Actual benefit of rising prices - a bulls view

Windofchange

HAMISH_MCTAVISH wrote: »

High Prices are the symptom of a housing shortage - not the cause of a housing shortage - and frankly the only way to reduce prices meaningfully and for the long term is to build millions more houses.

But the trouble in my mind isn't that there is a housing shortage. The trouble is that there is a shortage of affordable housing. I guess I am quite London centric in my market knowledge etc, but I could go out tomorrow if I had the money and choose from thousands of empty new builds. There is no shortage of housing in London to be specific, but there is certainly a shortage of affordable housing.

This I guess is the crux of what I am getting at with the morality of it all. I don't think you can deny that London has been propped up and continues to be so. So, morally how can we justify pouring billions into London at the expense of other areas and at the expense of youngsters who may for whatever reason wish to settle in and around the capital? When does a government say we'll just let it crash?

System

HAMISH_MCTAVISH wrote: »

The OP appears to be confused as to the meaning of the word 'bull'.

A 'bull' is someone who looks at the market conditions and believes prices are likely to rise. A 'bear' is someone who looks at conditions and believes prices are likely to fall.

Indeed. Regardless, asking people to justify it isn't going to magic your debt away or lower your expectations of housing.

Mortgagefreeman

zagfles wrote: »

And all that has ignores the basic fundamental point.

The higher prices are, the more buyers have to pay for a roof over their head.

This has never bothered HAMISH. As far as he's concerned rampant house price inflation * is a great thing. However, if the price of chocolate bar goes up a couple of pence the Counties in meltdown and it's all the fault of Brexit.


* At least he dos'nt have to worry about House price inflation where he lives. In Aberdeen prices are dropping like a stone. :rotfl:

Jack_Johnson_the_acorn

Mortgagefreeman wrote: »

This has never bothered HAMISH. As far as he's concerned rampant house price inflation * is a great thing. However, if the price of chocolate bar goes up a couple of pence the Counties in meltdown and it's all the fault of Brexit.


* At least he dos'nt have to worry about House price inflation where he lives. In Aberdeen prices are dropping like a stone. :rotfl:

After how much rampant hpi?

HAMISH_MCTAVISH

Windofchange wrote: »

But the trouble in my mind isn't that there is a housing shortage. The trouble is that there is a shortage of affordable housing.

They are the same thing.

There is only a shortage of affordable housing in London because there is a shortage of housing in London.

Go to the Welsh valleys and you can buy a house for £50,000.

The lending criteria for mortgages is no different in bank branches in Wales as it is in bank branches in London... So it's not 'artificial props' making prices high - it's simply a shortage of housing.

I guess I am quite London centric in my market knowledge etc, but I could go out tomorrow if I had the money and choose from thousands of empty new builds. There is no shortage of housing in London to be specific, but there is certainly a shortage of affordable housing.

Lets try again....

Imagine there are thousands of empty properties for sale in a city like London - for the sake of this illustration we can pick a random number - Say 12,000.

Every month roughly 1000 sell - and roughly another 1000 come to market - and on average it takes 12 months to sell through the entire available housing stock and replace it with fresh stock.

In any given month the number of buyers needed to keep the balance between supply and demand constant is just 1000.

Out of the entire 10 million or so population of the greater London area - just 1000 buyers per month - willing and able to buy at today's prices - are required to keep prices at current high levels.

Now if you have 1500 buyers per month, but only 1000 houses keep coming on the market, then prices will obviously start rising.

And if you have 500 buyers, but 1000 houses per month keep coming on the market, then prices will fall.

A housing shortage is not defined by there being zero houses available to buy.... And prices rise because of an imbalance between supply and demand, not because there is zero supply.

So lets move along to the main point.....

If there are 12,000 houses on the market for sale in London, and a supply of buyers (roughly 1000 per month) able and willing to purchase at current prices - what do you think would happen if prices fell?

Lets say you could wave a magic wand and make prices fall by 50% overnight....

Lets also say that now, instead of 1000 buyers able to buy in any given month, there are 10,000 buyers....

What do you think would happen to prices?

There aren't any more houses.... So how do you allocate the 12,000 houses coming on the market this year between 120,000 buyers?

Price - at the moment - rations goods in short supply.

Without price as a rationing mechanism you'd need to have some other form - lottery tickets, waiting lists, etc.

If you want to make houses affordable for millions more people you need to build millions more houses....

Just to hammer the point home - there are roughly 4 million adults living at home with their parents - and another couple of million in flatshares or HMO's.

If we assume for just a moment that even half of them would prefer to live in their own home but are forced to share housing due to price.... If prices fell 50% tomorrow and those 3 million young adults could now afford to buy their own place..... Where are the 3 million houses for them to buy going to come from?

Price is always, always, always a function of supply and demand and nothing else.

This I guess is the crux of what I am getting at with the morality of it all. I don't think you can deny that London has been propped up and continues to be so. So, morally how can we justify pouring billions into London at the expense of other areas and at the expense of youngsters who may for whatever reason wish to settle in and around the capital?

