Deflation - Inflation - Hyper Inflation & Interest Rates Questions?

zagfles

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

garmeg said:

talexuser said:

I seem to remember large companies having "pension holidays" in the 80s for many years in a row, while the employees carried on contributing. The reasoning was that the pension fund was worth more than the company and a tasty bait for takeover. Then years later all of a sudden the pension was un-affordable and had to be first limited and then closed to new employees, then sold off. I also remember talks with younger employees about "opting out" and don't know any that turned out better off than myself on my final salary pension (private company, inflation linked). A similar thing happened with repayment mortgages and investment mortgages that promised a large surplus at termination which often turned out to be a large deficit.

Then markets fell, we got Gordon Brown and the rest is history.

Gordon Brown is also responsible for the biggest problem faced by the young today - high house prices. The really steep rise in prices occurred between 1997 and 2007. He started with good intentions, in his first budget in 1997 he promised not to let house prices get out of control. But he broke that promise spectacularly, partly due to the stupid target he set the BoE, an inflation measure that specifically excluded house prices. So the BoE ran monetary policy not caring about runaway house prices.

Then even through strong growth he kept borrowing, because he thought boom and bust had been abolished. Leaving a massive budget deficit when the penny dropped and the credit fuelled boom ran out, causing the biggest bust for decades, and massive debts to be paid off probably mostly by the young.

Ironic how the young think Labour is on their side

It wasn't just interest rates, it was immigration too.  Again Labour's fault with Blair's immigration policy.

Arguably immigration had a bigger impact.  When you have low skilled immigration like we have had, you have massive fiscal support being provided to the immigrants in the form of schooling, healthcare, benefits etc and that helps provides demand for rentals (because immigrants have more money to spend on rents) which in turn drives demand from BTL landlords to buy up these properties.  This results in a boom in property prices generally, particularly in areas like London that saw massive inward immigration.

So a higher capital gains tax targetted at landlords (because they can not sell a fraction of a property) seems only fair and is essentially just give back on the massive fiscal support through immigration policy that underpinned much of their profits.

Immigration isn't to blame, the increased housing demand over the last few decades wasn't fuelled by increased population, the housing stock has risen much faster than population. Population in 1970 was about 55.6 million, in 2010 about 62.8 million. A 13% increase. Housing stock in 1970 was about 18 million, in 2010 about 26 million. A 44% increase.

It was fuelled by a big decrease in the amount of people per property, and that was more amongst the existing population, not immigrants who generally live more densely. There was/is an issue in London with mega rich foreigners buying London property as a sort of safe haven for their wealth, driving prices up.

There was this attitude that you should buy property as soon as you can, and you should buy the biggest/most expensive property you can afford, because it's a "good investment". There was a stigma about still living with your Mum in your 20's.

So this fed not only into people buying as soon as they could afford, and buying bigger houses than they needed, but also buying second properties, buying BTLs etc. Demand was not been fed by need, but by investment potential.

Yes high CGT on housing profits should have been implemented ages ago, also on owner occupied gains with a roll forwards allowance - so if you make a gain on your first house, sell it and buy a more expensive second house, you can roll forwards to the gain to the new house, so you never pay CGT until you actually realise your gain by eg moving downmarket, abroad etc. 

(At least the Tories have done something about all this, like having higher stamp duty for second homes, higher CGT for property, and restricting tax relief on BTL mortgages. Too little too late, but more than Labour ever did while they were watching prices skyrocket on their watch...ironic that lots of people still seem to be believe tired old stereotypes that the Tories are on the side of the owning classes...)

You are looking at too far back in history so of course you will come to different conclusions, and worse, you are looking at a significant period of time between 1970 to 2000 when house prices to earnings was flat.  If you just look at the boom period in London housing over the last 20 years, you will see that housing stock went up 15% where as population increased 25%.  Clearly population growth was a contributor to the boom along with interest rates and lax policy that should otherwise deter landlord speculation.  In fact, London house prices to earnings (which is what really matters in order to strip out the effect of wage inflation which was rampant in the 70/80s) did not boom nearly as much between 1970 to 2000 compared to 2000 to 2020 (flat between 1970 to 2000 and 2.5x between 2000 to 2020). London's population reduced slightly between 1970 to 2000.

OK but even there a <10% increase in the population/housing stock ratio will only explain a tiny proportion of the 200%+ rise in prices between 1997 and 2007. (prices have fallen in real terms since 2007).

The overall point wasn't the affordability of housing, but the point the population/housing stock ratio has fallen massively - driven IMO by the perceived investment potential of housing rather than need. Immigration/population growth may be a factor but a minor one.

The fact that we even talk about price/earnings ratio for housing proves the point. We rarely talk about price/earnings ratios for any other product we buy, why not? The underlying assumption seems to be house prices should be driven by affordability,  ie that demand should increase in line with earnings. That doesn't happen for other essentials in life, like food. But then, people don't buy apples to invest, they buy them to eat.

You need to strip out the effects of wages from price increases because without any net migration, it is clearly obvious that a general rise in wages is supportive of house price growth.  We don't look at things like apples and oranges relative to wages because they are such a minor part of our spending.  Housing is a huge factor in terms of how much of it we can afford and its linked to our earnings because how much deposit and mortgage we can have depends on past and current earnings.

Again the statistics are obvious - between 2000 to 2020 you have a huge increase in immigration whilst house prices and house price to earnings ratio increased substantially.  Some of it was due to interest rates and some of it due to immigration and some due to tailwinds for landlords.  I suspect a lot has been due to immigration because its not only the numbers of immigrants but also the fiscal support of immigrants that support rental prices and make land-lording more lucrative.  It never is a 1 for 1 relationship between immigration and house prices, because that fails to consider the impact of leverage and fiscal support.

Food is not really a minor part of most peoples' spending. But the proportion isn't really relevant, the point is we don't expect food to rise with wages, we do expect houses to, so house prices rise until they hit an affordability limit. This implies that demand is limited purely by affordability, not by need or even want, ie that most people will spend as much as they can afford on housing, or home ownership at least.

You were complaining earlier I was using an irrelavant period between 1970-2000, but you're using an equally irrelavant period, between 2007 and 2020, during which house prices fell in real terms. The steep rise in prices was 1997-2007.

Compared to houses and rent, food is a minor cost to people's spending.  That is why people don't care about food prices to earnings because it is so immaterial and an 3, 4, 5% rise in food costs still won't matter too much for the average person or even most below average person whereas housing costs do matter because it usually takes a large portion of savings and earnings to be able to afford houses.  Houses should rise with wages all else being equal but they don't because there are other factors such as interest rates, immigrations, supply etc.  I am only looking at London for the period 2000-2020 which is when we saw the huge rise in London prices to earnings and a corresponding huge rise in immigration.

Why should houses rise with wages? That's the point. Everything else, in general over the long term, reduces relative to wages (as we get "richer"). 100 years ago most people spent nearly all their earnings on the basics of life and hardly anything for leisure, entertainment, frivolities etc. Now people spend less on the basics, and more on leisure etc.

Except when it comes to housing.

Because housing is driven by different factors compared to other goods and services.  Such as lack of supply, proximity to high paying jobs, immigration etc.  Some but not all things generally have fallen in price because input costs have fallen, mainly labour and you also have technological advancement further supporting productivity, plus you also have a thing called competition.  In the UK, what else can compete with London in terms of high paying jobs?

Care home costs have risen, certain food costs have risen, education costs have risen, certain other healthcare costs have risen such as dental.  So it is not at all fair to say everything has fallen and housing is the only thing that keeps rising.

OK yes some things have gone up by more than earnings, in fact the price of a pint in the pub has gone up by way more than earnings, it was something like 28p in today's terms 100 years ago! But the point was -  why is there the assumption that house prices and earnings should be linked in any way, when other stuff isn't. That there's some sort ratio between earnings and prices that should underly house price movements. Supply limitation isn't the issue as overall, over the long term, supply increase has outstripped population increase (although it may be for a certain time in certain places).

It would imply demand is only limited by ability to pay, and so prices should move with ability to pay. That people will spend as much as they can on their house. If this is true then IMO housing demand is not just fed by the need, or even the want, of a certain size/type of property as a place to live, but also by the investment potential. So unlike other stuff, people who don't need or even particularly want a large/expensive house will nevertheless buy one simply because they can afford to and think it's a "good investment".

Which is why I think if we take away the the potential for profiting from owning a house, house prices will come down to a more sensible level where people don't buy to invest, they buy to live. Then housing will be driven by demand for housing need, not demand for something to invest in.

cricidmuslibale

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

garmeg said:

talexuser said:

I seem to remember large companies having "pension holidays" in the 80s for many years in a row, while the employees carried on contributing. The reasoning was that the pension fund was worth more than the company and a tasty bait for takeover. Then years later all of a sudden the pension was un-affordable and had to be first limited and then closed to new employees, then sold off. I also remember talks with younger employees about "opting out" and don't know any that turned out better off than myself on my final salary pension (private company, inflation linked). A similar thing happened with repayment mortgages and investment mortgages that promised a large surplus at termination which often turned out to be a large deficit.

