Friday, April 13, 2007

Nurses cannot afford a house, so what?

Nurses 'can't afford houses in 99 per cent of UK towns'

Tim Crawford, group economist at Halifax, said: "Housing affordability continues to deteriorate... and it is now clearly not a problem confined to the south of England. Nurses face the most difficulties climbing on to the housing ladder but all key worker occupations are likely to struggle." He added: "The Government's key worker schemes are providing some relief but given recent trends there would be benefits in broadening their reach" What!? If you give subsidies prices go even higher!!! Maybe we should build more houses... shouldn't we??

Posted by confused76 @ 11:28 AM (589 views)
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21 thoughts on “Nurses cannot afford a house, so what?

  • Gaah.

    Say it after me “House prices are not a result of supply and demand”.

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  • Of course, the government key workers scheme should not in any way be interpreted as additional income for these workers. That would contribute to wage inflation – and we don’t have any inflation problems in this country. (Yeah, right!………sorry……..distracted for a second…….a squadron of flying pigs flew right past my window!)

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  • Paul said:
    >>Say it after me “House prices are not a result of supply and demand”.

    Do you seriously believe that supply and demand have no bearing at all on current house prices or
    that they have a limited effect?

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  • Well supply and demand.

    If nurses can no longer afford them then they are no longer included in the supply and demand equation.

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  • Look, HPI is becuase of a chronic housing shortage – everyone agrees.
    It’s well documented – at about the turn of the century, simultaneous chronic housing shortages occurred in the UK, the USA, Ireland, Spain, Australia, New Zealand…….

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  • Denzel, Paul,
    That was precisely my point… the supply / demand balance is the determinant of the price.
    But let’s try to reason beyond what these mortgage charlatans write in the press releases.
    The demand is very elastic, the closer you get to affordability limits, the more “horizontal” the demand curve becomes.
    But in these market conditions (i.e. owners expect continuing capital gains and noone is YET forced to sell) the supply is very inelastic (the curve is nearly vertical).
    When one curve is elastic and the other inelastic, microeconomic theory says that the largest proportion of price subsidies will be pocketed by the players on the inelastic curve… in this case the house sellers. So if you give incentives to low income workers to buy houses, the price of the houses (in that area or for that type of houses) will increase even further.
    Conversely, if you have a transaction tax/cost (like the stamp duty or the HIP) the most part of that cost is also carried by the player on the inelastic curve, i.e. again the seller having to reduce the “net price”.
    You see… there is a reason these mortgage charlatans are lobbying to reduce stamp duties and increase subsidies, because they rely on the market buoyancy for their business.
    However, what I just said is a “short-term market equilibrium”. Microeconomis says that in a longer period, both supply and demand curves can “shift” (e.g. in response to a buoyant market)
    Demand patterns can change – I can accept to commute 15 min longer and move to a less expensive area, or to move from a 3-bed house into a more “land efficient” block of flats, or I can come to the realization that I am not expected to make big capital gains buying a house today. In these cases the demand curve would “shift to the left”.
    The supply curve can shift as well: they build more housing in my town, they build more flats and less houses, or they add a few more buses to improve the reacheability of areas previously not sought-after by commuters. In these cases the supply curve “shifts to the right”.
    Of course the mortgage charlatans prefer to mention only reasons why the demand curve “shifts to right”: the immigration, the city bankers that want 8-bedroom villas in Mayfair… but that serves their propaganda…
    All in all, the market sentiment today is propelled “at the margins”: 800k BTLers, 1000 City bankers, 1m immigrants. Imagine in three years time with 1m new built properties and 2m refurbished properties, better bus/train lines, unemployment up by 1 percent, and interest rates up by 1 pc too… those are the big changes that affect 60m people and will certainly take prices down.
    In my opinion, the crash will happen if the BTLers decide to bail out once the market slows… maybe, maybe not?

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  • Nurses cannot afford a house, so what?

    So no nurses.

