Media criticism of Help To Buy becoming more balanced. (and admits there's no bubble)

HAMISH_MCTAVISH

The latest article on Help To Buy starts out by mildly criticising the programme and then comes around to the conclusion that actually, it's not really a big part of the problem as we don't have a housing bubble. (Although granted, it thinks it isn't a solution either)

I've not quoted the start, as it's basically the same quotes from Redfern and Edwards that Dev has posted before.

The interesting bit starts here.....

Is a housing bubble really still a problem in the UK?

When comparing the evolution of UK house prices to similar trends in the US, Spain and Ireland – the most obvious examples of recent housing bubbles – you could easy conclude that the answer is yes.

Between the mid-1990s and the onset of the recession, real term house prices in all four countries have exploded.

But since that point, prices in the US, Spain and Ireland have almost reverted to pre-bubble levels, while British house prices have only undergone a minor correction and may already be on the rise again.

You could therefore conclude that the US, Ireland and Spain have allowed their bubbles to fully deflate, while the UK has not.

But you could also conclude that price escalation in the UK was partly the result of a bubble, but mostly the result of a genuine lack of supply.

If the remaining bubble is not really a bubble at all, those who wait for it to burst may wait forever.

This is the more convincing explanation.

During the periods of house price rises, the housing stock in the “bubble countries” grew rapidly, while in Britain construction actually slowed down.

Around the turn of the millenium, the Spanish housing stock grew by 110 units per 10,000 inhabitants a year, and the Irish housing stock by 130 units.

In Britain, by contrast, the housing stock grew by a pitiful 30 units.

So of course house prices plummeted in Spain and Ireland once the flow of easy credit stopped: there were lots of houses to go round and fewer people able to buy them.

In fact, it may be that the bubble has yet to deflate fully in these countries.

In the UK, meanwhile, more people are chasing fewer homes, at least in those parts of the country where the jobs are, and where people actually want to live.

In short, credit subsidy schemes are definitely not the solution, but neither are they a big part of the problem. The problem is a combination of a restrictive planning system and well-organised nimbyism. These make it impossible to build sufficient quantities of new homes in the places where the demand is.

http://www.cityam.com/article/help-buy-worrying-real-problem-inflexible-housing-policy#sthash.WZlxvwrn.iIJ7Zg8M.dpuf

Of course, the author overlooks the fact that the second phase of HTB isn't credit subsidy at all, but rather paid for guarantees recharged to the buyer via a fee loaded into the mortgage.

And also overlooks the fact that while subsidising credit may or may not be helpful, repairing the broken and dysfunctional mortgage market most certainly is.

But other than that, a balanced article which points out something many of us have been banging on about for some time.

There is no bubble in the UK.

Just a genuine shortage of supply.

And that is why prices here remain high, while prices elsewhere have fallen, despite those other countries also having ZIRP, help for homeowners, bank bailouts, liquidity support, etc.

thescouselander

There is a lack of supply but that doesn't mean there is no bubble. What about all the empty homes in London that have been bought up by foreign investors and which are lying empty.

It would only take a combination of those investors selling up due to better prospects elsewhere together with a return to normal interest rates and things could start to deflate rather quickly.

http://www.standard.co.uk/news/london/scandal-of-the-buytoleave-investors-who-keep-flats-empty-8702570.html

wymondham

Just a thought, but hasn't Spain now got thousands of empty properties?
Pretty sure Ireland has whole estate that are also empty?

Is it to do with how many homes were built really??

CLAPTON

thescouselander wrote: »

There is a lack of supply but that doesn't mean there is no bubble. What about all the empty homes in London that have been bought up by foreign investors and which are lying empty.

It would only take a combination of those investors selling up due to better prospects elsewhere together with a return to normal interest rates and things could start to deflate rather quickly.

http://www.standard.co.uk/news/london/scandal-of-the-buytoleave-investors-who-keep-flats-empty-8702570.html

How many properties is that in London?

Graham_Devon

"the media" isn't solely cityam.

You make out the media is changing stance. They are not. Only yesterday there was another article on the beeb warning off the problems of help to buy after taylor wimpey announced it's surge in profits.

One swallow does not make a summer

What you probably should have said is "look, I've actually found an article that says some half positive stuff!"

wotsthat

thescouselander wrote: »

There is a lack of supply but that doesn't mean there is no bubble. What about all the empty homes in London that have been bought up by foreign investors and which are lying empty.

It would only take a combination of those investors selling up due to better prospects elsewhere together with a return to normal interest rates and things could start to deflate rather quickly.

http://www.standard.co.uk/news/london/scandal-of-the-buytoleave-investors-who-keep-flats-empty-8702570.html

According to that article a penthouse flat in the building would cost £55m. Even if they then resold at a 50% loss it would have zero impact of the price of a three bed semi elsewhere London.

wotsthat

Graham_Devon wrote: »

You make out the media is changing stance. They are not. Only yesterday there was another article on the beeb warning off the problems of help to buy after taylor wimpey announced it's surge in profits.