Then markets fell, we got Gordon Brown and the rest is history.

Gordon Brown is also responsible for the biggest problem faced by the young today - high house prices. The really steep rise in prices occurred between 1997 and 2007. He started with good intentions, in his first budget in 1997 he promised not to let house prices get out of control. But he broke that promise spectacularly, partly due to the stupid target he set the BoE, an inflation measure that specifically excluded house prices. So the BoE ran monetary policy not caring about runaway house prices.

Then even through strong growth he kept borrowing, because he thought boom and bust had been abolished. Leaving a massive budget deficit when the penny dropped and the credit fuelled boom ran out, causing the biggest bust for decades, and massive debts to be paid off probably mostly by the young.

Ironic how the young think Labour is on their side

It wasn't just interest rates, it was immigration too.  Again Labour's fault with Blair's immigration policy.

Arguably immigration had a bigger impact.  When you have low skilled immigration like we have had, you have massive fiscal support being provided to the immigrants in the form of schooling, healthcare, benefits etc and that helps provides demand for rentals (because immigrants have more money to spend on rents) which in turn drives demand from BTL landlords to buy up these properties.  This results in a boom in property prices generally, particularly in areas like London that saw massive inward immigration.

So a higher capital gains tax targetted at landlords (because they can not sell a fraction of a property) seems only fair and is essentially just give back on the massive fiscal support through immigration policy that underpinned much of their profits.

Immigration isn't to blame, the increased housing demand over the last few decades wasn't fuelled by increased population, the housing stock has risen much faster than population. Population in 1970 was about 55.6 million, in 2010 about 62.8 million. A 13% increase. Housing stock in 1970 was about 18 million, in 2010 about 26 million. A 44% increase.

It was fuelled by a big decrease in the amount of people per property, and that was more amongst the existing population, not immigrants who generally live more densely. There was/is an issue in London with mega rich foreigners buying London property as a sort of safe haven for their wealth, driving prices up.

There was this attitude that you should buy property as soon as you can, and you should buy the biggest/most expensive property you can afford, because it's a "good investment". There was a stigma about still living with your Mum in your 20's.

So this fed not only into people buying as soon as they could afford, and buying bigger houses than they needed, but also buying second properties, buying BTLs etc. Demand was not been fed by need, but by investment potential.

Yes high CGT on housing profits should have been implemented ages ago, also on owner occupied gains with a roll forwards allowance - so if you make a gain on your first house, sell it and buy a more expensive second house, you can roll forwards to the gain to the new house, so you never pay CGT until you actually realise your gain by eg moving downmarket, abroad etc. 

(At least the Tories have done something about all this, like having higher stamp duty for second homes, higher CGT for property, and restricting tax relief on BTL mortgages. Too little too late, but more than Labour ever did while they were watching prices skyrocket on their watch...ironic that lots of people still seem to be believe tired old stereotypes that the Tories are on the side of the owning classes...)

You are looking at too far back in history so of course you will come to different conclusions, and worse, you are looking at a significant period of time between 1970 to 2000 when house prices to earnings was flat.  If you just look at the boom period in London housing over the last 20 years, you will see that housing stock went up 15% where as population increased 25%.  Clearly population growth was a contributor to the boom along with interest rates and lax policy that should otherwise deter landlord speculation.  In fact, London house prices to earnings (which is what really matters in order to strip out the effect of wage inflation which was rampant in the 70/80s) did not boom nearly as much between 1970 to 2000 compared to 2000 to 2020 (flat between 1970 to 2000 and 2.5x between 2000 to 2020). London's population reduced slightly between 1970 to 2000.

OK but even there a <10% increase in the population/housing stock ratio will only explain a tiny proportion of the 200%+ rise in prices between 1997 and 2007. (prices have fallen in real terms since 2007).

The overall point wasn't the affordability of housing, but the point the population/housing stock ratio has fallen massively - driven IMO by the perceived investment potential of housing rather than need. Immigration/population growth may be a factor but a minor one.

The fact that we even talk about price/earnings ratio for housing proves the point. We rarely talk about price/earnings ratios for any other product we buy, why not? The underlying assumption seems to be house prices should be driven by affordability,  ie that demand should increase in line with earnings. That doesn't happen for other essentials in life, like food. But then, people don't buy apples to invest, they buy them to eat.

You need to strip out the effects of wages from price increases because without any net migration, it is clearly obvious that a general rise in wages is supportive of house price growth.  We don't look at things like apples and oranges relative to wages because they are such a minor part of our spending.  Housing is a huge factor in terms of how much of it we can afford and its linked to our earnings because how much deposit and mortgage we can have depends on past and current earnings.

Again the statistics are obvious - between 2000 to 2020 you have a huge increase in immigration whilst house prices and house price to earnings ratio increased substantially.  Some of it was due to interest rates and some of it due to immigration and some due to tailwinds for landlords.  I suspect a lot has been due to immigration because its not only the numbers of immigrants but also the fiscal support of immigrants that support rental prices and make land-lording more lucrative.  It never is a 1 for 1 relationship between immigration and house prices, because that fails to consider the impact of leverage and fiscal support.

Food is not really a minor part of most peoples' spending. But the proportion isn't really relevant, the point is we don't expect food to rise with wages, we do expect houses to, so house prices rise until they hit an affordability limit. This implies that demand is limited purely by affordability, not by need or even want, ie that most people will spend as much as they can afford on housing, or home ownership at least.

You were complaining earlier I was using an irrelavant period between 1970-2000, but you're using an equally irrelavant period, between 2007 and 2020, during which house prices fell in real terms. The steep rise in prices was 1997-2007.

Compared to houses and rent, food is a minor cost to people's spending.  That is why people don't care about food prices to earnings because it is so immaterial and an 3, 4, 5% rise in food costs still won't matter too much for the average person or even most below average person whereas housing costs do matter because it usually takes a large portion of savings and earnings to be able to afford houses.  Houses should rise with wages all else being equal but they don't because there are other factors such as interest rates, immigrations, supply etc.  I am only looking at London for the period 2000-2020 which is when we saw the huge rise in London prices to earnings and a corresponding huge rise in immigration.

Why should houses rise with wages? That's the point. Everything else, in general over the long term, reduces relative to wages (as we get "richer"). 100 years ago most people spent nearly all their earnings on the basics of life and hardly anything for leisure, entertainment, frivolities etc. Now people spend less on the basics, and more on leisure etc.

Except when it comes to housing.

Because housing is driven by different factors compared to other goods and services.  Such as lack of supply, proximity to high paying jobs, immigration etc.  Some but not all things generally have fallen in price because input costs have fallen, mainly labour and you also have technological advancement further supporting productivity, plus you also have a thing called competition.  In the UK, what else can compete with London in terms of high paying jobs?

Care home costs have risen, certain food costs have risen, education costs have risen, certain other healthcare costs have risen such as dental.  So it is not at all fair to say everything has fallen and housing is the only thing that keeps rising.

OK yes some things have gone up by more than earnings, in fact the price of a pint in the pub has gone up by way more than earnings, it was something like 28p in today's terms 100 years ago! But the point was -  why is there the assumption that house prices and earnings should be linked in any way, when other stuff isn't. That there's some sort ratio between earnings and prices that should underly house price movements. Supply limitation isn't the issue as overall, over the long term, supply increase has outstripped population increase (although it may be for a certain time in certain places).

It would imply demand is only limited by ability to pay, and so prices should move with ability to pay. That people will spend as much as they can on their house. If this is true then IMO housing demand is not just fed by the need, or even the want, of a certain size/type of property as a place to live, but also by the investment potential. So unlike other stuff, people who don't need or even particularly want a large/expensive house will nevertheless buy one simply because they can afford to and think it's a "good investment".

Which is why I think if we take away the the potential for profiting from owning a house, house prices will come down to a more sensible level where people don't buy to invest, they buy to live. Then housing will be driven by demand for housing need, not demand for something to invest in.

I've been reading most of the posts on this thread without feeling I can add anything useful to it. But I couldn't agree more with the post above! I also agree that Gordon Brown's total inability to spend, borrow and tax in a measured, sensible manner from c.1999 till 2007 badly marred what could have been a cautiously progressive and more centrist than left wing New Labour government with e.g. Alistair Darling as Chancellor of the Exchequer in those key middle years of that government. I find it rather ironic to say the least that Darling eventually got the job, and probably did ok at it with the limited time and pretty awful circumstances following the financial crash of 2008, under Brown's at best mediocre and sometimes very poor Prime Ministerial period in the last three years of New Labour! Getting involved in the Iraq War in the early 2000s was a total disaster too (not just economically by any means) but that was mainly Tony Blair's fault of course. [And I'm neither a Labour nor a Conservative supporter btw so I hope I'm being at least reasonably objective with these comments.]

zagfles

cricidmuslibale said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

garmeg said:

talexuser said:

I seem to remember large companies having "pension holidays" in the 80s for many years in a row, while the employees carried on contributing. The reasoning was that the pension fund was worth more than the company and a tasty bait for takeover. Then years later all of a sudden the pension was un-affordable and had to be first limited and then closed to new employees, then sold off. I also remember talks with younger employees about "opting out" and don't know any that turned out better off than myself on my final salary pension (private company, inflation linked). A similar thing happened with repayment mortgages and investment mortgages that promised a large surplus at termination which often turned out to be a large deficit.

