Monday, January 3, 2011

Usual homeownerist spin from the Express

Housing Minister Grant Shapps in House Price row

HOUSING minister Grant Shapps was last night accused of being “unrealistic” for claiming home ownership should no longer be a long-term financial investment. He called for a new era of “house-price stability” with property values falling in real terms. But Tory MP Philip Davies said: “Prices may not increase in the same way as they have in the past 20 years but it’s unrealistic to expect people not to see houses as an investment.” Economist Howard Archer said: “I cannot see the situation changing in the UK where there is a home-owning psychology.”

Posted by drewster @ 01:38 PM (1707 views)
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11 thoughts on “Usual homeownerist spin from the Express

  • mark wadsworth says:

    This is more Home-Owner-Ist DoubleSpeak.

    In economic terms, an “investment” is something which enhances productive capacity of the economy, such as a car to get you to work or a tradesman’s van or a lorry for delivering stuff from A to B. The re-sale price of cars and vans and lorries decreases, the older they are, but that does not stop them from being good investments – because (and this is key to the whole thing) the net present value of the benefits that accrue to the owner exceed the cash cost at the time of manufacture/purchase of the car (and yes, some of those benefits are non-cash, i.e. while a battered second hand car gets you to work just as well as a swanky new one costing ten times as much, a lot of people prefer driving a new swanky car).

    Similarly, the value of bricks and mortar declines over time (or at least, requires annual maintenance and heating and so on if they are not to decline in value quite rapidly).

    So when Shappsy says “houses should not be seen as an investment” what he is really saying is that “we should not expect the re-sale value of houses to increase”. This is a million miles from saying that the net present value of all the benefits that accrue from building or buying a house (warmth, shelter, security for valuables etc) do not exceed the cash cost of building or buying one.

    Seeing as we know that bricks and mortar value stays at best flat, what he means is that LAND values should decrease over time. Hey ho, perhaps he’s a closet Georgist?

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  • “claiming home ownership should no longer be a long-term financial investment.”

    Home ownership (i.e. owning the house in which you live” is only a good long-term financial investment if the demographic curve is fatter after that long-term… this has stopped being the case for a few decades now, it’s only the expectation of higher prices that kept the bubble going.

    Being a landlord can be (it’s a business investment now however, and reliance on credit must be minimised to a degree).

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  • MW – well, anything that is not saving is investment (wise or not – I’m off to invest in some sweets for my gut ;p)

    Happy New Year!

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  • 666,

    The demographic curve is fatter if you include immigration.

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  • It is estimated that the world population will pass the 7 billion mark this year or next, hit 8 billion around 2025 and 9 billion between 2045 and 2050. Ultimately it is this demographic curve that matters, as it is this that lies behind immigration as well. Conclusion: once the current bubble has deflated (in 3 or 4 years time?) buy land, as demand for it will only increase.

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  • drewster,

    Net migration is indeed positive (and has been and probably will be for a few decades at least), but that does not make the demographic curve fatter below you than above you.

    If it were flat to start with [very much not true!] and immigrants were generally younger than emigrants [probably true for most age brackets who would purchase a house as a long-term financial investment] then your point would make a difference to the argument.

    However net migration has been around 100k-200k per year recently (although there was a huge surge over Labour’s govt (ONS)), let’s assume the ‘worst case’ [I don’t mean bad for us, I mean bad for the equation] of 200k and that they are of average likelihood to buy [probably not quite true] that’s around 80k new build s required — Even during the slump there have been ~10k new builds a month (NHBC), and we’re back to square one of requiring the demographic curve itself to be fatter for those younger than you. that’s not true for many people below the age of 75 – and it needs to stay that way until you come to sell up.

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  • 5. greenmind

    Minus a few wars, deadly viruses and HAARP.

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  • mark wadsworth says:

    Re what 666 says, it is indeed the case that the UK population pyramid (handy interactive version here is indeed a pyramid (i.e. reducing numbers in each age cohort) EXCEPT FOR

    i. a mini-bulge for people born 1946-47 (post war shagathon? – there’s a similar mini-bulge for people born in 1920)
    ii. a very large bulge for people born in mid-1960s and
    iii. a smaller bulge for people born mid-1980s

    So, assuming that the shape of the pyramid has much impact on house price bubbles, what we conclude is that there are house price peaks when the number of 25 year olds is at a peak (compared to people immediately above or below them – this was certainly true for 1973, 1989 and 2007 house price peaks).

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  • “I cannot see the situation changing in the UK where there is a home-owning psychology.”

    Psychosis is a better word.

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  • MW – yep works a charm. Great advice for long-term property speculation!

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  • 666, MW,

    If peak 25 year olds correlates with peak house prices, when can we expect the market to bottom out?

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