Wednesday, Nov 11, 2015

House price crash not looking likely

Telegraph: UK unemployment plummets to lowest in more than seven years

"Britain's jobs-rich recovery gathered momentum in the quarter to September as unemployment fell to a seven year low and the number of people in work hit a fresh high. The unemployment rate fell to 5.3pc in the three months to September. This is down from 5.6pc in the quarter to June and represents the lowest rate since April 2008. Economists had expected unemployment to remain unchanged from 5.4pc in August." Long time readers may recall some analysis of a correlation between unemployment rates and house price changes. It's hard to see how we can have a crash with such strong employment numbers even if they do include more low pay jobs for renters.

Posted by quiet guy @ 11:44 PM (6787 views)
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1. judgandury said...

Quiet guy, as I'm sure you know, that was my analysis. However all it amounted to was an observation of a remarkably strong relationship. People often read it as a forecast but it really was just an observation. Mind you I would still be hesitant to second guess it because the strong relationship held through the decades, through thick and thin and across several markets.

However, I have another observation. The housing shortage is with only a few exceptions limited to the South East. It's too early to reach conclusions but in the few isolated South East pockets where the supply has increased such that demand is ALMOST satisfied, prices have fallen by between 5 and 8 percent. We really didn't expect that level of sensitivity so soon in the game. More time has to pass for any robust conclusions to be made but is seems that house prices could indeed fall at much lower building thresholds than previously expected.

As you know house building has been very much two steps forward and one back but we have now comfortably exceeded the post recession low point. Unfortunately the big house builders will know what I know and they may put on the brakes. It's not yet remotely as solid as my unemployment analysis but I'm going to make a forecast: If national house building reaches 180,000 units per annum, we will see house price falls of between 5 and 12 percent ( providing the population growth rate remains stable at just under 0.6% pa).

Thursday, November 12, 2015 07:10AM Report Comment

2. cornishman said...

" We really didn't expect that level of sensitivity so soon in the game"


Who is 'we'?

Thursday, November 12, 2015 07:44AM Report Comment

3. judgandury said...

@2 Are you off on one of your conspiracy theories again? Last time your nose got twitchy, you thought I was a member of the Labour government. Do you have anything useful to contribute?

'We' is a research unit.

Thursday, November 12, 2015 08:17AM Report Comment

4. cornishman said...

I think it's useful to have found out that your comments come from a research unit and not just from the top of your head.

Thank you for the explanation.

I do realise that you won't think it's useful - because you already knew that.

Thursday, November 12, 2015 08:49AM Report Comment

5. judgandury said...

Make a contribution or stop getting in the way

Thursday, November 12, 2015 09:09AM Report Comment

6. judgandury said...

Over the years, HPCers have discussed several possible reasons for house price rises/falls

One of them is interest rates and another is of course unemployment. Could either of these have caused the isolated price falls described above?

Well interest rates have stayed the same, so that's not it and unemployment has fallen again, so that's not it. Fear of interest rate rises might have been it but aggregate prices are still rising, so that's not it either. A general fear of house price falls might be it but surveys show that most people think that they will carry on rising. Realistically that just leaves us with the up-tick in supply in the limited pockets where prices have fallen.

Thursday, November 12, 2015 09:21AM Report Comment

7. taffee said...

Often bubbles burst for no reason other then they exhaust dotcom minute there was a frenzy of buying at any price and lack of sellers...then demand stopped and selling frenzy began!

A lot to do with human psychology...many people thinking of selling but waiting until everyone else does..problem is that
Property is illiquid so selling will be pretty difficult if the bubble bursts

Thursday, November 12, 2015 09:32AM Report Comment

8. Saving For A Space Ship said...

Have the unemployed been moved to WTC in potemkin biz's ? Do we have the figures to see if WTC receivers have risen ?

Thursday, November 12, 2015 09:45AM Report Comment

9. judgandury said...

