Interest rates at historical lows, housing prices through the roof, wages stagnant and Brexit.

bigadaj

Linton wrote: »

Of course 2 incomes is a major factor. Prices rise through people being able to outbid other potential buyers. Simple observation shows that in general people are prepared to pay almost all they can afford to buy a house. If they can afford a £300K house they see themselves as £300K people and dont settle for a "grotty" £150K house to save money. Broadly speaking, a 2 person household will out-bid a one person household. This was less true in the distant past since the wife's income was largely disregarded for mortgages. However for social reasons single people were much less inclined to buy anyway.
I agree the government's policy to subsidise new house buyers is totally self-defeating. Prices rise to absorb the extra money. I disagree that this all goes into builders high profits because land costs rise in line with house prices. Also competition forces builders to offer extras such as luxury kitchens that weren't provided in the past.

I dont think most people do see their home as part of their wealth as they only make hundreds of thousands of pounds profit if they trade down. In order to make a significant gain the down trade must be to a very much less desirable house. This may be difficult emotionally and the process wastes a lot of capital. As the arguments over care funding show people are irrationally attached to their home even if they cant live in it.


Ironically, the people who gain the hundreds of thousands arent the people whose houses have increased greatly in value but rather their beneficiaries. However increasing life expectancy means that the beneficiaries are likely to only make their undeserved gains well after the point at which they have bought a house and are aleady living relatively comfortably.


I fear we will return to the days of rigid class boundaries defined by inherited wealth based on land ownership, or its absence.

Fair enough we agree about somethings and not others.

Two wages is certainly a factor in house prices but were a generation beyond when this was a major change. Most families would have had two earners certainly sine the nineties and probably the eighties of not before. The discussion has focused on the radical price increase in the last two decades and affordability has become very much constrained in that time, I found an ons document from 2018 that indicated wages to house price ratio has nearly doubled in twenty years.

In terms of where the money has gone then it's mainly gone to the big builders, just look at their profits, the big three are reporting nearly a billion a year each. Land prices have increased but competition for building has reduced, number of small and medium builders has nearly halved in the last decade. If you think builders are spending loads on luxury fittings then I'd advise viewing a range of new houses and also adding up the costs of those fittings, a tiny fraction of the profit and indeed price. Also read persimmons annual reports, their profit per house has more than tripled in the last decade so, yes the big house builders are taking the vast majority of the money.

People view the life of their house as one of the main indicators of their wealth, it's the basis of British conversation and life. The fact you can't access it, and it's highly illiquid if you could, has no bearing on it. Savings rates are negoigible and large swathes of the population still view equity investment as gambling, eventhough funds have hugely benefitted from near zero interest rates.

I'd agree it's their children will benefit rather than the owners, but property wealth is more real for many people than equity investments and often even cash, nothing as safe as houses.

I don't know where you think we'll return to the old days of rigid class boundaries, it's been around for the last twenty years. Social mobility has collapsed since the millennium, though I think it's just really returning to the old norms, the sixties to nineties were the anomalies in terms of social mobility. It's to a certain extent just supply and demand, if you offer most people a degree, then guess who gets the best jobs at the end of it?

Linton

bigadaj wrote: »

Fair enough we agree about somethings and not others.

Two wages is certainly a factor in house prices but were a generation beyond when this was a major change. Most families would have had two earners certainly sine the nineties and probably the eighties of not before. The discussion has focused on the radical price increase in the last two decades and affordability has become very much constrained in that time, I found an ons document from 2018 that indicated wages to house price ratio has nearly doubled in twenty years.
....

At my age I look at things from a 40 year perspective when young boomers were buying. 20 years ago is recent times.

bowlhead99

bigadaj wrote: »

In terms of where the money has gone then it's mainly gone to the big builders, just look at their profits, the big three are reporting nearly a billion a year each. Land prices have increased but competition for building has reduced, number of small and medium builders has nearly halved in the last decade. If you think builders are spending loads on luxury fittings then I'd advise viewing a range of new houses and also adding up the costs of those fittings, a tiny fraction of the profit and indeed price. Also read persimmons annual reports, their profit per house has more than tripled in the last decade so, yes the big house builders are taking the vast majority of the money.

People looking for someone to blame for pretty much anything will generally point the finger at big corporations making millions or billions and say it must be their fault.

However, if you look at statistics on UK residential 'property wealth', gross property value probably increased by a couple of trillion over the last decade.

You mention the big three builders are coining it in: Persimmon for example reported £500 million profit for the first half of this year, and 1.1 billion for the year before ; but that was a record and they posted smaller numbers in the years before that). So less than five billion profits in the last five years. If you look at those last five years profits and compare it to a trillion of residential property valuation gains, it doesn't seem like they have taken most of the trillion of value growth as profits for themselves. More like a twentieth of a percent of it.

Most of the trillions of gains in nominal value in recent decades are unrealised of course, just paper gains - or have been realised as gains but then immediately spent on the next property up the chain, so we are not seeing cash profits unless we emigrate or shuffle off the mortal coil. Still, the ability to borrow at low rates against these 'gains' does fuel a lot of consumer spending, whether home improvements or just things like holidays and luxuries - as a consequence of the fact that people with affordable borrowings in relation to their property value are not under the same pressure to pay down debt so fast as they would have done in 'the bad old days' when a £200k mortgage would have cost you £30k a year in interest, which would have been a lot more than the average family income.

bigadaj

Linton wrote: »

At my age I look at things from a 40 year perspective when young boomers were buying. 20 years ago is recent times.

