The UK housing bubble is caused by demand for housing exceeding supply

This morning and indeed the weekend just gone has seen a flurry of news about both UK house prices and also our housing situation. The government has noticed as it has begun its own version of open mouth operations in the vein of Bank of England policy. This of course feeds back into Friday analysis where a sub-plot was the rise what is presented as housing wealth but of course has a slab of inflation in it too. Let me open with an outburst of what can only been called property porn from Rightmove.

Rightmove

They present it differently but here is an underlying tenet from Friday’s discussion.

Property-rich getting richer:

In terms of actual numbers then we see something which is very reminiscent of the property bubble of the previous decade.

Average £2,550 rise is the largest amount seen in month of September since 2002, driven by price jump in family-home sectors (+1.2%) as owners of first-time-buyer properties see prices stall (-1.1%).

Interestingly several measures are now picking up weakness in first time buyer prices. Have they finally reached a level which cannot be afforded? I will return to that in a moment. But here is the consequence of the house price rises.

Price of property coming to market this month hits new national record, up 0.9% to £294,834, as demand is fuelled by cheap borrowing yet supply is limited by some home-owners’ reluctance to move.

Another way of putting that is that it is some 11.4 times the average earnings figures we received only last week. If you want some real exploding ratios then I guess one only has to look at London.

The average price of a newly-marketed home in the capital is at a new all-time high of £620,003, up by 0.8 per cent on the previous record set in July of this year.

We get data on London earnings less frequently and we switch to a median as opposed to an average but here it is.

In April 2014, London topped the regional list for median earnings for full-time employees, at £660 per week.

So if we assume a Stavhanovite work ethic of 52 weeks a year than we get a house price to earnings ratio of 18!

Care is needed here as the Rightmove system encourages property porn by using asking prices rather than actual trading data. Also I doubt the latest London data which seems sugar coated – for property owners – to me. But there is a drumbeat being hammered out.

One might have thought that the collapse of Lehman Brothers would have led to house price falls well in my home borough of Wandsworth prices have risen by 60% since then! Actually that is worse than the London average of 71% and is firmly in bubbilicious territory.

Official Policy

I have written many times how the Bank of England Funding for Lending Scheme of July 2012 drove much of this by subsidising bank mortgage funding. However there has also been the Help To Buy scheme which Shelter has analysed.

the two distinct Help to Buy schemes have supported over 100,000 home purchases across the UK. With the extension of the scheme until 2020, the government will spend up to £6 billion on equity loans and will guarantee up to £12 billion worth of mortgages.

That is the scope of it so far and Shelter conclude this about its impact.

Based on the volume Help to Buy mortgages so far, it is estimated that so far the scheme has increased house prices by 3.0%. That is around £8,250 based on the current UK average house price of £274,000 .

From this they conclude by recognising a theme that will be familiar to readers on here.

In other words, it has helped a small number of people to buy, at the expense of worsening the overall affordability crisis for everyone else.

What about demand for homes?

The lack of sufficient house building is something which has been one the drivers of the UK housing crisis. This has gone back for successive governments over decades and in more recent times has been added to by the rise in the UK population which whatever ones views on the rights and wrongs matter has been a fact. In 2005 the recorded UK population was about to push through 60 million according to Eurostat whereas this year it is on its way to pushing though 65 million.

So demand has been rising over time of that we can be sure.

What about the supply of homes?

The BBC has looked into this with the help of the National Housing Federation.

The National Housing Federation estimated 974,000 homes were needed between 2011 and 2014…….But figures from 326 councils showed only 457,490 were built.

Exact numbers are of course open to debate but the underlying principle of a shortage of housebuilding in the UK is regularly commented on here. The conclusion produced a number which is consistent with past suggestions.

The federation said about 245,000 new homes were needed each year in England.

Bringing supply and demand together

The Free Exchange section of the Economist pointed out this.

In the 1970s, for every person added to the British population, two dwellings were added to the housing stock. But by the time you get to 2014, for every additional person in Britain you get way less than an extra dwelling.

So there has been a clear change in the balance between supply and demand.

