High house prices damage buiness and the economy

Graham_Devon

The urgency of dealing with the UK's economic struggles is one of the biggest headaches for policy makers, as so many of the enablers of economic growth – improved skills levels, investment in infrastructure, stronger innovation networks – will take time to affect the economy. Yet there is one policy area where consensus is growing that effective interventions have the potential to generate jobs and growth in both the short and longer term: housing.

Housing currently employs around a quarter of a million people in Britain and contributed almost £18bn to the economy in 2010. Government research suggests that every 100,000 new houses built could boost GDP by 1%. Jobs are another immediate benefit; estimates suggest that 1.5 jobs are created for every home built, while £1 spent on housing creates £2.09 in direct value for the economy.

Longer term, as the Barker Review of Housing Supply in 2004 made clear, tackling the shortage of housing can prevent instability in the wider economy because of the impact a place to live has on businesses, labour markets and individuals. An insufficient supply of housing can restrict labour market mobility, raise business costs and exacerbate inequality – constraining economic growth.

The specific ways in which housing impacts on the economic performance of a city depends on the individual city context. In strong city economies, such as in London, Cambridge and Bristol, factors affecting economic growth, including skills levels, innovation and business startups already tend to be stronger.

In these economies, housing shortages and high house prices can put a brake on economic growth, placing increasing pressure on existing infrastructure, raising business costs, exacerbating skill shortages, and preventing people from moving to a successful city.

This is bad for the individual, bad for businesses and, as a result, bad for the local and national economy.

More "high house prices are bad" stuff in the media - all is welcome!

http://www.guardian.co.uk/housing-network/2013/jun/20/high-house-prices-damage-businesses-economy

HAMISH_MCTAVISH

High prices are caused by the shortage of housing, as the article points out.

Restricting lending has made the shortage worse.

So the next boom will now be bigger than it otherwise would have, in large part thanks to the very policies you've cheered on for the last few years, despite being warned repeatedly about the worsening shortage.

grizzly1911

HAMISH_MCTAVISH wrote: »

High prices are caused by the shortage of housing, as the article points out.

Restricting lending has made the shortage worse.

So the next boom will now be bigger than it otherwise would have, in large part thanks to the very policies you've cheered on for the last few years, despite being warned repeatedly about the worsening shortage.

Will the housing shortage be almost totally eradicated were we to revert to the normal prudent lending parameters you advocate?

Graham_Devon

HAMISH_MCTAVISH wrote: »

Restricting lending has made the shortage worse.

Maybe.

But there are other issues at play here which have made building houses less profitable, than say, sitting on your land and watching the value go up.

Why go to the expense of building houses on land when the land itself is making possibly bigger profits with no expense poured into it?

Theres also the issue of all risk being removed from builders, and help being given to people in order to buy the houses builders build. This has increased their profit levels

Look at any report from any large builder - one out a couple of days ago shows Berekerly I think recording a 26% increase in profits in the last quarter. I think it was the quarter anyway. Either way, the profit increase is huge. They have only built around 100 more houses.

They don't need to build more to make more profit. So why do you assume they would do? Of course if all risk is removed, they may build a few more on land which isn't growing in price quite so quickly.

BUT....throwing debt at potential buyers isn't the only solution.

Mass building programmes, which has PROVEN to have worked before, done by the government is another solution. It's just not palatable right now as things are "OK" at the moment. Reach crisis point and it may become more palitable.

But to sum up Hamish, your one solution is not the only solution. Your one solution has been proven ineffective, so maybe time to start looking at least at others.

the_flying_pig

HAMISH_MCTAVISH wrote: »

High prices are caused by the shortage of housing, as the article points out.

Restricting lending has made the shortage worse.

So the next boom will now be bigger than it otherwise would have, in large part thanks to the very policies you've cheered on for the last few years, despite being warned repeatedly about the worsening shortage.

(a) any comments on the actual premise of the article, that high house prices are damaging?

