House Prices

[simonw]

They never are though.

For starters there's no guarantee that rent will be cheaper than the equivalent mortgage, then there's no prospect of actually owning an asset outright at the end of it all. There's good reasons why ownership is aspired to.

Funny how renting is so popular then, in other countries and in parts of this.

 

[yorksrob]

Funny how renting is so popular then, in other countries and in parts of this.

Fine, as long as it's genuine choice.

 

[johncrossley]

Well rule 101 of investing is that you can't time the market. It's basically financially vital if you're young to try and get on the market ASAP. Sure the renter might see improved economic performance, but it won't be as good as someone who bought, judging by the experience of the past 50 years.

The UK housing market is very, very broken. I think demographically it will come to sort of crunch point as people will pass away and people simply won't be able to afford to move up the chain. That or inheritance becomes even more important thus leading to a more unequal society

"Financially vital" is a bit strong. I'm not really talking about deliberate timing. Obviously housing in London and much of the south is far beyond the reach of most people not already on the property ladder. So they have no choice but to rent. Rents in London are very affordable by historic standards. Too many landlords chasing too few tenants. So if there is any time worth renting it would be now. If rents become a lot more expensive in relation to prices/mortgage repayments than that's a sign that prices are becoming more affordable. Home buying isn't risk free. Buying an expensive house then losing it because you can't afford the repayments is catastrophic. Many London homebuyers got burned by the late 80s crash followed by negative equity for a decade. Many people lost a fortune.

 

[Horizon22]

"Financially vital" is a bit strong. I'm not really talking about deliberate timing. Obviously housing in London and much of the south is far beyond the reach of most people not already on the property ladder. So they have no choice but to rent. Rents in London are very affordable by historic standards. Too many landlords chasing too few tenants. So if there is any time worth renting it would be now. If rents become a lot more expensive in relation to prices/mortgage repayments than that's a sign that prices are becoming more affordable. Home buying isn't risk free. Buying an expensive house then losing it because you can't afford the repayments is catastrophic. Many London homebuyers got burned by the late 80s crash followed by negative equity for a decade. Many people lost a fortune.

Well indeed, and that's something of a problem for the capital of the country which has a lot of jobs which don't pay anywhere near the amount that would let you get a decent mortgage, let alone saving for a deposit or even as a couple. They might have been burned briefly, but people could have bought houses for £100,000 that are now worth 5-6x that, if not more.

And this is before we even talk about prices-wages ratio. It was around 3-4:1 in the 80s, 5:1 in 2002 and it's currently 7.69:1 (ONS data for 2020) in England and Wales and a whopping 12.5:1 in London.

 

[brad465]

Quantitative Easing has pumped huge amounts of money into the economy which has to go somewhere. It tends to lead to asset bubbles which we are seeing in house prices. The fact, that in some parts of the country at least, rents are falling while prices are rising suggests there are some underlying issues. There are so many unknowns, the increased number of excess deaths due to Covid may lead to more houses coming on to the market and there is great uncertainty about how many EU nationals left in the last 18 months and who will not return.

If QE is reversed and interest rates rise then we may see the reverse situation of falling prices.

As someone in a very well paid job who can no longer afford to buy my own flat which I brought on a modest junior civil service salary some 30 years ago I sincerely hope so.

I fully agree the Bank of England's behaviour bears a lot of responsibility here, but I don't expect them to allow a house price crash anytime soon. The complete failure of neoliberalism in 2008 led to central Bank policy putting it on life support with ultra-loose monetary policy for over a decade, and now house price inflation and other market inflation is a major factor in the GDP "growth" ever since. Therefore putting interest rates up and trying to reverse QE will cause the house of cards to come crashing down.

What seems to be happening at the moment is those in charge are keeling things afloat and digging a hole that they hope will cave in only after they've moved on. To put it another way, free market capitalism is forbidden, rather than letting unsustainable firms go bust and get replaced by new business, they have to bail out failing business, to keep the super-rich's wealth up.

 

[johncrossley]

Well indeed, and that's something of a problem for the capital of the country which has a lot of jobs which don't pay anywhere near the amount that would let you get a decent mortgage, let alone saving for a deposit or even as a couple. They might have been burned briefly, but people could have bought houses for £100,000 that are now worth 5-6x that, if not more.

And this is before we even talk about prices-wages ratio. It was around 3:1 in the 80s, 5:1 in 2002 and it's currently 7.69:1 (ONS data for 2020) in England and Wales and a whopping 12.5:1 in London.