The figures are the worst in British history, except for during wartime. And even these figures are likely to be an underestimate, since the average household size in Britain has dropped in recent decades.

Some care is needed because if you read the first paragraph quoted there is the implication we need a house each rather than one per household! But the point of a shift in the demand/supply balance is true.

There was a further interesting snippet.

Data from Neal Hudson of Savills, an estate agent, show that over the past forty years the average time that Brits take to pay off a mortgage has risen from eight years to 20 years.

Was it really the norm to pay off a mortgage in eight years.

Financial problems for housing associations

These have underperformed according to Channel 4 news.

Housing associations have delivered just 26,000 net new homes a year between 2000-2014 – half the amount required,

As we see Right To Buy 2.0 then the Office for National Statistics is looking at whether housing association debt should be part of the public sector in the way that Network Rail was reclassified. Around £60 billion is at stake and if we look back to the past such a reclassification would be much more likely to restrict future building than to add to it.

Comment

We regularly see promises from UK governments on the subject of extra house building  and this morning has seen more hot air emitted. From the BBC.

‘Million’ new homes target declared by minister Brandon Lewis

Is that like the inflation target? Oh and if there was real intention behind this I rather suspect it would have been announced by a minister we have all heard of! As ever I want to avoid the politics and would remind readers that this is a continuation of the scenario of the Ebbsfleet development which Labour and the Coaltion have announced so many times that it would solve the housing crisis on its own! In reality the planned numbers of houses being built there has fallen. If you look back at the promises there you can find a speech from 2008 by the then Prime Minister Gordon Brown which contains this.

And that’s why Yvette Cooper has made it her challenge to build three million more homes by 2020.

Promises are much easier than doing aren’t they?

Also let me congratulate Japan on its victory in the Rugby World Cup on a weekend of sporting shocks. Meanwhile what did governments do for revenue before they discovered fines?

Shares in Volkswagen  plunged the most in almost six years in early Monday trading after U.S. authorities accused the German carmaker of falsifying emissions data, which means it could face penalties of up to $18 billion.

As we mull whether Wolfsburg did in fact need the cash when they sold Kevin De Bruyne to Manchester City. I note that Reuters Jamie has been reviewing some past advertising.

Advertisements

48 thoughts on “The UK housing bubble is caused by demand for housing exceeding supply

  1. Hello Shaun

    “The UK housing bubble is caused by demand for housing exceeding supply”

    correct it is , owner-occupiers – up 0.5 million since 2000 to 2014 , population increase over same period 5.3 million ( 0.5 million new citizens came here in 2014 alone)

    Rentals and housing associations have taken over council homes but the total homes /dwellings has failed to keep pace

    also I note from HMG own figures we are building less but if we went back to 2008/9 building numbers then they were about 250 thousand so this announcement is all cotton wool, 4 years for a million ? so they announce what they were going to do anyways?

    for a million more than what we’d normally build ? pfft !

    Considering the need for more housing to cope with the influx of people wanting to be British and those who are born here , theres a very big job of schools , housing and local infrastructure that frankly is not being talked about yet alone planned

    Until all understand the issue then its the same ol’ story ….. too little , too late

    Forbin

    • Hi Forbin

      I completely agree on your infrastructure point. We discussed on here a while back about the issue of school planning where there is a 5 year lead time ( for foreign readers formal UK schooling begins at 5) for obvious reasons and yet there were shortages! It is even harder for health care as there may be no lead time there and perhaps contributes to the stream of “the NHS will collapse in 2 years” stories. There is also transport where almost anything (HS2) would improve it.

      Oh and looking at your assessment Yvette Cooper wasn’t actually promising anything either….

  2. The planning system needs to be entirely re-thought.

    It presently prevents small scale development by individuals but encourages vast estates by large builders. It also locks land use, particularly agricultural, in unprofitable use.

    The Green Belt should be abolished as it is now a green noose, rather than a sensible protection for the countryside.

    • mick , can we build of your golf course ? your favorite one , in fact all of them

      I take it your happy to donate your garden and any other green areas around you like parks

      jsut seeing how “commited” you are

      Forbin

      • You can certainly build on my farm, even just 4 or 5 houses if you want to limit it, as you seem to, but preferably the whole lot. Or just allow me to…I would build good houses in keeping with the local area, because I would live there.

