Time to let the housing bubble burst

macaque_2

This article sums up the UK housing problem quite well. It has been supported by a very large and influential interest group.

We now have the perverse situation where property bubble supporters simulataneously act as cheerleaders for mass immigration (even on this website) whilst resisting tooth and nail new housing developments. The sole purpose of these two influences has been to force house prices to artificially high levels.

As a result the productive economy is quietly being ruined. Manufacturing companies find it more profitable to sell off their sites for convertion to flats and ship their equipment to other parts of Europe. Employers are also faced with distorted salary demands to compensate for high housing costs. This has created the crazy position that we have 10 million people who are economically inactive whilst employers cannot find or retain people with the right skills. In the past 2 years alone we have seen the demise of major manfuacturing/research facilities with Pfizer, GSK, Clariant, Asaica, Astra Zeneca and countless others in other manufacting sectors.

Problems of this sort ultimately sort themselves out. A distorted economy gets poorer and poor people cannot pay high prices for property. Over time, the voting power of younger voters without property will also start to counterbalance the nimby property fanatics. It would be better for everyone in the long term however if we bit the bullet now and let property fall to its long term sustainable value.

Government after government has tried to keep the bubble inflated to avoid their wrath. The more people throw their life’s savings into housing, the more the pressure on government grows to protect these investments. The consequences for the rest of the country have been ruinous: increased cost of rents, urban sprawl, inflation and a shortage of affordable homes. The poor – who are also the least electorally engaged, and so less important to politicians of all stripes –have been especially hard-hit.....................

If government’s protection of house prices was removed – most importantly, the planning system that depresses supply and the artificially cheap credit that inflates demand – the supply of houses that people want to live in would rise and house prices would fall. Homeowners should not be able to use government to protect their investments at everybody else’s expense. With a looming housing crisis and house prices at an all-time high, it's time to let the bubble burst.

http://www.adamsmith.org/blog/tax-and-economy/time-to-let-the-housing-bubble-burst/

HAMISH_MCTAVISH

macaque wrote: »

We now have the perverse situation where property bubble supporters simulataneously act as cheerleaders for mass immigration (even on this website) whilst resisting tooth and nail new housing developments.

There is no property bubble.... What little part of UK prices that could debatably be described as a bubble, already burst.

And whilst I certainly cheer higher prices, I have no objection at all to building more houses.

It's absolutely vital to do so.

artificially high levels.

There is no such thing.

Employers are also faced with distorted salary demands to compensate for high housing costs.

So you support lowering people's wages?

Good luck selling that one to the UK public....

And UK wages are not significantly different to most major western economies.

In the past 2 years alone we have seen the demise for major manfuacturing/research facilities with Pfizer, GSK, Clariant, Asaica, Astra Zeneca and countless others in other manufacting sectors.

Well yes, that happens in a recession caused by contraction of credit and falling house prices.

The solution, obviously enough, is to expand credit and get prices at the least stable, and preferably rising again.

Then let the "wealth effect" sort out the wider economy.

And on a side note, many of the pharmaceutical companies you mention have much bigger problems with patent expiry than the recession, which is the cause of much of their global contraction at the moment.

let property fall to its long term sustainable value.

It already did.

House prices already fell below real long term trend.

Mortgage payments as a percentage of disposable income are well below the long term average, at near record lows not seen since the mid 90's.

The average FTB mortgage is 3.15 times income.

And average FTB mortgage interest on new purchases is just 12.9% of income.

Existing owners are spending even less....

So the claim you make, that property prices are draining more money from the economy than is historically normal and thus impairing competitiveness, is demonstrably false.

the_flying_pig

i like the cut of your jib but, er, can't see a link or full article?

HAMISH_MCTAVISH

the_flying_pig wrote: »

i like the cut of your jib but, er, can't see a link or full article?

