have to get a mortgage and this is not an instant process and people with cash will snap some bargains.

What hard evidence do you want, an unemployed builder with nail gun pointing to you head, hire me please!

I am not expert but certainly this boom is comparable to hyperventilation, you feel like there is no enough air, lack of oxygen…but in fact your body has too much oxygen , and you keep breathing even harder under the influence of panic attack. Oh my God the prices are going ballistic, if I miss the train - I am done with renting for the rest of my life. I think it’s a good idea to hold my breath, and I will be OK for sure.

Another train is just around the corner, human beings are so adaptive, so ever evolving that you will be surprised how creative homeless people are once they overcome this emotional hijacking.

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and what did she (kate Barker) say?

In nut shell she said that there has been a massive under supply of housing and that we need to produce an extra (extra means in addition to what we are already producing) 70,000 houses a year to ease out demand but a further 120,000 homes if we are to do a proper job and balance out the housing market. You can find it at

http://www.hm-treasury.gov.uk/consultation...arker_index.cfm if you don't believe me.

where oh where in the barker report does it say 'massive' undersupply???

it states the long term average rise as 2.4%, where oh where does it justify double digit growth??

it goes on to say (via one of the sub-pdfs):

The Review is fundamentally concerned with the longer-term issues of unresponsive and weak supply, rather than questions surrounding the current house price cycle.

notice that - explicit reference to the inate cyclicality of the market??

furthermore:

The overall objectives of the Review are:

• to achieve improvements in housing affordability in the market sector; [in general with you - a need for more house building]

• a more stable housing market; [err, this is ackowledging the cyclical market - doesn't use the c-word, but ackowledges the drawbacks]

• location of housing supply which supports patterns of economic development; and [pointing at more houses in the SE where needed most]

• an adequate supply of publicly-funded housing for those who need it. [houses for key workers, I hazard]

and even more:

Tackling issues of macroeconomic stability may also require measures to address the

demand for housing alongside improvements to supply. Demand side measures, such as the reform

of property taxation could help to mitigate house price cycles. In any reform of council tax,

consideration should be given to having an element of this tax which is more closely related to

property prices.

"measures to address the demand for housing" - care to let us know what that means? yes, it means dampening speculation, credit cupply for housing etc.

I would not call the Barker report Bearish, but you claimed, I repeat, "In nut shell she said that there has been a massive under supply of housing "

Barker did not say either of the following 2 things:

"massive undersupply" or

"justifies double-digit growth"

the last 20 years that she refers to of this 2.4% growth INCLUDES the last crash . Yes indeed, ladies and gentlemen, she referred to a long term trend with a cycle on top. She did not, I repeat did not, say 'there is a massive undersupply of housing". Neither did she imply that we are not in a current house price cycle. Furthermore, she did not go on to say that the long term trend could not be consistent with short term significant fluctuations, in fact her 2.4% long term growth rate, coupled with recent years' double-digit growth, kinda requires a crash to bring back into line.

2.4% per year. how do you think the housing market will return to trend, or don't you believe this part of the report?

Edited by Si1
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Barker did not say either of the following 2 things:

"massive undersupply" or

"justifies double-digit growth"

The OP is little better than a troll - and an uneducated one at that.

IMO he requires a small-font 'awooga' without exclamation marks.

Awooga

Edited by cynic
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Bulls & VI's who claim that 'it's different this time' argue that the current level of HPI is sustainable because of increased demand and a shortage of supply.

Of course, supply and demand is the reason for all price changes in a market economy. What we bears see and what the bulls & VI's don't is that the very high level of demand over the last few years has been driven not by true needs but by speculative mass hysteria, pure greed, and fear of losing out.

Availability of easy credit has simply exacurbated the demand.

It is a classic bubble, caused by demand rising out of all proportion to its historical levels simply because of the mass belief that the good times will go on for ever. With supply at a fairly constant level, of course prices soar.

The tipping point comes when confidence evaporates. This is not specifically related to interest rates, levels of house building, or any other rational, objective criterion that pundits trot out on either side of the argument. It has to do with mass psychology and the herd mentality. The crash comes not when prices fall but when the majority of people believe that they are going to fall.

This of course, makes the top of the market almost impossible to call. The only certain thing is that this bubble will burst, one day, and that the price/earnings relationship will return to near its long-term mean of around 3.5 times.

The longer the bubble keeps going, the greater the crash will be.

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The OP is little better than a troll - and an uneducated one at that.

IMO he requires a small-font 'awooga' without exclamation marks.

Awooga

well said.

I'd prefer you gave him a big old AWOOOOOGA

It always amuses me when these mortgage brokers / recent buyers / estate agents come on here and think they are 'smarter' than us.

Where have all the good trolls gone???

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Interesting posts

I'm still not sure where this population greater than Oxford are going to be housed each year. Household formation is very real but few of you are prepared to accept that such people need housing. You can pick away at the Barker Report but it is clear when shes says we need to build an additional 70,000 homes pa. BTL'ers seem to be quite predominate in your posts as being a main cause of this 'boom'. I know landlords who have properties filled with East Europeans - which the Barker Report figures do not account for. So, where are these additional people going to be housed. They simply do not disappear and how can a crash occur when their is such a high level of demand for housings?

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So, where are these additional people going to be housed. They simply do not disappear and how can a crash occur when their is such a high level of demand for housings?

>sigh<

if you really want to know why this question is a nonsense search the forum. Unless there's a tyrue saint out there who fancies explaining for the 2000th time why this is ******.

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>sigh<

if you really want to know why this question is a nonsense search the forum. Unless there's a tyrue saint out there who fancies explaining for the 2000th time why this is ******.

And this is the problem isn't it. Because you know there is huge demand for housing you simply dismiss it as not relevant. The people who are going to get must from the housing market are the ones who consider all of the facts - including the supply of housing. Barker is telling us that we need to build an additional 70,000 homes per annum but you just don't want to accept it.

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dgl

2 questions:

1) where is the money going to come from to support hpi when there is an inevitable credit crunch on the horizon and more repossesions through increased debt

2) let me know of a financial bubble in history that didn't burst

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Like any traded commodities house prices can go up and down. There are small corrections, large corrections and major crashes. The latter tend to occur where investors forget the realities of the market. When one sees a statement like "There Will Never Be A Hpc - Ever" it is probably time to run for the hills.

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dgl

2 questions:

1) where is the money going to come from to support hpi when there is an inevitable credit crunch on the horizon and more repossesions through increased debt

2) let me know of a financial bubble in history that didn't burst

answers

1) i can't comment on individual cases but is shortage of money the issue here?

2) is this a financial bubble - i view it as a housing shortage

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