        Alternatively you can pay me compensation for loss of my right to use my property as I want…

  3. The UK was building close to 250,000 homes in 2006/7, following which at the depths of the recession dropped to 100,000. The Housing Associations were building close to 50,000 per year, until the Conservatives changed the funding a year into their first term, whereby numbers fell through the floor (and now criticising them for not building enough). The UK housebuilding sector was decimated in the recession. We are currently building 140,000 per year, talk of increasing that to 250,00 is pie in the sky, as there is not the skill base to support that many houses. And in any case, it appears there are insufficient people wealthy enough to buy them either!

    • Hi Jimbob

      As you make clear this requires planning and actually coincides with one of my late father’s arguments. He trained back in the day at the Brixton School of Building and qualified as a surveyor which became his profession. He felt that our education system increasingly failed those who wanted technical building qualifications and was often dismissive of those entering it with a degree.

      What we need are more technical colleges for building trades so that we have the ability in the future to increase output. Also it would help skill levels.

  4. Hi Shaun

    An interesting piece.

    The quote from The Economist which is designed to show the changing balance of supply shows, as you say, something else. If we built two houses to every extra person and each house contains an average of 2.5 people ( which i believe is the case) then we would by now not only have much cheaper housing for ourselves but we would be able to afford a small house for our domestic pets as well to give them privacy and space!

    For an interesting take on the housing crisis see this: http://www.capx.co/there-is-no-uk-housing-crisis-and-there-never-was-one/. There are doubtless areas where there is a shortage but these are far less than we think.

    The fact is a lot of what we read in the MSM is nonsense. Despite all the hand wringing from government most of house building is now private and the housebuilders want restricted supply and high prices. They want the planning regulations to be relaxed not to enable them to build more houses but to give them the facility of building in more desirable places. I suspect if the planning regulations were almost all disposed of it would affect the supply of housing very little, for the reason given above.

    The latest excuse is the shortage of skilled trades but has it not occurred to them to pay more or don’t they believe in capitalism any more? Of course the real reason may be that they know full well that they can’t charge more because housing is now at such ridiculous levels and the thought of lower profits with the consequent effect on management bonuses is too awful to contemplate.

    When it all goes pop we are unlikely to have a slow nominal decline with inflation at fairly moderate levels as we had in the mid nineties, leading to a real terms decline of around 30%. What we are far more likely to get now is a sharp decline in nominal values due to the (maybe temporary disappearance of inflation); the money illusion factor is now absent. If this happens we will of course get HTB3,4,5……; 100% mortgages; MIRAS, in fact anything to ensure that nominal prices stay high.

    However you are of course aware that the OBR has built into into its GDP forecasts a considerable increase in mortgage lending so we are now officially a debt based, housing Ponzi economy – previously it was unofficial.

    • I’m going to make a sweeping generalisation here, and suggest that most of the people who read Shaun’s blog are probably middled aged and upwards. Out of interest, what is the readers perspective on the ability of children to leave home and at what age? I left home at 19 and bought my first house, as did my brothers at a similar age, but I don’t see that being viable for my children.

      The reason I ask, is I suspect there is a pent up demand for housing that is not immediately visible.

      • jimbo

        I have that situation as I posted Friday , theres 2 offspring of mine who would dearly love a place of their own but the low wages paid and the high cost of buying or renting prevents that

        Also the Banks cannot allow house prices to fall as they will go bust and the BLT brigade will go with them if their clients can buy cheaper than the inflated rents they charge…

        I believe that we need to relieve not only that demand but also the demand from those wishing to become British by moving here .

        Who though amongst our illustrious leaders will break the Banks and then also fly through the flack of the British Press who will bleat endlessly how poor everyone have become as the poor can afford a house !

        I’d posit no one

        Forbin

      • Well I’m not so sure you’re right. I read elsewhere that in 1995-2007 the UK population increased by 5% but the housing stock increased by 10%. On the assumption that there are around two people per house then that means that we built at a rate four times the rate of population increase. And, curiously enough, this is consistent with the quote from the Economist above which shows a rate four times the rate of increase of population.