Then markets fell, we got Gordon Brown and the rest is history.

Gordon Brown is also responsible for the biggest problem faced by the young today - high house prices. The really steep rise in prices occurred between 1997 and 2007. He started with good intentions, in his first budget in 1997 he promised not to let house prices get out of control. But he broke that promise spectacularly, partly due to the stupid target he set the BoE, an inflation measure that specifically excluded house prices. So the BoE ran monetary policy not caring about runaway house prices.

Then even through strong growth he kept borrowing, because he thought boom and bust had been abolished. Leaving a massive budget deficit when the penny dropped and the credit fuelled boom ran out, causing the biggest bust for decades, and massive debts to be paid off probably mostly by the young.

Ironic how the young think Labour is on their side

It wasn't just interest rates, it was immigration too.  Again Labour's fault with Blair's immigration policy.

Arguably immigration had a bigger impact.  When you have low skilled immigration like we have had, you have massive fiscal support being provided to the immigrants in the form of schooling, healthcare, benefits etc and that helps provides demand for rentals (because immigrants have more money to spend on rents) which in turn drives demand from BTL landlords to buy up these properties.  This results in a boom in property prices generally, particularly in areas like London that saw massive inward immigration.

So a higher capital gains tax targetted at landlords (because they can not sell a fraction of a property) seems only fair and is essentially just give back on the massive fiscal support through immigration policy that underpinned much of their profits.

Immigration isn't to blame, the increased housing demand over the last few decades wasn't fuelled by increased population, the housing stock has risen much faster than population. Population in 1970 was about 55.6 million, in 2010 about 62.8 million. A 13% increase. Housing stock in 1970 was about 18 million, in 2010 about 26 million. A 44% increase.

It was fuelled by a big decrease in the amount of people per property, and that was more amongst the existing population, not immigrants who generally live more densely. There was/is an issue in London with mega rich foreigners buying London property as a sort of safe haven for their wealth, driving prices up.

There was this attitude that you should buy property as soon as you can, and you should buy the biggest/most expensive property you can afford, because it's a "good investment". There was a stigma about still living with your Mum in your 20's.

So this fed not only into people buying as soon as they could afford, and buying bigger houses than they needed, but also buying second properties, buying BTLs etc. Demand was not been fed by need, but by investment potential.

Yes high CGT on housing profits should have been implemented ages ago, also on owner occupied gains with a roll forwards allowance - so if you make a gain on your first house, sell it and buy a more expensive second house, you can roll forwards to the gain to the new house, so you never pay CGT until you actually realise your gain by eg moving downmarket, abroad etc. 

(At least the Tories have done something about all this, like having higher stamp duty for second homes, higher CGT for property, and restricting tax relief on BTL mortgages. Too little too late, but more than Labour ever did while they were watching prices skyrocket on their watch...ironic that lots of people still seem to be believe tired old stereotypes that the Tories are on the side of the owning classes...)

You are looking at too far back in history so of course you will come to different conclusions, and worse, you are looking at a significant period of time between 1970 to 2000 when house prices to earnings was flat.  If you just look at the boom period in London housing over the last 20 years, you will see that housing stock went up 15% where as population increased 25%.  Clearly population growth was a contributor to the boom along with interest rates and lax policy that should otherwise deter landlord speculation.  In fact, London house prices to earnings (which is what really matters in order to strip out the effect of wage inflation which was rampant in the 70/80s) did not boom nearly as much between 1970 to 2000 compared to 2000 to 2020 (flat between 1970 to 2000 and 2.5x between 2000 to 2020). London's population reduced slightly between 1970 to 2000.

OK but even there a <10% increase in the population/housing stock ratio will only explain a tiny proportion of the 200%+ rise in prices between 1997 and 2007. (prices have fallen in real terms since 2007).

The overall point wasn't the affordability of housing, but the point the population/housing stock ratio has fallen massively - driven IMO by the perceived investment potential of housing rather than need. Immigration/population growth may be a factor but a minor one.

The fact that we even talk about price/earnings ratio for housing proves the point. We rarely talk about price/earnings ratios for any other product we buy, why not? The underlying assumption seems to be house prices should be driven by affordability,  ie that demand should increase in line with earnings. That doesn't happen for other essentials in life, like food. But then, people don't buy apples to invest, they buy them to eat.

You need to strip out the effects of wages from price increases because without any net migration, it is clearly obvious that a general rise in wages is supportive of house price growth.  We don't look at things like apples and oranges relative to wages because they are such a minor part of our spending.  Housing is a huge factor in terms of how much of it we can afford and its linked to our earnings because how much deposit and mortgage we can have depends on past and current earnings.

Again the statistics are obvious - between 2000 to 2020 you have a huge increase in immigration whilst house prices and house price to earnings ratio increased substantially.  Some of it was due to interest rates and some of it due to immigration and some due to tailwinds for landlords.  I suspect a lot has been due to immigration because its not only the numbers of immigrants but also the fiscal support of immigrants that support rental prices and make land-lording more lucrative.  It never is a 1 for 1 relationship between immigration and house prices, because that fails to consider the impact of leverage and fiscal support.

Food is not really a minor part of most peoples' spending. But the proportion isn't really relevant, the point is we don't expect food to rise with wages, we do expect houses to, so house prices rise until they hit an affordability limit. This implies that demand is limited purely by affordability, not by need or even want, ie that most people will spend as much as they can afford on housing, or home ownership at least.

You were complaining earlier I was using an irrelavant period between 1970-2000, but you're using an equally irrelavant period, between 2007 and 2020, during which house prices fell in real terms. The steep rise in prices was 1997-2007.

Compared to houses and rent, food is a minor cost to people's spending.  That is why people don't care about food prices to earnings because it is so immaterial and an 3, 4, 5% rise in food costs still won't matter too much for the average person or even most below average person whereas housing costs do matter because it usually takes a large portion of savings and earnings to be able to afford houses.  Houses should rise with wages all else being equal but they don't because there are other factors such as interest rates, immigrations, supply etc.  I am only looking at London for the period 2000-2020 which is when we saw the huge rise in London prices to earnings and a corresponding huge rise in immigration.

Why should houses rise with wages? That's the point. Everything else, in general over the long term, reduces relative to wages (as we get "richer"). 100 years ago most people spent nearly all their earnings on the basics of life and hardly anything for leisure, entertainment, frivolities etc. Now people spend less on the basics, and more on leisure etc.

Except when it comes to housing.

Because housing is driven by different factors compared to other goods and services.  Such as lack of supply, proximity to high paying jobs, immigration etc.  Some but not all things generally have fallen in price because input costs have fallen, mainly labour and you also have technological advancement further supporting productivity, plus you also have a thing called competition.  In the UK, what else can compete with London in terms of high paying jobs?

Care home costs have risen, certain food costs have risen, education costs have risen, certain other healthcare costs have risen such as dental.  So it is not at all fair to say everything has fallen and housing is the only thing that keeps rising.

OK yes some things have gone up by more than earnings, in fact the price of a pint in the pub has gone up by way more than earnings, it was something like 28p in today's terms 100 years ago! But the point was -  why is there the assumption that house prices and earnings should be linked in any way, when other stuff isn't. That there's some sort ratio between earnings and prices that should underly house price movements. Supply limitation isn't the issue as overall, over the long term, supply increase has outstripped population increase (although it may be for a certain time in certain places).

It would imply demand is only limited by ability to pay, and so prices should move with ability to pay. That people will spend as much as they can on their house. If this is true then IMO housing demand is not just fed by the need, or even the want, of a certain size/type of property as a place to live, but also by the investment potential. So unlike other stuff, people who don't need or even particularly want a large/expensive house will nevertheless buy one simply because they can afford to and think it's a "good investment".

Which is why I think if we take away the the potential for profiting from owning a house, house prices will come down to a more sensible level where people don't buy to invest, they buy to live. Then housing will be driven by demand for housing need, not demand for something to invest in.

