Wednesday, July 11, 2007

Supply & Demand: build your way out?

Brown pledges 3m new homes

HPI is about supply & demand - but there are 700,000 houses and flats standing empty around England, 850,000 outstanding buy-to-let mortgages at the end of 2006 and over 100,000 non-domiciled people in Britain!! Sounds more like bad planning and assest bubble investment!!? Could be wrong?

Posted by nearly30 @ 10:06 PM (570 views)
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20 thoughts on “Supply & Demand: build your way out?

  • Don’t want to be marked as having politics of envy – but the figures to say something about HPI – is it a supply & demand issue – in respect of supply for homes not for investments?

    Of course – where empty houses are located (in respect of jobs) is an issue but – “research shows that the areas with the biggest empty housing problem are Burnley, with 8.3% of all houses vacant, Liverpool, on 7.6% and Tower Hamlets in London on 7.1%. In total there are 23 English local authorities where more than 5% of the housing stock is empty, compared with a national average of 3.2%.

    Articles with interesting stats (journo hack style of course):

    Buy-To-Let Boomed Under Blair
    < a href="http://business.guardian.co.uk/story/0,3604,1592655,00.html" target="new">Despite rise in house prices, 700,000 homes lie empty in England
    30 second guide to… Non-domiciles

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  • Nearly 30,
    you have just said it

    HPI is NOT about supply & demand
    it is about irrational speculative exhuberance, and with no economic fundamentals
    Rental inflation is about s&d, but rents are static

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  • Oh and the amount of land that’s banked:

    “Research by the Royal Town Planning Institute shows that the builders have land with planning permission totalling 14,000 acres, or enough for 225,000 homes. The biggest, Taylor Wimpey, completed 22,000 homes last year, but has planning permission for more than 57,000 – or almost three years’ supply.

    See: Guardian:Place Setting (July 11, 2007)

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  • Rental Yields:

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  • All this talk of supply and demand is just a smoke screen. I’ve just done a tour of my area and there are hundreds of properties on the market. Why are people not buying them? Because they are overpriced!
    The cause of unaffordable housing is quiet simply unafforadbility, full stop. If supply and demand is a problem why are estate agent windows full?, why have Rightmove?

    It’s all platitudes from Brown and I’ll tell you now it won’t make an happeth of difference.. Role on the crash!!

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  • japanese uncle says:

    Let him build 3 million houses. Very fine. Then HPC will explosively accelerate, bringing down the averga price by 70% seriously.

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  • Anyone watch the newsnight banter on HPI? – geeze – Old Ed Balls’ wife Yvette Cooper was getting a pasting – very animated!!!

    “You can’t deny it, it’s something you can’t miss,
    That bird whos hangin’ out with you is mad like cat’s p*ss,
    Like bread and jam or a knife drawn with butter,
    Face it son, your missus is a nutter!”
    [Goldie Lookin Chain]

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  • planning4acrash says:

    Nearly 30, the graph showing house prices against wages is particularly interesting. The Nationwide graph on the homepage shows prices still rising, albeit at a lower pace for the past yr or two. The graph here shows that that rise is infact only just keeping up with wage growth, i.e. house prices have not risen in real terms since about 2005-6, fascinating! Lets see what happens when the 5 rate rises kick in during the autumn!

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  • Totally agree with the comments here. I am getting really fed up with ‘analysis’ by TV pundits and politicians that totally misses the point. They go on and on about supply and demand and there not being enough houses, yet they don’t seem to get that no-one is homeless, and rents are unremarkable. There is not a shortage of houses, especially not the type of house that first time buyers want. There is a shortage of houses to buy and live in because speculators have bought far too many of them, purely for capital gain.

    If anyone doubts the crucial role of buy-to-let in property hyper inflation they should study Belfast. Areas which had never had speculative activity suddenly started to attract ‘investors’ who spilled out from the university areas and from Dublin. In a period of about three years property prices in these new speculative areas grew by as much as 300%. Now the whole of Northern Ireland has become infected with the madness and we are at the top end of UK houses prices, while still being at the bottom end in incomes.

    http://petitions.pm.gov.uk/landlordspaytax/

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  • They’d be better getting rid of the tax breaks for investors and levelling the playing field. Still, anything that adds to the supply will only help.