        Now I believe that I’m correct above when I state that it was said that the housing “stock” increased, that is net of amortization (demolition), offset to some extent by extending existing houses.

        These statistics relate population increases with housing stock and the fact that we have more people living at home later does not affect the point being made made; in fact it would make the “surplus” even larger because this would push the people per dwelling figure above 2.5.

        • If we have 17-18m households, that’s nearer 3.5 people per household; the assumption of 2 per household requires 30-odd million households

        • The ONS says we have 26.7 million households which at a rate of 2.4 people /household (which I beliive is the correct figure) gives a population of 64 million.

        • 17.5 million owener occupiers

          5-6 million private rented including btl and housing associations

          1.5 million council dwellings

          ok you can pick yer dates but I used 2000-2014 at random

          over that period 5 million + more people

          any way you look we build not enough for the owner occupiers , there was 0.5 million more of them over that time period

          btl did well

          Forbin

        • You are right about the increase in population 2000-2104 at 5 million. From what I can see we built around 2.7 million new homes in the same period. At 2.4 persons per household that gives extra capacity for 6.5 million people.

    • Also other than flats in cities houses are still built with mid 20th century technology. I. Can not believe that having an outer shell of bricks is either eagerly efficient or time efficient

    • No, the big UK house builders are happy with the status quo. Allowing anybody to build would result in a massive competitive building boom. If experience overseas is anything to go by, sooner or later house prices will come crashing down due to oversupply and/or developers hitting debt problems.

  5. High prices are caused by demand exceeding supply, bubbles are not.
    The housing bubble is created by lenders being willing to lend unrealistic amounts of money at our unrealistic rates of interest.
    House prices have always reflected what could be lent to buy them, as their has always been a shortage. This dates back to when (in those days) women’s wages were taken into account when lending levels were set.
    It is true that a surfeit of housing would prick that bubble, but it is easy to see how 1m houses could be built and yet the bubble be maintained, as, although it may be enough now, it won’t be enough when population increase is taken into account.
    In other words, the size of the bubble is not proportional to the size of the excess demand, and can be maintained even with a small excess in demand.

    • That first sentence doesn’t read well.
      What I meant is that demand exceeding supply does not NECESSARILLY cause bubbles. It is, of course necessary for the housing bubble, but does not, of itself, cause it.

      • Hi therrawbuzzin

        I agree that lack of supply is an issue but that the bubble has been driven by the Funding for Lending Scheme of the Bank of England which the Economist article oddly missed (did he/she really not know?). Also in London there has been the perceived safe haven argument which has seen a wave of foreign buying.

        • I think the article Bob J has linked to amply demonstrates there is no shortgae. There’s no point in ignoring it because it doesn’t fit with your or my previous theory – facts is facts.

  6. I think the main driver of house prices has been the increase in the availability of mortgage/HTB/FLS credit which was a deliberate ploy to save the banks as each £1 they create in mortgage debt is an asset for them and means some poor soul has a lifetime of debt to pay off.

    No doubt there are shortages in some areas yet in others they can hardly give places away eg in Stoke-on-Trent not so long ago you could buy a Victorian terrace house for £1 and do it up yourself. London seems to be in a bubble of its own and its property has been a repository for ill-gotten gains from the rest of the world and right now there are new-build flats lying empty as they have been bought to hold rather than BTL. What about that road where oligarchs buy mansions and then leave them empty so that many are in a state of disrepair (Bishops Road I think)?

    Some prime London areas are now reducing in price eg Kensington & Chelsea and in some areas there is a glut of property for sale egSW8. The recent tax changes for BTL propery have yet to hit and these properties have been setting the floor price for FTB (first time buyers) as BTL has been taxed more favourably.

    For a long time rising house prices were seen as a good thing but more and more people are beginning to realise that older people have gained at the expense of their children and grandchildren. People are also locked into the mindset of ever increasing house prices. I think there will be a rude awakening soon for many as they see the price of their property falling. Unless they sell, the paper gains they’ve made so far will amount to a lot less than they were expecting.