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  • P.S.:
    … sorry I think I need to add a comment otherwise my long story above can be obscure…
    A “demand shift to the left” and/or a “supply shift to the right” determine a price reduction.
    the opposite is true for a “demand shift to right” and a “supply shift to left” that determine a price increase.
    (sounds complicated but it is not!)

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  • Fahrenheit451 says:

    I though all our professional doctors and nurses went to the States as soon as they had done one or two years here. In which case they wouldn’t want to buy anyway. Then we get a mass of cheap migrant workers fromthe latest EU member and they only want rented accommodation.

    Its just a hoax to make GB(H) sound like a nice guy.
    They can aways say “we will help key workers” but as soon as they do they take all the money away again and say they need it for schools or something else.
    Try this for a new tax laugh.

    Bin Them – New council proposals on rubbish collection are, well, garbage
    http://www.timesonline.co.uk/tol/comment/leading_article/article1647550.ece

    GB(H)’s pension fund is getting bigger.

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  • Nurses/teachers/firemen not being able to afford housing is irrelevant. Local authorities/employers should be able to provide key workers with accomodation anyway. Well, that’s the way it used to work. Where housing is expensive, LAs have to raise more, by way of local taxes, to spend on housing for key workers. If you live in an area where housing is expensive you should logically expect to pay higher local taxes for this reason. The fact that nurses/teachers/firemen working in Kensington & Chelsea cannot afford to live in Kensington & Chelsea really doesn’t disturb me.

    Paul – supply and demand clearly do have an effect. How can you logically expect an HPC to occur without excess of supply? (houses on the market) This website is ample evidence of demand. The fact that folk here claim they’re not willing to buy right now matters not a jot. How far do prices have to drop (or stagnate) before people “fold” and buy? 1%, 10%, 50% ?? Most have a price in mind they’re willing to pay and will probably end up paying more than that anyway.

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  • It’s a housing market Jim – but not as we know it!

    The ‘Supply & Demand’ issue is one of the reasons for HPI – in that houses aren’t being built and more people are coming to the market, buying houses for investment – not purely as a home – but as an investment (better than a pension – remains to be seen!)

    What seems to be the case – as many have said on this site – is the money supply is out of control, lending is lax, banks are profiteering, people are stupid (desperate), debt is easy, interest rates are too low, pension provision is poor, buy-to-letting is en vogue, the rich are piling into property – etc etc etc… Its all classic bubble stuff.

    When will the bubble end people say – well the longer it doesn’t go pop the more likely the bigger the bang when it does.
    The reasons for why HPI is going on and continuing is only consipring to make it worse.
    Yes invest in bricks and mortar – but have houses over-shot their true value due to a lack of supply?

    Or – housing is now acting more like a commodity – only the rich can invest in it? Don’t buy this – that kind of talk always comes with a bubble – “this time it’s different”…”this is a new era of investing”…blah blah blah – face it – if it smells like a bubble, looks like a bubble and acts like a bubble – then it is a BUBBLE!!!!

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  • European Bear says:

    An oversupply of credit combined with an oversupply of stupidity.

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  • monty, nearly30, confused76.

    Logic is a cruel master.

    In Japan, only around 15% of the landmass is habitable. There is approx double the UK population living there. Estate agents peddled the supply shortage myth there too, but it all came apart, prices dropped 40-50% and everyone realised that the bubble had no rational supply and demand underpinning at all. Just good old fashioned cheap credit and speculation.

    Exactly the same is happening here, and do you know how you can tell this? Do you know what betrays the lie that there is a housing shortage? Well, it’s what economists call “funadamentals”, and one of those is the cost of renting. If you stop and think about it, the first thing that will increase if there is a genuine shortage of property is rents, possibly independently of house prices.

    But in the UK rents have actually dropped during the house price boom, creating abysmal yields for landlords. This is not to say that supply isn’t a problem anywhere in the UK, but it’s certainly not the driving force behind current price trends.

    There’s a proverb in Japanese “Everyone and their cat is in real estate”. So don’t let any estate agent or market shill tell you otherwise.

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  • Sorry, denzil. Not nearly30.

