Housing "shortage" - Trying To Write An Email Argument - Som Advice Please

[cells]

Isn't it all very simple?

There is no significant shortage of places to live - otherwise there would be many more homeless,

lets pray for a second that someone burns your house down tonight

will you be homeless in a week?

how stupid can you get

you wount be homeless. you will go to family or friends. or sleep in a caravan or....

a lack of supply doesnt mean you get hordes of homeless people.

it means more people live densely

[auk]

lets pray for a second that someone burns your house down tonight

will you be homeless in a week?

how stupid can you get

you wount be homeless. you will go to family or friends. or sleep in a caravan or....

a lack of supply doesnt mean you get hordes of homeless people.

it means more people live densely

You're getting unnecessarily stressed. You probably agree with the person you're insulting.

By "shortage" you mean that the rents in some parts of the country are so high that you think that this is in itself a bad thing, presumably for social reasons.

By "no shortage" the person you're insulting means that at current prices there is no shortage of property compared to the demand - i.e. that demand pressures are not greater than supply pressures, i.e. rental prices are not going up and that the market is roughly in equilibrium.

The two positions are not mutually incompatible. The equilibrium level of rent can be high enough to be a social problem.

For what its worth I think that you are correct. I think the government should intervene to increase the stock of housing through planning and incentive methods. But you are wrong to insult people who are pointing out that there is no short term price inflating rental demand pressures.

[shippers]

Sorry but the post is > Housing "shortage"

Now this encompasses accomodating every type of housing, and I would suggest that as shelter is one of the primary Maslow needs, then even if it costs a high percentage of income, as long as shelter is satisfied not to the detriment of other primary needs then there is no real shortage of housing.

I think the vast majority of people in this county are able to satisfy the majority of the first two level of needs

1. Biological and Physiological needs - air, food, drink, shelter, warmth, sex, sleep, etc.

2. Safety needs - protection from elements, security, order, law, limits, stability, etc.

3. Belongingness and Love needs - work group, family, affection, relationships, etc.

So fundamentally, there is no shortage of Housing.

Now if you want to start going higher up Maslows Hierarchy, where the "keeping up with the joneses" types of influence come in, I'm sure people are more stretched. But they're not fundamentals.

4. Esteem needs - self-esteem, achievement, mastery, independence, status, dominance, prestige, managerial responsibility, etc.

5. Self-Actualization needs - realising personal potential, self-fulfillment, seeking personal growth and peak experiences.

Not everyone should expect the "right" to have a plasma tv, or a car, or even a privately owned house, and if we follow Maslow, then you don't actually need them to have a satisfactory or decent life.

If we really believe in the demographic shift to 1/3 of potential households being occupied by single people, then there's even less of a likelihood of the basic need of shelter. Especially as the demographic shifts in the future as the "boomers" die out mean that in the UK, and other Western Economies with falling birth rates their will be an oversupply of rooms to live in.

There might be an undersupply of lovely 4 bed Cotswold Cottages, but that's not really the definition of "shelter" is it?

[BrownField]

a lack of supply doesnt mean you get hordes of homeless people.

it means more people live densely

Nicely put, there is a lot of elasticity in the system. Can I refer people to the report from Shelter that highlighted the cramped accomodation way too many families now find themselves bringing their children up in.

The most acute part of the problem is the demographic bulge of the older generations, living longer holding onto family homes, whilst younger new families are increasingly forced into flats and/or rented accomodation.

It's ridiculous to argue that home building is meeting "demand"... the demand is clearly there, whether it is right or wrong, sustainable or not.

To say it'll stop a crash is the myth you should spend your time on.

Japan, Japan, Japan, Japan.

[auk]

It's ridiculous to argue that home building is meeting "demand"... the demand is clearly there, whether it is right or wrong, sustainable or not.

Is there a good set of sources for proving this? Intuitively I would agree with you, but I don't think the numbers stack up. If the price of rental housing has only matched RPI over the past ten years then its very difficult to claim that supply has not matched demand.

btw I presume that you mean that demand increase is outstripping supply increase. To say that there is "demand" for housing is obviously meaningless.

Edited February 19, 2008 by auk

[cells]

You're getting unnecessarily stressed. You probably agree with the person you're insulting.

By "shortage" you mean that the rents in some parts of the country are so high that you think that this is in itself a bad thing, presumably for social reasons.

By "no shortage" the person you're insulting means that at current prices there is no shortage of property compared to the demand - i.e. that demand pressures are not greater than supply pressures, i.e. rental prices are not going up and that the market is roughly in equilibrium.

The two positions are not mutually incompatible. The equilibrium level of rent can be high enough to be a social problem.

