HPC thread of the week

westernpromise

mwpt wrote: »

1) Family who was renting property A, buys a property B off a BTL landlord. Family in property B move into rental pool, family in property A move out of rental pool. Supply of rental property remains the same as property A becomes available for rent, property B removed. No change in supply/demand ratio.

I think what you've missed here is that rented properties are more densely occupied than OO. So a couple buying a rented house will displace more than 2 people.

Hence it's not just a change from one column to another. One house is now owned and has 2 people in it, and the 2.5 people displaced have to rent from a pool that's smaller. Net, there is now an increase of 0.5 of a additional renter but the supply of rental property has not only not kept up, it's actually fallen.

westernpromise

HAMISH_MCTAVISH wrote: »

If we had a stable population and a stable house supply it wouldn't.

Price/rents are driven by the imbalance between demand and supply.

By changing the allocation of housing stock in the future you can vary the degree of that imbalance.

So if you imagine a hypothetical situation today where we have both house prices and rents climbing by 5% a year based on current allocation of housing each year to rented or O/O.

If you then restrict the future allocation of housing to rented, while increasing the future allocation of housing to O/O, rents may increase by 7% a year while house prices only increase by 3% a year.

The two points I suspect you're missing are...

1) A high proportion of renters are not in a position to become buyers

2) The number of homes in O/O is vastly higher than the number of homes in rented

So moving say, 100,000 houses from rented to owned has a huge impact on rental stock levels but only a tiny impact on O/O stock levels.



In practical terms this means that any change to allocation has a bigger effect on rents than prices.

Simple Example:

Imagine a small island, we'll call it Osbornia, with 1000 houses. 800 of them are owner occupied, and 200 of them are rented.

There are currently 20 houses available for rent, and 80 houses available for sale.

120 additional people move to the island of Osbornia..... But only 90 of them can get mortgages and the other 30 have to rent.

90 new Osbornian citizens are competing for the 80 available houses.

So Osbornian house prices then rise until the 10 lowest earners of the 90 that can get a mortgage are forced not to buy.

Prices don't rise all that much though, because the ratio between demand and supply is only 9/8.

This leaves 40 people competing for the 20 rented houses.

Rents rise a lot more than house prices in percentage terms because now 20 of the 40 need to be priced out.

The ratio between demand and supply is 4/2.

So rents soar until the 40 people are forced to share the 20 houses.

You now also have 40 incomes servicing 20 rents so it remains affordable...

The King of Osbornia, lets call him King George, decides he wants to change all this and restricts the number of houses available for rent. He also marginally increases mortgage availability.

Next year there will be 10 houses available for rent, and 90 houses available for sale.

Now imagine another 120 people move to Osbornia.

But this time 95 of them can get a mortgage and 25 cannot.

So 95 people compete for 90 houses and 5 are priced out.

We now have prices rising by less than they did the previous year as the ratio between demand and supply has changed.... From 9/8 last year it is 9.5/9 this year.

The gap has narrowed.

But in rented the gap has widened...

As we now have the 5 priced out buyers, plus the 25 renters, chasing just 10 houses.

The ratio is 3/1, whereas last year it was only 4/2, so rental growth becomes explosive until enough people are priced out and forced to share that supply and demand return to equilibrium.

And as you now have three incomes servicing every one rent, it remains affordable.

This is, in a nutshell, what Osborne is doing.

He's faffing about with allocation and hoping to gain some tax revenue from it. It would be politically impossible to tax tenants directly so he taxes landlords instead.

He knows full well that if he limits the stock coming on to the market for rented accommodation, the imbalance will worsen in rented by more than the imbalance is eased in O/O, and this will enable landlords to increase rents enough to recoup the tax loss.

At the same time it won't stop house prices rising, but it may enable a few more people to buy as the pace of increases slows.

It's actually quite an elegant way of passing tax burdens through to the very segment of society least likely to vote at all, and least likely to vote Tory if they do, whilst superficially being seen not to target them but to target his natural allies in the middle class landlord community.

