London property market bubble?

Generali

cells wrote: »

With per capita GDP in the region of £60k vs £20k for the rUK it seems reasonable that prices should be some 3 x higher in London than elsewhere

London average price is £530k vs £144k for rUK so London is some 3.7 x higher in price than rUK therefore it is overpriced vs the rest of the UK by about 20% on a GDPvsPrices basis

I would not call 20% above price a bubble.

Good.

It's still a bubble.

Given the progressive nature of the tax system, GDP per head is a poor proxy for spending power across the UK population. A Londoner would pay a lot more tax on an income of £60,000 a year than a person from Stoke-on-Trent or some other northern hell hole would pay on an income of £20,000 proportionately. The person up north would likely be paying negative taxes if she has children.

cells

Generali wrote: »

It's still a bubble.

How long have you thought that. 1 year 2 years 3 years?

Generali wrote: »

Given the progressive nature of the tax system, GDP per head is a poor proxy for spending power across the UK population. A Londoner would pay a lot more tax on an income of £60,000 a year than a person from Stoke-on-Trent or some other northern hell hole would pay on an income of £20,000 proportionately. The person up north would likely be paying negative taxes if she has children.

yes I did think of that but I didn't post it because there are factors that balance it out. For instance £60k to £20k is a 3 x different that does indeed fall towards 2.5x difference post tax but if you knock off £5k for basics such as council tax utilities basic food you are then not only back at 3 x but over it

also GDP is not just wages it is companies and capital too. There aint that many millionaires and billionaires in stoke but there are plenty in London. The flow of the returns on the capital of business in the country and around the world flows into London not so much into stoke. These dividends and interest and other returns from capital that flow into London are used as income and to buy houses with. Generally that capital is not taxed as highly as income tax and NI combo.

in short I dont see how you can just brush aside the fact that London has a much bigger GDP/capita which more or less seems to justify much of the difference in the house prices.

3 x more gdp per capita
3.7 x higher house prices

Generali

cells wrote: »

How long have you thought that. 1 year 2 years 3 years?

yes I did think of that but I didn't post it because there are factors that balance it out. For instance £60k to £20k is a 3 x different that does indeed fall towards 2.5x difference post tax but if you knock off £5k for basics such as council tax utilities basic food you are then not only back at 3 x but over it

also GDP is not just wages it is companies and capital too. There aint that many millionaires and billionaires in stoke but there are plenty in London. The flow of the returns on the capital of business in the country and around the world flows into London not so much into stoke. These dividends and interest and other returns from capital that flow into London are used as income and to buy houses with. Generally that capital is not taxed as highly as income tax and NI combo.

in short I dont see how you can just brush aside the fact that London has a much bigger GDP/capita which more or less seems to justify much of the difference in the house prices.

3 x more gdp per capita
3.7 x higher house prices

Probably 3 years. If it looks like a duck, walks like a duck and quacks like a duck.... I don't think that bubblenomics needs highfalutin theories and analysis. It's a bit of a hobby of mine.

Yes London is a rich place however there is no requirement to live in London to earn London wages. London housing is highly substituteable with housing in Guildford, Sevenoaks and St Albans yet prices in the South East haven't risen by anything like as much (23% versus 35% over 3 years, 31% versus 51% over 5 years nominal increase according to HBOS).

TBH I think that the SE is starting to enter bubble territory too but to focus on London, London nominal GDP was up ~3.5% in 2015 versus a 16.4% increase in house prices. That isn't sustainable and if something can't be sustained it will end. The only question is how.

cells

Generali wrote: »

Probably 3 years. If it looks like a duck, walks like a duck and quacks like a duck.... I don't think that bubblenomics needs highfalutin theories and analysis. It's a bit of a hobby of mine.

Yes London is a rich place however there is no requirement to live in London to earn London wages. London housing is highly substituteable with housing in Guildford, Sevenoaks and St Albans yet prices in the South East haven't risen by anything like as much (23% versus 35% over 3 years, 31% versus 51% over 5 years nominal increase according to HBOS).

TBH I think that the SE is starting to enter bubble territory too but to focus on London, London nominal GDP was up ~3.5% in 2015 versus a 16.4% increase in house prices.

Well if you thought London was in a bubble 3 years ago prices are already up 43% from that point so you need a 30% crash from here to just get back to when you though prices were in a bubble. Have you been spending too much time on that hpc website?

Your figures are slightly wrong. London is up 43% over 3 years and up 57% over 5 years.

Your conclusion that GDP is up less than this over the same 3/5 year period thus its a bubble doesn't at all take into account the start point. London prices 5 years ago were depressed due to a big recession and lots of negative sentiment and a credit crunch and lot of unemployed and more on the cars. Of course prices in real terms should be higher.

As for the south-east prices are half of what London is I don't think there is any notion of a bubble certainly not while build costs are so high.


