Risk

the_ash_and_the_oak

HAMISH_MCTAVISH wrote: »

Not at all Mewbie.... Although it may well be a future where you cannot afford to buy, that is not the same thing at all as "nobody".

I'm implying a future where only the top earning 30% of households can afford to buy, and then only at 4 or 5 times household income.

Thats what happens when we build just 80,000 houses a year, but form 250,000 new households a year. When we add enough people every year to fill a city the size of Manchester, but only build enough houses for a city the size of Aberdeen. Thats happening today, and it's only going to get worse.

Unless that changes, then only the top earning 30% of households need to be able to afford a house in order for prices to rise. And as banks will still, even today, lend good earners between 4 and 5 times joint income, then that becomes the effective cap on prices in the medium term.

Five times household income of the wealthiest 30% of households, which translates to prices far higher than todays.....

Atm owner-occupancy stats are around 70% - in the above scenario what level do you see this changing to?

breadlinebetty

Generali wrote: »

So you think that house prices will rise by an average of 12-15% for the next 10 years, ie a studio flat in Clapham, currently asking about £295,000 (link) will be going for somewhere between £885,000 and £1,180,000?

I have my doubts. One of us is going to be wrong.

Yes, one of us is going to be wrong - and it could be you.

I'm sure 10 years ago people would have never dreamed how much their properties would be worth today, just as 20 years ago people would never have believed how much they'd rise to after 10 years.

You only have to look back at property prices to see that property doubles or trebles in value every decade. So although it may seem beyond your wildest dreams that a £300k property in Clapham could be worth £900k in 10 years time you need to understand how property prices work. That £300k property in Clapham was probably only worth about £75k (if that) 10 years ago, and people would never have imagined how much it would fetch today.

Property prices ALWAYS rise - eventually. Yes, every decade or so they'll be a dip or a crash, but it always picks up again. Just as it's doing right now.

HAMISH_MCTAVISH

the_ash_and_the_oak wrote: »

Atm owner-occupancy stats are around 70% - in the above scenario what level do you see this changing to?

I see very little change, other than a continuation of the slight downwards trend that started a few years ago.

For the sake of easy illustration, I was assuming that 100% of the 80,000 houses being built are bought by owner occupiers. This will not be the case in the real world, it will be less, therefore the percentage of households that need to be able to afford to buy for prices to rise will also be less. Perhaps 25% or 20%..... But most houses will be bought by owner occupiers.

But as for total percentage of houses in owner occupation, perhaps 60% within the next two or three decades. People that already own will continue to do so, and they will enable their children to do so through existing equity and inheritance. The majority of new households will go into rental, although perhaps at higher density than today, so the percentage of O/O must decline over time, I would estimate at a rate of between one third and one half of a percent per year or so.

The bigger changes I expect to see will be a dramatic increase in rent costs, as the rental supply starts to get squeezed within the next 10 years due to the severe shortage of house building, combined with an increase in household density, where more people live in a house than do currently. That figure has been declining for years, but cannot continue to do so with the existing and worsening housing shortages. Of course, the more earners that live in a house, the higher the household income, and the higher the rent can be raised, so this is very much a self fulfilling prophecy, and will also further drive desire and demand for purchase instead, further raising house prices.

All completely inevitable unless we increase house building by at least 300% from todays levels, which I don't see happening. (or stop population growth, which would cause a pensions and care catastrophe, so equally unlikely)

Generali

breadlinebetty wrote: »

Yes, one of us is going to be wrong - and it could be you.

Yup, it could be me.

What do you think will happen to inflation adjusted house prices in the long term, may I ask please? Flat, up about 5%, up about 10% or up more than that?

HAMISH_MCTAVISH

Generali wrote: »

Yup, it could be me.

What do you think will happen to inflation adjusted house prices in the long term, may I ask please? Flat, up about 5%, up about 10% or up more than that?

Up 100% over the course of the next house price cycle.

Leading to an average house price of around 320K in todays money.

mewbie_2

HAMISH_MCTAVISH wrote: »

To my mind the absolute cap on house prices is where the costs of purchasing become higher than the costs of an adult lifetime, 60 years or so, of rent. That would put house prices, in real terms, at about 3 times todays values.

Sorry Hamish but this is like a particularly implausible line from a typical buffoon in a second rate British sit-com. The one who mutters absolute inanities so we can laugh and feel superior.

