So if cheap houses are so good for the economy....

Generali

michaels wrote: »

You will be saying next that houses changing hands at high prices demonstrates that they are affordable rather than that they are unaffordable...

I think my edit (adding 2 paras) adds some clarity to my thoughts.

Ok, there is a wealth effect: people feel richer as house prices rise and so are inclined to spend more on consumer goods. Stable house prices within a well performing economy are perfectly possible. That has been the US experience for decades: house prices, AIUI, have only seen big rises twice, in the 1920s and 2000s and neither episode ended well. Generally they tend to track inflation on average.

Loughton_Monkey

boltneck123 wrote: »

You have me lost, not my generation I think.

Not your fault!

Anyone of my generation would know it. Minder was an extremely popular series starring George Cole as Arthur Daley, and Dennis Waterman as 'Terry'. Arthur was a 'spiv' with a lock-up and used car lot. Always after a quick buck, and Terry was his 'minder' who had to do the dirty work, protect Arthur, and hardly ever got paid. The whole theme of the long series included Arthur taking advantage of Terry, and being ungrateful for all his good work. Classic line by Arthur to Dave (barman) "I can't believe that boy, Dave. You take someone out of the gutter. Give 'im a leg to stand on. And all he does is uses it to kick you up the @rse".

Loughton_Monkey

michaels wrote: »

You will be saying next that houses changing hands at high prices demonstrates that they are affordable rather than that they are unaffordable...

But surely that's only true when they consistently change hands at well above market prices?:D

TruckerT

Generali wrote: »

I think my edit (adding 2 paras) adds some clarity to my thoughts.

Ok, there is a wealth effect:

people feel richer as house prices rise and so are inclined to spend more on consumer goods

Stable house prices within a well performing economy are perfectly possible. That has been the US experience for decades: house prices, AIUI, have only seen big rises twice, in the 1920s and 2000s and neither episode ended well. Generally they tend to track inflation on average.

The bit in red is the bit that makes no sense - house price rises don't equate to more spending power. They just create more borrowing power. How is that a good thing?

TruckerT

lighting_up_the_chalice

HAMISH_MCTAVISH wrote: »

.....why are ministers being urged to "abandon Northern cities" which have some of the cheapest land and house prices in the UK?

Surely the North of England should be booming by now?

And Detroit should be the boomiest city in America?

Just sayin....:D

You need to define "booming". If you mean house prices beyond the reach of even those in traditionally well paid jobs, massive commuting costs, a cut-throat, sod you ethic and traffic speeds similar to that enjoyed when horses were considered fast, the I guess the north isn't booming...... And thank God for that!!!

Generali

TruckerT wrote: »

The bit in red is the bit that makes no sense - house price rises don't equate to more spending power. They just create more borrowing power. How is that a good thing?

TruckerT

I'm not trying to say that it's a good or a bad thing, merely a measurable effect.

The idea is that people generally save perhaps 5-10% of their incomes on average but if the value of their assets, including but not limited to houses, go up in value then they feel that their savings have taken care of themselves and they are happy to redirect some of the money to consumer spending.

People saved on average pretty much right the way through the last boom. The savings rate dipped negative very briefly but in almost every month people earned more than they spent in the economy as a whole. That's clearly not true for individuals of course but it is overall.

TruckerT

Generali wrote: »

People saved on average pretty much right the way through the last boom

That is not what we are being told by the government. The message is that we have become addicted to debt, and that we have to change our ways.

As Annie Nameless posted on another thread, statistics are as unrelentingly subjective as unsupported opinions.

TruckerT

Loughton_Monkey

TruckerT wrote: »

The bit in red is the bit that makes no sense - house price rises don't equate to more spending power. They just create more borrowing power. How is that a good thing?

TruckerT

We are probably at risk of semantics clouding the real issue.

In the normal sense. The act of buying one's own house simply creates a debt and an asset, and doesn't by itself create more spending power. But Generali didn't suggest that. He posited the idea that higher house prices give some sort of 'feelgood' factor that possibly encourages more spending.

Actually, the whole situation is probably extremely complicated. Take a first time buyer couple. Presumably they could have been saving rampantly for the last three years. £1,000 a month between them. Accumulated a nice £30K deposit, and now with mortgage repayments of, say, £750 a month, they will spend (a) £6K or so on carpets, curtains etc. and (b) they are better off by £250 a month at least and so might spend that.

Then there is a 'truth' that says the more houses that are changing hands, the more people will be 'spending' on removal vans, new furniture, gadgets, minor/major improvements, and millions of rawlplugs and the like from B&Q....

Back to Generali's point, though, I can believe that there are always thousands of people on a high LTV (typically all recent buyers). They might well be worried about negative equity and as all people should do, bung a bit away for a rainy day..... But get 15% or 20% HPI under your belt, the thought of NE is surely out of the window. Temptation to spend a bit more? Makes sense. If they show signs of falling, the reverse.

markharding557

HAMISH_MCTAVISH wrote: »

Exactly.

Now back on topic.

Why aren't the places with the cheapest land and house prices now the places booming?

After all, for many years the bears have told us that cheaper house and land/building prices mean cheaper employment/operating costs and greater competitiveness.

Houses, land and commercial premises are seriously cheap in many parts of the UK.

Why aren't those places booming?

Because there is no money in these places, no one wants to invest.
Isn't Glasgow in your country in the same state?

TruckerT

Loughton_Monkey wrote: »

We are probably at risk of semantics clouding the real issue.

In the normal sense. The act of buying one's own house simply creates a debt and an asset, and doesn't by itself create more spending power. But Generali didn't suggest that. He posited the idea that higher house prices give some sort of 'feelgood' factor that possibly encourages more spending.

Actually, the whole situation is probably extremely complicated. Take a first time buyer couple. Presumably they could have been saving rampantly for the last three years. £1,000 a month between them. Accumulated a nice £30K deposit, and now with mortgage repayments of, say, £750 a month, they will spend (a) £6K or so on carpets, curtains etc. and (b) they are better off by £250 a month at least and so might spend that.

Then there is a 'truth' that says the more houses that are changing hands, the more people will be 'spending' on removal vans, new furniture, gadgets, minor/major improvements, and millions of rawlplugs and the like from B&Q....

Back to Generali's point, though, I can believe that there are always thousands of people on a high LTV (typically all recent buyers). They might well be worried about negative equity and as all people should do, bung a bit away for a rainy day..... But get 15% or 20% HPI under your belt, the thought of NE is surely out of the window. Temptation to spend a bit more? Makes sense. If they show signs of falling, the reverse.

Your presumption that some of the 'haves' in society can save £1000 a month for 3 years, and still have enough left over to spend £6k on carpets and curtains, may well be true.

Others, however, have to hang bed-sheets inside their windows and buy a second-hand rug or two from the charity shop.

An extra £250 per month would be a game-changer.

TruckerT