It's an anti-interventionist rant from the Adam Smith Institute blog.

http://www.adamsmith.org/blog/tax-and-economy/time-to-let-the-housing-bubble-burst/

Jimmy_31

HAMISH_MCTAVISH wrote: »

It's an anti-interventionist rant from the Adam Smith Institute blog.

http://www.adamsmith.org/blog/tax-and-economy/time-to-let-the-housing-bubble-burst/

There are artificially high levels these were caused by banks acting irresponsibly and now that they have to behave house prices are falling.

tartanterra

macaque wrote: »

This article sums up the UK housing problem quite well. It has been supported by a very large and influential interest group.

We now have the perverse situation where property bubble supporters simulataneously act as cheerleaders for mass immigration (even on this website) whilst resisting tooth and nail new housing developments. The sole purpose of these two influences has been to force house prices to artificially high levels.

As a result the productive economy is quietly being ruined. Manufacturing companies find it more profitable to sell off their sites for convertion to flats and ship their equipment to other parts of Europe. Employers are also faced with distorted salary demands to compensate for high housing costs. This has created the crazy position that we have 10 million people who are economically inactive whilst employers cannot find or retain people with the right skills. In the past 2 years alone we have seen the demise for major manfuacturing/research facilities with Pfizer, GSK, Clariant, Asaica, Astra Zeneca and countless others in other manufacting sectors.

Problems of this sort ultimately sort themselves out. A distorted economy gets poorer and poor people cannot pay high prices for property. Over time, the voting power of younger voters without property will also start to counterbalance the nimby property fanatics. It would be better for everyone in the long term however if we bit the bullet now and let property fall to its long term sustainable value.

Well that's it....the games up!

How can you argue against impending financial disaster in the face of this compelling evidence;
1. macaque can't afford a house.
2. Someone has written a blog.

Yup, better sell up my property, ignore the full order book at work, put on my tin hat and move into the air raid shelter until the whole thing has blown over.......:)

IveSeenTheLight

macaque wrote: »

We now have the perverse situation where property bubble supporters simulataneously act as cheerleaders for mass immigration (even on this website) whilst resisting tooth and nail new housing developments. The sole purpose of these two influences has been to force house prices to artificially high levels.

If there is an increase in population and house building not matching, how is it artificially high? It's essentially being set by the market fundamentals

macaque_2

IveSeenTheLight wrote: »

If there is an increase in population and house building not matching, how is it artificially high? It's essentially being set by the market fundamentals

The market fundamentals are defined by the number of houses for sale versus the number of people who wish to buy and have the means to buy. Recent house sales stats would suggest that there there is very little demand for houses at current prices.

tartanterra wrote: »

Well that's it....the games up!

How can you argue against impending financial disaster in the face of this compelling evidence
1. macaque can't afford a house.
2. Someone has written a blog.

Yup, better sell up my property, ignore the full order book at work, put on my tin hat and move into the air raid shelter until the whole thing has blown over.......

I think you and I are talking about two different things. Financial disaster for you is the loss of windfall profits. Some banks will also take a hit but moves have been afoot for several years to mitigate that risk (and we are all paying for it).

A genuine financial disaster awaits the economy if the house price bubble is not pricked (and quickly). The number of wealth creating companies quitting the UK at the moment is alarming. House prices are not the only cause for this emigration but it is a major one. For even quite modest houses now, the rent people have to pay is higher than the minimum wage. Companies cannot afford to support two people (the employee and his/her landlord) for every job they fill.

Loopgames

The houses in the area i'm looking to buy are valued around £260 - £290k. I will be willing to buy at £200k. So will wait.:D

IveSeenTheLight

macaque wrote: »

The market fundamentals are defined by the number of houses for sale versus the number of people who wish to buy and have the means to buy. Recent house sales stats would suggest that there there is very little demand for houses at current prices.

I can agree, demand is down, so is supply and transactions, thus those houses are selling are at market price and not "artificially high"

macaque_2

IveSeenTheLight wrote: »

I can agree, demand is down, so is supply and transactions, thus those houses are selling are at market price and not "artificially high"

Buyer interest is down, transaction numbers are down, transaction prices are down and asking prices are down. The only thing that has increased is the gap between bull's expections and reality.