Sunday, September 12, 2010

Nadeem Walayat – UK House Price Forecast

Britains Population Growth and Ageing Demographics Impact on UK House Prices

The long-term battle being played in the UK housing market is that of new build supply always trying to play catchup with ever increasing demand as a consequence of the UK's growing population and changing demographics which is set against many other developed countries that are either experiencing falling populations such as Germany or have ample space to build far beyond that demanded as a consequence of population growth such as the United States. Therefore this analysis as part of a series on the UK housing market seeks to gauge the likely impact of population growth and demographics on UK house prices over the next 10 years.

Posted by jack c @ 01:11 PM (4849 views)
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22 thoughts on “Nadeem Walayat – UK House Price Forecast

  • The 18th century static view of a national population is unrealistic in the context of a globalised economy. Or do people not change the country of their birth any more?

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  • “This suggests that the often put forward industry affordability ratios such as X3.5 salary as the likely outcome path for the UK housing market does not accurately take into account the new demand against new supply trend that implies affordability ratios look set to be pushed ever higher to new trend extremes, therefore supporting long-term price trends for UK house prices in real terms, i.e. expensive UK house prices look set to be here to stay for as long as the lack of new supply exists, especially as the UK population is expected to grow by 5 million over the next 10 years against an realistic estimated construction of just 1.2 million new homes.”

    Absolute bunkum.

    If the population growth is greater than the growth in housing stock then what obviously happens is that the average number of people living in an average house increases. Combine this with the wage deflation caused by immigration and all that happens is that house prices remain the same, but house price to income ratios increase, as prices will be determined by an increased level of multi-occupancy renters/buyers (on lower wages). House prices have risen to well above the long-term trend because of credit, not because of immigration. They will fall – maybe to X4 the average salary (an average salary that will be lower than before the economic crisis).

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  • mark wadsworth says:

    Of course it has some marginal impact (which could be greatly reduced by allowing new construction to keep pace with population growth or growth in size of economy, i.e a couple of per cent a year), but the biggest single factor is easy credit, that’s about nine-tenths of it.

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  • What Mark Wadsworth says.

    The argument that we aren’t building enough to match rising demand due to population growth seems very strong in the long run but doesn’t address the question of what will happen in the near future. We had a boom in easy credit that obviously helped property prices but that’s over now. Can we really have ‘price stagnation’ in the next five years while the government cuts back expenediture? Sure, the desire to own property seems to be strong but where’s the money to maintain current prices going to come from?

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  • “the UK population is expected to grow by 5 million over the next 10 years against an realistic estimated construction of just 1.2 million new homes.”

    Surely that is only relevant if the 5 million people all want a home each .
    If the immigrants purely consist of “man , wife and child” units then they only need 1.67 million new homes .

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  • @dead spider, 4… The amths is about right i’d say. However, it only just [nearly] covers the future growth, and does nothing for the current demand!

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  • Ooops – maths!

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  • I thought it was good but there are many trends and while this presents some fundamental trends others are ignored. That graduates invariably come out of university with heavy debts is certainly knocking a demographic out of the market. That housing benefit cuts directly reduce housing yields. To say nothing that UK banks still are not funded properly and won’t be for some time. Unemployment and so on.
    If shortage was a key factor in housing then the slums of Mumbai would be worth millions, but they aren’t. If the UK economy carries on shrinking and carrying heavier and heavier debt servicing costs then housing will fall.

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  • This is so full of wild assumptions and guestimates, the conclusions are of little value.

    Some of the numbers are also plain wrong – we have an imbalance between births and deaths because people are living a little longer, and from the legacy of the baby boom; but this won’t continue.

    Growing obesity issues are likely to reduce and possibly stall the growth of life expectancy; and as the baby boomers start to die, so the death rate will play catch up with births.

    The UK’s current birth rate is close to optimal, relative to life expectancy; but is greatly fuelled by the tendency of recent migrants to have children soon after arrival.

