As Bloomberg report this morning:
Barclays Plc joined and Bank of America Corp. in forecasting a ... property slump, predicting home prices will fall at least 30 percent by the end of 2015 as income growth stalls and supply increases.
The dots are important, I admit. The missing words are Hong Kong. And there are differences from the UK market, in scale, and in fundamentals, not least because supply is not likely to increase fast enough to meet demand here for a while. There are three important pints though.
The first is that the pice of the whole housing stock s actually determined by marginal supply. In Hong Kong marginal supply has increased and so the value of the stock will fall. A fall in housing stock value is almost certainly vital to global being: the amount paid in actual and economic rents for housing is absurd in the current world economy and is impoverishing people and fuelling inequality.
However, and secondly, falling stock prices create negative equity and should under prudent accounting rules precipitate bank losses that must be anticipated. It is absurd that the well being of such a major part of our economy should revolve on such an issue.
Which brings me to the third point: this is a sector where because the market only prices the moment and not its consequences much greater state intervention is needed. We know market pricing frequently gets real value in use wrong. This is rarely more apparent in housing - where UK government policy remains to exaggerate the market value rather then compensate for it.
And that is why any party seeking power and offer economically credible policies has to highlight the need for more social housing, better control of the flow of land for housing and the need, when matters get out of hand, to regulate mortgage supply and not interest rates. Labour may be getting nearer the first. It still has a long way to go on the others.
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“And that is why any party seeking power and offer economically credible policies has to highlight the need for more social housing, better control of the flow of land for housing ”
Amusing that you should use Hong Kong as your example of the need for this sort of policy. For of course over 50% of Hong Kong’s housing is social housing and the supply of land for housing is almost entirely controlled by the government as they own nearly all of it.
If with even all of that they’ve still got problems then this might not be the best solution for ourselves.
We have a lot more land
Tim, I will freely admit to knowing very little about the HK property situation, and therefore whether it is comparable to the UK situation, but surely any reasonable person will conclude that the current situation in the UK is, and I can’t think of a better word, crazy.
House prices are far too high relative to incomes, as is rent, and yet this government is fuelling a house price boom through QE and ‘help to buy’ because they won’t countenance the obvious solution to the shortage of housing which is an ambitious social housing program, and because in their desperation to win the next election, they’re prepared to have the state subsidise mortgage lending.
As with energy, transport and banking, housing in the UK is an example of market failure, requiring urgent action for the long term good of the country from government.
Tim-what are you advocating -that a rigged, unfree market will sort this out and create a realistic value for housing after 30 years of bankster obsession with real estate bubbles?
My suggestion for some years now has been very simple.
It’s in the South of England that we actually have a housing shortage. And the price of a house in the South is at least 50% the value of the scarcity of the planning permission. It’s very simple to show this. Average 3 bed house costs about £120,000 to build, low grade agricultural land is £5,000 a hectare or so, current regs say 14 houses per hectare, yet sells for £300 k and up.
So, issue more planning permissions. The scarcity value of planning permissions thus falls.
And don’t forget: you’ve got to issue those planning permissions anyway in order to build your swathes of social housing. So I’m not proposing anything odd or strange.
Please explain the 400,000 unused planning permissions private companies will not use
They disprove your argument
Tim-And who is going to control the plague of speculators and portfolio churners that will ensure another bubble? Don’t forget we live in a free lunch economy for the finance sector that loves to make money out of the most unproductive and socially destructive means.
“Please explain the 400,000 unused planning permissions private companies will not use”
How long does it take to get planning on a development? Several years is the estimate I have heard. How long a pipeline is 400,000? Several years possibly?
It doesn’t sound out of the ordinary to me that a business or an industry will have a stock of its main raw material sufficient to cover the time that it takes to gain more of that same stock.
Over 90% of permissions are given
What are you making up?
Do you ever consider reality in your pontifications?
Permission being given is not the same as permission being given quickly.
What Tim is describing is basic management accounting. You work out how fast you use a material you work out how long it takes to get a new batch, from deciding to buy to delivery, and you multiply the largest reasonable value of the one by the largest reasonable value of the other to get your desirable stock level.
A common procedure is that the landowner appliess for planning permission, and having obtained it then looks for a developer, and shops around until he gets an offer he likes. A lot of those unused planning permissions will be held by landowners who are incapable of doing the development. This makes for a very long time to selling the houses, so the numbers will be large..
Absolutely no one agrees with that: there is absolutely clear evidence of hoarding for speculation and blocking
So what you’re saying Tim, is that the problems in the UK housing market are all down to too much regulation? All that has to happen is for the planning system to be massively loosened and the problems will be solved? cutting regulation worked really well in the financial sector didn’t it?
Sounds like the typical response of the right to the failure of their ideology. The UK hasn’t built nearly enough houses in the last few decades to meet the demands of a population that has more (if smaller) households, and to replace old, worn out, housing stock. The private sector, if left to itself, will always want to build the high end, expensive housing since that’s where the biggest profits are. The trouble is, that housing will be too expensive for a large proportion of the population, which is where the government has to get involved.
We need a mixed ecology of houses to buy, houses to privately rent, and social housing. The market can’t do this, and hasn’t even kept up with demand for private sector housing, let alone provide decent houses for the less well off, who are now forced to take out mortgages they can’t afford.
latest solution to housing in London: Chinese shipping containers converted by the YMCA into plumbed in apartments for young people at £75 a week. NO rentier gains there – so far!
“Absolutely no one agrees with that:”
That’s a bit like the statement that “no one I know voted for Nixon”.
Given that I am someone and I agree with it then at least someone does agree with it. Add Andrew and that makes at least two.
I’ll concede that no one you agree with believes it but that’s a rather different matter.
Richard
I’m interested in the “clear evidence of hoarding for speculation and blocking” – in the South, in particular, why would anyone deliberately hoard a non-income producing asset when, if the press is to be believed, demand is so high for new build residential.
From what I can see the builders can currently sell a significant proportion of what they have planning permission for before they even start buidling it so why would a landowner wait to sell and why would a builder be slow to build – builders in particular can only make profits by building and selling.
Are there really speculators sitting on land with planning permission hoping it goes up in value – I can imagine that on a small scale but are your sure the majority of the unbuilt permissions aren’t just accounted for by the inevitable lag between planning being given and houses being built?
It won’t take you ling to find it