  7. Firstly, let me declare an interest being that pariah, a property developer and investor!

    The lack of enough supply of housing has been due to bureaucracy and nimbyism. For those involved in the process buying land, obtaining planning permission and building houses, know that it is the most difficult and time consuming result to achieve and mostly it is unsuccessful.

    The idea that “property developers” dictate to planning authority is naive in the extreme. A typical response to a planning application is ” No, now whats the proposal” Decision are dictated by whether it will be popular with the local electorate or not. The ones that vote are usually home owners, who do not have experience of housing need or deprivation. As with GM crops the vocal who are against it, are the well fed.

    To increase housing supply;
    1. Planning for housing should not be left to Local Authorities – there is too much self interest
    2. There should be a presumption of permission, unless there are overriding factors against.
    3. Building Regulations and Standards are over engineered and inflexible.
    4. The Green Belt is out of date and should be critically reviewed and modified
    5. Ever increasing investigation, reports and analysis of sites is expensive, time consuming and mostly unproductive – nobody seems to read them anyway.
    I could go on, but most of your readers are probably asleep now!
    If we are serious about increasing housing supply, politicians announcing targets is not going to put one bricks on top of another. We need a review of the whole process, and quickly.

    • I believe that far homes in continental Europe are built by individuals. Here we have handicapped individuals in favour of large house builders and they have not built the required houses for perfectly understandable reasons as have been rehearsed today.

      Does continental Europe have the shortages we have?

      • I am not sure how they work it in Europe, but for a relatively inexperience individual in the U.K. to try and build a house from scratch would be daunting to say the least – worse than divorce!

    • Forgive me for saying so, but while one can see and sympathise with this obviously heartfelt personal perspective and particular exprerience, it is too generalised and to too sweeping to be anything like the truth of the matter. For instance, I and I estimate about 200 voters are about to be blighted by a development approval in the next fortnight that is being ushered through with open sneering at the electors. Time out of mind, money and big developers’ political connection has been trumping voters opposition. I suspect your generalisations are valid more from a modest developers’ frustratiuons than a those of the significant heavyweights.
      Local authorities are self-interested, developers are more altruistic? Give us a break!

  8. Shaun, I read that there is a shortage of housing coming to the market and a very low turnover by historical standards. This is quite noticeable in the area where I live (Cheltenham) and the reason appears to be that the ladder climbers can no longer afford the quantum jump in what they will have to pay for the next leg up as salaries have not kept pace with house prices. If you are a young couple around here and have a three bed property it is probably worth between 250k and 350k depending upon type and location. Four bed properties start at over 400k and the sky is the limit on what it could cost. Selling a three bed, paying off the loan and then taking on a new loan plus stamp duty is just too big a jump for many folk to take. It didn’t used to be this way hence the market was more fluid. A number of my kids friends are in just this sort of trap. It also gives rise to the huge number of extensions that are going on and some quite expensive cars parked outside modest homes as the owners spend the money elsewhere! At the upper end are folk in their 50’s who have paid off their mortgage and are cash rich with good incomes. The market they are in is booming and properties are snapped up. A friend recently sold a 1.6mil pound property in one day !

    • Actually I beg to disagree with this Pavlaki. I found the “next step problem” in the 80s when prices were going up sharply. I wanted to move from Enfield out to a better place but found the cost prohibitive; I would have had to increase my mortgage by around three times, even with a substantial contribution by me; no thanks.

  9. Does 2% annual GDP growth in a service based economy imply close to 2% population growth?
    That implies doubling of both by 2050.
    We need 2% GDP growth to continue to service our debts.
    2% population growth means another London, Birmingham, Sheffield etc. by 2050
    Didn’t even build another Skegness last year.
    Not much hope there then.
    I can’t drive two cars at once but I’ll have a go at doubling my wine consumption if it will help.

    • Hi Chrisrick

      :).

      As to your opening sentence it is a restatement in many ways of the point that Forbin made a while ago that 2% GDP growth is the modern equivalent of what was 0% in the past. The total may rise but what individual gains are there? Also how does that work with the claimed “green” agenda….