Ron2256

HAMISH_MCTAVISH wrote: »

The bigger changes I expect to see will be a dramatic increase in rent costs, as the rental supply starts to get squeezed within the next 10 years due to the severe shortage of house building, combined with an increase in household density, where more people live in a house than do currently. That figure has been declining for years, but cannot continue to do so with the existing and worsening housing shortages. Of course, the more earners that live in a house, the higher the household income, and the higher the rent can be raised, so this is very much a self fulfilling prophecy, and will also further drive desire and demand for purchase instead, further raising house prices.

The only problem with your idea of rent rise is that people are not going to borrow money or use clever financing tools to pay the rent.
The rent money comes directly from wages. So without wages inflation, rents won't increase dramatically. And I believe you think/wish that interest rate will stay low for a long time which means inflation will also be low.
It doesn't quite add up unfortunately. Keep trying.

the_ash_and_the_oak

HAMISH_MCTAVISH wrote: »

I see very little change, other than a continuation of the slight downwards trend that started a few years ago.

For the sake of easy illustration, I was assuming that 100% of the 80,000 houses being built are bought by owner occupiers. This will not be the case in the real world, it will be less, therefore the percentage of households that need to be able to afford to buy for prices to rise will also be less. Perhaps 25% or 20%..... But most houses will be bought by owner occupiers.

But as for total percentage of houses in owner occupation, perhaps 60% within the next two or three decades. People that already own will continue to do so, and they will enable their children to do so through existing equity and inheritance. The majority of new households will go into rental, although perhaps at higher density than today, so the percentage of O/O must decline over time, I would estimate at a rate of between one third and one half of a percent per year or so.

The bigger changes I expect to see will be a dramatic increase in rent costs, as the rental supply starts to get squeezed within the next 10 years due to the severe shortage of house building, combined with an increase in household density, where more people live in a house than do currently. That figure has been declining for years, but cannot continue to do so with the existing and worsening housing shortages. Of course, the more earners that live in a house, the higher the household income, and the higher the rent can be raised, so this is very much a self fulfilling prophecy, and will also further drive desire and demand for purchase instead, further raising house prices.

All completely inevitable unless we increase house building by at least 300% from todays levels, which I don't see happening. (or stop population growth, which would cause a pensions and care catastrophe, so equally unlikely)

Ok was just curious. I think that owner-occupancy stats may well also decrease - but don't see falling owner-occupancy stats as leading to rising prices imo. to me falling owner-occupancy stats is effectively a consequence of reducing demand as fewer people are able to buy (dragging down the figure from 70 to 60 with them)

Don't really agree about the rapidly rising rent scenario either tbh - reduced owner-occupancy levels says to me a larger rental sector

I still think rents will stay broadly tied to wages

HAMISH_MCTAVISH

Ron2256 wrote: »

The only problem with your idea of rent rise is that people are not going to borrow money or use clever financing tools to pay the rent.

I see you completely missed the part about higher household density, more earners living in each property, leading to higher household income, therefore allowing for higher rents on average than today whilst maintaining a broadly similar spend on rent in percentage terms.

The rent money comes directly from wages. So without wages inflation, rents won't increase dramatically. And I believe you think/wish that interest rate will stay low for a long time which means inflation will also be low.

See previous point. Inflation not required, just more earners living in each household on average. Which is guaranteed to happen without a 300% increase in housebuilding.

It doesn't quite add up unfortunately. Keep trying.

Actually it adds up perfectly.

Unless as you have done, you completely ignore existing housing shortage, population growth, and housebuilding numbers being less than one third of the level required. Those people need to live somewhere....;)

Do feel free to keep trying though.:rolleyes:

HAMISH_MCTAVISH

the_ash_and_the_oak wrote: »

Ok was just curious. I think that owner-occupancy stats may well also decrease - but don't see falling owner-occupancy stats as leading to rising prices imo. to me falling owner-occupancy stats is effectively a consequence of reducing demand as fewer people are able to buy (dragging down the figure from 70 to 60 with them)

Don't really agree about the rapidly rising rent scenario either tbh - reduced owner-occupancy levels says to me a larger rental sector

I still think rents will stay broadly tied to wages

I take it you do realise that the absolute number of homes in owner occupancy can increase, whilst the percentage of homes in owner occupancy decreases?

Which is consistent with rising prices, not falling ones.

There is simply no way for rents and house prices not to rise given the demographics and lack of building. Anything else is wishful thinking.