Why have house prices increased so much over the last twenty years?

ukcarper

wymondham wrote: »

High multiples of borrowing permitted allows sellers to increase the price...

Emergency interest rates don't help either..

Supply and demand obviously pays a big part as can be see by differences in prices across country. I agree higher multiples have had an effect but if that had not happened the same people would be able to buy.

NineDeuce

There isnt really a housing shortage.... not really in the way that is portrayed.

The reason people cant get on the housing market isnt because of a lack of housing. It also isnt because they cant afford a mortgage. People in rented accommodation already do pay mortgages.... just that it is their landlord's mortgage and not their own.

This is because the system doesnt let them. In order to prove that you can afford a mortgage nowadays, you need to show that you can pay the landlord's rental charge, which in itself is higher than a mortgage payment.... plus you have to show that you can save thousands of pounds for a deposit. So, for example, in order to prove that you can make a mortgage payment of £650/month, you have to prove that you can pay £1,000 per month for years on end.

This is the theory, but the fact that for many of the relatively few first time buyers', their deposits come via a donation from parents or inheritance. This shows how bogus this idea is.

It wasnt always like this. In the 80s you could get 100% mortgages and so to an extent, you could choose between renting and buying. Now you cant, so the power is far too much in favour of the buy to letter, who can get his/her mortgage paid off by somebody else by virtue of a corrupt system.

This is particularly attractive to the buy to letters.

The rise in house prices cant simply be a case of basic supply and demand economics because home ownership is at its lowest in decades and because normal products do not have this ridiculous barrier in place.

I can go and buy my shopping in Tesco with a credit card if I want to without having to prove that I can afford it first, and people spend almost as much money on food in a month/year as they do on their properties.

This is perhaps the main reason that house prices are so high. Houses are a lucrative risk free investment. This doesnt come cheap....

chucknorris

NineDeuce wrote: »

Houses are a lucrative risk free investment. This doesnt come cheap....

Good luck trying to convince Crashy.

GreatApe

NineDeuce wrote: »

There isnt really a housing shortage.... not really in the way that is portrayed.

The reason people cant get on the housing market isnt because of a lack of housing. It also isnt because they cant afford a mortgage. People in rented accommodation already do pay mortgages.... just that it is their landlord's mortgage and not their own.

This is because the system doesnt let them. In order to prove that you can afford a mortgage nowadays, you need to show that you can pay the landlord's rental charge, which in itself is higher than a mortgage payment.... plus you have to show that you can save thousands of pounds for a deposit. So, for example, in order to prove that you can make a mortgage payment of £650/month, you have to prove that you can pay £1,000 per month for years on end.

This is the theory, but the fact that for many of the relatively few first time buyers', their deposits come via a donation from parents or inheritance. This shows how bogus this idea is.

It wasnt always like this. In the 80s you could get 100% mortgages and so to an extent, you could choose between renting and buying. Now you cant, so the power is far too much in favour of the buy to letter, who can get his/her mortgage paid off by somebody else by virtue of a corrupt system.

This is particularly attractive to the buy to letters.

The rise in house prices cant simply be a case of basic supply and demand economics because home ownership is at its lowest in decades and because normal products do not have this ridiculous barrier in place.

I can go and buy my shopping in Tesco with a credit card if I want to without having to prove that I can afford it first, and people spend almost as much money on food in a month/year as they do on their properties.

This is perhaps the main reason that house prices are so high. Houses are a lucrative risk free investment. This doesnt come cheap....

Mortgage rationing impacts the ratio of owners to renters however I am not convinced it has a great impact in price and certainly not upwards.

The primary reasons renting has increased is because we have a lot more migrants today than we did 15 years ago and also people are starting lives later and later resulting in delayed adulthood

steampowered

There is also an economic explanation that has nothing to do with supply and demand.

The evidence suggests that, in a capitalist society during peacetime, the rate of return of capital exceeds the rate of growth of the economy of the whole.

You can see this today when the projected rate of return of most pension funds (perhaps 6-8% per annum) vastly exceeds the projected rate of growth of the economy as a whole or of wages.

As a result, people tend to accumulate more and more wealth. They then pass that onto their children who grow it again.

Where does that wealth go? A significant chunk of it goes into property, meaning that over time the value of property increases at a faster rate than wages. This persists until a major event (such as a world war) causes asset values to crash.

This has the effect of shifting economic value from income into property, resulting in wealth becoming more and more concentrated; resulting in property prices increasing relative to wages over time.

This was the subject of Thomas Piketty's very interesting book which caused a stir awhile ago, see a summary here:
https://www.economist.com/blogs/economist-explains/2014/05/economist-explains

GreatApe

steampowered wrote: »

There is also an economic explanation that has nothing to do with supply and demand.

The evidence suggests that, in a capitalist society during peacetime, the rate of return of capital exceeds the rate of growth of the economy of the whole.

You can see this today when the projected rate of return of most pension funds (perhaps 6-8% per annum) vastly exceeds the projected rate of growth of the economy as a whole or of wages.

As a result, people tend to accumulate more and more wealth. They then pass that onto their children who grow it again.

Where does that wealth go? A significant chunk of it goes into property, meaning that over time the value of property increases at a faster rate than wages. This persists until a major event (such as a world war) causes asset values to crash.

This has the effect of shifting economic value from income into property, resulting in wealth becoming more and more concentrated; resulting in property prices increasing relative to wages over time.