I've been reading most of the posts on this thread without feeling I can add anything useful to it. But I couldn't agree more with the post above! I also agree that Gordon Brown's total inability to spend, borrow and tax in a measured, sensible manner from c.1999 till 2007 badly marred what could have been a cautiously progressive and more centrist than left wing New Labour government with e.g. Alistair Darling as Chancellor of the Exchequer in those key middle years of that government. I find it rather ironic to say the least that Darling eventually got the job, and probably did ok at it with the limited time and pretty awful circumstances following the financial crash of 2008, under Brown's at best mediocre and sometimes very poor Prime Ministerial period in the last three years of New Labour! Getting involved in the Iraq War in the early 2000s was a total disaster too (not just economically by any means) but that was mainly Tony Blair's fault of course. [And I'm neither a Labour nor a Conservative supporter btw so I hope I'm being at least reasonably objective with these comments.]

Don't get me started on the utter incompetance of New Labour. They managed to combine the worst of the left with the worst of the right with breathtaking economic and political naivety.

Up to 2007 their documents were full of phrases like "what's more, Britain has broken free from the cycle of boom and bust".

They had "child poverty" targets that increased real long term child poverty by disincentivising work (or at least full time, career building work) - we ended up with the highest proportion of children living in workless households in the EU, despite lower than average unemployment, and near the bottom of most child wellbeing surveys. And a soaring welfare budget, paid for partly by borrowing which was OK because they'd "broken the cycle of boom and bust" The UK is still right at the top of the OECD charts for spending on family benefits, yet there are still constant stories in the media about starving children.

At the same time, they pandered to greed, record lowest tax rates on the rich, no attempt whatsoever to do anything about house prices rising out of the reach of people on ordinary incomes. Despite his 1997 promise Brown saw the political benefit of rising house prices, it did convince stupid people that they were better off just because their house was worth more.

They saw devolution as a way to quash calls for independance particularly in Scotland. They thought a devolved administration would naturally be Labour run Now the Tories do better than Labour in Scotland and the call for independance has never been greater. Plus we have a completely skewed democracy as we can see in the current crisis where English rules are decided by the whole UK but Scottish and Welsh rules are decided by the devolved administrations.

I'd agree that Alistair Darling was one of the few competant ministers in New Labour, and during the financial crisis he was a star - actually acting in the interests of the country rather than the political interests of New Labour, which caused big problems between no 11 and no 10 with that tribal numpty Brown more interested in getting re-elected than doing what's best for the country long term.

itwasntme001

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

garmeg said:

talexuser said:

I seem to remember large companies having "pension holidays" in the 80s for many years in a row, while the employees carried on contributing. The reasoning was that the pension fund was worth more than the company and a tasty bait for takeover. Then years later all of a sudden the pension was un-affordable and had to be first limited and then closed to new employees, then sold off. I also remember talks with younger employees about "opting out" and don't know any that turned out better off than myself on my final salary pension (private company, inflation linked). A similar thing happened with repayment mortgages and investment mortgages that promised a large surplus at termination which often turned out to be a large deficit.

Then markets fell, we got Gordon Brown and the rest is history.

Gordon Brown is also responsible for the biggest problem faced by the young today - high house prices. The really steep rise in prices occurred between 1997 and 2007. He started with good intentions, in his first budget in 1997 he promised not to let house prices get out of control. But he broke that promise spectacularly, partly due to the stupid target he set the BoE, an inflation measure that specifically excluded house prices. So the BoE ran monetary policy not caring about runaway house prices.

Then even through strong growth he kept borrowing, because he thought boom and bust had been abolished. Leaving a massive budget deficit when the penny dropped and the credit fuelled boom ran out, causing the biggest bust for decades, and massive debts to be paid off probably mostly by the young.

Ironic how the young think Labour is on their side

It wasn't just interest rates, it was immigration too.  Again Labour's fault with Blair's immigration policy.

Arguably immigration had a bigger impact.  When you have low skilled immigration like we have had, you have massive fiscal support being provided to the immigrants in the form of schooling, healthcare, benefits etc and that helps provides demand for rentals (because immigrants have more money to spend on rents) which in turn drives demand from BTL landlords to buy up these properties.  This results in a boom in property prices generally, particularly in areas like London that saw massive inward immigration.

So a higher capital gains tax targetted at landlords (because they can not sell a fraction of a property) seems only fair and is essentially just give back on the massive fiscal support through immigration policy that underpinned much of their profits.

Immigration isn't to blame, the increased housing demand over the last few decades wasn't fuelled by increased population, the housing stock has risen much faster than population. Population in 1970 was about 55.6 million, in 2010 about 62.8 million. A 13% increase. Housing stock in 1970 was about 18 million, in 2010 about 26 million. A 44% increase.

It was fuelled by a big decrease in the amount of people per property, and that was more amongst the existing population, not immigrants who generally live more densely. There was/is an issue in London with mega rich foreigners buying London property as a sort of safe haven for their wealth, driving prices up.

There was this attitude that you should buy property as soon as you can, and you should buy the biggest/most expensive property you can afford, because it's a "good investment". There was a stigma about still living with your Mum in your 20's.

So this fed not only into people buying as soon as they could afford, and buying bigger houses than they needed, but also buying second properties, buying BTLs etc. Demand was not been fed by need, but by investment potential.

Yes high CGT on housing profits should have been implemented ages ago, also on owner occupied gains with a roll forwards allowance - so if you make a gain on your first house, sell it and buy a more expensive second house, you can roll forwards to the gain to the new house, so you never pay CGT until you actually realise your gain by eg moving downmarket, abroad etc. 

(At least the Tories have done something about all this, like having higher stamp duty for second homes, higher CGT for property, and restricting tax relief on BTL mortgages. Too little too late, but more than Labour ever did while they were watching prices skyrocket on their watch...ironic that lots of people still seem to be believe tired old stereotypes that the Tories are on the side of the owning classes...)

You are looking at too far back in history so of course you will come to different conclusions, and worse, you are looking at a significant period of time between 1970 to 2000 when house prices to earnings was flat.  If you just look at the boom period in London housing over the last 20 years, you will see that housing stock went up 15% where as population increased 25%.  Clearly population growth was a contributor to the boom along with interest rates and lax policy that should otherwise deter landlord speculation.  In fact, London house prices to earnings (which is what really matters in order to strip out the effect of wage inflation which was rampant in the 70/80s) did not boom nearly as much between 1970 to 2000 compared to 2000 to 2020 (flat between 1970 to 2000 and 2.5x between 2000 to 2020). London's population reduced slightly between 1970 to 2000.

OK but even there a <10% increase in the population/housing stock ratio will only explain a tiny proportion of the 200%+ rise in prices between 1997 and 2007. (prices have fallen in real terms since 2007).

The overall point wasn't the affordability of housing, but the point the population/housing stock ratio has fallen massively - driven IMO by the perceived investment potential of housing rather than need. Immigration/population growth may be a factor but a minor one.

The fact that we even talk about price/earnings ratio for housing proves the point. We rarely talk about price/earnings ratios for any other product we buy, why not? The underlying assumption seems to be house prices should be driven by affordability,  ie that demand should increase in line with earnings. That doesn't happen for other essentials in life, like food. But then, people don't buy apples to invest, they buy them to eat.

You need to strip out the effects of wages from price increases because without any net migration, it is clearly obvious that a general rise in wages is supportive of house price growth.  We don't look at things like apples and oranges relative to wages because they are such a minor part of our spending.  Housing is a huge factor in terms of how much of it we can afford and its linked to our earnings because how much deposit and mortgage we can have depends on past and current earnings.

Again the statistics are obvious - between 2000 to 2020 you have a huge increase in immigration whilst house prices and house price to earnings ratio increased substantially.  Some of it was due to interest rates and some of it due to immigration and some due to tailwinds for landlords.  I suspect a lot has been due to immigration because its not only the numbers of immigrants but also the fiscal support of immigrants that support rental prices and make land-lording more lucrative.  It never is a 1 for 1 relationship between immigration and house prices, because that fails to consider the impact of leverage and fiscal support.

Food is not really a minor part of most peoples' spending. But the proportion isn't really relevant, the point is we don't expect food to rise with wages, we do expect houses to, so house prices rise until they hit an affordability limit. This implies that demand is limited purely by affordability, not by need or even want, ie that most people will spend as much as they can afford on housing, or home ownership at least.

You were complaining earlier I was using an irrelavant period between 1970-2000, but you're using an equally irrelavant period, between 2007 and 2020, during which house prices fell in real terms. The steep rise in prices was 1997-2007.

Compared to houses and rent, food is a minor cost to people's spending.  That is why people don't care about food prices to earnings because it is so immaterial and an 3, 4, 5% rise in food costs still won't matter too much for the average person or even most below average person whereas housing costs do matter because it usually takes a large portion of savings and earnings to be able to afford houses.  Houses should rise with wages all else being equal but they don't because there are other factors such as interest rates, immigrations, supply etc.  I am only looking at London for the period 2000-2020 which is when we saw the huge rise in London prices to earnings and a corresponding huge rise in immigration.

