The Housing Shortage Timebomb

RabbitMad

Sir_Humphrey wrote: »

The trouble with the supply argument is if there was a shortage of housing now, there was also one back in the mid-1990s. Nothing has happened to the underlying supply/demand situation to justify prices more than doubling since 1999.

If a shortage of housing is leading to price rises, why have rents been so static for the most part over the last 10 years? Indeed, rents have been falling in 2009 in the outer London area I have been looking at. The main reason why prices have increased to the extent they have is down to overly lax lending causing a housing bubble.

The doubling is due to cheap credit and low inflation / interest rates and higher standards of living. Average wages have gone from £15K in early to mid 90's to £25K now. If our average income has nearly doubled why can't certain assets.

Lets look at a few other prices - petrol back in 1993 ish 48p per litre - now £1.10 per litre and most of that increase is tax. A tin of quality streets at christmas early 90's £8, now £5, a VCR £200 ish, now a DVD harddisc recorder £200.

If you look at how much cheaper things are in real terms its easy to see that we have much more disposable income and therfore are able to direct that towards property.

Sir_Humphrey

I do not agree that there would be a significant fall in demand. As we are already seeing, parents are already helping out theire children to secure funding for FTB'ers - this will only increase in the fututre, supported in part but the value of their homes rising.

Prices are not rising signifcantly in most of the UK, and where they are is due to a short term factor of 0.5% interest rates. The idea of higher prices recycling into higher prices is a reflexive process, which is a feature of a bubble. The bank of Mum and Dad is no substitute for securitised debt markets. Your argument only stacks up if you ignore the numbers.

Sir_Humphrey

RabbitMad wrote: »

The doubling is due to cheap credit and low inflation / interest rates and higher standards of living. Average wages have gone from £15K in early to mid 90's to £25K now. If our average income has nearly doubled why can't certain assets.

Your incomes argument needs to modelled ceteris paribis.

15k x 4 + 10% deposit = £66000
25k x 4 + 10% deposit = £110000

This is a 66% increase in wages over 15 years, or about 3.7% PA. If earnings were the fundamental determinant, then house prices would have risen by a similar amount.

Average house price in December 1994 = £52092 (Nationwide)
Average house price in December 2009 = £162103 (Nationwide)

This is a 300% increase in prices over 15 years, or about 8.5% PA.

So wage inflation accounts for less than half of this rise in prices. These figures suggest that housing was underpriced on this measure in Dec 1994 and very overpriced in Dec 2009.

Credit will be more expensive in future, so this factor will no longer apply in future. This is the essense of the informed bear position; that credit was too cheap and could not be sustained. This premise has been comprehensively proven by the credit crunch. The current low interest rates are a result of very low inflation/deflation. This is a short term gain for homeowners at the long term cost of a sustained debt burden and suppressed income increases.

As for low inflation; this is the mortgaged householders worst nightmare. Property was a great buy in the 1970s when income inflation was 15% PA.

RabbitMad wrote: »

If you look at how much cheaper things are in real terms its easy to see that we have much more disposable income and therfore are able to direct that towards property.

You do not direct spare disposable income towards property. It would be much more likely to be manifested in increased rents, but this has simply not happened. (BTL is another manifestation of lax, cheap credit). Nice theory, shame the evidence does not support it.

It is easy for people to waffle vaguely about fundamental supply and demand etc, but if you crunch the numbers those arguments soon fall apart.

Out,_Vile_Jelly

The most telling point of that article for me was this line; "the danger of concentrated pockets of wealth developing among homeowners".

It is increasingly only possible to buy in many areas if you are on well above average salary, or two average salaries (with potential problems with loss of earnings through children) and/or a generous loan from the Bank of Mum & Dad.This will surely lead to society becoming more divided, unless we adopt the calmer and more civilised approach to renting and home ownership of our continental neighbours. The population may well be growing, but are enough of them sufficiently wealthy to pay increasing prices?

dgl1001

Sir_Humphrey wrote: »

That undermines the argument that a fundamental shortage of property is keeping prices high - rather than the ownership structure has changed.



Supply has always been inelastic in housing - you cannot argue that there has been a housing shortage for over thirty years and then use that to justify a phenomenon of 2000-2007. There was a shortage of housing in the 1980s and 1990s but prices were much lower.

I would expect the fundamental supply not meeting fundamental demand to have had some impact - there are good fundamentals reasons why house prices have increased since the mid-1990s, but nothing to justify the extent of the rises. Even a fall from peak of 30% would leave prcies higher than the mid-1990s in real terms.

I get a bit sick of people with basic A level economcis spouting supply and demand as though they were the reincarnation of Adam Smith. What you learn at degree level is that the economics learnt at A level is either plain wrong, out of date or too simplistic. This is true of a lot of other A level subjects too.

Lets be clear on this, i was trying to have a reasoned debate and for some reason you have decided to throw your toys out of the pram and start getting abusive. Your also changing the meaning of my answers - that s fine. You clearly have your view and i have mine - end of

chucky

there isn't a housing shortage.

but there is a housing shortage of quality houses in quality areas

Sir_Humphrey

dgl1001 wrote: »

Lets be clear on this, i was trying to have a reasoned debate and for some reason you have decided to throw your toys out of the pram and start getting abusive. Your also changing the meaning of my answers - that s fine. You clearly have your view and i have mine - end of

I have not thrown my toys out the pram - I have crunched the numbers and they do not stack up. If you want a reasoned argument, then you need to give me the numbers to support your position. That is what economic argument is all about - the evidence.

I have been hearing these pony arguments for too long not to get a bit annoyed at it all.

dgl1001

Sir_Humphrey wrote: »

I have not thrown my toys out the pram - I have crunched the numbers and they do not stack up. If you want a reasoned argument, then you need to give me the numbers to support your position. That is what economic argument is all about - the evidence.

I have been hearing these pony arguments for too long not to get a bit annoyed at it all.

Sorry - just for the avoidance of doubt - are you saying that the function of supply and demand does not existing in the housing market?

Sir_Humphrey

dgl1001 wrote: »

Sorry - just for the avoidance of doubt - are you saying that the function of supply and demand does not existing in the housing market?

It is perfectly clear that I am not saying that.

chucky

Sir_Humphrey wrote: »

Prices are not rising signifcantly in most of the UK.

can you explain that?

an average indicates that there would be more property increasing than decreasing.
are you saying that isn't the case?