For what its worth I think that you are correct. I think the government should intervene to increase the stock of housing through planning and incentive methods. But you are wrong to insult people who are pointing out that there is no short term price inflating rental demand pressures.

saying rents havent gone up in 4 years doesnt mean there is no shortgage

it means there isnt MORE of a shortgage than there was 4 years ago

there can be a shortgage now, and there may have been a shortgage 4 years ago. the price not changes just indicates the level of shortgaeg hasnt changed

in his ignorance he equates that there are not hordes of homeless as a good indication that we have plently of supply

i tell him he is a fool becuase we pay roughly twice the rent to take home pay than others like germany, japan, usa, ect.

so does the rest of the world have double the housing they need and they should destyroy half of it becuase there is massive oversupply

or is it that we have undersupply

his ignorance is directly effecting the quility of life of many people, hence why im pissed off

[auk]

his ignorance is directly effecting the quility of life of many people, hence why im pissed off

I don't think you understand. He's not disagreeing with you. He's just using a different definition of a shortage, and one which is equally as accurate as yours.

[jdc]

OK, here's my position.

There is a shortage of housing.

It is responsible for probably 10-15% of the price boom, as against where we would be with about the 'right' amount.

It is geographically concentrated, especially but not solely London and the South-East.

It will not stop house prices falling, as there can be a shortage relative to aspirational demand without being a shortage relative to economically expressable demand.

It is expressed not by people being homeless, but by too many children sharing rooms, people living with their parents for longer that they would like to, sharing with friends when they'd rather not, etc.

Building will help, and is appropriate in some areas. Other good ideas include controlling immigration, reducing the number of empty homes, and persuading pensioners in big houses to downsize to something appropriate, given them an extra income as well.

[cells]

OK, here's my position.

There is a shortage of housing.

It is responsible for probably 10-15% of the price boom, as against where we would be with about the 'right' amount.

It is geographically concentrated, especially but not solely London and the South-East.

It will not stop house prices falling, as there can be a shortage relative to aspirational demand without being a shortage relative to economically expressable demand.

It is expressed not by people being homeless, but by too many children sharing rooms, people living with their parents for longer that they would like to, sharing with friends when they'd rather not, etc.

Building will help, and is appropriate in some areas. Other good ideas include controlling immigration, reducing the number of empty homes, and persuading pensioners in big houses to downsize to something appropriate, given them an extra income as well.

wow someone with a brain

getting uncommon in these here parts

edit: gn im off to bed

Edited February 19, 2008 by cells

[auk]

OK, here's my position.

There is a shortage of housing.

It is responsible for probably 10-15% of the price boom, as against where we would be with about the 'right' amount.

It is geographically concentrated, especially but not solely London and the South-East.

It will not stop house prices falling, as there can be a shortage relative to aspirational demand without being a shortage relative to economically expressable demand.

It is expressed not by people being homeless, but by too many children sharing rooms, people living with their parents for longer that they would like to, sharing with friends when they'd rather not, etc.

Building will help, and is appropriate in some areas. Other good ideas include controlling immigration, reducing the number of empty homes, and persuading pensioners in big houses to downsize to something appropriate, given them an extra income as well.

I agree - but its interesting that you use the term "right" amount - deciding what the right amount is is rather difficult. You're basically saying that "a person earning the average wage SHOULD be able to afford X units of housing". I think that this is a valid thing to say, but deciding what X is - that's a tricky question!

[shippers]

OK, here's my position.

There is a shortage of housing.

It is responsible for probably 10-15% of the price boom, as against where we would be with about the 'right' amount.

It is geographically concentrated, especially but not solely London and the South-East.

It will not stop house prices falling, as there can be a shortage relative to aspirational demand without being a shortage relative to economically expressable demand.

It is expressed not by people being homeless, but by too many children sharing rooms, people living with their parents for longer that they would like to, sharing with friends when they'd rather not, etc.

Building will help, and is appropriate in some areas. Other good ideas include controlling immigration, reducing the number of empty homes, and persuading pensioners in big houses to downsize to something appropriate, given them an extra income as well.

Yeah but everyone wanting to live in exactly the same corner of the country imho is not an expression of shortage of housing. It's an expression of too much economic activity in one area of the country.

The sensible solution would be to move some of the economic activity into other areas of the country.

As for not wanting to live with your parents, sharing with friends. Well a lot of time in the past that was the done thing, as was sharing rooms as kids. I just think we've been massively oversold on the dream of having our own castles in the recent history. It's one of the reasons high rises failed in the country.

