Is house price inflation advantageous or a massive con?

andromedean

I had to laugh at this Mash article, because it must describe the real situation to many home owners.

Couple 'makes £100k' selling house only to realise they have to buy another on

Assuming you still intend to live in a similar house in a similar area for the rest of your life all what house price inflation achieves is to make it more expensive for first time buyers to purchase a home. For those who already own a home there is no additional advantage because similar homes will cost the same. However, if like most people you move to a bigger house later in life surely inflation causes this to be more expensive and disadvantageous. So nearly everyone loses, yet society perceives it as a good investment.

Yes there are circumstances were house price inflation could result in a gain, for example moving to a cheaper area or downsizing, but surely more people do the opposite. Would we be not truly materially richer if houses cost thousands rather than hundreds of thousands of pounds?

GreatApe

For the British house price inflation is a benefit because British people only have an average of 1.7 kids

In effect it is a large transfer of wealth from migrants to the natives. Most Brits are born with excess housing so will be net sellers.

Here is an easy to understand example.

Imagine a single child. Their parents own a house and their parents were also single children. The grand parents on both sides also own their own homes. This means this child in time will inherit 3 homes. Both sides of his grand parents and also his parents.

So he gas excess housing he is a net seller of 2 homes in Hus life. The higher house prices the better off he will be financially

Now of course not all kids are single children. But since the average British woman only has 1.7 children it means the majority of brits children have too much housing and higher house prices will benefit them.

Migrants on the other hand have more than 2 kids and no parents and grand parents of their own in the UK to inherit from. So first gen and to a degree second gen migrants are worse off with high house prices. Also anyones who's parents decided to have more than 2 kids.

antrobus

andromedean wrote: »

...
Yes there are circumstances were house price inflation could result in a gain, for example moving to a cheaper area or downsizing, but surely more people do the opposite. ...

For one thing, HPI means that borrowers have a larger deposit when they upsize.

For another thing, everybody dies. Somebody will inherit.

Koldweather1

GreatApe wrote: »

So he gas excess housing he is a net seller of 2 homes in Hus life. The higher house prices the better off he will be financially

Well that is only true if they are RELATIVELY better off. In truth that isn't the case because all that happens is everyone's prices go up due to inheritence in your solution. For example, I gain 100,000 pounds in your example from both Grand parents overall and I'm prepared to plunge all of it into property. Well my good friend ALSO gets a similar amount and thus also plunges that money. End result is we are actually no better off in RELATIVE terms.

Then this doesn't even take into account the simple fact that with the way life expetency is going most people aren't going to be in a position to inherit till they are 50, which by that time the pressures and expenses of life are probably past their peak already. I'm not sure there will be too many people keen on waiting for daddy to die just to have even a shot at getting a house. Surely much better to have lower prices and actually have a family home rather than wait till the kids are leaving for uni anyway?

I suspect most people like to have price increases because it makes them feel well off, in theory they are richer than they were. But its only good if it can actually be converted into money that then doesn't just spunked on an equally expensive house.

In reality, high prices ONLY benefit downsizers and some lucky few who have very rich parents to inherit from. Most people won't get big enough inherentices to make much of a dent on a large house price.(do you have any figures on this Great Ape, you seem to be good with stats!)

kinger101

antrobus wrote: »

For one thing, HPI means that borrowers have a larger deposit when they upsize.

The deposit would be larger as a percentage of the onward purchase, but the amount one needs to borrow would be greater in absolute terms with higher HPI.

Bob buys a £100K house, using a £20K deposit. In three years time, he decides he needs a bigger property. He's reduced his mortgage from £80K to £65K in that period. Lets assume the house is 50% more expensive than the one he originally purchased.

Scenario (a) prices have only increased 10% in those three years, or (b) they've increased 40%.

(a) Sales proceeds £110K less outstanding mortgage (£65K) gives £45K. New house is now £165K. So he has a 27.2% deposit, and need to borrow £100K.

(b) Sales proceeds £140K less outstanding mortgage (£65K) gives £75K. New house is now £210K. He has a 35.7% deposit, but needs to borrow £135K.

I know this is making assumptions about the inflation rate of all property types being the same, but scenario (a) is better. Not everyone has three inheritances to cover the gap.

Sapphire

GreatApe wrote: »

Their parents own a house. The grand parents on both sides also own their own homes. This means this child in time will inherit 3 homes. Both sides of his grand parents and also his parents.

Wish that was the scenario in my family – neither my parents nor my grand-parents own their own homes (and one side of the latter never did, being dead, very early in life).

:rotfl:

Carl31

Its just part of the stupid culture we have here on house prices

By the time you factor in interest cost and maintenance, your £250k house has probably actually cost you £450k over the lifetime of the mortgage, and like in the article, if you make money, so does everyone else in the local market, so unless you move from london, its unlikely your gain is going to add to your purchase power

The only really gainers from HPI are offspring who inherit

GreatApe

Sapphire wrote: »

Wish that was the scenario in my family – neither my parents nor my grand-parents own their own homes (and one side of the latter never did, being dead, very early in life).

:rotfl:

You are a very rare Brit

Something like 75% of pensioners own (mostly outright) that means there is a 93.75% chance that at least one side of the average brit has a hone to pass down. That is quite good odds!

What's more most people partner up which means 4 sets of grand parents / grand oarwnt in That makes it a 99.61% chance that at least 1 of that 4 will pass a house down. And a 75% chance that all 4 sets ow

Koldweather1

So just did some research, the average inheritance seems to be very varied and ranges from 60,000 through to 120,000 depending on the people who did the research. Its certainly not enough to expect to buy a house outright with, even more so if your from an above average family size (3+) then your chances are going to be slim that this will be the case.

Most will inherit something it seems at some point, but few will inherit enough to fund a purchase as large as a house! It'll probably be enough to help access a mortgage though.

Of course within the figures there will be some extremes, some people will get absolutely nothing, some lucky others will have mansion money. I suspect certain areas (say Surrey) where there will be a higher percent of those in the latter, and I suspect certain areas of the country you'll find a higher percentage of those in the former. Total luck of the draw that is for sure!

PS Great Ape, the average is 1.7 family size...last time I looked 0.7 rounded UP not DOWN, so your examples needs everything split in half to reflect that!! (two children, NOT one for the average.

Herzlos

Depends where on the cycle you are. It's bad if you've still to buy, good if you've bought and can reduce your LTV. Probably bad if you're up sizing and probably good if you're downsizing.

Cornucopia

I think that the premise of the thread is correct. If we were considering the effect on society as a whole, we would not want rampant HPI, because the only people to benefit beyond paper gains are Banks, Estate Agents and Down-sizers.

However, (a) there is presently no mechanism for controlling HPI (in either direction) and (b) it is a consequence of excess demand in certain parts of the country.

However (II), I've had various conversations over the years along the lines that it's not possible for a private individual to make actual money from HPI, which is not the case. The clue is in the OP's comment that buying a similar property in a similar area will require a similar amount of money, and whilst that's true, it's not the only way to approach things. Making money on HPI therefore involves owning property that is more expensive than your long-term need, owning a greater number of properties than your long-term need and using financing accordingly.