Robert Shiller on BTL (in the USA)

BertieUK

Generali wrote: »

I think we agree with each other.

Depreciation is a factor in any business including BTL.

There are many factors that can change the values of properties depicted by its mere location and what type of industry is within its locality.

We are close to the southern coastal resorts where properties are holding and slowly increasing on their current values whereas in the NE of England the opposite is many times applicable.

Generali

BertieUK wrote: »

There are many factors that can change the values of properties depicted by its mere location and what type of industry is within its locality.

We are close to the southern coastal resorts where properties are holding and slowly increasing on their current values whereas in the NE of England the opposite is many times applicable.

I agree. As discussed, a property is really the combination of two things: a house and the land that it sits on. The house depreciates: the boiler needs fixing, the house needs to be painted (especially if by the sea), windows and the roof need replacing periodically. The land however neither appreciates or depreciates, it's just land whose price goes up and down.

If the value of the land goes up quicker than the house depreciates then the total value of the 2 rises. That is most often the case in the UK but it appears that in the US the land appreciates at about the same rate as the house depreciates.

HAMISH_MCTAVISH

Generali wrote: »

That is traditionally the case in the UK. Is that still the case? Look at apartment blocks built in the centre of cities in the UK in the 1960s and 70s and they have depreciated pretty quickly, indeed in London quite a few blocks of that era have been demolished already.

Modern building techniques, along with British conservatism, have led to a premium being paid for older houses. Given that houses for about the last 25 years have been built using 'modern techniques', how long until (some) older houses lose their premium?

I'd consider anything built after the 1930's to be "new", and most of it will be of lesser value/desirability/quality/durability than older stock.

Generali

michaels wrote: »

Juist a thought - are you able to find out what has happened to the total value of the two countries total housing stocks over the period?

My back of envelope calculation done as a result of a cancelled meeting (thank you Aussie reporting season!). All in 2010 money comparing 1975 to 2010.

Total value of US housing stock (US Government data):
1975: $11,420,000,000,000
2010: $28,350,000,000,000

Total value of UK housing stock (Nationwide av. house price and UK Government census data interpolated for household numbers):
1975: £1,270,000,000,000 ($3,100,000,000,000)
2010: £4,370,000,000,000 ($6,770,000,000,000)

Cable (£/$) spot rate from the Bank of England (link).

I find it interesting how little house prices have risen vs inflation in the UK over 35 years given the national obsession with house prices.

Generali

HAMISH_MCTAVISH wrote: »

I'd consider anything built after the 1930's to be "new", and most of it will be of lesser value/desirability/quality/durability than older stock.

So as time goes on, presumably fire and demolition will take their toll on that stock so the nature of the housing market will change in an unpredictable way.

My parents bought a late-60s house which seems pretty solid. The 1990s 'dolls house' I bought in the late 90s (one bed new build) was flimsy at best and will probably end up being disposable like Aussie housing stock. That'll be a problem as it's been built as a terrace with each place being sold freehold.

the_flying_pig

Generali wrote: »

The data are what they are. My parents' place was bought in Surrey in 1976 in a very nice village that has probably increased by more than average as it's now a commuter town and wasn't in '76.

That house is possibly worth £450k having been bought for £20,000. There is no way that any house bought in the same time in a similar area is worth £2,000,000 unless a hovel was knocked down and a palace built in its place.

I call BS. Sorry mate.

The only places that have appreciated remotely like that are a handful of oast houses but they've had fortunes spent on them so hardly comparing like with like.

props [or maybe a slap round the chops for pedantry, I can't decide] for using plural verb forms after 'data' but, well, i dunno... i think there might well be a few streets like that in the country, ones that have undergone extreme gentrification, whereby, even without improvements, prices have increased by a factor of a hundred... e.g. i'm thinking of a street near Waterloo station, Roupell Street, tiny 1- or 2- bed terraced railway workers' cottages with, 'coronation street' style, no front garden [or back to speak of]... absurdly the price of these is nudging towards £1m now, i can fairly easily believe that you could pick one up for £10k, i.e. a little less than the then-average price of a house, in the mid 70s.

but i basically agree that such cases are exceptionally exceptional.

michaels

Generali wrote: »

My back of envelope calculation done as a result of a cancelled meeting (thank you Aussie reporting season!). All in 2010 money comparing 1975 to 2010.