    • Hi therrawbuzzin

      A good point as there is plenty of scope for refurbishment and renewal in our cities as well as replacement. Although some of the monstrosities of the late 60s and 70s have seen there day and need knocking down.

  10. Great column, Shaun, as usual.
    On a totally different topic I wanted to share with you an episode of Power & Politics. This was the program that Evan Solomon hosted until he was fired for having inappropriate business dealings with Mark Carney and other big names and Mark Carney’s punishment was, oh never mind… He was succeeded as host by Roseanne “Anyone But Harper” Barton.
    http://www.cbc.ca/player/News/Politics/Power+%26+Politics/ID/2674796154/?page=6
    This episode dates from September 1, when the 2015Q2 real GDP estimates were published by StatCan. The only quarterly changes that were published as part of the StatCan release were the quarter-to-quarter changes (not annualized) and the four-quarter changes. One would think that if Power & Politics wanted to show how Canada compared to other G-7 countries it would rely on the same analysis:
    Country Growth Rate
    2015Q2/2015Q1 2015Q2/2014Q2
    US 0.9 2.7
    UK 0.7 2.6
    Germany 0.4 1.6
    Canada -0.1 1.0
    France 0.0 1.0
    Japan -0.4 0.9
    Italy 0.3 0.7

    This would have shown Canada with the median annual growth for the year, and the second lowest growth rate for the quarter. Not a stellar record but not so bad for the only G-7 country hard hit by the oil price drop. Instead, as you can see, it opted for a chart showing Canada as the only country with two quarters of negative growth in 2015, i.e. the worst performer in the G-7. It didn’t draw any attention to the fact that Japan had lost more output in one quarter of growth than Canada had in 2015H1.
    Ms. Barton, either through ignorance or malevolence, implied that the 0.5% growth in the economy recorded for June real GDP (6.2% annualized) was at a much inferior rate than the 2% plus annualized rate forecast by the DOF for 2015H2. Her repeated references to economic stagnation and a softening economy are not in any way supported by the spectacular June growth rate or the Bank of Canada forecasts of growth of 1.5% in 2015Q3 and 2.5% in 2015Q4.
    This episode is typical of the Canadian Broadcasting Corp. in general in this federal election. This is a state-enterprise, supported by taxpayers at least a third of whom vote Conservative, but it has turned itself into a permanent, non-stop Anybody But Harper propaganda machine. It really has to be seen to be believed. Has the BBC ever gone after the UK governing party in this fashionduring a British election campaign? I would certainly hope not.

    • The BBC is similar here.
      Campaigned against Scottish Independence.
      Campaigned against Jeremy Corbyn (and for Yvette Cooper) in Labour leadership race.
      Campaigning to stay in EU.

    • Hi Andrew

      The BBC comes under fire from most sections of the UK political system at times with each arguing it is biased! Where it has a problem is on issues such as Europe and global warming where it has decided that the correct answer is yes and it therefore pushes for that rather than allowing the best arguments to win.

      • The “best arguments” depend on theposition you already occupy unless you have an open mind and on EU membership – well …..

  11. Hi Shaun
    Did past,and do current or future governments really
    want to increase uk housebuilding numbers?

    My MP is Brandon Lewis and there aren’t many new builds
    at the moment. in his constituency I’m sure that if he is interviewed
    on the subject he would have to mention the “target” word several
    times.I’m nearly 67 so I’ve set myself a target of 127,how’s that
    going to work out!

    Your subject today is very poignant for me as I have spent this
    afternoon clearing out my late parents home as completion on
    the sale is imminent.On a better note my son and his partner
    who have a flat are wanting to buy a larger home and will need
    a small mortgage. Do they stay where they are and continue to
    save,or take the plunge. No decision is simple any more is it?.

    JRH

    • Hi JRH

      My sympathies on clearing out your late parents home. After my fathers death there have been many similar jobs although not yet the home as my mum still lives there. It is now too large really but she has a support network of friends. She gets upset by reminders which the weekend before last were his golf bag and clubs which I removed.