Good point taffee but there is nearly always a trigger. In the case of the dotcom bust it was two big triggers within the space of a few days. The first was the sudden emergence of a rumour that Microsoft was going to lose its big antitrust case thus breaking up the company. That caused one of the biggest one day plunges. A few days later, Barrons cover story "Burning Up" listed all the big dotcoms that were fast burning through their funds. That added an avalanche to the first plunge.

Thursday, November 12, 2015 10:31AM Report Comment

10. mombers said...

JaJ, pl post a link to the research unit's work - would be very interested

Thursday, November 12, 2015 10:33AM Report Comment

11. judgandury said...

mombers, I volunteer for a housing charity and that's all I'm comfortable saying here.

Take a look at housing market work from the Institute for Public Policy Research (IPPR), Shelter and the Joseph Rowntree Foundation (JRF).

Thursday, November 12, 2015 10:45AM Report Comment

12. judgandury said...

You might find this kind of thing interesting. It's all there - increasing poverty and rent: income divergence caused by housing shortages

Rowntree first forecast today's exact situation back in 2004/2005

Thursday, November 12, 2015 10:53AM Report Comment

13. taffee said...

Instead of hs2 build 3 million council houses...control housing benefit and create jobs.

Why won't they do that?...because then the housing bubble will burst taking the banks with it.

Thursday, November 12, 2015 11:23AM Report Comment

14. judgandury said...

mombers, here's some links

Thursday, November 12, 2015 11:35AM Report Comment

15. judgandury said...

taffee, the government are entirely minded to encourage mass building but will remain relatively impotent until they acknowledge that they will have to build most of them themselves (throughout our recent history, we only build enough when the government is a major house builder).

Regarding the UK banks, they would hardly miss a beat if prices fell by anything up to 35%. Their balance sheets and core ratios are very different now. Their balance sheets are available for all to see and it only takes about 30 minutes to come to that conclusion. Believe it or not, the big banks and their accounts are far more tightly regulated now.

Thursday, November 12, 2015 11:48AM Report Comment

16. mombers said...

Yup, housing is the main cause of poverty at the moment I reckon. Most people have no choice but to hand over sums of money well in excess of the cost of production for the privilege of having somewhere to live. You can't even sleep in the park if you want to opt out of the market. You can't procure cheap land and build on it.

@14, def agree with you that only the government is capable of building enough houses as things stand. It makes my blood boil that 10bn and counting goes into Housing Benefit for private rentals. It's 25% of the private rental market (in part or full paid for by HB) for goodness sake! That sort of volume of money pushed onto a very inelastic supply is only ever going to push prices up beyond what they would be without HB.

My MP said to me that Housing Benefit is better than council housing because it is temporary and can be taken away when the recipient's circumstances improve. I wonder how many people ever come off HB? In my area, you can still be getting HB on well over 50k a year. Of particular concern is elderly people who are on HB in private rentals - the vast majority of them are never going to leave, and because HB is means tested, their private property that they've worked for their whole lives (any pension income) effectively gets taxed at a rate of 65% over and above income tax. A rational pensioner on HB would run their pension pot down as quickly as they could to escape means testing.

This applies to the working age population too of course, at an even higher rate with NI, leading to working less or on the black market.

I wonder if there would be less opposition to council house building if it was retirement homes only? You could just call it retirement housing that the council provides itself. That would remove a huge and growing source of demand from the private rental sector, and would provide superior accommodation at a much lower cost to the taxpayer.

Thursday, November 12, 2015 01:33PM Report Comment

17. hpwatcher said...

@quiet guy

I don't think I really accept the premise. I have seen a pretty amazing model from Steve Keen, which presents a pretty accurate picture of the current economic situation. Later, once debt hits a certain amount, unemployment hits a hockey stick pattern.

The op simply doesn't look at the quality of employment. A few million zero hours contracts OR ''self employed'' earning 30 a month OR low quality/pay service sector jobs simply isn't going to cut it.

World economic slowdown beginning to look highly likely, from where I am sitting.

Thursday, November 12, 2015 02:16PM Report Comment

18. mombers said...

@16 interesting comments. I wonder what, if any adjustments have been made for the self employed on very low incomes? And at what point do you count someone as employed? 30 hours a week? And part time - is that more than zero, or more than 10, who knows. Does anyone have info on this? Surely this data must take this into account to at least some extent.