Total value of US housing stock (US Government data):
1975: $11,420,000,000,000
2010: $28,350,000,000,000

Total value of UK housing stock (Nationwide av. house price and UK Government census data interpolated for household numbers):
1975: £1,270,000,000,000 ($3,100,000,000,000)
2010: £4,370,000,000,000 ($6,770,000,000,000)

Cable (£/$) spot rate from the Bank of England (link).

I find it interesting how little house prices have risen vs inflation in the UK over 35 years given the national obsession with house prices.

So local currency terms the proportionate increase is about the same but in the UK it has been as a result of prices rising whereas the US has been mostly through increased supply. In USD terms (which may be adjusts better for relative inflation rates) the UK hosing stock total valuation has increased by less than that in the US. Of course we all really need to adjust for population and GDP changes as already mentioned by I guess I wouold contend that the UK is not actually spending proportionately more on housing as the original figures suggest but just that the country faces a very different supply curve.

Generali

michaels wrote: »

So local currency terms the proportionate increase is about the same but in the UK it has been as a result of prices rising whereas the US has been mostly through increased supply. In USD terms (which may be adjusts better for relative inflation rates) the UK hosing stock total valuation has increased by less than that in the US. Of course we all really need to adjust for population and GDP changes as already mentioned by I guess I wouold contend that the UK is not actually spending proportionately more on housing as the original figures suggest but just that the country faces a very different supply curve.

The data I have show that US households roughly doubled in the period whereas in the UK they rose by about 35% so presumably the very different rates of increase in house prices are mostly due to differing supply conditions, as you state.

I wonder whether one of the reasons that US GDP has grown faster than the UK's over the period 1975-2010 (US 275% increase in real GDP, UK 230% - source a random Google) is in part due to supply of property in the US being able to meet demand which it can't do in the UK, hence the price rises.

After all, GDP is just a way to measure stuff that is done for money. If more houses, offices and factories can be built and are built then that immediately implies higher GDP growth.

As an aside, if people are doing DIY because they can't buy a new house then that won't be captured in GDP data as no money changes hands. The output from DIY exists but isn't included in GDP measurements.

Generali

the_flying_pig wrote: »

using plural verb forms after 'data'

That's right, no?

Datum is the singular or at least was; the word data is plural. The Guardian's style guide has a good take on it:

http://www.guardian.co.uk/news/datablog/2010/jul/16/data-plural-singular

I prefer to use data in the correct way but rarely if ever use the word datum. I guess that's a product of the age: we can move and manipulate data so quickly why would we ever have one of them?

the_flying_pig wrote: »

but, well, i dunno... i think there might well be a few streets like that in the country, ones that have undergone extreme gentrification, whereby, even without improvements, prices have increased by a factor of a hundred... e.g. i'm thinking of a street near Waterloo station, Roupell Street, tiny 1- or 2- bed terraced railway workers' cottages with, 'coronation street' style, no front garden [or back to speak of]... absurdly the price of these is nudging towards £1m now, i can fairly easily believe that you could pick one up for £10k, i.e. a little less than the then-average price of a house, in the mid 70s.

but i basically agree that such cases are exceptionally exceptional.

Yes, that was the sort of thing I was thinking of TBH. Utter slums that have become very nice areas. Many Kentish villages and villages of Kent were very poor but now are full of city types (and perhaps to be impoverished again as investment banking goes the way of shipbuilding in the UK). Those streets round Waterloo station must have risen pretty sharply as would the area just north of the City of London, including Angel.

Still 5x average prices? I have very strong doubts. I call BS still. That's a 4.7% out performance every year for 35 years.

No way [STRIKE]Jose[/STRIKE] the flying pig.

Thrugelmir

Generali wrote: »

I wonder whether one of the reasons that US GDP has grown faster than the UK's over the period 1975-2010 (US 275% increase in real GDP, UK 230% - source a random Google) is in part due to supply of property in the US being able to meet demand which it can't do in the UK, hence the price rises.

Impact of financial services including insurance.

During the period 1975 - 1985 financial services averaged 4.8% of GDP.

During the period 1995 - 2005 financial services averaged 7.5% of GDP.

Simply put unsustainable.