50% house price crash does not = more affordable homes

Linton

By definintion each house sold at what you may think is an inflated price has been bought by someone willing and able to pay that price. The market ensures that prices are set so that always applies. There is no mechanism that will cause prices to fall other than a fall in the number of people able to buy at those prices.


Suppose the government decreed that prices should be cut by say 30%. A house is put up for sale and perhaps 100 people put in an offer at the asking price. Only one of them can buy. So what happens next?

thor

lisyloo wrote: »

There will also be a fall in confidence which means many will be fearful of buying, after all how do you know the house you’re buying won’t fal, further? It’s called trying to catch a falling knife when you assume somehow you’ll magically buy right at the bottom.

Most people will be less able to buy and fearful.

Most people will be buying a house to live in so they should not be at all fearful about prices falling after buying.

FTBuyerGlasgow

OP is saying affordability is based on price elasticity of housing, which is based on affordability.

I get it.

Very clever way to think about it.

But ultimately it's entirely theoretical, like Achilles Vs the Tortoise.

PixelPound

thor wrote: »

Most people will be buying a house to live in so they should not be at all fearful about prices falling after buying.

two words negative equity!! There are plenty of stories about people in northern ireland who are stuck on a mortgage they cannot afford because the negative equity means they cannot move to a cheaper mortgage deal if they want to stay in their property. They also cannot downsize if life circumstances change.

PixelPound

sal_III wrote: »

OP seems to neglect the fact that there are 10'000s if not 100'000s of properties held by overseas investors, often sitting empty in a new build development.

A lot of renters can't afford to buy now, despite having steady jobs and good credit. With a 50% price drop they will be able to afford to buy. This will reduce the demand for rented accommodations and will depress the rents, making a lot of BTLs unsustainable, forcing the LLs to sell, which will release even more properties on the market etc.

Eventually the market will again pickup and correct itself in some areas, but others will trap a lot of people in negative equity (see parts of NI)

What would cause a 50% price drop and why would it pick up again? What's to say whatever caused the drop doesn't have knock on effects and cause further drops.

More people are renting now than in the 1960's, which yes is because price to buy is high, but assumptions of price drops are always a temporary thing that will allow housepricecrash type persons to get in on the action before t goes back up. However no one says that if a crash happens why is there an assumption it will return to normal.

Lets say a Corbyn govt came in and decided to build 200,000 new low rent council houses every year. House prices would fall as it would be cheaper to rent a new council house than buy, also moving out of private rented places to cheaper council accomodation. If this continued then house prices would continue to fall until it reached the point of the low council house rent price. If the house for life policy was reintroduced and building rate kept so that there was never a council waiting list, house prices wouldn't recover. People would still buy but it could become economically disadvantageous to buy.

westernpromise

nic_c wrote: »

Lets say a Corbyn govt came in and decided to build 200,000 new low rent council houses every year.

Of course, since there is limited housebuilding capacity and the state would be absorbing 200,000 houses' worth a year, this would mean 200,000 fewer houses being built privately. As it's the state doing this, probably many of the houses would be built in the wrong place.

So this would soak up at most 3 years of net immigration, and probably less.

Steve57

ProDave wrote: »

If prices crash 50% almost all building will stop. Building material is unlikely to fall 50% nor are wages, so it will not be profitable to build houses.

So if house building stops, regardless of the cost of houses, there won't be any more houses built to house a growing population.

Or.. the speculative price of land goes down to accommodate the new paradigm. Land price of course is the determining factor in the price of housing. Mortgage lending is another big determining factor in the price of housing. Both can be completely different from today and in fact should be if we ever want a normal economy again rather than a speculative casino economy with an increasing, 3rd world structure to our economy as we are seeing today.
Builders can choose to build under the new conditions or not, of course initially they will chose not to in order to restrict supply even more than they already do ie (drip feeding the market) and of course we know that builders have become part of the crony capitalist, neo liberal economy by their actions of restrictive supply and getting George Osbourne to conjure up the 'help to buy' scam, which as we know allowed builders to jack up their prices by a good margin overnight (eg where I live, Identical houses to mine can sell for £50k new purely due to mentioned 'help to buy'
Given enough time they could actually become builders again rather than the greedy financial engineers they are.

Steve57

Linton wrote: »

By definintion each house sold at what you may think is an inflated price has been bought by someone willing and able to pay that price. The market ensures that prices are set so that always applies. There is no mechanism that will cause prices to fall other than a fall in the number of people able to buy at those prices.


Suppose the government decreed that prices should be cut by say 30%. A house is put up for sale and perhaps 100 people put in an offer at the asking price. Only one of them can buy. So what happens next?

The government could in fact force prices down by 30% overnight if they bought back the lending standards of say the 1970's, ie you need 25% of the price saved and the banks to lend only 2.5 wages for eg. People wanting or needing to sell would have to drop prices to sensible levels and the buyer mix may well change with savers taking the lead and as we all know, savers have been sidelined for the last 20 years in favour of speculative chancrers.

westernpromise

Steve57 wrote: »

The government could in fact force prices down by 30% overnight if they bought back the lending standards of say the 1970's, ie you need 25% of the price saved and the banks to lend only 2.5 wages for eg. People wanting or needing to sell would have to drop prices to sensible levels and the buyer mix may well change with savers taking the lead and as we all know, savers have been sidelined for the last 20 years in favour of speculative chancrers.

You do post some rubbish.

In the 1970s women's wages were a line item on their husbands' tax returns, which meant they had no personal allowance and all their wages were taxed at his marginal rate. The wife of a banker could thus pay 83% tax on her entire wage, which might not even pay for the cost of getting to wherever work was.

Hilariously, if the wife overpaid tax and was due a rebate, the cheque was sent to her husband!

As a result, lenders discounted women's wages almost entirely, hence the 1970s' practice of lending 3.5x the main salary or 2.5x plus 1x the second. This accurately reflected the relative value of a wife's punitively taxed salary when it came to servicing a mortgage.

Nigel Lawson fixed this in 1988. Thereafter lenders advanced 3.5x joint salary because sexist taxation had been abolished. And as rates fell from 10% in the 80s to 5% in the 00s they increased these multiples to 4x, 5x or even 10x.

If you want to go back the 1970s, you will first need to order women out of their jobs and back into the kitchen, like the chattels they are. You can start with yours. Let us know how you get on.

Of course, if you make £40k a year, cash buyers will then outbid you for houses by paying £101k where you can only raise £100k. You'll then end up renting the house off "speculative chancrers" (sic) who don't need a mortgage to buy it at all.

Just like the 70s in fact.

chucknorris

Steve57 wrote: »

Or.. the speculative price of land goes down to accommodate the new paradigm. Land price of course is the determining factor in the price of housing.

No it isn't! The land price is merely a residual cost, the calculation of it is carried out to identify the maximum bid for the plot of land, a simplified version (ignoring other minor costs) would be:

Gross development value

Less:
Construction costs
Professional fees
Finance costs
Profit
Marketing costs

= Max cost of land acquisition