Smoke and mirrors of course, but many will not see through it, so I'd expect to see a number of prematurely triumphal threads on HPC as they unwittingly celebrate their own demise...;)

That is a very cogent analysis. I'd disagree only to point out that the houses for sale will contain fewer people than the houses for rent, so every time a rented house is sold, more people are displaced than housed. Moving houses from rented to OO is not neutral in terms of how many people the stock can house. It actually falls.

Crashy_Time

HAMISH_MCTAVISH wrote: »

If we had a stable population and a stable house supply it wouldn't.

Price/rents are driven by the imbalance between demand and supply.

By changing the allocation of housing stock in the future you can vary the degree of that imbalance.

So if you imagine a hypothetical situation today where we have both house prices and rents climbing by 5% a year based on current allocation of housing each year to rented or O/O.

If you then restrict the future allocation of housing to rented, while increasing the future allocation of housing to O/O, rents may increase by 7% a year while house prices only increase by 3% a year.

The two points I suspect you're missing are...

1) A high proportion of renters are not in a position to become buyers

2) The number of homes in O/O is vastly higher than the number of homes in rented

So moving say, 100,000 houses from rented to owned has a huge impact on rental stock levels but only a tiny impact on O/O stock levels.



In practical terms this means that any change to allocation has a bigger effect on rents than prices.

Simple Example:

Imagine a small island, we'll call it Osbornia, with 1000 houses. 800 of them are owner occupied, and 200 of them are rented.

There are currently 20 houses available for rent, and 80 houses available for sale.

120 additional people move to the island of Osbornia..... But only 90 of them can get mortgages and the other 30 have to rent.

90 new Osbornian citizens are competing for the 80 available houses.

So Osbornian house prices then rise until the 10 lowest earners of the 90 that can get a mortgage are forced not to buy.

Prices don't rise all that much though, because the ratio between demand and supply is only 9/8.

This leaves 40 people competing for the 20 rented houses.

Rents rise a lot more than house prices in percentage terms because now 20 of the 40 need to be priced out.

The ratio between demand and supply is 4/2.

So rents soar until the 40 people are forced to share the 20 houses.

You now also have 40 incomes servicing 20 rents so it remains affordable...

The King of Osbornia, lets call him King George, decides he wants to change all this and restricts the number of houses available for rent. He also marginally increases mortgage availability.

Next year there will be 10 houses available for rent, and 90 houses available for sale.

Now imagine another 120 people move to Osbornia.

But this time 95 of them can get a mortgage and 25 cannot.

So 95 people compete for 90 houses and 5 are priced out.

We now have prices rising by less than they did the previous year as the ratio between demand and supply has changed.... From 9/8 last year it is 9.5/9 this year.

The gap has narrowed.

But in rented the gap has widened...

As we now have the 5 priced out buyers, plus the 25 renters, chasing just 10 houses.

The ratio is 3/1, whereas last year it was only 4/2, so rental growth becomes explosive until enough people are priced out and forced to share that supply and demand return to equilibrium.

And as you now have three incomes servicing every one rent, it remains affordable.

This is, in a nutshell, what Osborne is doing.

He's faffing about with allocation and hoping to gain some tax revenue from it. It would be politically impossible to tax tenants directly so he taxes landlords instead.

He knows full well that if he limits the stock coming on to the market for rented accommodation, the imbalance will worsen in rented by more than the imbalance is eased in O/O, and this will enable landlords to increase rents enough to recoup the tax loss.

At the same time it won't stop house prices rising, but it may enable a few more people to buy as the pace of increases slows.

It's actually quite an elegant way of passing tax burdens through to the very segment of society least likely to vote at all, and least likely to vote Tory if they do, whilst superficially being seen not to target them but to target his natural allies in the middle class landlord community.

Smoke and mirrors of course, but many will not see through it, so I'd expect to see a number of prematurely triumphal threads on HPC as they unwittingly celebrate their own demise...;)

Lets imagine an even smaller island, lets call it Aberdonia for want of a better name. The residents only made one thing, and people coming to the island only wanted to live there because of this thing, and because the situation had gone on for so long many of the residents bought houses that were very expensive, and they bought more houses to rent out to all the people who were coming because of this special thing that they made that brought lots of money to the island.