This was the subject of Thomas Piketty's very interesting book which caused a stir awhile ago, see a summary here:
https://www.economist.com/blogs/economist-explains/2014/05/economist-explains

The rate of return of capital is going to go to zero and then negative

It already is for three of the big asset classes. Government debt corporate debt and cash savings.

Property is in a bull market because the world has a chronic shortage of homes. We need 5 billion homes in the world we have about half that but the world is building rapidly 60+ million new homes annually. In about 30 years property will enter a bear market. Of course different countries will get there before others but once the world gets to 4-5 billion homes its a bear market from there

Cakeguts

zagubov wrote: »

The unit of society in Germany is the family and in the UK it is the individual. That may lead to a disparity in the number of homes.

But there's more to it. In Germany/France people live in large spacious homes until they die. Then their children live in large spacious homes until they die, ad infinitum.

In the UK, the distribution between generations is less favourable, as house tenure systems don't match needs. Growing families over-occupy their homes while separated/widowed older people under-occupy their homes. Still the average number of rooms/area of floorspace per person probably averages out not so bad , so who cares?

I am not sure where you got this idea about France from? Many people in France rent their homes.

Also they are not all big and spacious. http://www.fnaim.fr/annonce-immobiliere/41398361/17-acheter-maison-vayrac-46110.htm

http://www.fnaim.fr/annonce-immobiliere/40443374/17-acheter-maison-betaille-46110.htm

economic

GreatApe wrote: »

The rate of return of capital is going to go to zero and then negative

It already is for three of the big asset classes. Government debt corporate debt and cash savings.

Property is in a bull market because the world has a chronic shortage of homes. We need 5 billion homes in the world we have about half that but the world is building rapidly 60+ million new homes annually. In about 30 years property will enter a bear market. Of course different countries will get there before others but once the world gets to 4-5 billion homes its a bear market from there

There is a lot of wealth being accumulated because people do not know what to do with it. They prefer to save it in the bank then risk it (pensioners, risk averse people, companies with hoards of cash) or they risk it in the stock market or property because they are forced to or see it as a good way to get a real return (pensions funds, people in their 30s-50s, fund managers).

This is the result of wide scale deflation in the economy as a result of deleveraging. There is very low levels of innovation happening, in fact the only innovation that seems to be creating any wealth is tech and even that hasn't had much positive impact on all our lives relative to the innovation that occurred in the 50s and 60s. Sure iphones and google make things easier or makes you feel good about yourself but so what? There are also bad effects to tech like social media causing an increase in suicides in young people.

We have had huge innovations in the 50s and 60s and some in the 70s and 80s. Hardly anything nowadays.Therefore capital does not get invested in innovation and so you have people and companies buying shares (companies doing buybacks), hoarding loads of cash, buying property etc etc.

Once you have wide scale innovation happening (in things like biotech, engineering, space, energy, tech, AI, automation etc etc etc), watch real rates rise (and bonds fall, inflation rise) and return on capital become positive. its questionable what will happen to risk assets at that point, maybe you see a crash before a major stock market bull to coincide with a innovation led global economic boom. but prior to that you could see capital divest in the general stock market to get to work in innovative products and ideas.

The question is IF we get the innovation boom. Only a capitalistic system will allow for that and the US has the best chance of that occurring given what Trump is doing.

EDIT: i think part of the reason why tech is the only innovative sector is that it has a very low barrier of entry. Many of the startups that have been bought out byt he big tech firms were run by smart people but all they needed was a computer. Things like space and engineering and biotech requires a lot more capital expenditure and expertise and therefore the barrier/hurdle is set a lot higher and so is a lot riskier.

economic

steampowered wrote: »

There is also an economic explanation that has nothing to do with supply and demand.

The evidence suggests that, in a capitalist society during peacetime, the rate of return of capital exceeds the rate of growth of the economy of the whole.

You can see this today when the projected rate of return of most pension funds (perhaps 6-8% per annum) vastly exceeds the projected rate of growth of the economy as a whole or of wages.

As a result, people tend to accumulate more and more wealth. They then pass that onto their children who grow it again.

Where does that wealth go? A significant chunk of it goes into property, meaning that over time the value of property increases at a faster rate than wages. This persists until a major event (such as a world war) causes asset values to crash.

This has the effect of shifting economic value from income into property, resulting in wealth becoming more and more concentrated; resulting in property prices increasing relative to wages over time.

This was the subject of Thomas Piketty's very interesting book which caused a stir awhile ago, see a summary here:
https://www.economist.com/blogs/economist-explains/2014/05/economist-explains

Piketty is a french socialist. He is a very dangerous man. He thinks its better for everyone to be poor then for there to be some rich and some poor. He is a very big fool.

matthewpoll13

triathlon wrote: »

And of course the surge in the competition in BTL and the thankless task of theirs in housing millions of people once the responsibility of the government.
They do not have many perks so a little capital gains is only fair. I am frankly shocked that there is not one BTL related business not in the new year honours list, but it is only a matter of time. Why are they honouring self serving 5000 Mtrs runners over highly principled people hosing millions of the UK,s losers

Buy to let landlords are doing it purely for profit. If they hadn't bought properties it would be cheaper for first time buyers, but instead, first time buyers are out-competed by buy to let landlords. I don't see why any buy to let landlord should be honoured, as they are doing it just for themselves, & make the property market worse, not better.