(b) this 'theory' of yours about 'mortgage rationing' creating a 'bigger boom', i've never come anywhere near close to understanding it.

basically what we've seen over the last few years is [using the Halifax index, 5 year intervals, all January prices rounded to the nearest £10k]:

1988 - £50k
1993 - £60k;
1998 - £70k;
2003 - £120k;
2008 - £200k;
2013 - £160k;
2018 - who knows?
2023 - who knows?

now, if the post Jan 2008 credit contraction hadn't happened then it seems almost certain that prices now would be really a lot higher than they were in 2008, right? given that 5 years have elapsed, and extrapolating what happened between 1998 & 2008 (when credit, sorry, 'supply and demand' was really expanding), £225k sounds like a fairly modest prediction, right?

as it happens the contraction did happen and we're up to around 30% below that £225k level.

but still you think we're on a path to much higher house prices than we'd have had if the contraction hadn't happened. what sort of timeframe are you thinking for our current path to overtake the previous path that we left? as soon as 2018 feels unlikely, right, unless HTB has a far bigger impact than anyone was expecting? 2023? further back than that?

Conrad

On the other hand, rising equity enables many a person to draw some of it in order to start or expand a business.......

Graham_Devon

Conrad wrote: »

On the other hand, rising equity enables many a person to draw some of it in order to start or expand a business.......

Would it not be better to start or expand a business via traditional methods?

Theres been a lot of withdrawal of equity ove the last decade. I'm not sure theres been amassive boost to business? Maybe there has been....but I'd certainly need to be prompted as to where to look for it. The only place I can think of instantly is withsrawing equity to take on more debt to buy another house. That merely compounds the issue, it's not a good thing by any means (other than to the one person profiting from it).

Of course, you'll be able to point out individual projects and business's....but in terms of total equity withdrawn, does your point really stand?

Conrad

Graham_Devon wrote: »

Would it not be better to start or expand a business via traditional methods?

Anita Roddick started Bodyshop with a car loan. It's what happens in the real world don't you know.

Lots of people I've known used pennies from heaven housing equity to start or expand a business, why let the equity rot when you can sweat it at low cost?

Borrowing a business loan from a Bank puts you and your family at great risk. Not only is the rate likely to be higher, you pretty much sign your life over to the Bank who one day might ad-hoc call everything in.

dryhat

Conrad wrote: »

On the other hand, rising equity enables many a person to draw some of it in order to start or expand a business.......

If you need to wait for rising house prices to enable you to start a business, either you or your business ideas are 5h1t .

Conrad

Graham_Devon wrote: »

Of course, you'll be able to point out individual projects and business's....but in terms of total equity withdrawn, does your point really stand?

What can I say Devon? Pretty much an everyday thing for me to encounter over the last 20 years. If you want an example a chap who withdrew £40k to go it alone as a semi conductor broker. Within a few years he'd built a £50m firm employing dozens.

Graham_Devon

Conrad wrote: »

Anita Roddick started Bodyshop with a car loan. It's what happens in the real world don't you know.

Right....but that#s nothing to do with housing equity.

Lots of people I've known used pennies from heaven housing equity to start or expand a business, why let the equity rot when you can sweat it at low cost?

Borrowing a business loan from a Bank puts you and your family at great risk. Not only is the rate likely to be higher, you pretty much sign your life over to the Bank who one day might ad-hoc call everything in.

I was wondering whether the price that people are paying now for housing was worth it, as you stated people can withdraw equity to put into a business.

Assuming this is the case, surely you'd have examples. Not examples of a car loan, but examples of what you stated?

Lots of people I know have been stung by housing costs....it doesn't prove anything more than "I know them". And doesn't prove that high housing costs are bad.

I'm just not sure that a decent proportion of housing equity withdrawal has been used to provide growth through expanding business, thats all. And it seems theres no real examples of this other than people "you know". Therefore I'm not sure the cost of rising house prices is in any way offset by people starting business's on the back of it.