Why should houses rise with wages? That's the point. Everything else, in general over the long term, reduces relative to wages (as we get "richer"). 100 years ago most people spent nearly all their earnings on the basics of life and hardly anything for leisure, entertainment, frivolities etc. Now people spend less on the basics, and more on leisure etc.

Except when it comes to housing.

Because housing is driven by different factors compared to other goods and services.  Such as lack of supply, proximity to high paying jobs, immigration etc.  Some but not all things generally have fallen in price because input costs have fallen, mainly labour and you also have technological advancement further supporting productivity, plus you also have a thing called competition.  In the UK, what else can compete with London in terms of high paying jobs?

Care home costs have risen, certain food costs have risen, education costs have risen, certain other healthcare costs have risen such as dental.  So it is not at all fair to say everything has fallen and housing is the only thing that keeps rising.

OK yes some things have gone up by more than earnings, in fact the price of a pint in the pub has gone up by way more than earnings, it was something like 28p in today's terms 100 years ago! But the point was -  why is there the assumption that house prices and earnings should be linked in any way, when other stuff isn't. That there's some sort ratio between earnings and prices that should underly house price movements. Supply limitation isn't the issue as overall, over the long term, supply increase has outstripped population increase (although it may be for a certain time in certain places).

It would imply demand is only limited by ability to pay, and so prices should move with ability to pay. That people will spend as much as they can on their house. If this is true then IMO housing demand is not just fed by the need, or even the want, of a certain size/type of property as a place to live, but also by the investment potential. So unlike other stuff, people who don't need or even particularly want a large/expensive house will nevertheless buy one simply because they can afford to and think it's a "good investment".

Which is why I think if we take away the the potential for profiting from owning a house, house prices will come down to a more sensible level where people don't buy to invest, they buy to live. Then housing will be driven by demand for housing need, not demand for something to invest in.

I never said that houses should move in line with wages only.  Of course it does not, at least in the short term.  I only use PE ratios for London houses to try to prove a point about immigration and to do this it makes sense to use PE ratios rather than actual houses prices because using PE ratios strip away the effect of wage inflation on house prices.  So we get a more accurate (although by no means perfect) analysis.

But over the very long term, house prices should only rise with wages, that is what has occurred historically.  You will of course get large swings either way in the interim because of leverage/ debt cycles but house prices rising more than wages over the long term is just not sustainable, both from a financial perspective and from a societal.

zagfles

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

garmeg said:

talexuser said:

I seem to remember large companies having "pension holidays" in the 80s for many years in a row, while the employees carried on contributing. The reasoning was that the pension fund was worth more than the company and a tasty bait for takeover. Then years later all of a sudden the pension was un-affordable and had to be first limited and then closed to new employees, then sold off. I also remember talks with younger employees about "opting out" and don't know any that turned out better off than myself on my final salary pension (private company, inflation linked). A similar thing happened with repayment mortgages and investment mortgages that promised a large surplus at termination which often turned out to be a large deficit.

Then markets fell, we got Gordon Brown and the rest is history.

Gordon Brown is also responsible for the biggest problem faced by the young today - high house prices. The really steep rise in prices occurred between 1997 and 2007. He started with good intentions, in his first budget in 1997 he promised not to let house prices get out of control. But he broke that promise spectacularly, partly due to the stupid target he set the BoE, an inflation measure that specifically excluded house prices. So the BoE ran monetary policy not caring about runaway house prices.

Then even through strong growth he kept borrowing, because he thought boom and bust had been abolished. Leaving a massive budget deficit when the penny dropped and the credit fuelled boom ran out, causing the biggest bust for decades, and massive debts to be paid off probably mostly by the young.

Ironic how the young think Labour is on their side

It wasn't just interest rates, it was immigration too.  Again Labour's fault with Blair's immigration policy.

Arguably immigration had a bigger impact.  When you have low skilled immigration like we have had, you have massive fiscal support being provided to the immigrants in the form of schooling, healthcare, benefits etc and that helps provides demand for rentals (because immigrants have more money to spend on rents) which in turn drives demand from BTL landlords to buy up these properties.  This results in a boom in property prices generally, particularly in areas like London that saw massive inward immigration.

So a higher capital gains tax targetted at landlords (because they can not sell a fraction of a property) seems only fair and is essentially just give back on the massive fiscal support through immigration policy that underpinned much of their profits.

Immigration isn't to blame, the increased housing demand over the last few decades wasn't fuelled by increased population, the housing stock has risen much faster than population. Population in 1970 was about 55.6 million, in 2010 about 62.8 million. A 13% increase. Housing stock in 1970 was about 18 million, in 2010 about 26 million. A 44% increase.

It was fuelled by a big decrease in the amount of people per property, and that was more amongst the existing population, not immigrants who generally live more densely. There was/is an issue in London with mega rich foreigners buying London property as a sort of safe haven for their wealth, driving prices up.

There was this attitude that you should buy property as soon as you can, and you should buy the biggest/most expensive property you can afford, because it's a "good investment". There was a stigma about still living with your Mum in your 20's.

So this fed not only into people buying as soon as they could afford, and buying bigger houses than they needed, but also buying second properties, buying BTLs etc. Demand was not been fed by need, but by investment potential.

Yes high CGT on housing profits should have been implemented ages ago, also on owner occupied gains with a roll forwards allowance - so if you make a gain on your first house, sell it and buy a more expensive second house, you can roll forwards to the gain to the new house, so you never pay CGT until you actually realise your gain by eg moving downmarket, abroad etc. 

(At least the Tories have done something about all this, like having higher stamp duty for second homes, higher CGT for property, and restricting tax relief on BTL mortgages. Too little too late, but more than Labour ever did while they were watching prices skyrocket on their watch...ironic that lots of people still seem to be believe tired old stereotypes that the Tories are on the side of the owning classes...)

You are looking at too far back in history so of course you will come to different conclusions, and worse, you are looking at a significant period of time between 1970 to 2000 when house prices to earnings was flat.  If you just look at the boom period in London housing over the last 20 years, you will see that housing stock went up 15% where as population increased 25%.  Clearly population growth was a contributor to the boom along with interest rates and lax policy that should otherwise deter landlord speculation.  In fact, London house prices to earnings (which is what really matters in order to strip out the effect of wage inflation which was rampant in the 70/80s) did not boom nearly as much between 1970 to 2000 compared to 2000 to 2020 (flat between 1970 to 2000 and 2.5x between 2000 to 2020). London's population reduced slightly between 1970 to 2000.

OK but even there a <10% increase in the population/housing stock ratio will only explain a tiny proportion of the 200%+ rise in prices between 1997 and 2007. (prices have fallen in real terms since 2007).

The overall point wasn't the affordability of housing, but the point the population/housing stock ratio has fallen massively - driven IMO by the perceived investment potential of housing rather than need. Immigration/population growth may be a factor but a minor one.

The fact that we even talk about price/earnings ratio for housing proves the point. We rarely talk about price/earnings ratios for any other product we buy, why not? The underlying assumption seems to be house prices should be driven by affordability,  ie that demand should increase in line with earnings. That doesn't happen for other essentials in life, like food. But then, people don't buy apples to invest, they buy them to eat.

You need to strip out the effects of wages from price increases because without any net migration, it is clearly obvious that a general rise in wages is supportive of house price growth.  We don't look at things like apples and oranges relative to wages because they are such a minor part of our spending.  Housing is a huge factor in terms of how much of it we can afford and its linked to our earnings because how much deposit and mortgage we can have depends on past and current earnings.

Again the statistics are obvious - between 2000 to 2020 you have a huge increase in immigration whilst house prices and house price to earnings ratio increased substantially.  Some of it was due to interest rates and some of it due to immigration and some due to tailwinds for landlords.  I suspect a lot has been due to immigration because its not only the numbers of immigrants but also the fiscal support of immigrants that support rental prices and make land-lording more lucrative.  It never is a 1 for 1 relationship between immigration and house prices, because that fails to consider the impact of leverage and fiscal support.

Food is not really a minor part of most peoples' spending. But the proportion isn't really relevant, the point is we don't expect food to rise with wages, we do expect houses to, so house prices rise until they hit an affordability limit. This implies that demand is limited purely by affordability, not by need or even want, ie that most people will spend as much as they can afford on housing, or home ownership at least.

You were complaining earlier I was using an irrelavant period between 1970-2000, but you're using an equally irrelavant period, between 2007 and 2020, during which house prices fell in real terms. The steep rise in prices was 1997-2007.

Compared to houses and rent, food is a minor cost to people's spending.  That is why people don't care about food prices to earnings because it is so immaterial and an 3, 4, 5% rise in food costs still won't matter too much for the average person or even most below average person whereas housing costs do matter because it usually takes a large portion of savings and earnings to be able to afford houses.  Houses should rise with wages all else being equal but they don't because there are other factors such as interest rates, immigrations, supply etc.  I am only looking at London for the period 2000-2020 which is when we saw the huge rise in London prices to earnings and a corresponding huge rise in immigration.