Thursday, November 12, 2015 02:20PM Report Comment

19. hpwatcher said...

Well interest rates have stayed the same, so that's not it and unemployment has fallen again, so that's not it.

These are useful, but now insufficient. It was the FLS injection of 42 BILLIONS that kicked off the current madness.

Thursday, November 12, 2015 02:21PM Report Comment

20. judgandury said...

@16 A quick and easy way to check if jobs are "real" (in comparison to the the past) is to look at tax receipts.

Income tax receipts and corporation tax receipts both recently rose to monthly record highs (just shy of 12 billion for income tax and just shy of 2 billion for corporation tax). When income tax receipts are at an all time high, then the quality or validity of the employment/unemployment figures becomes unarguable.

Thursday, November 12, 2015 02:46PM Report Comment

21. jack c said...

1. judgandury said..."Quiet guy, as I'm sure you know, that was my analysis." - I thought it was flashman who came up with that analysis ?

Thursday, November 12, 2015 02:52PM Report Comment

22. judgandury said...

jack c, you've never been particularly quick on the uptake. Either contribute or go away.

Thursday, November 12, 2015 03:08PM Report Comment

23. icarus said...

The elephant in the room regarding a potential hpc is global financial instability. There have been too many major crises since 1990 (Japan, US savings and loan crises of that year, then Mexico's 'tequila crisis' followed by the Asian crises of 1997-8, dotcom, securitisation/housing in 2008, now Latin America/China/BRICS and Eurozone slowdowns) for them to be explained by one-off triggers. In one of Carney's more insightful analyses last year he worried about the growing financial power of unregulated shadow banks and the resulting global instability.

The ultra-rich (one or two hundred thousand individuals) are moving their investible funds (i.e. the majority of global investible funds) into the shadow banking sector, which operates short-term/speculatively and by 'pump and dump' (pump up asset prices and be the first to dump them when the writing appears on the wall). Several reports (Boston Consulting Group, Capgemini, Nomura) show that the global influence of shadow banks is huge and growing as the ultra-rich get richer, and it's highly likely that substantial funds of regulated banks find their way into the unregulated, more leveraged and more profitable shadow banks.

Thursday, November 12, 2015 03:25PM Report Comment

24. judgandury said...

icarus, most of those events hardly caused so much as a blip on our housing market and even when a blip registered it was short lived.

The rise of the shadow banks is not all that sinister. Carney and his traditional bank cronies are just grumpy at their loss of influence. I say that's a good thing. Shadow banks (or more accurately 'non banks') have been providing a useful service during the last few years of constrained credit. Without them taking up the business lending slack, we would have lost countless businesses and countless start ups would not have seen the light of day. That translates to countless jobs saved and created. The recipients of loans from these alternative sources have been generally delighted by the streamlining of loan processes and the simplifying of contracts and paperwork. Sure there are risks but markets change and evolve. Look on the bright side. If a shadow bank goes down the people will not have to bail it out because it'll be the invested rich who take the hit. And don't believe all the scare stories about how it'll cause contagion and disaster to us all. Iceland has shown us that if you let the banks go bust and jail the perpetrators, recovery comes even faster

Thursday, November 12, 2015 04:05PM Report Comment

25. icarus said...

j&j - 2008 was more than a blip and the trends @22 are seen by some as building up greater instability than was seen in 2008. Regarding lending to businesses and business investment, that's pretty flat world-wide. And if regulated banks aren't doing much business lending you have to ask why. Credit goes mainly into assets already in place rather than to productive capacity - mainly real estate or secured on other assets like bonds and shares. Insofar as it goes to business it goes to corporate raiders, financial empire-builders, leveraged buyouts or stock buybacks ( the last mainly in the US but increasingly elsewhere). This is where the big money goes, rather than to 'countless start-ups'

One reasonable explanation for flat economies in general is that investment in assets bids up their price and makes their use more dependent on debt - higher mortgages and rents, static wages, so less spending on currently produced goods and services and no debt write-downs (or big banks going bust or perps jailed). Debt deflation results from credit creation inflating housing and other asset prices while interest and other financial charges deflate the real economy, holding down commodity prices, markets, employment and wages.