      As to your children I wish them all the best. Was it always like this? I suspect not…

  12. Too many good, bad and questionable points made in this excellent discussion to respond to adequately…. Instead, here’s my ultra-short summary of the problem:

    1. Land (or the right bits for development) is inherently scarce, and it’s permanent, so markets in land behave very differently from others.
    2. Access to land (nowadays just for a home, but for much of history for food too) is essential.
    3. So those who own land can always extract surplus product (ricardo’s iron law of rent).
    4. Operation of the market leads to increased concentration of land ownership – periodically disrupted by political intervention (eg large scale state ownership following WW2)
    5. Post war settlement added active state house building and land assembly (eg new towns) to public land ownership, regulation of rental and financial markets to structural interventions.
    6. Once the state pulled back from these interventions (leaving planning and housing benefit to take the strain) market patterns re asserted themselves, aided by liberalised finance.
    7. Rising house prices (helped by tax subsidies), right to buy etc created strong constituencies to constrain supply and rise prices further…. Helped by localised planning and tendency of older homeowners to vote.
    8. Resulting booms and busts drove greater concentration of supply industry: dominant players can use land market and planning system to keep out new entrants and prevent competitive erosion of profit margins.
    9. System is now stuck in a vicious cycle of under supply and rising prices that the market simply cannot solve.
    10. State is left footing the bill for worsening gap between incomes and property prices, and resorting to policy gimmicks that won’t work or make the problem work, unable or unwilling to make the interventions that might break the vicious circle.

    Actual evidence – and a five year programme of strategic intervention to reverse this – is here: http://www.thehomesweneed.org.uk

    • Mainly good points, but the planning system is, of course, an intervention in the market, so that is one reason why “the market” can’t solve the problem, there isn’t a free market….

      • Yes, planning is an intervention. But my point is that the market can’t solve the problem anyway, because of the inherent scarcity and necessity of land. I’d say we have planning because land markets can’t function optimally – not the other way around.

  13. Hi Shaun,

    Just a comment on the streams of economic migrants with a smattering of genuine war refugees travelling across Europe.

    Historically the US used immigration to hammer down wages. Europe’s minimum wage and living standards historically depended on the Iron curtain to maintain labour scarcity.

    Now the Southern England has scarcity in water, housing and the UK generally faces an energy crunch. I’d also predict that many of the arriving immigrants will end up working illegally for less than the minimum wage and housed in substandard conditions. Such wage competition will probably impact the locals wages and opportunities.

  14. “The lack of sufficient house building is something which has been one the drivers of the UK housing crisis. This has gone back for successive governments over decades and in more recent times has been added to by the rise in the UK population which whatever ones views on the rights and wrongs matter has been a fact. In 2005 the recorded UK population was about to push through 60 million according to Eurostat whereas this year it is on its way to pushing though 65 million.

    So demand has been rising over time of that we can be sure.”

    Making an argument that UK housing prices are high due to demand exceeding supply without discussing the role of easy credit is patently ridiculous. Interest rates are at their lowest in centuries, mortgage rates are cheap and despite some tightening of lending standards it is still easy to get a mortgage, relative to historical standards. In fact, some brokers predict the return of 100% LTV deals by the end of this year.

    When the criteria for borrowing hundreds of thousands of pounds to buy property is simply that you can fog a mirror, interest only repayments are still ridiculously cheap and house buying propaganda is at an all time high, then obviously demand will exceed supply, regardless of how many new properties are being built. The real question is when the era of easy credit ends, what will happen to this so-called “demand”? I doubt many market participants could service a mortgage at historical interest rates, let alone buy property out right with cash.

    So then I ask you, why do people waste their time discussing temporary (one might even say “bubble” induced) supply and demand imbalances, when the demand side will inevitably disappear more quickly than it began? If (when) interest rates return to historical norms will house building be sufficient enough to keep up with the massively reduced demand for houses due to a financially decimated population?

    And this is not even picking up on the role of the state in propping up the bubble with schemes such as FLS and HTB. There is no point using the supply/demand argument in such times, as when these schemes inevitably fail any such imbalances will be resolved.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s