It's simply supply and demand - or is it?

wotsthat

Graham_Devon wrote: »

Seriously now, how can you possibly think that considering every 3rd post at the moment I seem to be saying "we need to build more, but it's not the only issue"?

This....

It's not supply that's the biggest issue here, it's policy

Yet when asked why cars aren't spiralling in price despite 0% deposits etc. you leap in by saying there's not enough land i.e. a supply constraint.

Yes I know you've never said no new supply is required but you do seem to be wanting to have your cake and eat it when it comes to how significant factor it is.

the_flying_pig

Rinoa wrote: »

...Low interest rates and accessible finance make house buying easier and prices are rising. But the same could be said for cars where 0% deposits are freely available. So why isn't the price of cars spiraling? Because the manufactures simply make more cars.

no, no.

the supply of housing is almost completely inelastic, well, total stock anyway - the miniscule [compared to total housing stock] bit of building that takes place every year is actually very price elastic indeed.

whereas the new car market, well, it's really quite competitive, & not hard to make new cars at all, i.e. supply is very elastic.

wotsthat

Graham_Devon wrote: »

I guess we'll see very soon whether it's all about supply.

Credit is now actively being restricted. The MMR...banks have capped their own mortgages in London. And soonish, interest rates will likely rise.

If it's all about supply, then house prices will not fall.

If there are credit issues at play, in that credit has recently pushed prices up further than they otherwise would have been (which is my belief), prices will fall.

The proof, as they say, will be in the pudding.

It's not all about supply. I'd say it's number one or two on the most significant factors affecting house prices. You've probably got it at about 8 or 9.

cells

Graham_Devon wrote: »

Roger Bootle gives his reasoning's as to why affordability measures are flawed and why it's not all about supply and demand (in a free market sense).

I've posted this article as it directly takes on one of the reasons put forward on here so often for increasing house prices....

He goes on to look at how the shortage of housing isn't the issue many are making it out to be.

Firstly, he cites that over the last 15 years more houses have been built that households formed.

Secondly, rising prices are not only a UK phenomenon, which you'd expect if it was all about a small island with a supply problem.

Third, the ratio of rents to house prices is low and hardly moving. Again, if a shortage of houses was solely to blame, you'd expect rents to be bid up alongside house prices. It's not happening.

Fourth, help to buy.

He's just a journalist. I don't agree with everything he says. But he's someone else saying the same things as a growing number of people.

It's not supply that's the biggest issue here, it's policy.

http://www.telegraph.co.uk/finance/comment/rogerbootle/10901558/Roger-Bootle-At-some-point-there-will-be-a-reckoning-on-house-prices.html

He is clearly an idiot

households can't form without houses to go into (excluding the very small changes you can get by lowering empty homes)

rents and prices are fundamentally different. Rents are set very frequently and all market participants feel the rent quickly. Prices are not felt by owners. Eg if rents double people will have no choice but to live more dense to try and afford the rents. If prices double aunt Mary who baught 35 years ago doesn't know or care. As such rents cant go up as much as prices.

As for prices going up everywhere that is because the world has a housing shortage and a growing population. There is only an estimated 1 billion homes fit for purpose in the world while demand come mid century is going to be between 3-4 billion homes.

as for prices going up everywhere. Inflation is mandated. Most comparison countries eg france or the USA have rapidly growing populations

as for prices going up everywhere...that is a poor metric the price per sqm is what counts. If a house in germany goes up from 50k euro to 60k euro that probably isn't that big a deal or a problem but if the very same house costs £500k and goes up to £600k thats a whole different story.


Finally this guy needs to look at homes per capita the best metric and by that metric the uk has fewer homes than ireland germany spain or France.

wotsthat

the_flying_pig wrote: »

no, no.

the supply of housing is almost completely inelastic, well, total stock anyway - the miniscule [compared to total housing stock] bit of building that takes place every year is actually very price elastic indeed.

whereas the new car market, well, it's really quite competitive, & not hard to make new cars at all, i.e. supply is very elastic.

It's still basic supply and demand.

Inelasticity of supply just means supply is slower to react - doesn't mean there isn't a shortage of supply.

The more inelastic supply is the more likely supply is going to be subject to outside influence as is the case with road building, electricity generation, HS2 etc.

cells

Graham_Devon wrote: »

I guess we'll see very soon whether it's all about supply.

Credit is now actively being restricted. The MMR...banks have capped their own mortgages in London. And soonish, interest rates will likely rise.

If it's all about supply, then house prices will not fall.

If there are credit issues at play, in that credit has recently pushed prices up further than they otherwise would have been (which is my belief), prices will fall.

The proof, as they say, will be in the pudding.

Prices are not going to crash but even if they did it would tell you little

what would be better is to look at price per sqm and on that metric even if prices fall 20% we are well over priced vs Germany or France.

Also why not simply look at homes per capita?

If the UK had the same homes per capita as France we would this instance have some 2.8 million more homes. So if we don't have a shortage France has a 2.8m home excess

cells

N1AK wrote: »

Even the bit of the article you point to as his accepting that a shortage plays a part doesn't do that. He accepts, begrudgingly, that being a small island means property costs more in general but he is expressly arguing that we aren't any shorter on houses now than 15 years ago which is nonsense. What would the point of his household forming figure be if it wasn't to imply that we don't need more houses

Small island argument is also plain stupid.

We have london with 8 million on a landmass of x

We have Scotland with 5 million on a landmass of I dont know 1000 times x

yet prices went up in both parts quite a lot and a new home in scotland is more expensive than a new home in France per sqm.

how can land be the issue when the same problems exist in two areas with vastly different amounts of land

the_flying_pig

wotsthat wrote: »

It's still basic supply and demand.

Inelasticity of supply just means supply is slower to react - doesn't mean there isn't a shortage of supply.

The more inelastic supply is the more likely supply is going to be subject to outside influence as is the case with road building, electricity generation, HS2 etc.

i'm not really sure what you're getting at.

differences in supply elasticity are absolutely, irrefutably, the reason for the differences in car/house trajectory as per Rinoa's post.

similarly, if you agree that housing supply is inelastic then big changes in price [and very modest changes in the number of houses] are exactly what you'd expect in response to changes in demand, right?

wotsthat

the_flying_pig wrote: »

similarly, if you agree that housing supply is inelastic then big changes in price [and very modest changes in the number of houses] are exactly what you'd expect in response to changes in demand, right?

Population has increased, unemployment is falling, the economy is improving, there was already a shortage of housing. Demand is increasing as a result.

House supply is particularly inelastic in the UK due to the planning process - the expectation that this will persist is probably increasing demand even further.

Demand was suppressed by the financial crisis. It was entirely predictable what was going to happen when we started coming out the other side.

We need more houses EDIT: and to increase the elasticity of supply

Kicker

When it comes to house prices, it's a simple explanation for me. Unless there's a manifested shortage in supply (can only be London really), people are thinking with their d*cks.

Prices go up (p.ex. subsidies, short term external factors, etc.), people jump on the waggon for various reasons. Causes prices to move faster. Basically most of the move is due to psychological reasons.

When prices go down, they will not shift more houses, but less... people are stuck on negative equity, others expecting further deflation, and so on.

Equilibrium is achieved over time, this is just a small bump caused by people thinking with their (what I said above) and cause these reversible trends.