Thursday, November 12, 2015 05:06PM Report Comment

26. judgandury said...

"2008 was more than a blip"

Really? Then why are we all here, so soon after, talking about soaring house prices, low unemployment and record tax receipts? From memory house prices (that is what we're talking about) starting rising again a year later in 2009. If that was the biggest one, UK house price wise, from your list of calamities, then I can't really see a few bankrupt shadow banks having much effect.

"Insofar as it goes to business it goes to corporate raiders, financial empire-builders, leveraged buyouts or stock buybacks"

No true. More than a quarter of the loans extended last year to middle-market US companies were issued by shadow banks. That's a vital service. Frank-Dodd is regulating them so well in the States that businesses are currently lobbying Congress to allow shadow banks to lend them more.

I bet the scare stories emanate from the jealous traditional banks and their political puppets. Surely after last time, we're now wise to the "we'll have to bail them out or there'll be contagion and we'll all starve" bullcrap. It's healthy and good for crappier businesses (shadow banks included) to go tits up every now and then. Iceland's economy was completely dwarfed and dominated by failed banks. They ignored the wild contagion talk, took their medicine and guess's as if nothing happened there now.

Thursday, November 12, 2015 05:50PM Report Comment

27. nickb said...

Real house prices (national average) apparently did not bottom out until 2013. Source: Nationwide (figure on the homepage of this website). 4 years on from 2009, 6 years on from a peak in 2007. I doubt Iceland is quite as rosy as you pain it. e.g.

Thursday, November 12, 2015 09:53PM Report Comment

28. judgandury said...


Typical of you to select an out of date article (early 2013) that is now an embarrassment to its author. The bit about welfare looks particularly dumb in light of the IMF's recent declaration that Iceland "had achieved economic recovery without compromising its welfare model of universal healthcare and education". In your desperation to score a point you must have had to scroll through reams of up to date articles that praise Iceland's recovery. Why would anyone in their right mind make the conscious decision to ignore the up to date articles in favour of an outdated article that ended up embarrassing the author?

I just Google searched "Iceland economy" and the first three articles that came up were all from THIS year. The article headings are:

"Three charts that show Iceland's economy recovered after it imprisoned bankers and let banks go bust - instead of bailing them out"

"Failing banks, winning economy: the truth about Icelands recovery"

"The miraculous story of Iceland"

You are exhibiting the same sly dishonesty that you brought to the table when you persistently made the half-witted claim that there had been no population increase in the UK and that there was no need for more house building. Truth be told, I found that particularly distasteful in light of the increasing poverty being caused by our housing crisis. I can tolerate a bit of idiocy but not when its compounded by sly dishonesty and an in built betrayal of the housing poor. Come to think about it, you also spent years telling us that fossil fuels supplies were almost at an end and that as a consequence, oil prices would never stop rocketing upwards. Clown. Please don't address me again.

Friday, November 13, 2015 06:10AM Report Comment

29. icarus said...

@25 and 26 - re UK average house prices - there's a big difference between talking about (1) when they bottomed out and started rising and (2) when they regained their late 2007- early 2008 peak. Nationwide's figures on nominal prices show that (1) took about two years but (2) took 6-7 years. Nationwide's figures with an RPI adjustment has current prices still lower than at the peak. But then we can qualify with such factors as cash buyers and the vast difference between big price rises in London and parts of the SE (and parts of Scotland) and relative stagnation in rest of the UK.

J&J - I'm not sure why we are discussing Iceland as a model (though I agree that banks should be treated as Iceland treated them) when we are in a world where US and UK banks have enough political influence to be regarded as 'systemically necessary' and 'TBTF' and UK and US bankers don't go to jail, so we have to discuss that world.