Why should houses rise with wages? That's the point. Everything else, in general over the long term, reduces relative to wages (as we get "richer"). 100 years ago most people spent nearly all their earnings on the basics of life and hardly anything for leisure, entertainment, frivolities etc. Now people spend less on the basics, and more on leisure etc.

Except when it comes to housing.

Because housing is driven by different factors compared to other goods and services.  Such as lack of supply, proximity to high paying jobs, immigration etc.  Some but not all things generally have fallen in price because input costs have fallen, mainly labour and you also have technological advancement further supporting productivity, plus you also have a thing called competition.  In the UK, what else can compete with London in terms of high paying jobs?

Care home costs have risen, certain food costs have risen, education costs have risen, certain other healthcare costs have risen such as dental.  So it is not at all fair to say everything has fallen and housing is the only thing that keeps rising.

OK yes some things have gone up by more than earnings, in fact the price of a pint in the pub has gone up by way more than earnings, it was something like 28p in today's terms 100 years ago! But the point was -  why is there the assumption that house prices and earnings should be linked in any way, when other stuff isn't. That there's some sort ratio between earnings and prices that should underly house price movements. Supply limitation isn't the issue as overall, over the long term, supply increase has outstripped population increase (although it may be for a certain time in certain places).

It would imply demand is only limited by ability to pay, and so prices should move with ability to pay. That people will spend as much as they can on their house. If this is true then IMO housing demand is not just fed by the need, or even the want, of a certain size/type of property as a place to live, but also by the investment potential. So unlike other stuff, people who don't need or even particularly want a large/expensive house will nevertheless buy one simply because they can afford to and think it's a "good investment".

Which is why I think if we take away the the potential for profiting from owning a house, house prices will come down to a more sensible level where people don't buy to invest, they buy to live. Then housing will be driven by demand for housing need, not demand for something to invest in.

I never said that houses should move in line with wages only.  Of course it does not, at least in the short term.  I only use PE ratios for London houses to try to prove a point about immigration and to do this it makes sense to use PE ratios rather than actual houses prices because using PE ratios strip away the effect of wage inflation on house prices.  So we get a more accurate (although by no means perfect) analysis.

But over the very long term, house prices should only rise with wages, that is what has occurred historically.  You will of course get large swings either way in the interim because of leverage/ debt cycles but house prices rising more than wages over the long term is just not sustainable, both from a financial perspective and from a societal.

You seem to be missing my point.

I don't dispute that house prices rising with earnings is a historical long term trend. I'm asking why, and what can be done about it. Like I said, other basics in life have in general gone down relative to wages, which is a good thing as it enables people to spend more on non-basics, leisure, travel, eating out, having fun etc.

So why hasn't the same happened with housing? It is supply, ie shortage of housing? No - because over the long term supply has increased faster than the population.

So it must be demand. So the question is what drives the demand for significantly more housing per person than in the past. Obviously it's not just one thing, some people will prefer to liver in smaller households, some people will want to get away from their parents as soon as possible, some people don't even consider the possibility of living with friends rather than on their own. But a major factor is the investment potential. You're not just buying somewhere to live, you're "investing". Or FOMO - buy now or prices will rise and you'll never be able to afford to buy. And if the investment potential is a major driver, which I think it is, then increasing supply cannot solve the problem.

If prices drop as a result of increased supply, people will be able to afford bigger homes, second homes, maybe even third homes, we could concrete over the entire green belt and still have supply problems because people are buying to invest not to live.

So the solution I think is to remove the investment potential of housing, particularly for people who don't buy to rent, ie those who buy a house bigger than they need or a holiday home. Have a situation where it is obvious that ownership of a house that you don't rent out will cost more money than it makes. Then people will not buy a bigger house than they need/want for living, or a holiday home, which reduces demand and should hopefully mean house prices rise less than earnings over the long term. So when your kids are ready to buy a house, they don't need to spend as much on the roof over their head as you did.

Obviously you still need a rental market, not everyone wants to buy eg people who don't see a long term future in an area, students etc. But with lower prices, rental yields can rise without rents rising, so there's still opportunity for proper professional landlords, not the sort who regard housing as a "get rich quick" scheme. 

Linton

I see 2 main drivers for rising house prices...
1) FTBs ability to buy is controlled by the size of the mortgage they can get.  In general they go for the maximum amount that someone somewhere is prepared to lend them. When buying a house they then look for the best available within their budget which will automatically be at their budget - anything significantly cheaper is seen as undesirable/grotty.   For most people there is no strong wish to go to the limit of affordability for anything else they buy.

So what happens - builders provide houses configured to justify as a high a price as possible within the land available. Fully fitted kitchens, ensuites, landscaped garden etc etc.  Things that would have been seen as luxuries for the rich 40 years ago which  would never have been provided in low-end housing.  People want to spend to the maximum they can afford so the builders help them do it.

Low interest rates in the past few years have prov ided FTBs with easier access to more money. When I bought my first house 40 years ago mortages were set to about 3X husband's annual income + half of wife's based on the then normal practice that the wife would stop working as soon as there were any kids, or possibly even if there weren't.  Also morgages were rationed by the BoE until the 1980s so even if you met the bank's criteria for the amounrt of money you wanted to borrow you may not have been able to get a mortgage.  As the amount people can borrow increases the price of FTB houses increases to match it - increased mortgage availability does not help anyone.

2) The next important driver for increased house prices are social changes leading to lower occupancy rates.  40 years ago and more 3 generation households were common.  Granny would be living with her son/daughter and their children in what was granny's house.  Nowadays the children are probably living many miles away from their childhood home and so granny stays in her own house and the children have theirs.

The people who complain most about house prices are the singles.  40 years ago it was fairly unusual for someone unmarried to buy a house.  Many people lived at home until they married. Both then and now house prices were determined by what a couple could pay.  With people marrying or entering into permanent relationships later we have more singles buying on their own doubling the number of houses that would previously been required.

I do not believe that investment potential is anythng like as important a driver.  Were BTLs and investment financed rental accommodation to be abolished the net effect would be even more pressure on housing - rental property is generally at a higher density since renters are prepared to put up with less space than if they were buying.

itwasntme001

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

garmeg said:

talexuser said:

I seem to remember large companies having "pension holidays" in the 80s for many years in a row, while the employees carried on contributing. The reasoning was that the pension fund was worth more than the company and a tasty bait for takeover. Then years later all of a sudden the pension was un-affordable and had to be first limited and then closed to new employees, then sold off. I also remember talks with younger employees about "opting out" and don't know any that turned out better off than myself on my final salary pension (private company, inflation linked). A similar thing happened with repayment mortgages and investment mortgages that promised a large surplus at termination which often turned out to be a large deficit.

Then markets fell, we got Gordon Brown and the rest is history.

Gordon Brown is also responsible for the biggest problem faced by the young today - high house prices. The really steep rise in prices occurred between 1997 and 2007. He started with good intentions, in his first budget in 1997 he promised not to let house prices get out of control. But he broke that promise spectacularly, partly due to the stupid target he set the BoE, an inflation measure that specifically excluded house prices. So the BoE ran monetary policy not caring about runaway house prices.

Then even through strong growth he kept borrowing, because he thought boom and bust had been abolished. Leaving a massive budget deficit when the penny dropped and the credit fuelled boom ran out, causing the biggest bust for decades, and massive debts to be paid off probably mostly by the young.

Ironic how the young think Labour is on their side

It wasn't just interest rates, it was immigration too.  Again Labour's fault with Blair's immigration policy.

Arguably immigration had a bigger impact.  When you have low skilled immigration like we have had, you have massive fiscal support being provided to the immigrants in the form of schooling, healthcare, benefits etc and that helps provides demand for rentals (because immigrants have more money to spend on rents) which in turn drives demand from BTL landlords to buy up these properties.  This results in a boom in property prices generally, particularly in areas like London that saw massive inward immigration.

So a higher capital gains tax targetted at landlords (because they can not sell a fraction of a property) seems only fair and is essentially just give back on the massive fiscal support through immigration policy that underpinned much of their profits.

Immigration isn't to blame, the increased housing demand over the last few decades wasn't fuelled by increased population, the housing stock has risen much faster than population. Population in 1970 was about 55.6 million, in 2010 about 62.8 million. A 13% increase. Housing stock in 1970 was about 18 million, in 2010 about 26 million. A 44% increase.

It was fuelled by a big decrease in the amount of people per property, and that was more amongst the existing population, not immigrants who generally live more densely. There was/is an issue in London with mega rich foreigners buying London property as a sort of safe haven for their wealth, driving prices up.

There was this attitude that you should buy property as soon as you can, and you should buy the biggest/most expensive property you can afford, because it's a "good investment". There was a stigma about still living with your Mum in your 20's.