It's simply not possible to credibly argue the housing market is being 'propped up' when the Government/BOE has...

1) Changed bank lending rules to radically limit the number of mortgages being issued every year - still only 65% of what they were before the credit crunch.

2) Changed bank lending rules to ensure 85% of all mortgages issued are below 4.5 LTI.

3) Changed bank risk weighting rules to make higher LTV lending more expensive to issue - and then charged extra again for insurance against default via the HTB scheme

4) Changed taxation and stamp duty rules for landlords to discourage BTL investment.

In fact - all of those would pretty much be the opposite of 'props' - more like government mandated rationing to artificially limit demand and prevent prices rising to where they otherwise would if the market was allowed to run it's course.

When does a government say we'll just let it crash?

Never.

Thrugelmir

Mortgagefreeman wrote: »

However, if the price of chocolate bar goes up a couple of pence the Counties in meltdown and it's all the fault of Brexit.

However to maintain profit margins the bars are also made smaller. Illusions cleverly make people perceive things in a manner that differs from objective reality.

vivatifosi

Windofchange wrote: »

But the trouble in my mind isn't that there is a housing shortage. The trouble is that there is a shortage of affordable housing. I guess I am quite London centric in my market knowledge etc, but I could go out tomorrow if I had the money and choose from thousands of empty new builds. There is no shortage of housing in London to be specific, but there is certainly a shortage of affordable housing.

This I guess is the crux of what I am getting at with the morality of it all. I don't think you can deny that London has been propped up and continues to be so. So, morally how can we justify pouring billions into London at the expense of other areas and at the expense of youngsters who may for whatever reason wish to settle in and around the capital? When does a government say we'll just let it crash?

But it is about supply and demand. Economics 101... When fewer people wanted to live in London and the population was actually falling, then the prices of houses there were not that different from other areas in the south. Since then, London has become significantly more in demand, leading to a significantly greater rise in prices.

That housing will only fall to levels that you consider affordable if demand falls. Why would anyone sell a flat to you for say, £200k, if someone else is willing to pay £700k for the same property? Markets are not altruistic.

You could argue that there should be more social housing, but not that someone should sell you a house at below market value. The solutions IMO are to increase house building nationwide, but also to look at making it hard to invest in a place only to leave it unoccupied in areas of housing shortage.

ess0two

Windofchange wrote: »

I'd like to understand from some of the property bulls on this board what they believe the benefits to ever rising prices are? Let's put aside for the sake of this discussion where prices are heading, and just assume that they are going to go up further in the coming years. The press reports rises as excellent news, and any hint of a fall as terrible. The public at large seems to view things in very much the same light regardless of whether they own or not. Surely there comes a point where rapidly rising prices do nobody any favours other than those at the top?

I get that there will be some in the economy who benefit massively from prices going up. Older people getting out at the top to retire to Spain, property investment companies, builders. However, surely there are enough people in this country who aren't in any of these groups? What are the benefits to them?

I guess is there a point where morally we need to say enough is enough regardless of what the individual benefits are? It seems perverse to me that young buyers through their tax income are subsidising government schemes like help to buy that push home ownership further our of their reach.

The article that got me thinking about all this was the one below on how Obama shafted thousands on his way out of office. It seems to me property around the world is run for a select few as opposed to the greater good.

http://www.nakedcapitalism.com/2017/01/the-obama-administration-bails-out-private-equity-landlords-at-the-expense-of-the-middle-class-government-guarantees-for-rental-securitization.html

I'd be more focussed on getting rid of the 5k+ of debt in your sig.

padington

If you don't have prices rationing housing, you would need a lottery system. Of course once one generation had won all the houses in London and everywhere else nice they would hold onto them like gold dust ( because they wouldn't be able to sell them for anything because price rationing was banned so they would always be kept judiciously in family circles). Therefore the next generation would have to live somewhere not nice regardless of the social wealth they create.

Not a great system.

What might be sensible though is to restrict new commercial investors to only build-to-let from here on in.

Windofchange

ess0two wrote: »

I'd be more focussed on getting rid of the 5k+ of debt in your sig.

I am. This isn't a discussion about why I can't buy - I already share a (mortgaged) house in London with my partner; it's a discussion on why isn't more being done to tackle the housing crisis?

To put it all another way. Can we all agree that housing is a necessity to life? I'd say shelter is behind food and water only as an essential ingredient. What if the price of bread rose to £10 a loaf? What if to take an extreme we had a situation like the hyperinflation of the Weimar republic? Where would we morally say well enough is enough?

People don't have to live in London agreed, but I just find the way that the government is propping up the prices here to be unpalatable. You just have to look at all the new builds that come onto market. 400k plus for a 1 bed shoe box that the government lends you 40% of the money for because that is probably about how overpriced things are at the moment. Should all this go iffy, I wonder how the taxpayer will get their money back? Oh, they won't because we will have socialised the losses through tax money given to FTB's, and the privatised profits of Barrett homes et al will have sailed off into the sunset.