My point about shadow banks is that they are highly destabilising in the global economy and many argue - backed up with figures on fast-growing amounts of investible assets or assets under management by them (several tens of $ trillions - and that is not some notional quadrillion-type figure based on OTC derivatives trading) - that they are becoming increasingly so. In the last few years they have done more damage to 'emerging market' economies than they have to the west or its housing/asset markets, but they were behind the 2008 crash and are currently very much a part of the flood of money into western asset markets, including property in the SE of the UK - so any study of house prices needs to take all these erratic capital flows on board,

Re emerging markets - with QE/ZIRP having little effect on western economies perhaps a trillion dollars of that 'free money' was invested in Latin America in 2010-2013 (via shadow banks, US multinationals and high-net-worth individuals), where returns were much higher since those countries were supplying the resurgent Chinese demand (itself helped in part by such capital inflows, but mainly by Chinese fiscal and monetary policies). This LA investment went into the 'real' economy as well as into financial speculation. Each type fed off the other and more bubbles were formed, creating new opportunities for speculation in real estate and currencies. But when the Fed signalled that QE/ZIRP was ending that money flowed back to the west and devastated those economies. (I'd argue that the Chines stock markets were fuelled up mainly by shadow banks before the bust of a few months ago.) Good news for the UK SE housing market, since this was a major beneficiary of this flow back, but it shows how destabilising these big capital flows are, and it shows that there's a lot more to real estate and other asset prices than employment and wages.

@25 - yes, shadow banks invest also in the real economy. There are lots of kinds of shadow banks and some, such as money market funds, do not have much leverage or exposure to risk and some can be more efficient lenders to the real economy than regulated banks as well as being less risk averse. But the majority are largely unregulated and highly leveraged and invest primarily in financial asset securities of various kinds rather than in plant, equipment, software, etc. They target liquid financial markets with high risk, high return opportunities based on asset price appreciation and volatility and quick in-and-out profit extraction. And the loans to real US companies by shadow or regulated banks have not had much effect - witness growing numbers of billionaires, private planes and yachts on the one hand and of paupers and food banks on the other.

Friday, November 13, 2015 11:52AM Report Comment

30. judgandury said...

icarus, I can simplify the house price situation after the biggest event on your list. They went from incredibly high to really high and then back to incredibly high in short order. i.e. the biggest event on your list had bugger all effect.

Friday, November 13, 2015 04:12PM Report Comment

31. icarus said...

J&J - Your own posts @5 and @21 are the most appropriate responses to that.

Friday, November 13, 2015 07:59PM Report Comment

32. judgandury said...

Why, did house prices become affordable without me noticing?

Nope, just checked. They stayed too expensive after the biggest event on your list and then quickly got even more expensive.

I appreciate that this shadow banking thing is a a big deal to you but I'm afraid it's just melodrama and a waste of energy to me. Cementing bricks together to provide decent quality affordable homes my 'big deal'.

Friday, November 13, 2015 09:07PM Report Comment

33. letthemfall said...

jack c @20

It's a haunting

Friday, November 13, 2015 10:33PM Report Comment

34. Mombers said...

JaJ, out of interest, what policies would you like to see put place to address the in affordability of housing in the UK?

Saturday, November 14, 2015 10:22AM Report Comment

35. mombers said...

Jaj, out of interest, what policies would you like to see implemented to address the housing crisis?

Sunday, November 15, 2015 11:04AM Report Comment

36. judgandury said...

The three biggest hurdles are targets, funding and reporting.


Most councils are still using revoked RSS (regional spatial strategy plans) as the calculation basis for their submitted 5-year land supply. This allows them to use very old (often early 2000s) requirement data to justify current under supply year in and year out. They will be punished for this in 2017 but the damage has been done* Only 28% of councils are using newer NPPF compliant local plans as the calculation basis. These are slightly better but approx 80% of these are still outputting what's called 'constrained' 5 year land supply calculations. These calculations are considered 'constrained' because they:

1. Don't acknowledge built up shortages (other than for affordable homes which is an inclusion mandated by the PPG)
2. Breach PAS/PPG guidelines by ignoring the cornerstone 2012 ONS household formation forecasts (citing a limitation caused by high proportion of Green Belt, AONB etc).