And yes housing is substitutable to some degree but commuting is neither pleasant or cheap especially if two people need to commute in and out that can be over £10k a year on the trains might as well use that £10k to fund an additional £300k for a London home which you will get back rather than £10k a year down the drain on the trains

Generali

cells wrote: »

Well if you thought London was in a bubble 3 years ago prices are already up 43% from that point so you need a 30% crash from here to just get back to when you though prices were in a bubble. Have you been spending too much time on that hpc website?

Your figures are slightly wrong. London is up 43% over 3 years and up 57% over 5 years.

Your conclusion that GDP is up less than this over the same 3/5 year period thus its a bubble doesn't at all take into account the start point. London prices 5 years ago were depressed due to a big recession and lots of negative sentiment and a credit crunch and lot of unemployed and more on the cars. Of course prices in real terms should be higher.

As for the south-east prices are half of what London is I don't think there is any notion of a bubble certainly not while build costs are so high.


And yes housing is substitutable to some degree but commuting is neither pleasant or cheap especially if two people need to commute in and out that can be over £10k a year on the trains might as well use that £10k to fund an additional £300k for a London home which you will get back rather than £10k a year down the drain on the trains

As the very successful investor, if rather less successful economist, said, "Markets can remain irrational longer than you can remain solvent". Just because there is an asset price bubble today, doesn't mean that prices will drop tomorrow.

My data came from here:
http://www.lloydsbankinggroup.com/globalassets/documents/media/economic-insight/house-price-tools/regionalhistoricq42015.xls

(opens in Excel).

My calculations are:

• SE 3 years =(P39-P37)/P37
• London 3 years =(R39-R37)/R37
• SE 5 years =(P39-P35)/P35
• London 5 years =(R39-R35)/R35

You've got to have a hell of a commute for it to cost you 5 grand. Guildford to Waterloo is under £3,500 or £4,200 if you want to get the tube too for some unfathomable reason. From Sevenoaks you get change from four grand if you want to include the tube.

The commute from Sevenoaks to Waterloo isn't much longer than a long tube journey.

It would be just as easy to argue that London house prices falling by 20% redressed the run-up in the late 90s/early noughties. Prices rose by well in excess of 10% pa for 7 years from 1997. From 1997 - 2003 prices rose by 130% give-or-take (same source).

deskhelp

Yup that seems to reach the saturation point... thing will go down for a while.

wotsthat

cells wrote: »

Likewise people who talk about prices of 20 years ago being some sort of base or norm and thus prices today are crazy miss the point that prices 20 years ago were crazy cheap so much so that some flats in Hackney inner London were selling for less than the cost of the materials let alone everything else that is needed to take a pile of materials and turn it into a flat

The prices of the '90's 'did for' the crashaholics because they're used as a target normal. The reality was they were the bargain of a generation and ripe for a correction - upwards as it turned out.

That's not an argument for saying London's normal BTW - it isn't - it's really expensive and abnormal. The bet you're taking with London property is it becomes even more mental. So far so good.

However I turned down a 50% share in a Bermondsey flat in the early nineties that would've come with a nice RTB discount because it represented poor value so carry on.

Garethgrew

The larger the bubble the larger the pop,

buglawton

Generali wrote: »

As the very successful investor, if rather less successful economist, said, "Markets can remain irrational longer than you can remain solvent". Just because there is an asset price bubble today, doesn't mean that prices will drop tomorrow.

My data came from here:
http://www.lloydsbankinggroup.com/globalassets/documents/media/economic-insight/house-price-tools/regionalhistoricq42015.xls

(opens in Excel).

My calculations are:

• SE 3 years =(P39-P37)/P37
• London 3 years =(R39-R37)/R37
• SE 5 years =(P39-P35)/P35
• London 5 years =(R39-R35)/R35

You've got to have a hell of a commute for it to cost you 5 grand. Guildford to Waterloo is under £3,500 or £4,200 if you want to get the tube too for some unfathomable reason. From Sevenoaks you get change from four grand if you want to include the tube.

The commute from Sevenoaks to Waterloo isn't much longer than a long tube journey.

It would be just as easy to argue that London house prices falling by 20% redressed the run-up in the late 90s/early noughties. Prices rose by well in excess of 10% pa for 7 years from 1997. From 1997 - 2003 prices rose by 130% give-or-take (same source).

You might have forgotten to add a grand for station parking. But the most iniquitous thing is that commuting costs come out of highly taxed income (unlike tax-deductible business travel). What a con on the hardworking taxpayer.

Generali

buglawton wrote: »

You might have forgotten to add a grand for station parking. But the most iniquitous thing is that commuting costs come out of highly taxed income (unlike tax-deductible business travel). What a con on the hardworking taxpayer.

I used to live in Sevenoaks and walked or cycled to the station to go to work. The people that drove were either minted or out of towners who bought a cheaper house in one of the surrounding villages and had a crappier commute.

Regarding commuting costs, the UK Government subsidises the railways to a great extent and it wouldn't surprise me if that subsidy at least covers the tax paid on the income used to buy the season ticket. The people that should be complaining is cyclists who pay vast amount of tax (cyclists earn well over the average income as a group) to subsidise drivers and rail passengers.

Perhaps next time you see someone on a bicycle you could give a cheery wave and hand them a tenner.