So this fed not only into people buying as soon as they could afford, and buying bigger houses than they needed, but also buying second properties, buying BTLs etc. Demand was not been fed by need, but by investment potential.

Yes high CGT on housing profits should have been implemented ages ago, also on owner occupied gains with a roll forwards allowance - so if you make a gain on your first house, sell it and buy a more expensive second house, you can roll forwards to the gain to the new house, so you never pay CGT until you actually realise your gain by eg moving downmarket, abroad etc. 

(At least the Tories have done something about all this, like having higher stamp duty for second homes, higher CGT for property, and restricting tax relief on BTL mortgages. Too little too late, but more than Labour ever did while they were watching prices skyrocket on their watch...ironic that lots of people still seem to be believe tired old stereotypes that the Tories are on the side of the owning classes...)

You are looking at too far back in history so of course you will come to different conclusions, and worse, you are looking at a significant period of time between 1970 to 2000 when house prices to earnings was flat.  If you just look at the boom period in London housing over the last 20 years, you will see that housing stock went up 15% where as population increased 25%.  Clearly population growth was a contributor to the boom along with interest rates and lax policy that should otherwise deter landlord speculation.  In fact, London house prices to earnings (which is what really matters in order to strip out the effect of wage inflation which was rampant in the 70/80s) did not boom nearly as much between 1970 to 2000 compared to 2000 to 2020 (flat between 1970 to 2000 and 2.5x between 2000 to 2020). London's population reduced slightly between 1970 to 2000.

OK but even there a <10% increase in the population/housing stock ratio will only explain a tiny proportion of the 200%+ rise in prices between 1997 and 2007. (prices have fallen in real terms since 2007).

The overall point wasn't the affordability of housing, but the point the population/housing stock ratio has fallen massively - driven IMO by the perceived investment potential of housing rather than need. Immigration/population growth may be a factor but a minor one.

The fact that we even talk about price/earnings ratio for housing proves the point. We rarely talk about price/earnings ratios for any other product we buy, why not? The underlying assumption seems to be house prices should be driven by affordability,  ie that demand should increase in line with earnings. That doesn't happen for other essentials in life, like food. But then, people don't buy apples to invest, they buy them to eat.

You need to strip out the effects of wages from price increases because without any net migration, it is clearly obvious that a general rise in wages is supportive of house price growth.  We don't look at things like apples and oranges relative to wages because they are such a minor part of our spending.  Housing is a huge factor in terms of how much of it we can afford and its linked to our earnings because how much deposit and mortgage we can have depends on past and current earnings.

Again the statistics are obvious - between 2000 to 2020 you have a huge increase in immigration whilst house prices and house price to earnings ratio increased substantially.  Some of it was due to interest rates and some of it due to immigration and some due to tailwinds for landlords.  I suspect a lot has been due to immigration because its not only the numbers of immigrants but also the fiscal support of immigrants that support rental prices and make land-lording more lucrative.  It never is a 1 for 1 relationship between immigration and house prices, because that fails to consider the impact of leverage and fiscal support.

Food is not really a minor part of most peoples' spending. But the proportion isn't really relevant, the point is we don't expect food to rise with wages, we do expect houses to, so house prices rise until they hit an affordability limit. This implies that demand is limited purely by affordability, not by need or even want, ie that most people will spend as much as they can afford on housing, or home ownership at least.

You were complaining earlier I was using an irrelavant period between 1970-2000, but you're using an equally irrelavant period, between 2007 and 2020, during which house prices fell in real terms. The steep rise in prices was 1997-2007.

Compared to houses and rent, food is a minor cost to people's spending.  That is why people don't care about food prices to earnings because it is so immaterial and an 3, 4, 5% rise in food costs still won't matter too much for the average person or even most below average person whereas housing costs do matter because it usually takes a large portion of savings and earnings to be able to afford houses.  Houses should rise with wages all else being equal but they don't because there are other factors such as interest rates, immigrations, supply etc.  I am only looking at London for the period 2000-2020 which is when we saw the huge rise in London prices to earnings and a corresponding huge rise in immigration.

Why should houses rise with wages? That's the point. Everything else, in general over the long term, reduces relative to wages (as we get "richer"). 100 years ago most people spent nearly all their earnings on the basics of life and hardly anything for leisure, entertainment, frivolities etc. Now people spend less on the basics, and more on leisure etc.

Except when it comes to housing.

Because housing is driven by different factors compared to other goods and services.  Such as lack of supply, proximity to high paying jobs, immigration etc.  Some but not all things generally have fallen in price because input costs have fallen, mainly labour and you also have technological advancement further supporting productivity, plus you also have a thing called competition.  In the UK, what else can compete with London in terms of high paying jobs?

Care home costs have risen, certain food costs have risen, education costs have risen, certain other healthcare costs have risen such as dental.  So it is not at all fair to say everything has fallen and housing is the only thing that keeps rising.

OK yes some things have gone up by more than earnings, in fact the price of a pint in the pub has gone up by way more than earnings, it was something like 28p in today's terms 100 years ago! But the point was -  why is there the assumption that house prices and earnings should be linked in any way, when other stuff isn't. That there's some sort ratio between earnings and prices that should underly house price movements. Supply limitation isn't the issue as overall, over the long term, supply increase has outstripped population increase (although it may be for a certain time in certain places).

It would imply demand is only limited by ability to pay, and so prices should move with ability to pay. That people will spend as much as they can on their house. If this is true then IMO housing demand is not just fed by the need, or even the want, of a certain size/type of property as a place to live, but also by the investment potential. So unlike other stuff, people who don't need or even particularly want a large/expensive house will nevertheless buy one simply because they can afford to and think it's a "good investment".

Which is why I think if we take away the the potential for profiting from owning a house, house prices will come down to a more sensible level where people don't buy to invest, they buy to live. Then housing will be driven by demand for housing need, not demand for something to invest in.

I never said that houses should move in line with wages only.  Of course it does not, at least in the short term.  I only use PE ratios for London houses to try to prove a point about immigration and to do this it makes sense to use PE ratios rather than actual houses prices because using PE ratios strip away the effect of wage inflation on house prices.  So we get a more accurate (although by no means perfect) analysis.

But over the very long term, house prices should only rise with wages, that is what has occurred historically.  You will of course get large swings either way in the interim because of leverage/ debt cycles but house prices rising more than wages over the long term is just not sustainable, both from a financial perspective and from a societal.

You seem to be missing my point.

I don't dispute that house prices rising with earnings is a historical long term trend. I'm asking why, and what can be done about it. Like I said, other basics in life have in general gone down relative to wages, which is a good thing as it enables people to spend more on non-basics, leisure, travel, eating out, having fun etc.

So why hasn't the same happened with housing? It is supply, ie shortage of housing? No - because over the long term supply has increased faster than the population.

So it must be demand. So the question is what drives the demand for significantly more housing per person than in the past. Obviously it's not just one thing, some people will prefer to liver in smaller households, some people will want to get away from their parents as soon as possible, some people don't even consider the possibility of living with friends rather than on their own. But a major factor is the investment potential. You're not just buying somewhere to live, you're "investing". Or FOMO - buy now or prices will rise and you'll never be able to afford to buy. And if the investment potential is a major driver, which I think it is, then increasing supply cannot solve the problem.

If prices drop as a result of increased supply, people will be able to afford bigger homes, second homes, maybe even third homes, we could concrete over the entire green belt and still have supply problems because people are buying to invest not to live.

So the solution I think is to remove the investment potential of housing, particularly for people who don't buy to rent, ie those who buy a house bigger than they need or a holiday home. Have a situation where it is obvious that ownership of a house that you don't rent out will cost more money than it makes. Then people will not buy a bigger house than they need/want for living, or a holiday home, which reduces demand and should hopefully mean house prices rise less than earnings over the long term. So when your kids are ready to buy a house, they don't need to spend as much on the roof over their head as you did.

Obviously you still need a rental market, not everyone wants to buy eg people who don't see a long term future in an area, students etc. But with lower prices, rental yields can rise without rents rising, so there's still opportunity for proper professional landlords, not the sort who regard housing as a "get rich quick" scheme. 

There is no rule to say everything including housing should fall in relation to wages.  We don't really know whether the stuff that has gotten cheaper will stay cheap in the future, inflation can technically affect all sorts of goods and services for a variety of reasons.  I think housing should follow wages because people usually live where they work and so it follows that houses should track the wages the jobs offer in the locality of the house.

The problem with your argument in restricting the investment potential is that how far do you go?  Restrict too much and you will find rents going up quite a bit.  In order to come close to solving the problem you will also need to somehow make it easier for people who can't afford to buy, to buy and that means a redistribution of wealth/income and then it will become problematic politically.  But then you will still have some who just won't want to buy and so to keep a ceiling on rents you need to have an investment market for the renters.

