Some sensible comments from Scotland !

DervProf

HAMISH_MCTAVISH wrote: »

How well has that worked over the last 18 months?

Not very well. Prices were on the way down, before Flash Gordon "saved the day".

DervProf

HAMISH_MCTAVISH wrote: »

How well has that worked over the last 18 months?

And given Mervyn King has said today that the UK market is now just 5% below peak, how well has that worked for the average person renting a house for the last 3-5 years?

And what will happen if prices drop and a million or two pent up buyers are enabled to jump in to the market through increased mortgage availability? As many of the bears seem to think will happen if prices fall and the banks are more comfortable with lending.

Do you not recognise the extraordinary contradictions inherent in most of the bear positions?

1. We should stop millions being priced out by preventing millions from getting mortgages.

No. We should stop millions being drawn into a lifetime of excessive debt, by allowing them to borrow ever larger amounts of money.

2. We should restrict bank lending til prices fall a bit, then loosen bank lending so we can all get decent mortgages (and prices will rise again).

No. We should wait til prices fall a bigger bit, then keep lending "tight".

3. Nobody can afford a house. Except millions more could afford a house when prices and interest rates were higher in 2006/2007. And still can today. But nobody can afford a house.

You stated a month or two back that houses were at peak affordability for FTBs.

Lets all (on both sides) move past the childish name calling and meaningless sound bites for a change and debate the real issues.

Guilty as charged. Well sort of. I don`t call people "morons", but I do like to play with words and have a little "dig". You may say that`s childish, and won`t get us anywhere, but neither will a serious debate. We might as well have a bit of fun while we`re here (as long as it`s reasonably polite) don`t you think ?

Answers to points raised above.

HAMISH_MCTAVISH

DervProf wrote: »

We should stop millions being drawn into a lifetime of excessive debt, by allowing them to borrow ever larger amounts of money.

So then you do think the solution to millions being priced out is to ensure millions never get a mortgage to begin with.

Remind me again how that helps?

We should wait til prices fall a bigger bit, then keep lending "tight".

So we should ensure less people can buy a house now, and then keep them from buying a house in the future.

Nice.

You stated a month or two back that houses were at peak affordability for FTBs.

I said near to peak affordability.

Which they are, IF you can get a mortgage.

But as most can't get a mortgage, then it's not doing them any good.

DervProf

HAMISH_MCTAVISH wrote: »

I said near to peak affordability.

Which they are, IF you can get a mortgage.

But as most can't get a mortgage, then it's not doing them any good.

You didn`t use the words "near to", but the rest is true.

HAMISH_MCTAVISH

DervProf wrote: »

You didn`t use the words "near to", but the rest is true.

OK, so do you at least agree the cost of buying a house including mortgage payments is lower than the long term average, but most potential FTB's cannot take advantage as they can't get a mortgage?

HAMISH_MCTAVISH

And can you answer this....

So then you do think the solution to millions being priced out is to ensure millions never get a mortgage to begin with.

Remind me again how that helps?

Loughton_Monkey

HAMISH_MCTAVISH wrote: »

Lets all (on both sides) move past the childish name calling and meaningless sound bites for a change and debate the real issues.

That's a novel idea for this debate.

I do not claim to know all the answers, but the debate always strikes me as a bit insular - focussing on relatively tiny issues such as the movement in price over a particular month or quarter. It is really far more fundamental than that.

If you look back at any period when the house market is "stable" (no crash, no bubble), then what's going on? Builders buy land at a price. They buy bricks and employ people to build a house on the land (as many as they can squeeze in). They add on some profit, and attach a price.

People will then come along, having seen all the existing houses in the area as well, and they will choose to buy one of the new ones. People selling older houses also compete in this market, by buying and selling, moving from area to area, upsizing, downsizing as their circumstances dictate.

It is at times like this that we should measure the "true" value of a house. And by and large there is a "true" value that broadly equates to cost of land + cost of building + reasonable profit.