We all want our little equity raising castles in this country. I guess we never really grew out of our feudal system, we want to be the "lord on the hill"

[Bear not sheep]

Houses last a pretty long time, so they are not a commodity that needs a constant supply. I know a few people with second homes. There are plenty of empty BTL & BTS properties and still plenty of empty properties that are too expensive to buy and do up.

Edited February 19, 2008 by Bear not sheep

[auk]

Houses last a pretty long time, so they are not a commodity that needs a constant supply. I know a few people with second homes. There are plenty of empty BTL & BTS properties and still plenty of empty properties that are too expensive to buy and do up.

Houses are not a commodity at all. They are an asset. Housing is a commodity. Houses are an asset that produces housing, which has a value (rent) in the same way as a widget factory is an asset that produces widgets, which have a value (price of widgets)

[enrieb]

OK, here's my position.

There is a shortage of housing.

It is responsible for probably 10-15% of the price boom, as against where we would be with about the 'right' amount.

It is geographically concentrated, especially but not solely London and the South-East.

It will not stop house prices falling, as there can be a shortage relative to aspirational demand without being a shortage relative to economically expressable demand.

It is expressed not by people being homeless, but by too many children sharing rooms, people living with their parents for longer that they would like to, sharing with friends when they'd rather not, etc.

Building will help, and is appropriate in some areas. Other good ideas include controlling immigration, reducing the number of empty homes, and persuading pensioners in big houses to downsize to something appropriate, given them an extra income as well.

Thanks for your honest representation of your position on this, I have to take issue with a few small parts of what you have said though.

When you say their is a shortage of housing, this can only ever be in relation to demand. Yes if a town in the north opens a widget factory employing 10,000 people for an above average wage then yes in that particular area demand will have increased. Yet if inorder to open up this widget factory in the north then the widget factory in the south has been closed leaving 10,000 people jobless then this will have a detrimental effect of the demand in the south.

The main increase in demand has not been a function of increased employment it has been because of lax lending standards that have allowed people to borrow income multiples far above the traditional rate of 3.5 times income. Even if the immigration argument were to be considered as vaguely credible the whole point of immigration is that it lowers the average domestic wage, it does not increase it.

[jdc]

Yeah but everyone wanting to live in exactly the same corner of the country imho is not an expression of shortage of housing. It's an expression of too much economic activity in one area of the country.

The sensible solution would be to move some of the economic activity into other areas of the country.

Agreed - but try raising tax in the South to increase development spending in the North and Scotland, and see what reaction you'd get (on HPC, but more importantly in the newspapers and at an election).

[D'artagnan]

I've been trying to write a short thing that I can email people i know if they claim that "there's a housing shortage" in the UK and use this as a justification for high prices. I posted this on another forum in response to a question "is there a housing shortage in the UK" - wondered if people agree with this or if not how it could be improved (expected readership being intelligent enough to understand the language)

................................................................................

.............................................

The first thing to do when looking at demand and supply in this market is to separate the demand for housing (as a consumer good) from the demand for houses (as an investment).

The best way of looking at the demand and supply dynamics for housing is to consider the renting market. Simplistically, the demand for houses can then be seen as a demand for an investment class. This demand for houses will be driven by returns on the investment (from rental yield and expected capital appreciation). First consider the investment "demand".

In a rational world, you would expect that people would "bid up" the price of houses, as an investment, until they reach the appropriate level in the current investment climate. Again simplistically, prices go up when either a) yields increase or are expected to increase (i.e rent increases) the "equilibrium" demanded % return decreases on real estate as an asset class.

For example. If a house is priced at £100,000 and the rental yield is £10,000 per year, then the return is 10%. If the "risk free investment rate" (i.e the rate you can get from sovereign bonds, or, as a proxy, a high interest savings account) goes down, then you would expect people to look for a lower return from property. A decrease in the expected return to, say, 5%, would, all other things being equal increase the value to £200,000.

Similarly, if rent increases to £20,000 per year, the price would increase to £200,000 if expected return was 10%, or, combining the two effects, £400,000 if the expected return was 5%.

Of course the world is not rational, certainly in property, which is why we have a bubble and bust cycle. The other reason for these bubbles and bust is the fact that most people buy houses using mortgage, i.e. they are leveraged investments. The price of a leveraged investment is highly dependent on the cost of debt and amount of leverage available and on expected capital appreciation. Thus prices for houses increase when interest rates are low and price increases fuel greater price increases (so long as these increases are expected to continue). Note that this expected capital appreciation is a function of the other reasons for price increases. I.e. people expect prices to increase because of future expected yield compression and future expected rent increases.

Put to one side the financing (interest rate), yield compression (rental yield expectations compared to risk free rate) and capital appreciation elements of house prices. These are important, but have nothing to do with the fundamental supply and demand economics of housing.