Help to Buy only launched on April 1st. It'll be good to see some real data about the impacts of the scheme. Until then the media will continue to peddle rehashed opinion & editorial as fact.

If you think logically about this how is Help to Buy linked to Taylor Wimpey's surge in profits? To June 30th Taylor Wimpey only completed on 235 sales under the scheme - 4.5% of their completions for the first half year.

The real news is that a recovery is underway and people are feeling confident enough to start buying houses again. Such is the recovery that I wonder if HTB part 2 will be shelved.

Graham_Devon

wotsthat wrote: »

Help to Buy only launched on April 1st. It'll be good to see some real data about the impacts of the scheme. Until then the media will continue to peddle rehashed opinion & editorial as fact.

If you think logically about this how is Help to Buy linked to Taylor Wimpey's surge in profits? To June 30th Taylor Wimpey only completed on 235 sales under the scheme - 4.5% of their completions for the first half year.

The real news is that a recovery is underway and people are feeling confident enough to start buying houses again. Such is the recovery that I wonder if HTB part 2 will be shelved.

That's part of the reason I wrote a thread asking if it would actually go ahead.

Read an article yesterday that we could be entering "escape velocity". This gives the BOE a conundrum. In a normal situation this should lead to a return to normal, but apparently the odds are on that instead of reigning stimulus, they might pump it up. Was described as giving a rocket a boost to clear the atmosphere...yet in this instance there is nothing in place to bring it back down again.

So if this is the case, I can imagine they will continue with the scheme regardless to get even better figures for political gain.

wotsthat

Graham_Devon wrote: »

Read an article yesterday that we could be entering "escape velocity". This gives the BOE a conundrum. In a normal situation this should lead to a return to normal, but apparently the odds are on that instead of reigning stimulus, they might pump it up. Was described as giving a rocket a boost to clear the atmosphere...yet in this instance there is nothing in place to bring it back down again.

So if this is the case, I can imagine they will continue with the scheme regardless to get even better figures for political gain.

The stuff about space ships and reaching escape velocity is a, rather flamboyant, way for a journalist to explain the conundrum to his readers who he obviously thinks are stupid or have the attention span of a goldfish i.e. is the recovery sustainable without further government intervention?

The politics become more important now that we're approaching an election. I can't see HTB being tapered off or stopped pre-election. Maybe there's scope for part 2 to be withdrawn with a fanfare about the government being so brilliant that it isn't needed anymore.

the_flying_pig

You're just not making any point here, H.

HTB is something that has a potentially inflationary effect on prices, with relatively little upside in terms of the impact on building, certainly not compared to alternatives such as a big council house building.

That's the crux of whether it's a good or bad thing. Most credible commentators seem to agree that it's a bad thing on balance.

Inflation is not an end in itself. I know that you've recently sometimes pretended that you want rising prices because this will lead to more building but your comments on other countries [e.g. 'country X built too much', 'country Y should knock a bunch of houses down', even though more housing in these places would by definition improve living standards provided that prices were allowed to adjust so that people could afford to live in them] show your true colours - you don't give a rat's *** about more living room raising living standards, your first, second, and third priorities are price, price, and price.

Your 'bubble' arguments in the context of HTB seem to be about second order stuff like, oh, I don't know, something like, 'will HTB cause a rise in prices that will be reversed when HTB is withdrawn'? I think that this is maybe the question that this guy is tackling in his article [although i don't really see a plain english articulation of it anywhere], but it's a question that most people would tend to view as secondary.

ukcarper

the_flying_pig wrote: »

You're just not making any point here, H.

HTB is something that has a potentially inflationary effect on prices, with relatively little upside in terms of the impact on building, certainly not compared to alternatives such as a big council house building.

That's the crux of whether it's a good or bad thing. Most credible commentators seem to agree that it's a bad thing on balance.

Inflation is not an end in itself. I know that you've recently sometimes pretended that you want rising prices because this will lead to more building but your comments on other countries [e.g. 'country X built too much', 'country Y should knock a bunch of houses down', even though more housing in these places would by definition improve living standards provided that prices were allowed to adjust so that people could afford to live in them] show your true colours - you don't give a rat's *** about more living room raising living standards, your first, second, and third priorities are price, price, and price.

Your 'bubble' arguments in the context of HTB seem to be about second order stuff like, oh, I don't know, something like, 'will HTB cause a rise in prices that will be reversed when HTB is withdrawn'? I think that this is maybe the question that this guy is tackling in his article [although i don't really see a plain english articulation of it anywhere], but it's a question that most people would tend to view as secondary.

Is big council house building really an alternative