One day a wicked Prince in the East said "My Thing is cheaper than your Thing", and that was that, the residents of Aberdonia couldn`t make money from doing next to f*uck all any more, and no one wanted to rent their houses any more, and their own houses collapsed in value. Some threw themselves into the sea, others took to the internet to write even longer rambling posts full of nonsense than usual.

Crashy_Time

http://www.housepricecrash.co.uk/forum/index.php?/topic/204529-new-build-losers/page-9


Liking this thread just now. Of course no one wants to live in these places, except maybe the people spending less to buy?

chucknorris

Crashy_Time wrote: »

Lets imagine an even smaller island, lets call it Aberdonia for want of a better name. The residents only made one thing, and people coming to the island only wanted to live there because of this thing, and because the situation had gone on for so long many of the residents bought houses that were very expensive, and they bought more houses to rent out to all the people who were coming because of this special thing that they made that brought lots of money to the island.


One day a wicked Prince in the East said "My Thing is cheaper than your Thing", and that was that, the residents of Aberdonia couldn`t make money from doing next to f*uck all any more, and no one wanted to rent their houses any more, and their own houses collapsed in value. Some threw themselves into the sea, others took to the internet to write even longer rambling posts full of nonsense than usual.

I heard about this, but the story is even bigger than that! Aberdonia is part of a smallish country within the UK, and recently that country tried to go independent, their main income was going to be from the 'thing' that was made in Aberdonia. Luckily the vote was against independence, otherwise it would have been a financial disaster, not just for Abedronia, but also for that entire country.

Crashy_Time

chucknorris wrote: »

I heard about this, but the story is even bigger than that! Aberdonia is part of a smallish country within the UK, and recently that country tried to go independent, their main income was going to be from the 'thing' that was made in Aberdonia. Luckily the vote was against independence, otherwise it would have been a financial disaster not just for Abedronia but also for that entire country.

Yes, I agree, and it will still have a big effect on the whole of Scotland IMO. They said that when Grangemouth was under threat there would be big consequences right across Scotland. Wonder what the consequences will be when North Sea oil shuts up shop? Of course the London government have dined out on NSO for decades as well, it has been a cash cow for them and their tax take is now in free-fall, the numbers are quite unbelievable. This will give them less money to play around with, and IMO price/rent propping interventions in London will be affected, expect HB to come under attack soon.

westernpromise

Crashy_Time wrote: »

http://www.housepricecrash.co.uk/forum/index.php?/topic/204529-new-build-losers/page-9


Liking this thread just now. Of course no one wants to live in these places, except maybe the people spending less to buy?

I'm slightly puzzled by this type of post because on the one hand it evidences that prices can and do fall, yet on another we are being told that buy to let is pushing prices up. We have one buy to letter who owns 1,000 properties in Ashford yet prices there are no mroe inflated than in other Kentish towns.

It's almost as though local supply demand fundamentals are the determinants of house prices, but that can't be right.

Crashy_Time

MobileSaver wrote: »

Well you've been wrong on pretty much everything else you've posted since you joined this site...



When is this "inevitable correction" going to happen?

You have been predicting it for 16 months now and your HPC collaborators for over a decade... how much longer before you wake up and smell the coffee?

Really? Please do enlighten us. I think I am bang on the money about where Aberdeen rental prices are going for example.

Crashy_Time

westernpromise wrote: »

I'm slightly puzzled by this type of post because on the one hand it evidences that prices can and do fall, yet on another we are being told that buy to let is pushing prices up. We have one buy to letter who owns 1,000 properties in Ashford yet prices there are no mroe inflated than in other Kentish towns.

It's almost as though local supply demand fundamentals are the determinants of house prices, but that can't be right.

Don`t over think it, you just need to take away two things; Prices can fall, and you are too attached to property as an investment. Understand those two and you will do OK.












Oh, and stop posting s*hite about "Supply and demand", even the MSM have caught on to the price being determined by credit availability in the past (And no, you are not getting a link)




:rotfl:








While you`re at it you could wake up and sniff the coffee, do us all a favour :money:

Jason74

Crikey Crashy, the arrogance in your posts is remarkable given how wrong you've been over the years. Even if the tide is now turning your way (a big if), a little humility would be wise given your poor forecasts so far.