Fair enough, but why not look at it over 80 years, or 160 years?

My point is that affordability in terms of multiplier on salary has diverged from historical trends markedly in the last 20 years. The main factor in promoting or supporting that is near zero interest rates, and the ability to fuel further increases is extremely limited, unless we go seriously negative on interest rates which looks improbable.

I don't have a huge amount of sympathy for the OP but the UK is backing Itself into a corner, we've apparently got to encourage house price rises, wages aren't increasing and interest rates can't fall any further, doesn't look sustainable but that could have been said for the last decade or more.

bigadaj

bowlhead99 wrote: »

People looking for someone to blame for pretty much anything will generally point the finger at big corporations making millions or billions and say it must be their fault.

However, if you look at statistics on UK residential 'property wealth', gross property value probably increased by a couple of trillion over the last decade.

You mention the big three builders are coining it in: Persimmon for example reported £500 million profit for the first half of this year, and 1.1 billion for the year before ; but that was a record and they posted smaller numbers in the years before that). So less than five billion profits in the last five years. If you look at those last five years profits and compare it to a trillion of residential property valuation gains, it doesn't seem like they have taken most of the trillion of value growth as profits for themselves. More like a twentieth of a percent of it.

Most of the trillions of gains in nominal value in recent decades are unrealised of course, just paper gains - or have been realised as gains but then immediately spent on the next property up the chain, so we are not seeing cash profits unless we emigrate or shuffle off the mortal coil. Still, the ability to borrow at low rates against these 'gains' does fuel a lot of consumer spending, whether home improvements or just things like holidays and luxuries - as a consequence of the fact that people with affordable borrowings in relation to their property value are not under the same pressure to pay down debt so fast as they would have done in 'the bad old days' when a £200k mortgage would have cost you £30k a year in interest, which would have been a lot more than the average family income.

I'm not blaming the big builders, they are in business to make money. The government approach in help to buy has resulted in their radically increased profits, and as tax payers we've all contributed to that over the last few years. It's a bit irrelevant to look at house builders profits against the whole housing market or even increases in that market. My complaint is that it is a poor use of taxpayers money, the listed builders share prices haven't even benefitted that much, and famously much of the profits have been paid out in executive pay. The market doesn't give a high rating to house builders because they see them as risky and subject to a high risk of underperformance should consumer sentiment change.

It would be interesting to compare how much of consumer spending is related to house price growth, the elderly who have probably 'benefitted' most from increasing property values are likely to have relatively low consumers spending. Younger generations would typically have higher levels of consumer spending which would have less support from housing equity one would expect.

enthusiasticsaver

You are talking about London House Prices which are completely different to the rest of the country. We moved away in 1988 as we could not afford a decent house in the London area, the place where my family and friends lived and I was born. We did up a tiny terraced house as our first home in Surrey and made an ill considered purchase of an ex council house which was bigger but in a horrible area the other side of London when I fell pregnant with our second child. A fortunate job offer for my husband in the West Country came up at that time and we moved 250 miles away and were able to buy a 4 bed detached which we still live in. It is worth more than it was when we bought it but not 5 times as much. You are talking about London housing market and you need to open your eyes and look for opportunities elsewhere. It has been difficult to buy there in the last 40 years. You also have to remember that when we bought most of us made do with no carpets until we could afford it, borrowed furniture and no electronic goods and rarely went out or on holiday. My friend and I were joking the other day that our monthly treat was a video and bottle of wine. Not even a takeaway. Most people of your generation that I know of would not live like that now.

Linton

bigadaj wrote: »

My point is that affordability in terms of multiplier on salary has diverged from historical trends markedly in the last 20 years. The main factor in promoting or supporting that is near zero interest rates, and the ability to fuel further increases is extremely limited, unless we go seriously negative on interest rates which looks improbable.

..

Sounds convincing but for one little problem. Houses have not increased by much since the Great Crash, whch is when interest rates dropped to near zero.. Most of the rise in the past 20 years occured in the 10 years before then when interest rates were normal.

talexuser

If Help to Buy is seen as a waste of taxpayers money, Housing Benefit is almost twice as much money from the taxpayer and arguably just supplements landlord's profits. A strange free market.

Thrugelmir

Linton wrote: »

Sounds convincing but for one little problem. Houses have not increased by much since the Great Crash, whch is when interest rates dropped to near zero.. Most of the rise in the past 20 years occured in the 10 years before then when interest rates were normal.

I last moved at the peak of the boom - July 2007. Property has still managed a 50% gain in the subsequent period at a local level. Though could move to the West Country and buy a much nicer property. Everything is relative.

Economic migration is to the cities and major hubs. As there's where the majority of well paid jobs are clustered. The further one moves away. The greater disparity grows. When in turn feeds into weaker local markets.

Linton

talexuser wrote: »

If Help to Buy is seen as a waste of taxpayers money, Housing Benefit is almost twice as much money from the taxpayer and arguably just supplements landlord's profits. A strange free market.

Housing benefit and help to buy are very different. HTB just enables one person to buy a house rather than another who must rent. HB enables someone to rent rather than live on the streets. Living on the streets is not seen as merely the bottom rung of the housing ladder.. Market forces do not operate all the way down to zero rent.