It is not an easy problem to solve but in areas like London, it appears the more recent gains of the last 20 years were due to a "goldilocks" climate of cheap borrowing, massive fiscally supported immigration and favourable tax rules (relative to other investments but not relative to corporation tax).

zagfles

Linton said:

I see 2 main drivers for rising house prices...
1) FTBs ability to buy is controlled by the size of the mortgage they can get.  In general they go for the maximum amount that someone somewhere is prepared to lend them. When buying a house they then look for the best available within their budget which will automatically be at their budget - anything significantly cheaper is seen as undesirable/grotty.   For most people there is no strong wish to go to the limit of affordability for anything else they buy.

So what happens - builders provide houses configured to justify as a high a price as possible within the land available. Fully fitted kitchens, ensuites, landscaped garden etc etc.  Things that would have been seen as luxuries for the rich 40 years ago which  would never have been provided in low-end housing.  People want to spend to the maximum they can afford so the builders help them do it.

Low interest rates in the past few years have prov ided FTBs with easier access to more money. When I bought my first house 40 years ago mortages were set to about 3X husband's annual income + half of wife's based on the then normal practice that the wife would stop working as soon as there were any kids, or possibly even if there weren't.  Also morgages were rationed by the BoE until the 1980s so even if you met the bank's criteria for the amounrt of money you wanted to borrow you may not have been able to get a mortgage.  As the amount people can borrow increases the price of FTB houses increases to match it - increased mortgage availability does not help anyone.

2) The next important driver for increased house prices are social changes leading to lower occupancy rates.  40 years ago and more 3 generation households were common.  Granny would be living with her son/daughter and their children in what was granny's house.  Nowadays the children are probably living many miles away from their childhood home and so granny stays in her own house and the children have theirs.

The people who complain most about house prices are the singles.  40 years ago it was fairly unusual for someone unmarried to buy a house.  Many people lived at home until they married. Both then and now house prices were determined by what a couple could pay.  With people marrying or entering into permanent relationships later we have more singles buying on their own doubling the number of houses that would previously been required.

I do not believe that investment potential is anythng like as important a driver.  Were BTLs and investment financed rental accommodation to be abolished the net effect would be even more pressure on housing - rental property is generally at a higher density since renters are prepared to put up with less space than if they were buying.

You make my point! Why do you think it is that buyers go for the max they can afford but renters don't? If people are prepared to pay the most they can for the best accomodation, why just buyers and not renters?

Is it not obvious? Buyers are thinking of the investment potential - ie they buy more than they need or even want because they think it'll make them money. Take that away, and there's no reason why buyers wouldn't behave as renters - ie they would both see their accomodation as a drain on their resources as with any other cost of living. And therefore not buy excessive property they don't need or even want.

It's a different equation for landlords - and like I said there's clearly a need for landlords to be able to make a profit, they have rental income to do that, and by keeping prices down and stable the yield required will be lower.

itwasntme001

zagfles said:

Linton said:

I see 2 main drivers for rising house prices...
1) FTBs ability to buy is controlled by the size of the mortgage they can get.  In general they go for the maximum amount that someone somewhere is prepared to lend them. When buying a house they then look for the best available within their budget which will automatically be at their budget - anything significantly cheaper is seen as undesirable/grotty.   For most people there is no strong wish to go to the limit of affordability for anything else they buy.

So what happens - builders provide houses configured to justify as a high a price as possible within the land available. Fully fitted kitchens, ensuites, landscaped garden etc etc.  Things that would have been seen as luxuries for the rich 40 years ago which  would never have been provided in low-end housing.  People want to spend to the maximum they can afford so the builders help them do it.

Low interest rates in the past few years have prov ided FTBs with easier access to more money. When I bought my first house 40 years ago mortages were set to about 3X husband's annual income + half of wife's based on the then normal practice that the wife would stop working as soon as there were any kids, or possibly even if there weren't.  Also morgages were rationed by the BoE until the 1980s so even if you met the bank's criteria for the amounrt of money you wanted to borrow you may not have been able to get a mortgage.  As the amount people can borrow increases the price of FTB houses increases to match it - increased mortgage availability does not help anyone.

2) The next important driver for increased house prices are social changes leading to lower occupancy rates.  40 years ago and more 3 generation households were common.  Granny would be living with her son/daughter and their children in what was granny's house.  Nowadays the children are probably living many miles away from their childhood home and so granny stays in her own house and the children have theirs.

The people who complain most about house prices are the singles.  40 years ago it was fairly unusual for someone unmarried to buy a house.  Many people lived at home until they married. Both then and now house prices were determined by what a couple could pay.  With people marrying or entering into permanent relationships later we have more singles buying on their own doubling the number of houses that would previously been required.

I do not believe that investment potential is anythng like as important a driver.  Were BTLs and investment financed rental accommodation to be abolished the net effect would be even more pressure on housing - rental property is generally at a higher density since renters are prepared to put up with less space than if they were buying.

You make my point! Why do you think it is that buyers go for the max they can afford but renters don't? If people are prepared to pay the most they can for the best accomodation, why just buyers and not renters?

Is it not obvious? Buyers are thinking of the investment potential - ie they buy more than they need or even want because they think it'll make them money. Take that away, and there's no reason why buyers wouldn't behave as renters - ie they would both see their accomodation as a drain on their resources as with any other cost of living. And therefore not buy excessive property they don't need or even want.

It's a different equation for landlords - and like I said there's clearly a need for landlords to be able to make a profit, they have rental income to do that, and by keeping prices down and stable the yield required will be lower.

I don't think this is always the case.  And I am not so sure buyers will pay upto the affordibility just because they can.  They are still price sensitive.  Buyer's may pay over the odds for a home not because they think its a good investment, but because they just want to make sure they are the ones who end up buying it as emotion comes more into it, especially when there are other buyers looking at the same home.

Renters, at least those looking to rent short term not more than a few years, are not going to care all that much about renting the biggest house with the best fittings.  Because they are not going to stay there that long and would rather save the money for other things perhaps buying a home in the future.

Linton

zagfles said:

Linton said:

I see 2 main drivers for rising house prices...
1) FTBs ability to buy is controlled by the size of the mortgage they can get.  In general they go for the maximum amount that someone somewhere is prepared to lend them. When buying a house they then look for the best available within their budget which will automatically be at their budget - anything significantly cheaper is seen as undesirable/grotty.   For most people there is no strong wish to go to the limit of affordability for anything else they buy.

So what happens - builders provide houses configured to justify as a high a price as possible within the land available. Fully fitted kitchens, ensuites, landscaped garden etc etc.  Things that would have been seen as luxuries for the rich 40 years ago which  would never have been provided in low-end housing.  People want to spend to the maximum they can afford so the builders help them do it.

Low interest rates in the past few years have prov ided FTBs with easier access to more money. When I bought my first house 40 years ago mortages were set to about 3X husband's annual income + half of wife's based on the then normal practice that the wife would stop working as soon as there were any kids, or possibly even if there weren't.  Also morgages were rationed by the BoE until the 1980s so even if you met the bank's criteria for the amounrt of money you wanted to borrow you may not have been able to get a mortgage.  As the amount people can borrow increases the price of FTB houses increases to match it - increased mortgage availability does not help anyone.

2) The next important driver for increased house prices are social changes leading to lower occupancy rates.  40 years ago and more 3 generation households were common.  Granny would be living with her son/daughter and their children in what was granny's house.  Nowadays the children are probably living many miles away from their childhood home and so granny stays in her own house and the children have theirs.

The people who complain most about house prices are the singles.  40 years ago it was fairly unusual for someone unmarried to buy a house.  Many people lived at home until they married. Both then and now house prices were determined by what a couple could pay.  With people marrying or entering into permanent relationships later we have more singles buying on their own doubling the number of houses that would previously been required.

I do not believe that investment potential is anythng like as important a driver.  Were BTLs and investment financed rental accommodation to be abolished the net effect would be even more pressure on housing - rental property is generally at a higher density since renters are prepared to put up with less space than if they were buying.

You make my point! Why do you think it is that buyers go for the max they can afford but renters don't? If people are prepared to pay the most they can for the best accomodation, why just buyers and not renters?

Is it not obvious? Buyers are thinking of the investment potential - ie they buy more than they need or even want because they think it'll make them money. Take that away, and there's no reason why buyers wouldn't behave as renters - ie they would both see their accomodation as a drain on their resources as with any other cost of living. And therefore not buy excessive property they don't need or even want.

It's a different equation for landlords - and like I said there's clearly a need for landlords to be able to make a profit, they have rental income to do that, and by keeping prices down and stable the yield required will be lower.

I disagree that most FTBs base their decision on the investment potential. Obviously the major basic requirements of size and location must be met but beyond that I think it's more a matter of psychology.  Your house demonstrates to you and the rest of the world what sort of person you are.  You want to live somewhere to be proud of rather than somewhere mediocre but cheap that just about does the job.

Buying for investment potential only makes sense if you intend to move into somewhere cheaper later.  For most FTBs I think that is the last thing on their mind.