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  • The “ratio of average house price to average earnings” is indeed very interesting as it seems to suggest a crack in the space-time continuum between 1988 and 2093 and then takes us back to 2003. Assuming that this is actually just an error on the graph’s time scale, I was under the impression that the Nationwide has now stopped publishing these house price/earning ratio figures.

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  • re 5
    Great set of graphs. If you line up the timescales, you see yield is mostly affected by price, which is of course what you would expect. Are there any charts showing the historic yields relative to the prevailing interest rates, inflation? As we all know, 1974-1978 was a period of double digit inflation, which reached 29% at it’s highest, so relative yields were extremely poor then. At under 6% now, that is better than “official” inflation, but of course worse than cash.

    Also, I think you need to have “3.7xEarnings” in the middle graph, but you have labelled it “3.7%”, which desn’t seem right to me.

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  • “HPI is NOT about supply & demand”

    I’m sorry, but prices are always about supply and demand.

    The only conclusion I can draw from this is that those houses are somehow unavailable to the general population of renters out there. Perhaps house price inflation has accelerated to such a point those landlords are banking on capital growth only?

    Or the houses are stuck in some kind of bureaucratic limbo (sounds about right)?

    Or they are being built in areas that are of no use to the vast majority of the populace out there? (I see most of the houses are not built in london.)

    Perhaps this statistic is infrastructural (similar to unemployment figures (see phillips curve) which is currently 5.5%)?

    Also interestingly, HPI has not happened in germany and they have 8.2% vacancy. Perhaps we should be aiming for 8.2%?

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  • nearly30, confused76

    It IS about supply and demand and your own evidence backs this up. Rental yields are static precisely because of the increase in SUPPLY of available rented property over the last 10 years. Builders have spent the last 10 years and especially the last 5 catering to the DEMAND for the BTL dream 2 bed flat and ignoring the family detached/semi-detached with garden. That’s not to say they haven’t been building them, just not enough of them. The preference by planners for building on brownfield sites has exacerbated this trend. The net result is that there is still a DEMAND for the family size detached/semi with nice garden. Just ask anyone looking for one what the SUPPLY is like in this category.

    Your 700k empty houses are the proverbial chocolate teapots. They’re empty because there is no-one willing to live in them either because (.1) they’re in the wrong area with no jobs, schools etc. – location, location, location (2.) they’re being held by a BTLer holding out for an unobtainable rent figure or a buy-to-sitter – both of these are unsustainable over the long term or (3.) they’re unfit for human habitation and the council or private owner is unable/unwilling to fix them. Housing is a non-homogenous entity and empty house stats are only useful when considered in a local context. There is already legislation in place to allow councils to make use of properties empty for longer than six months. They should use it.

    As for the non-doms, what makes them different from any other immigrant? The fact that a small handful of them may not pay tax here on their Swiss/Jersey bank accounts doesn’t bother me in the least. What money they bring into the country IS taxed and then they spend the remainder. Woohoo. Win-win for the economy baby.

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  • “Or they are being built in areas that are of no use to the vast majority of the populace out there? (I see most of the houses are not built in london.)” – Chilli

    One of the news articles someone posted recently did have a comment from Savills (I’m sure everyone will dismiss as a biased VI comment) about how there had been massive house building in places like Leeds where they’d thrown up hundreds of “executive” apartments without realising that there weren’t actually that many young executive types who’d want a flat working in Leeds and those there were could just move out to a nice house so they’d utterly misjudged the localised demand.

    Although the empty flat rate in Tower Hamlets is interesting. Actually it’s not that interesting, most of Tower Hamlets is pretty grim, doesn’t that cover all those horrible developments in Docklands that nobody actually wants in utterly soulless areas? And anywhere that isn’t new, fake and empty in tower hamlets is seriously dodgy, places like canning town . . . Still, it’s higher than I’d have expected.

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  • Monty, well said all round. I know when I was looking for a suitable family home there was NOTHING available. I think that even though the government is going to be building all these new homes they’ll still fvck up because they’ll build more flats that nobody wants.

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  • Nearly30,

    I saw it. Worth remembering that the other two blokes represent parties with a lot of rural seats. The nimbysim was very apparant.

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  • From my recollection, I don’t remember the 1990’s house price crash being the result of a sudden glut of supply in the housing market.

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  • I think a realistic senario is that the HPC will herald in a society of squatters where families evicted from one house squat in another repossessed property. These Gordovilles will be prime squatting territory.

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