Whether we like it or not, that "Value" of a house is very big. Say 10 times an average salary. But small ones in a poor area will be less. Good ones in a better area will be more.

So fundamentally, we can argue that prices are currently lower than this 'true' cost and therefore builders will not build any more until they get their profit. If it is the case that there is simply no demand (we have more houses in UK than are required) then expect prices to remain very low for quite a long time until demographics dictate that demand rises again.

Alternatively, if the demand is there, then it will take a much shorter time for prices to rise enough for builders to make their profits. Then supply will rise to reach demand.

Given that we all need somewhere to live - whatever the house prices are - then there is a parallel debate about rental values, which I will not go into.

But my own opinion is that for a complex set of reasons, the real demand is there, but the confidence and money isn't. These things will ultimately correct themselves and values must go up, and it will be evidenced by significant new building.

As for 'social housing' or 'affordable housing' then again, there is a fundamental issue. As argued, any house has a 'true' value as represented by land value + building cost + profit. For any particular house, that value will always represent a significant multiple of the salary of any occupant likely to live in it. That cost (whether to buy or rent) must ultimately be paid by someone.

If that 'someone' happens not to be the occupant, because he/she is long term unemployed, a single parent, or otherwise cannot pay the cost, then ultimately it can only be the taxpayer. I am not sure for how long 'the taxpayer' will be willing to subsidise/pay for a growing number of such families to have use of an asset worth, say £200K.

Ultimately, therefore, I see the only way that things will work, will be Land Value + Building Cost + Profit, where:

Land Value: Isolated/cheap/Highrise/Ghetto
Building Cost: Wooden/Trimmed Down Building Regulations/Cheap
Profit: Very Small

Tip: Buy shares in Mobile Home Companies!

DervProf

HAMISH_MCTAVISH wrote: »

OK, so do you at least agree the cost of buying a house including mortgage payments is lower than the long term average, but most potential FTB's cannot take advantage as they can't get a mortgage?

Probably just as well. The calculated cost must be largely influenced by interest rates, which are more likely to rise than fall. So the long term cost might not turn out to be so low as you are claiming.

DervProf

HAMISH_MCTAVISH wrote: »

And can you answer this....

So then you do think the solution to millions being priced out is to ensure millions never get a mortgage to begin with.

Remind me again how that helps?

Again.......

DervProf wrote: »

The solution to high prices is to build more homes.

If more homes aren`t built, then some people will not be able to buy a home. In this case, the next best thing is to control lending, in order to prevent people taking on risky levels of debt to outbid others for the property that`s in short supply. Not perfect, but better than lending "just a little more".

HAMISH_MCTAVISH

DervProf wrote: »

The solution to high prices is to build more homes.

True.

If more homes aren`t built, then some people will not be able to buy a home.

True.

In this case, the next best thing is to control lending, in order to prevent people taking on risky levels of debt to outbid others for the property that`s in short supply. Not perfect, but better than lending "just a little more".

False.

Define a "risky" level of debt?

When buying at todays prices, (even if base rates rise significantly), is cheaper by far then renting for a lifetime, how can that be a bad thing?

And how do you propose we avert the takeover of housing stock by landlords (whilst FTB's are frozen out by mortgage rationing), be they BTL or institutional investors? At some point the rental yields will overcome the risk aversion.

If less people can buy a home, more will have to rent.

As insufficient houses are being built, more people will have to share the existing ones.

The average household income of rented houses will increase, as more earners are living in each rented house, on average.

The shortage of supply will drive up competition, and thus rent prices, for the rented stock. The increase in average rented household income (through more earners living in each house) will support the higher rents.

Higher yields will draw in investors to compete for the assets. Raising prices further.

Potential FTB's will be hit by a double whammy, of rising rents meaning they can't save the higher deposits, AND rising asset prices meaning the houses get further out of reach whilst they are being forced to rent.

You can't stop HPI with lending restrictions. You can merely delay it, but add to the lifetime housing costs of those frozen out of the market by doing so.