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  • Monty,
    there is no excess supply or excess of demand. Demand = Supply, always. The problem is “at what price is demand equal to supply?”

    I speak for myself (but probably others who write in this forum will agree). I would like to own a house, but not trying to buy one for 4 good reasons:
    – it is cheaper to rent than to buy where I live
    – i do not want to make a badly-timed investment (and all the market indicators now point to properties being overvalued)
    – i prefer to retain financial flexibilty and keep part of my savings in more liquid (and safer) assets, just in case i end up unemployed (…and I hate leverage!!)
    – i think the tax incentives of investing into a personal pension make it a far better investment than buying a house

    So please do not count me in your “demand” because I am not trying to buy a house, at the moment.
    Your other question, when will I fold and buy? When I think housing market indicators have reverted to the long term means, which is probably 20% lower than today’s prices (but in real terms). Will it happen? Perhaps. And if does not happen I will keep renting for a long long time and save money without lining the pockets of the mortgage lenders. Or maybe will buy a house in New England and move there!

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  • I’m sorry if I seem a little ranty on this point, but excess demand is not pushing up prices in the UK. Speculation and cheap credit are. That’s all.

    I too, am currently backing away from buying property now. And I notice that EAs are sounding a little more desperate now.

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  • I’m afraid Paul is right – the people peddling the housing shortage myth most are, of course, developers. We’ve got plenty of housing, we just need affordable housing. Irrespective of the environmental damage, it wouldn’t matter if you built 100,000 homes tomorrow – there is so much cheap credit sloshing around that they would be sucked up immediately without affecting overall prices at all. We all know what needs to happen: speculation needs to be curtailed by switching off the easy money. IR rises is the only answer, and they’re-a-comin’.

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  • I drive around my home town everyday and there is categorically no shortage of housing. There may be a shortage of the type of housing people want but if you need somewhere to live there are plenty to choose from especially 1 bedroom flats. According to the local authourity there are approximately 2500 empty new builds i.e. not paying council tax!

    So there may be a shortage of housing in the S.E. but up North it is a myth peddled by the same people who probably reckon the average house costs 200K. Until folk start to look at houses as somewhere to live rather than an investment opportunity or a piggy bank then this whole scam will continue until the economy crashes.

    Unfortunately when that happens folk won’t be able to afford houses because they won’t have a job!

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  • What I’m disagreeing with is the ill conceived HPC mantra of “house prices are not a result of supply and demand.” They obviously are. I don’t care if the demand is from speculators, BTLers, FTBers, buy-to-leave-emptys, fixer uppers, Poles or Martians but there is demand. I don’t care if this demand is being fuelled by cheap credit, low interest rates, the Yen carry trade or cosmic voodoo magic rays but demand is being fuelled and prices are still rising (as of time of writing.)

    “House prices are not a result of supply and demand” is a fallicy.

    confused76 said:
    >> Demand = Supply, always. The problem is “at what price is demand equal to supply?”

    This is a contradiction and more than a little confusing. If there are 20 buyers and 1 house on the market then demand exceeds supply. Conversely, if there are 20 houses and 1 buyer then supply exceeds demand and we have HPC. At some point between these two there will be, theoretically, 1 buyer for every house and we have equilibrium. An intriguing concept but given the non-homogenous and regionalised nature of the market it’ll only ever be a theoretical point.

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  • Monty,
    you and I are saying fundamentally the same… it s Microecomics that becomes a bit semantic at times :))
    If you have 1 house and 20 “potential” buyers, the price will adjust up till the point there is only one person willing to buy, so 1 house = 1 buyer.
    If you have 20 houses and 1 potential buyer “at the asking price of those houses”, then the best house will be sold immediately and the sellers of the remaining 19 will have to lower the price to attract 19 additional buyers. At the end 20 houses = 20 buyers but the price will have crashed. (I am assuming that the 20 houses “must be sold”, otherwise a number of them will be withdrawn from the market if owners are unwilling to sell ’em cheap, and can afford to hold on the stock!)

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  • Oversupply of babyboomers preparing their retirement ?

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