Consider the rental market and supply and demand dynamics there.

The rental market is much more liquid than the house purchase market. If your landlord tries to raise your rent by 50% its simple to see whether this is the market rate, and the moving costs are low. This is compared to the house purchase market, where comparables are more difficult and the moving/transaction costs are high.

Therefore its fair to say that the rental market is close to a classic efficient economic market.

In this classic model, supply = demand at a particular price. It's best to view the rental market as a market for a good I'll call "housing utility", which is a composite of size, attractiveness etc. I.e I could purchase 10 "units" of housing utility which may correspond to renting a studio in Mayfair or a four bedroom house in wales. Lets say that each unit of housing utility costs £100 per month to purchase.

At this price, the market will clear. People will decide how much of their income they want to spend on housing, and act accordingly. It makes no sense, economically, to say that there is a "shortage" of housing from this point of view.

There are supply and demand pressures which will change the price of a unit of housing utility.

Simplistically, if demand increases and supply remains constant, then the price for a unit will go up. I.e. if the pricfe of a unit goes up from £100 to £120 the mayfair studio, which has 10 units of utility will increase in cost from £1000 per month to £1200 per month. The The rental yield in £ terms will go up, and, all other things being equal, so will the capital value (purchase price) of the flat to keep the rental yield in % terms constant. Supply and demand are still =.

Similarly, if supply increases and demand stays constant, prices will go down.

Supply increases will come from an increase in building. It is not, in itself, accurate to say that a decrease in owner occupy % will increase supply. An owner occupier should be seen as someone renting from themselves.

Demand increases will come largely from three sources.

a) An increase in people (population pressures)

B ) An increase in income (either "natural" inflationary increases or above inflationary increases)

c) An increase in the proportion of their income that people are prepared to pay for housing (i.e. a consumption decision that increases the value of 1 unit of housing utility in the mind of consumers compared to 1 unit of all other goods)

It has been posited by many commentators that britain has a "housing shortage". This should mean one of two things

a) At the moment, Britain has a level of housing supply and housing demand that results in an "unreasonably" high cost of housing from a social point of view. This is arguably a "bad thing" and something that the government should do something about.

B ) In the future, britain will have great demand pressures that will not be matched by an increase in supply I.e. the price per unit of housing will go up. Note that usually in this context you would expect a shortage to imply that prices would go up by more than inflation.

In actual fact its usually used to mean this

a) House price rises in Britain can be explained because of a shortage of housing.

Another, more economic way of putting this would be

a) House price rises in Britain can be explained because the rental yield in absolute terms (£) has increased.

There is a relatively simple way of seeing if this is correct, by examining the level that rents have increased. Unfortuately this data is hard to get hold of. Its certainly fair to say though that there is no way that increase in rents can be used to describe the huge price rises in the past 10 years! Perhaps the best source is the rent element of RPI, which from Jan 1998 to Jan 2008 rose by 2.9% compounded per year compared to 2.8% for the RPI (source: gov statistics) and 11.3% for nominal house prices (nationwide index).

From earlier, we can therefore posit that the increase in house prices over and above the increase due to rent has to be due to any or a combination of

a) Yield compression (a decrease in the risk free rate and/or a decrease in the premium required over this by house investors) - this has happened

B ) Reduced financing costs (cheaper nominal interest rates) - this has happened

c) Expected capital apprecation, which is rational up to the point where rental increases, yield compression and financing costs are expected to be beneficial, and then irrational when the effects of these three turn negatve. - there has been a period of rational expectation of capital appreciation (probably up to early 2004) and then, in my view, a period of irrational expectation - i.e a bubble.

Thus the common use of the term "is there a shortage of housing" i.e. can this be used to explain current prices is NO.

Lets go back to the two possible correct uses of the phrase

a) At the moment, Britain has a level of housing supply and housing demand that results in an "unreasonably" high cost of housing from a social point of view. This is arguably a "bad thing" and something that the government should do something about.

I would argue that this is probably the case, yes. Rental prices and the % of incomes spent on housing are quite high compared to other OECD countries. I would support greater government support for buiding housing in the form of planning relaxations and funding for social housing building.

B ) In the future, britain will have great demand pressures that will not be matched by an increase in supply I.e. the price per unit of housing will go up. Note that usually in this context you would expect a shortage to imply that prices would go up by more than inflation.

This is unclear. I do not have an answer to this. My non-informed suspicion is that demand increases are unlikely to outweigh supply increases in the near future. I suspect that a lot of the extra demand from immigration etc will dry up as the wage differential between here and eastern europe decreases and our economy falters. On this reading I would say "no"

Simple really: Price is a function of supply and demand.