Some people weren't just burned briefly. Many people thought they could just give the keys back to the building society and that would be the end of it. But no, the building society continued to chase them because the building society sold the house for less than the mortgage. Some of these people ended up going bankrupt. Presumably a lot of the same happened in Ireland recently. Note my earlier post that house prices in Northern Ireland are still well below the 2008 peak.

 

[Snow1964]

You didn't ask me to explain why it should be the norm.

If the majority of people aspire to home ownership, which seems to be the case at present, then that's a good enough reason why it should be the norm.

I disagree, people aspire to a safe home, not buying it for sake of it.

The reason why the housing market is broken is fourfold :

Firstly selling off of local authority homes, these started as home for soldiers after First World War, became Council houses and we had about 5m by end of 1970s. As soon as the right to buy came along, no incentive to build any more or replace those sold, as have to give them away cheaply. Scotland has realised this and stopped it, but discounted sell off continues in England & Wales.

Secondly a bad tax system that encourages private landlords to speculate more with capital (buying and selling property) than keeping rents stable for tenants, or improving property. The tax system has no quality incentive, tax is treated the same for renting out an A energy house to an E energy house, so why improve it for tenants.

Thirdly unlike many other countries, the UK has few retirement villages. There is no incentive for most people in 60s and 70s who live in 4 or 5 bedroom houses where children have left to downsize. So supply of family size homes is tied up. The costs of downsizing (moving costs, stamp duty etc) put people off leaving oversized property, and nowhere suitable for them to move to anyway. Majority of retirement flats are really pitched at widowed people by which time often in 80s. No one builds homes for those whose children have grown up, so it blocks a whole generation from moving.

Fourthly, we seem to have lost the ability to build, there is negligible co-housing (where groups all help build their own houses), little self build (even though local authorities are supposed to have list of sites). Instead it is bigger groups that build (and often not very well built) small box like homes, miles from town centre facilities. These dominate what gets built. However (to provide balance to debate) there are some smaller better schemes (think Poundbury, Dorset principles) but unfortunately volumes are very small.

If people stop the silly generalisations of need to build more houses, and actually tackled these 4 things, then would get the properties we need and prices would be stabilised. Basic economics will demonstrate that if there is a good supply of quality homes for rent at reasonable prices, then won’t be demand pushing up purchase prices and speculators wouldn’t try and buy up property as they might lose money.

Going back to first point if quality homes are available to rent, and cheaper than mortgage, most people would not aspire to buying some small box like house, just to be able to buy.

I am 56, and would actually like to build my own home, and one for my daughter in a co-homes development, and would give me a hobby for few years helping build my neighbours houses, and all the benefits of really knowing your neighbours. And of course once done our current 4 bedroom home could go to a family (rent or sold), but it’s not currently the British way of doing things.

 

[Horizon22]

Some people weren't just burned briefly. Many people thought they could just give the keys back to the building society and that would be the end of it. But no, the building society continued to chase them because the building society sold the house for less than the mortgage. Some of these people ended up going bankrupt. Presumably a lot of the same happened in Ireland recently. Note my earlier post that house prices in Northern Ireland are still well below the 2008 peak.

Some yes, but the vast majority of that generation had houses they could afford in London on average wages and were able to sell at a huge profit, outstripping wage growth.

People are also going bankrupt today through no fault of their own through the current cladding scandal.

 

[johncrossley]

The point is, people should only buy a house if they can realistically afford it. Recommending that people buy at all costs is unhelpful.

 

[Horizon22]

The point is, people should only buy a house if they can realistically afford it. Recommending that people buy at all costs is unhelpful.

The long-term alternative will leave you significantly less well off though. Obviously only buy a house if you can afford it, although a) you won't get a mortage if you can't (95% LTV mortgages have only just returned) and b) its a pipedream for so many under 30 already.

 

[johncrossley]

The long-term alternative will leave you significantly less well off though. Obviously only buy a house if you can afford it, although a) you won't get a mortage if you can't (95% LTV mortgages have only just returned) and b) its a pipedream for so many under 30 already.

If you can't afford a house now, that is probably because prices are in a bubble and renting is likely to be not much more expensive, if it isn't actually cheaper. After the bursting of the bubble you are more likely to be able to afford to buy.

Unfortunately everyone with property wants prices to rise.

Only those who don't wish to buy a more expensive property in the future.

 

[brad465]

The Financial Times are leading with a report that foreign ownership of UK homes has tripled in the last decade, which would go a very long way to explain the surge in house prices seen in that time:

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The number of homes in England and Wales owned by overseas buyers has almost tripled in the last decade...fuelling concerns that wealthy offshore investors are pricing out locals.

