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Ted D. Bear

Article: No Housing Shortage

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An article has appeared to day debunking the myth that a high rate of household formation is behind HPI.

... but the tales of a national housing shortage are based on out-of-date figures. In 2001/02 the construction of new homes fell to 141,651, frequently quoted at the time as the lowest since the 1920s. And not just that: it was far short of the 223,000 new households which government planners told us would be formed every year between 2001 and 2016. Result: prices had to rise as buyers, desperate to put a roof over their heads, outbid each other for the few homes available.

The government’s predictions for the growth in the number of households have been proved wrong, however. Between 2001 and 2006, according to the Office of National Statistics, the number of households in England and Wales grew from 23.8 million to 24.2 million — an average increase of 80,000 a year, far short of the 223,000 which planners at the Department for Communities and Local Government have been predicting. Their mistake was to fail to appreciate that high property prices act as a brake on household creation: the more expensive houses become, the greater the incentive for children to remain living with their parents and for warring couples to remain together.

Meanwhile, the rate of housebuilding has quietly recovered: in 2006/07, 173,369 new homes were completed. As more are repossessed and their unhappy occupants are forced to go back to living with mum and dad — and if all those Polish plumbers start to drift home, no longer required as London’s construction boom comes to an end — I foresee a frequent question that will be asked in response to the thousands of empty properties up for auction: whatever happened to the great British housing shortage?

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An article has appeared to day debunking the myth that a high rate of household formation is behind HPI.

The article starts with

"Bad news: no housing shortage

More bad news: no housing shortage

Ross Clark"

Why is it "bad news" and who is it bad for?

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The article starts with

"Bad news: no housing shortage

More bad news: no housing shortage

Ross Clark"

Why is it "bad news" and who is it bad for?

Anyone who owns a house especially if they bought it as an "investment" :ph34r:

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Why is it "bad news" and who is it bad for?

People who believe that the price of property is high due to a lack of supply and that it will therefore not be vunerable to falls when the speculative element is removed - BTLers, Estate Agents, residential property fund investors, people who bought at the wrong time on an IR mortgage, people who bought with small or non-existant deposits, people who bought a bigger house than then needed, and so the list goes on...

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An article has appeared to day debunking the myth that a high rate of household formation is behind HPI.

This topic appeared on site yesterday. There is some doubt about the accuracy of his figures from Census 2001 (and if that is wrong then the whole story collapses).

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The article starts with

"Bad news: no housing shortage

More bad news: no housing shortage

Ross Clark"

Why is it "bad news" and who is it bad for?

The Spectator can be somewhat satirical, especially when it comes to Gordon's economic miracle.

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yeah as someone says above. A few people seem to regularaly make the point and show that there is no housing shortage. eg RB's right move analysis etc.

If there is no shortage in housing then HPI isnt down to supply and demand. This does rather change a lot of the arguments that have been repeated many times. For example, why then would increasing repossesions cause a crash, etc.

I think the biggest factor now is the change in affordability, if people can get less money then houses cant exchange hands at the higher prices. My fear is that all the people sitting comfortable in their nice family homes are just gonna carry on sitting in them. They are so used to the idea their house is now worth 5 squillion pounds that they wont except less and will just not sell until wage inflation one day catches up or the boomers start shuffling off the mortal coil.

We'll see.

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yeah as someone says above. A few people seem to regularaly make the point and show that there is no housing shortage. eg RB's right move analysis etc.

If there is no shortage in housing then HPI isnt down to supply and demand. This does rather change a lot of the arguments that have been repeated many times. For example, why then would increasing repossesions cause a crash, etc.

I think the biggest factor now is the change in affordability, if people can get less money then houses cant exchange hands at the higher prices. My fear is that all the people sitting comfortable in their nice family homes are just gonna carry on sitting in them. They are so used to the idea their house is now worth 5 squillion pounds that they wont except less and will just not sell until wage inflation one day catches up or the boomers start shuffling off the mortal coil.

We'll see.

You're going to be living in a mighty empty country, Orbital.

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This topic appeared on site yesterday. There is some doubt about the accuracy of his figures from Census 2001 (and if that is wrong then the whole story collapses).

Why would the whole story collapse? Is it not obvious that the UK has more than enough housing? Homelessnes is at very low levels. There are empty properties for sale/let everywhere you turn. The story about housing shortages was always just spin. When will people learn to think for themselves.

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Why would the whole story collapse? Is it not obvious that the UK has more than enough housing? Homelessnes is at very low levels. There are empty properties for sale/let everywhere you turn. The story about housing shortages was always just spin. When will people learn to think for themselves.

I wonder if it can be turned into a court case - swindling is against the law in this country, innit? :)

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Why would the whole story collapse? Is it not obvious that the UK has more than enough housing? Homelessnes is at very low levels. There are empty properties for sale/let everywhere you turn. The story about housing shortages was always just spin. When will people learn to think for themselves.