    If the new government is successful in limiting immigration, as they intend, we can expect the birth rate to drop below the death rate, possibly to levels similar to those in Germany, where the birth rate per 1000 population is currently 23% lower than in the UK.

    One also has to consider the number of people who will leave the UK to take advantage of cheap property in Ireland, Spain, or even the USA, – once those markets have settled and found stability.

    The projections of rapid UK population growth are, I think, improbable.

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  • Playing with a countries population dynamics in the way the UK has done should be illegal.

    It causes too many problems. It has become a tool for financial and social engineering traitors. Period.

    I understand, Arizona. Stand strong.

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  • Does anyone honestly think the UK can support another 5 million people when it cannot adequately employ or support the population it already has without recourse to more and more long term debt. The only growth the UK has seen over the last 28 years has been in debt, governments of both persuasions have sold the family silver and mortgaged the country to the hilt both directly and indirectly and are deluding themselves if they think the above forecasts are sustainable and the aging population excuse is claptrap when they can’t fully employ the population we have when more and more people will have or expect to work longer.

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  • UT, that is all very sensible, but it strikes me that a Home-Owner-Ist government quite likes immigration because it tends to push up house prices (again, the effect is probably marginal, but it is there).

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  • it_is_going_with_a_bang says:

    Population growth is certainly a factor.

    However there are many places in this world with a much higher density of population and much lower property prices.
    In fact – a higher population could drive average earnings significantly down and put a much larger strain on public expenditure/taxes.

    The only real factors that support house price rises are easy credit, low interest rates and increasing earnings (in relation to inflation).
    Assuming all 3 of those are going to get a rough ride over the next few years should give everyone an idea of where house prices are going.

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  • I agree with almost shrugging skimming through these posts. How is it that the general public manage to defy any form of logic so consistently. In fact I’ll go further and point out it’s the ones on big salaries and with equity that are doing it.

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  • Almost shrugging ? WTF

    How much do I hate predictive text and everything it stands for.

    Should have been almost ‘everything’.

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  • Complete *ollocks. Just another piece attempting to prop up the myth that prices won’t tank.

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  • The Capitalist says:

    His sentence construction is shockingly bad: has he never used a comma? Get a sub-editor dude.

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  • Complete *ollocks. Just another piece attempting to prop up the myth that prices won’t tank.

    In the short term he is saying that house prices will stagnate, in the longer term population will be a greater factor.

    Nadeem has been consistently very bearish on UK house prices.

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  • 13. str 2007 said…Almost shrugging ? WTF

    Now that’s what I call apathy. lol

    Yes, social and financial engineering through population dynamics must stop.

    What a nazi racist I am. 😉 Sticks and stones…..

    Go Arizona, don’t be a middleman for the true drug cartel that gets the military to grow their stock . Oopps racist again.

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  • Finger in the air statistics made to suit the preconceived argument, “net average current immigration trend of 240k per year, supplemented with climate change refugees averaging 50k per year from 2015 onwards.”

    Climate change refugees starting in 4 years? You certainly have to be a believer.

    Click through to the immigration article and the chart only goes back to 1997 when net immigration was 100,000. There’s no such thing as a ‘trend’ in immigration that helps us to predict the future. It can be changed instantly by legislation, and more slowly by exchange rates and job prospects.

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  • OTOH,

    I think history will record how singularly inept Nu Labour were when it came to immigration; and that even if the coalition falls short of its objectives, we will still see a sharp reduction in net migration. It is not impossible that high levels of emigration will serve to push the net figure down to zero.

    Adding climate change refugees into the numbers is just plain silly – there is no certainty that there will ever be any, and if there are, government will be under heavy pressure to limit migration from elsewhere to compensate.

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  • Round the corner from me, they have squeezed 20 or so houses onto a tiny plot of land. All very very overlooked.
    This afternoon I am going for a cycle ride. 30 minutes out by bike I will be in open South Hampshire countryside with no buildings/houses in sight.

    My chats with a leading London Biz School academic have also verified the fact that there really is plenty of land, even in SE England.
    And that it is the powers that be that are keeping us off it.

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