If supply increases (more repossessions, lots of houses built, people STRing, BTL investors selling up etc), the price goes down.

If supply decreases (struggling to think of an example of why this might happen - war maybe?), the price goes up.

If demand increases (through lax lending, immigration etc.) prices go up.

If demand decrases (reduced appetite for risk, credit tightening, emmigration etc.) prices go down.

It is important to see that demand is not simply 'the number of potential buyers'. It is the number of potential buyers who are also able to afford to buy. This crucial distinction is lost on many people I speak to, including my parents who have been clinging to the supply/demand argument like a sailor clinging to the mast of a sinking ship as one-by-one, their other arguments have been blown out of the water. I fully expect to win this particular debate with them shortly.

It really is as simple as that. As you can see, it is very possible that there might be a significant reduction in demand at a time when there'd also be a hefty increase in demand. This dynamic can be summed up in one word: recession. I personally expect to see and hear this word quite a lot over the next 24-36 months.

[lets get it right]

my criteria is if an average person has to pay more than 25% of their income to rent an average house there is a shortgage.

Firstly, for the sake of our language, it should be your criterion. (Criterion singular, criteria plural).

And isn't your criterion a bit, well, idiotic?

What if you live in a village where there are only two houses owned by landlords - all the rest owner occupied? High rents I imagine.

On the other hand, if there are a lot of new build flats standing empty in your area, low rents.

Not a lot to do with some arbitrary relationship with salary.

[howarden]

Firstly, for the sake of our language, it should be your criterion. (Criterion singular, criteria plural).

And isn't your criterion a bit, well, idiotic?

What if you live in a village where there are only two houses owned by landlords - all the rest owner occupied? High rents I imagine.

On the other hand, if there are a lot of new build flats standing empty in your area, low rents.

Not a lot to do with some arbitrary relationship with salary.

Possibly not idiotic in principle, it just starts to factor in an element of 'quality of life' defined by having a distinct portion of your income available for non-housing purchases. It may be wise to factor in some element of the income available in these types of measure, in the example the absolute rent will be in some way relative to the income of the potential tenants (a village in Sussex versus a village in Middlesborough).

This thread has reminded me of some of my feelings towards collating all these brilliant arguments that there is no shortage. While it may be satisfying to prove this to certain people, I'd much rather we didn't get too good at it, I think I'd prefer an oversupply than an undersupply in the long-term and to do that the rate of house building needs to be maintained at a suitable level. If we are able to prove that there is no shortage then the arguments for increasing the housing stock start to go and combine that with struggling mass housing builders we may really see a (bigger / actual) relative shortage in a few years time.

[alabala]

Demand and supply are variables at any given time:

Demmand still higher than the availible supply (tight land regulation, Builders holding land withouth developing it or slow developements), demographics - general population on rise.

->high demand

Current crisis = overpricing of an assets, based on financial excesses.

1. Sudden stop in availability of credit - decreased demand until certain requirements are met, LTV, etc.

->genuine buyers decrease

->demand decrease

2. Loss aversion - people pulling out properties out of the market.

->supply decrease

3. Bankrupcies, repossessions ->information signal -> new personal evaluation of risk

->demand decrease

4. Investment properties dumped under tighter credit conditions

->demand decrease

->supply increase

5. General Trend of properties prices -> if lower ->information signal -> depreciating asset.

->demand decrease

6. Devaluating Currency -> if lower ->information signal -> depreciating asset.

->demand decrease

7. Household formation -> financial crisis & uncertainties-> information signal -> feeling insecure.

->demand decrease

8. Separation and Divorce -> financial crisis & uncertainties-> information signal -> People tend stick together through bad times.

->demand decrease

9. Adult children living with parents -> financial crisis & uncertainties-> information signal -> People tend stick together through bad times.

->demand decrease

10. Immigration -> financial crisis & uncertainties-> information signal -> avoiding bad economic conditions, depreciating assets (curency, housing) -> reduced immigration.

->demand decrease

11.Emigration -> financial crisis & uncertainties-> information signal -> fleeing bad economic conditions -> increased emigration.

->demand decrease

...

Edited February 20, 2008 by alabala

[baby bear]

Regards the meaning of "supply" and "demand", there's an excellent post on here which spells out how these terms pan out in relation to the economics of house prices. I've done the grunt work and found it for you! :-)

http://www.housepricecrash.co.uk/forum/ind...c=61518&hl=

Recommended reading. It has graphs, and everything!

[red]

[Badger]

there is plenty of those

edit: 'there are plenty of those'