His Article:

"The government’s predictions for the growth in the number of households have been proved wrong, however. Between 2001 and 2006, according to the Office of National Statistics, the number of households in England and Wales grew from 23.8 million to 24.2 million — an average increase of 80,000 a year, far short of the 223,000 which planners at the Department for Communities and Local Government have been predicting. Their mistake was to fail to appreciate that high property prices act as a brake on household creation: the more expensive houses become, the greater the incentive for children to remain living with their parents and for warring couples to remain together".

The figure for households in England in Wales in 2001 appears to have been 22.5M not the 23.8M that he supposes. As for when people will think for themselves, if I walk around the streets and see empty properties everywhere I turn, I will think that there is no housing shortage. If I see empty properties for sale/let everywhere I turn I will think that there are a lot of properties that either empty, for sale or for let.

Edited by pimperne1

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yeah as someone says above. A few people seem to regularaly make the point and show that there is no housing shortage. eg RB's right move analysis etc.

If there is no shortage in housing then HPI isnt down to supply and demand. This does rather change a lot of the arguments that have been repeated many times. For example, why then would increasing repossesions cause a crash, etc.

I think the biggest factor now is the change in affordability, if people can get less money then houses cant exchange hands at the higher prices. My fear is that all the people sitting comfortable in their nice family homes are just gonna carry on sitting in them. They are so used to the idea their house is now worth 5 squillion pounds that they wont except less and will just not sell until wage inflation one day catches up or the boomers start shuffling off the mortal coil.

We'll see.

that's unless they HAVE to sell.

How many of them are there about?

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I think the biggest factor now is the change in affordability, if people can get less money then houses cant exchange hands at the higher prices. My fear is that all the people sitting comfortable in their nice family homes are just gonna carry on sitting in them. They are so used to the idea their house is now worth 5 squillion pounds that they wont except less and will just not sell until wage inflation one day catches up or the boomers start shuffling off the mortal coil.

We'll see.

Therefore about 2 estate agents per 40 km2 rater than 40 per 2km2. Sounds good to me :P

I have long ranted about Merseyside's supply /demand. Pop feel 250k from the 70's to the 90's and is now stable and growing slowly.

Poverty and unemployement are higher now ,in vast swathes of the city, than in the 80's.

The average wage is sub £20k,

Inward investment is low and the economy relies on Browns public sector. The shining towers in the citycentre are not going to be full of young proffesionals, we do not have any proffesions.

Yet in the past 5 years houses have risen 150-200%

I did a back of a fag packet estimate once - £150k houses bought for £50k in 2001 justify £88 to £95k in the local economy.

£60k is speculative froth, end of.

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yeah as someone says above. A few people seem to regularaly make the point and show that there is no housing shortage. eg RB's right move analysis etc.

If there is no shortage in housing then HPI isnt down to supply and demand. This does rather change a lot of the arguments that have been repeated many times. For example, why then would increasing repossesions cause a crash, etc.

I think the biggest factor now is the change in affordability, if people can get less money then houses cant exchange hands at the higher prices. My fear is that all the people sitting comfortable in their nice family homes are just gonna carry on sitting in them. They are so used to the idea their house is now worth 5 squillion pounds that they wont except less and will just not sell until wage inflation one day catches up or the boomers start shuffling off the mortal coil.

We'll see.

I think it's possible that the 'housing shortage' story could have been a factor in HPI even if it isn't true. Speculators need to have a good internal story to justify making an investment; Believing there to be a shortage might mean you'll be more inclined to believe something will increase in price, and so believing you may pay more for something than otherwise.

Should prices to start falling, though, this believe would be cruelly debunked. You had thought you were buying a precious commodity in short supply, but now find there were a lot of other buyers who all thought the same thing. The market is flooded and you take a bath.

The .com bubble is a great example of a market being driven up by myth, people really believed that the rules were being rewritten! It of course collapsing when the myth was finally debunked.

So I think the 'shortage' story could have increased HPI even if it wasn't true - if enough people believe it then the market will act as though it were true. The problem is when people stop believeing it.

It's also possible that it was true once, but isn't now/won't be forever, but the message that there's a shortage still lives on in investor's minds.

I fully agree with your analysis that the biggest change to date is the change in 'affordability'. Rising reposessions I think will compound that as lenders take further hits, eben if they do not occur in sufficient numbers to flood the market.

I tend to agree that people in nice houses bought a long time ago will sit out any downturn. Problems will arise only if they are already stretched financially and find they are unable to refinance on favourable terms. I wonder if MEW will turn out to have been more expensive than many people thought - has it been so big that people could get into trouble if their mortgage rates spike? Did people really think that very low rates would be available forever? Time will tell.

Edited by Ted D. Bear

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