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.
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.
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.
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.