Tuesday, March 20, 2007

UK crowded island, USA bags of space.

House prices: big shortage of homes on the cards

But there is an important difference between the UK and US markets. In the US, there's bags of space, and no underlying reason why supply should be less than demand. In the UK, however, it's quite different.

Posted by nick @ 02:14 AM (603 views)
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10 thoughts on “UK crowded island, USA bags of space.

  • Couldn’t this argument be applied to the previous crashes?

    Obviously everyones trying to justify the unjustifiable, which is as sure a sign of a bubble as any.

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  • “So maybe much of the rise can be met by converting houses into flats”

    … but it is Economics 101, the need of affordable housing can be met by dividing an expensive house into 3 flats. Once the cheap money supply is gone, house prices will simply crash since the statistics (built on undifferentiated transaction averages) will pick up far more flat sales than house sales… keep tight!

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  • The USA has had 5 years of rapid HPI, forming a bubble which is now bursting.

    Now read it this way: The united states [that has sooo much land and so no problems with supply versus demand] has [still] had 5 years of rapid house price inflation [despite having so much space], forming a bubble which is now bursting.

    (Dec 2005 quote:) 14 years ago, Yoshihisa Nakashima took out a loan for almost the entire $400,000 price of a cramped four-bedroom apartment in down-town Tokyo. With property values rising at double-digit rates, he would easily earn back the loan and then some when he decided to sell. Not long after he bought the apartment, Japan’s property market collapsed. Today, the apartment is worth half what he paid. He said he would like to move closer to the city but cannot: the sale price would not cover the $300,000 he still owes the bank.

    Again, lets re-read that: 14 years ago, Yoshihisa Nakashima took out a loan for almost the entire $400,000 price of a cramped four-bedroom apartment in down-town Tokyo [, which is in Japan, an island with a significantly higher population density than the UK]. With property values rising at double-digit rates, he would easily earn back the loan and then some when he decided to sell. Not long after he bought the apartment, Japan’s property market collapsed [even despite their lack of land]. Today, the apartment is worth half what he paid [even though 14 years had gone by since the crash]. He said he would like to move closer to the city but cannot: the sale price would not cover the $300,000 he still owes the bank.

    Last time I checked, Britain was still an island in the early 1990’s, wasn’t it? [and yet we still had a property price carsh]

    It’s called reading between the lines and learning that, just because an argument seems “obviously to be true”, it doesn’t mean it actually is true. If you charge way more for soemthing than it’s really worth, and than people can really afford, eventually this tells, whether you have land to spare or whether you don’t!

    How many Mr Nakashimas are there in the UK right now?

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  • This notion that short supply will drive the market upwards ad infinitum is full of hole; in the housing crash of the nineties how many fewer people were there in london? Alos, at this time schools were schools rather than apartmnets and so were warehouses, office blocks etc. London was still a very crowded place. At that time there was a very high demand for rooms in shared houses, now that seems to have dropped off as the supply of this kind of accomdation has increased due to buy-to-let. The very high demand vs supply for properties is in part speculative: people are desperate to buy because they see prices going up and sellers don’t sell for the same reason. It’d be interesting to see how the supply/demand balance would look if prices change direction.

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  • This article explains what I keep trying to say, the USA can build itself out of the problem.

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  • “In the US, there’s bags of space, and no underlying reason why supply should be less than demand”

    This is somewhat one-sided argument.

    1) There has been a shortage of space in the UK for a very long time. It’s already factored into property prices. I would agree that there aren’t enough new homes being built, but I don’t see any evidence for believing that shortage is enough to prop up this market.

    2) Not everybody in the US wants to build a house in the wilderness. They want to live in towns and cities with other people, in which the population density and shortage of land is at least comparable with the UK.

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  • Over the years, modern architecture has enabled us to build upwards and downwards as well as sideways. Also, there are vast disused industrial estates, empty flats,dilapidated housing sprawled all over this country.
    This demand theory works only because the builders and planners want to keep it that way to shore up profits on there new homes, why are they announcing they want to reduce there building projects this year? The crash has already started for them, especially if they have had exposure in america.

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  • Great Points Rich!

    Also notice how when going on about the differences between the US and UK the VI Spin never mentions the Japanese Property Crash and unless Japan has suddenly taken over Mainland China and part of Russia then I think it makes a good comparison, also Japan had virtually zero IR’s for a long time…

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  • Maybe so, but at least in the USA they have a lot more space for these towns to expand, we don’t.

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  • This shortage of supply in the UK argument annoys me. If you take property developers and speculators out of the equation, there is no shortage of supply!

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