So, as per the PPG/PAS, we need local 5-year land supply calculations to be based on 2012 ONS household formations (regardless of claimed limitations) as well as built up shortages data. They need to be wholly unconstrained. ie. they need to reflect what is needed rather than what local politicians decide is possible or desirable.

* Technically, councils without NPPF compliant local plans and outdated land supply calculations (in planning terms this constitutes very special circumstances) can be automatically overruled for Green Belt permissions but Nick Bowles shut down this NPPF designed opportunity by issuing the supplementary guidance that harm must be outweighed. It is almost impossible for harm to be outweighed sufficient for section 9 para. 89/90 of the NPPF to apply, so this single supplementary guidance has effectively allowed the councils to bypass the punishments for not having an up to date NPPF compliant plan.


The councils have strict central government imposed spending limits which directly prevents them from building enough houses. The central government screams 'build more' whilst starving the councils of the necessary funds. The central government hopes to encourage sufficient private building but it's not always in the interest of the private sector to match supply to demand. Private companies are also quite rightly concerned with over gearing themselves.The central government therefore needs to directly fund the councils to build sufficient to satisfy the newly calculated unconstrained requirement (minus forecast private sector delivery). This would put the right number of new houses exactly where they are needed. Public/private building partnerships should be avoided because the private building sector always inflates build costs and as above, it is often the private sector's interest to maintain a slight under supply.


Local planning departments report to local politicians who pressure them to refuse many planning permissions. The local politicians do this because they make election promises to the dominant NIMBY vote. Local planning departments therefore need to report directly to the PINS section of the Secretary of State, rather than to local politicians. This would untether the planning departments from overly restrictive local political concerns.

Monday, November 16, 2015 11:54AM Report Comment

37. mombers said...

@34, I like it. In an ideal world, everyone would have the right to a modest council house supplied at cost - i.e. no net cost to the taxpayer and no location premium. It's not really a private market if you are forced to participate and can't supply your own house. And the UK's private rental sector has the worst value in the world.
Singapore has approx 80% of the population in council housing BTW.

Monday, November 16, 2015 01:07PM Report Comment

38. mombers said...

@36 I mean

Monday, November 16, 2015 05:50PM Report Comment

39. judgandury said...

I've read that 80% statistic before but it's not actually true. The confusion arises because about 80% of the population live in Housing Development Board built housing. However only 5% of this 80% rent their homes from the HDB. The other 95% bought their houses from the HDB (they are nearly all flats, so it's a leasehold arrangement). It doesn't really matter if they are 'council' or private. The important thing is that the government built the majority of the housing supply which keeps rent/purchase costs down and prevents shortages. We need our own HDB.

Tuesday, November 17, 2015 11:18AM Report Comment

40. mombers said...

@39 is the leasehold arrangement such that the flat reverts to the state after x years? That's an excellent hybrid I reckon - the state gets a constant flow of lease renewals, allowing it to reduce taxes on businesses and labour. I think Hong Kong gets a lot of its revenue from lease renewals (and its TfL, which collects the juicy rents on offices and shops around its stations)
People are happy to be leaseholders here (I can't convince enough people in my block to enfranchise our freehold) so why not pay the state instead of a private party who does nothing? Our block is a particularly stark example of this - the freeholder does naff all, just collects lease renewals and inflated charges on every single permission that you need to get from them. They wanted to get a service charge going but quickly decided not to when they discovered at a tribunal that this would require them to spell out what they would do in exchange. Not worth their while, it's much more profitable to just sit back and collect rent

Tuesday, November 17, 2015 02:02PM Report Comment

41. judgandury said...

They are 99 year leases. There has been no revenue from lease renewals because the oldest block has 60 years to run and none of the blocks are expected to get anywhere near 100 years old before the government steps in to redevelop them via SERS. Since 2009 there has also been lease buy back legislation that enables people to ask the government to buy back their lease (LBS). Obviously anyone at the tail end of a lease will use LBS.

Tuesday, November 17, 2015 02:43PM Report Comment

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