£194,400 minimum wage

westernpromise

HAMISH_MCTAVISH wrote: »

Is still the same as it always was.

Build more of them....

What if that's not economically possible?

My house is worth about £1.3m I suppose, but the rebuild cost is only about £250k. In fag packet terms that means the land is worth a million. If a developer, ignoring planning controls etc, were to demolish it, use the garden as off-street parking for four to six cars, and build four "affordable" 2-bed flats in a larger building on the same plot, and did all that for for free, they'd cost the buyers about £300k each.

Is £300k for a 2-bed flat affordable?

economic

westernpromise wrote: »

What if that's not economically possible?

My house is worth about £1.3m I suppose, but the rebuild cost is only about £250k. In fag packet terms that means the land is worth a million. If a developer, ignoring planning controls etc, were to demolish it, use the garden as off-street parking for four to six cars, and build four "affordable" 2-bed flats in a larger building on the same plot, and did all that for for free, they'd cost the buyers about £300k each.

Is £300k for a 2-bed flat affordable?

in highgate 300k would seem very cheap for a 2 bed. one beds go for more then 400k. a 2 bed is worth at least 5-600k. easily economically viable.

westernpromise

@ economic

No doubt, but let's not forget that the thread is about regional affordability to the average Jo(e) on median money. My point is simply that in most London neighbourhoods, if you bought the land, filled it with flats and gave them away i.e. charged nothing for the build, you'd still be looking at £300k a flat. Could Jo(e) buy a supposedly "affordable" property for £300k on the local median salary of £35k or whatever?

I reckon not.

So while "let's build more affordable housing" is a nice slogan, it doesn't withstand a moment's contact with economic reality.

economic

westernpromise wrote: »

@ economic

No doubt, but let's not forget that the thread is about regional affordability to the average Jo(e) on median money. My point is simply that in most London neighbourhoods, if you bought the land, filled it with flats and gave them away i.e. charged nothing for the build, you'd still be looking at £300k a flat. Could Jo(e) buy a supposedly "affordable" property for £300k on the local median salary of £35k or whatever?

I reckon not.

So while "let's build more affordable housing" is a nice slogan, it doesn't withstand a moment's contact with economic reality.

but it would still help those who cant afford 500k flats. yes it wouldnt be average joe buying the 300k flat, but at least above average joe can who otherwise couldnt.

GreatApe

The general point is that London is pretty much full. Short of turning the green belt over to building the alternative of buying existing stock to knock down and rebuild more dense is an expensive option.

Usually you also only get about 2.5 units for each 1 unit you knock down. So you are paying to build 2.5 homes but only have 1.5 home to show for it. So as a bare minimum its going to cost 70% more than building on empty land. That is also a great underestimate as there are more costs and time involved in buying the properties that you are going to knock down. For instance you need to compensate the homes of the people you are buying to knock down. They won't just accept market value as they will have moving costs stamp duty etc so if you had to offer them 25% above market value you actually have built 2.5 homes but needed to buy 1.25 so the cost of rebuilding more dense is at least twice the price of building on an empty plot.

Again this is a great under estimate as finance costs are higher due to the longer time between putting capital in and getting the finished product out. London also has silly rules like half the additional homes need to be sold to the council for a dime so it can rent it out as council homes to the poor for £400pm.

Its why developers like Berkeley group sell 2 bedroom flats for £1m and only have 20% margins

economic

highgate has lots of woodland. maybe we can knock it down and build flats there?

kabayiri

economic wrote: »

highgate has lots of woodland. maybe we can knock it down and build flats there?

Make it sustainable !

Build the houses out of the wood that is there !

Some people love the CenterParcs idea.

I think....also....somebody might have mentioned a place called WoodGreen too? Heck - another candidate for homes.

There's quite a lot of green space in London.

GreatApe

economic wrote: »

highgate has lots of woodland. maybe we can knock it down and build flats there?

Maybe. However it still won't be cheap as defined by people like Mr Wind.

Apparently even the north east where half the homes cost less than £120,000 is unaffordable and needs a crash.

economic

westernpromise wrote: »

Hi Wind

No, that's precisely what they've not understood. Muddlehead - and others - believes that it's impossible to need to buy at -£60k to break even. As we have established here many times, it is entirely possible to need a negative price. You aren't going to get one, but you need one.

Briefly it goes like this.

Billy Buyer bought a house (say) 5 years ago for (say) £300k. He had 10% to put down so he spent £30k on the deposit and took out a £270k mortgage over 25 years with an initial 5% fix at 3%.

Over the last 5 years Billy Buyer has spent £77k on mortgage repayments. So he's now spent £107k but he's paid off 15% of the mortgage and now owes £230k on it. To own the house outright at this point, that's the sum he'd need to find, so the total cost to live in it for five years and to own it now would be £337k.

Tommy Tenant rented an identical house at say 4% yield. Over the same 5 years he's spent £75k in rent (4% of the average value, over the 5 years, of £375k), which saves £2k versus buying. He's also stashed his £30k deposit and has made a fabulous compound return on it of 7% a year, 40% in total, and now has £42k. So to buy the house for the same total cost to date as Billy Buyer, he'd need it to cost £220k because 42 + 75 + 220 = 337.

In fact its market value is £450k, not £220k, so Tommy Tenant now needs a price crash of 51%. If that happened, the cost of living in it for 5 years and owning it now would be the same as Billy's.

Do you follow? The point is that at current low interest rates, buyers fix the price in perpetuity then erode the mortgage very fast. In the above case you'd need a price crash of 51% just to break even. For renting to work out better it would need to be more than 51%. As it is, Tommy's error has cost him £230k.

It is then arithmetically inevitable that some people will, after long enough, eventually need a price crash of more than 100% to break even versus renting.

For example, suppose you did the above calculation over 20 years instead of 5. Billy's cost would now be £30k plus £307k plus £71k = £408k. Over the last 20 years house prices have quadrupled so Tommy's cost would be £116k + £450k* minus £158k = £408k. That -£158k is the required house price. So after 20 years, Tommy needs the house's price to be a negative in order for renting to be breakeven with buying. The house now worth £1.2 million needs to crash by 113%. Crashy's number appears to be as high as 130%, which explains him completely.

That this is economically impossible doesn't mean it's mathematically incorrect. There are people on HPC such as Muddlehead holding out for a price crash with no inkling of how big that crash needs to be, and hence nor do they know that it is impossible, either. When somebody points it out they jeer and titter, not realising who the joke - if any - is actually on.

* I've dropped the yield from 4% to 3% to reflect that in a rising house price market rents weaken. From £330k to £1200k gives an average value of £750k and average annual rent of £22.5k for 20 years

i highly doubt mr wind will understand this. he didnt understand what median was. probably thats why he is so confused about things?

kabayiri

This stat I found a bit disturbing ...
http://www.thisismoney.co.uk/money/saving/article-3813659/16-million-people-working-age-100-savings-study-shows.html

Yes, there are record numbers in employment, but it seems like that doesn't automatically translate into a decent amount of disposable income.

I'd not want to be in a home ownership situation with such a precarious financial position.