 

[TravelDream]

The Financial Times are leading with a report that foreign ownership of UK homes has tripled in the last decade, which would go a very long way to explain the surge in house prices seen in that time:

I think what's changed over the last couple of years is that before it was just London and million pound plus houses. Nowadays things are moving to other big cities like Manchester and Edinburgh and buyers are buying 'lower-value' (in the hundreds of thousands instead of millions) properties. It wouldn't surprise anyone to find out there are estate agents in parts of Asia and the Middle East who specialise in buying property in the UK.

It's not just here either. Any of the big cities in Australia and Vancouver in Canada have property markets absolutely flooded with foreign cash.

 

[Gloster]

There was something about this in Private Eye a few years ago and there is a map where you can see what houses are owned by foreign companies. Even in my street in a large rural village there were several. I think that house prices have risen so much that, even for quite modest properties or small numbers of rental ones, there are often tax advantages in buying through companies set up abroad.

 

[BananaRepublic]

Something that's always overlooked when this subject is discussed or reported on (TV, radio, press etc).
The UK population has grown by 10 million extra people in the last 20 years, since the turn of the century.
Percentage wise, that is a massive increase in a relatively very short time period.

The population increase has slowed down in the last couple of years, but we are still adding the equivalent of the population of towns like Reading, Stoke-on-Trent or Doncaster, each and every year.

 

[ainsworth74]

The UK population has grown by 10 million extra people in the last 20 years, since the turn of the century.
Percentage wise, that is a massive increase in a relatively very short time period.

How many houses have we built in that same 20 year period I wonder. Obviously you don't necessarily need 10 million homes but I'd bet we've not built enough to match the population growth.

 

[deltic]

How many houses have we built in that same 20 year period I wonder. Obviously you don't necessarily need 10 million homes but I'd bet we've not built enough to match the population growth.

3.6m homes have been completed since 2000 - that is not the net increase as houses will have also been demolished

The Financial Times are leading with a report that foreign ownership of UK homes has tripled in the last decade, which would go a very long way to explain the surge in house prices seen in that time:

Subscribe to the Financial Times

A subscription to the Financial Times provides you with the insights and perspective you need to succeed, now.

on.ft.com

This equates to just an extra 170,000 homes so unlikely to have a material impact in relation to house prices. It also depends whether those houses are made available to rent to UK residents are kept empty as some high-end properties in London are.

 

[BananaRepublic]

How many houses have we built in that same 20 year period I wonder. Obviously you don't necessarily need 10 million homes but I'd bet we've not built enough to match the population growth.

Obviously not enough, as there wouldn't be the shortage's in certain sectors, or the high prices to both purchase and rent.
However, you cannot just keep building and building and building......
It simply isn't sustainable, economically, socially or most importantly, environmentally.

As for building new homes.
Here on the south coast, a house building boom started round about 2015/16 'ish.
5/6 years on, it's still going strong, with new developments starting up all the time.
Thousands of new homes have been built and continue to be built.
The prices are high. Ridiculously high for what you get for your money; but all of them sell in double quick time.
There's no shortage of buyers, most of who are families and young people starting out with their first property.

 

[johncrossley]

London population fell continuously from the 50s until the 80s but there was still a price boom, which crashed in the late 80s, just when the London population started rising again!

 

[Sm5]

The whole economic system relies on constantly rising prices.

You cannot service a debt in the future that you cannot afford today, by stagnation. You need to inflate it away, and earn more by doing so.

The whole problem is its based in % points.

10% of £20k a year take you to £22k.
but
10% on a £200k house takes you to £220k.

you might be £2k better off, but the debt gulf just grew by £18k.

Weve just had 10 years of wage stagnation, and the BoE is about to act to keep it that way, despite high inflation. So that gap is only going to consolidate, especially if homes are bought for cash, or low levels of interest and so doesn't force property back to the market (a crash).

Those who have economic means have simply soaked up the housing others cannot afford in the last decade. Aside of draconian measures (nationalisation, currency rebasing, mass taxation etc), I dont see it changing.

Its better that extra government cash is tied up in mortgages than people splashing it in the pub, otherwise we’d be needing wheelbarrows instead of wallets.

The solution is to become more productive, increase salaries off increased profits and increased activity, make overseas people want to buy our excess pounds to pay for our products… just like it was heading pre-2008… right now we cant give it away, and its a matter of time before overseas holders start giving it us back… They havent got anything to buy, Its deflating in value, its earning them no interest and the news they read is constantly negative.
I compare the UK to the story of Mothercare shares right now, the value, history and fate seem to be constant rhythm for the last 10 years..