Why exactly are houses so expensive?

Graham_Devon

In the same time that houses have increased 8,000% in value, eggs have increased 2,000%, bread 1,983%, milk 1,125%.

So is it supply and demand? Do we simply not have a big enough supply of houses? Well....no, it's not that. As the article states, this is the simple conventional wisdom, the drawback being things are not that simple.

Its the banks ability to simply create new money, and lend it out at higher and higher risk that has caused the most recent catastrophic boom in house prices.

This is made worse by the speculators buying property on the increased lending because they know prices will go up, causing a viscious circle of prices rises and more lending until the inevitable bust.

The founder of Positive Money, Ben Dyson, puts it like this: “In effect the banks, by being able to create money and pump it into these property bubbles have been able to double the cost of a place to live for the average person.”

As another blow to the supply argument....

Between 1995 and 2007 the UK population increased by 5%, the housing stock increased by 10% and house prices increased by 350%, meanwhile mortgage lending by banks increased by 630%. Which of these figures is more likely to have led to a 350% rise in house prices: a 5% rise in population growth which is matched by an increase in supply of housing; or an unprecedented increase in mortgage lending from the banks?

Now, some scots may tell you it's all about the immigration....but...

Australian Economist, Steve Keen, who is responsible for the studies says in an article entitled ‘House Prices and the Credit Impulse’: “Population dynamics – even immigration dynamics – have nothing to do with house prices. What determines house prices is not the number of babies being born, or immigrants – illegal or otherwise – arriving, but the number of people who have taken out a mortgage, and the dollar value of these mortgages. For changes in house prices, what matters is the acceleration of mortgage debt.”

According to head of the FSA, Adair Turner, over 75% of banks’ lending (and hence money creation) goes into property. If we could somehow reverse this trend and have the majority of lending going to businesses where it would lead to real growth, real production and real job creation, instead of into decaying assets that don’t produce anything of real value, that would perhaps be the beginning of the end for our boom and bust economy.

Lovely article. You don't need the mind of a genius to see why some blame "mortgage rationing" for every ill facing those priced out at the moment.

Fully expect to be told that you can't live in an egg, therefore it's a stupid camparison, and therefore the whole article is flawed.

http://blogs.independent.co.uk/2012/08/28/why-exactly-are-homes-so-expensive/

wymondham

House prices have been engineered to be high for a few years now, with the Government trying scheme after to scheme to maintain their artifical value. This is mainly by subsidising their purchase and/or giving incentives to builders to maintain their high sale price..

Loughton_Monkey

In July 1984, I bought my first video recorder. It cost me £649. A Panasonic.

Rather silly, I feel, to compare the cost of a house with any consumer goods. So I'll do it for the hell of it.

In April of that year, I moved, and bought the house for £59,600.

Just under a year ago, I bought a DVD recorder. A Panasonic as it happens. Cost me £234. That's 36% of the cost of the video recorder.

By this reckoning, you could buy a 4 bedroom house, in ½ acre, in Wilmslow, Cheshire, for about £215K.

Graham_Devon

Loughton_Monkey wrote: »

In July 1984, I bought my first video recorder. It cost me £649. A Panasonic.

Rather silly, I feel, to compare the cost of a house with any consumer goods. So I'll do it for the hell of it.

In April of that year, I moved, and bought the house for £59,600.

Just under a year ago, I bought a DVD recorder. A Panasonic as it happens. Cost me £234. That's 36% of the cost of the video recorder.

By this reckoning, you could buy a 4 bedroom house, in ½ acre, in Wilmslow, Cheshire, for about £215K.

Sweet....were back to the "I bought a video recorder for £650".

See you on the next thread involving the insulting of the younger generation for owning a pair of trainers.

Carl31

House prices are where they are as no one challenged them. Banks dished out the cash, buyers lapped up debt and sellers whacked their prices up. New buyers loved it, they thought they were sitting on a fortune as their 'investment' went skyward.

No one considered that wages couldnt substantiate such a market. So now we have a problem where the nations wealth is tied up in over priced bricks, instead of floating freely between income and expenditure, keeping employment high and the country buoyant.

A correction has to happen, many of us know it and can see it, and know why. unfortunately it will mean pain for some, they dont know why they will suffer, but its the same reason that their investment was going to make them 'rich'.

prowla

wymondham wrote: »

House prices have been engineered to be high for a few years now, with the Government trying scheme after to scheme to maintain their artifical value. This is mainly by subsidising their purchase and/or giving incentives to builders to maintain their high sale price..

And of course the low interest rates are designed to convince buyers that the prices are affordable.

Carl31

prowla wrote: »

And of course the low interest rates are designed to convince buyers that the prices are affordable.

And this is the most dangerous part. Worryingly, people are still buying not understanding the basic rules of the affect of baserates on their mortgage debt. The worse thing is the promotion of 5% deposits, it appears lessons still have not be learned by the powers that be

Loughton_Monkey

Graham_Devon wrote: »

Sweet....were back to the "I bought a video recorder for £650".

See you on the next thread involving the insulting of the younger generation for owning a pair of trainers.

(a) I was 35. Not exactly young.
(b) I got it £1 cheaper than you quoted.
(c) I could afford it, especially having taken £4K equity out.
(d) I have never insulted the younger generation for owning trainers [except those who steal them]. There are 99 other things for which some of them thoroughly deserve derision.

And I don't think my points are "sweet". I am a fully paid up miserable old sod. I don't do "sweet". Which is why you'll never see me on the "Nice people thread 6.....". I am simply not a nice person.

ukcarper

So average house prices have increased 80x since 1950 but according measuring worth website average earnings increased 77.6x between 1950 and 2010. Looks to me that houses prices a slightly more expensive but all the other things are cheaper.

Graham_Devon

ukcarper wrote: »

So average house prices have increased 80x since 1950 but according measuring worth website average earnings increased 77.6x between 1950 and 2010. Looks to me that houses prices a slightly more expensive but all the other things are cheaper.

Which would make the average wage £38,772 in 2010.

The ASH statistics state its £26,010 today.

Quite a difference.

ukcarper

Graham_Devon wrote: »

Which would make the average wage £38,772 in 2010.

The ASH statistics state its £26,010 today.

Quite a difference.

how do you work that out

http://www.thisismoney.co.uk/money/pensions/article-1616985/Pensioners-better-off-in-1950s-than-today.html

From your favourite average wage 1950 was £368 using your figure £26,000 70x. Very difficult to find average earnings for 1950 £368 was highest I found.