The biggest house price myth

“[b]and in order to do so they have to put a lot of work in[/b]” It's arguments like this that make me laugh. You look for a suitable house, buy it, usually with a new mortgage on your existing home or another BTL, add some cheap furniture, get registered as a BTL'er and lastly employ a lettings agent who does the work of: :- Checking the safety of the gas supply and services :- Finding a tenant :- Collecting the rent :- Handling any problems/damage And for that you can make hundreds of pounds a year + a major capital gain when you come to sell. To me (a productive worker) this seems like very little work on the BTL'ers part for massive gains. “[b]The state won't be able to acquire that work for free, so they will again end up making a loss, which is another cost to the taxpayer.”[/b] Another invalid argument. The only time the state needs to make a loss is with social housing. In non-social housing, local councils can do what they currently do with people who used to be social cases: charge them rent which covers the costs of maintenance and servicing. “[b]Although I'm not sure quite how sustainable your solutions are:”[/b] LoC said: "[i][b]1. Reduce this countries' population." [/b][/i] Swarbs said: “[b]I agree that the population needs to be controlled, particularly immigration, but this is going to be difficult. Any attempt to stop EU citizens coming in is going to be difficult, and I'm pretty sure they are the largest group at the moment. And even this won't reduce the population, only slow the rate of growth.”[/b] I agree with you both that EU migrants are the largest immigration class and that controlling their inflow would be difficult. But that said, we as a country contribute 20% to the EU budget which is quite a useful bargaining tool. The other reason I recommended population control is because a lot of people, and again it tends to be immigrants from all classes, breed but don't really pay for their children. There is is shift occurring in society where working productive people pay for the children of the less and non-productive populace. To me this isn't acceptable but then again I've never voted Labour. LoC said: “[i][b]2. Ban BTL.”[/b][/i] Swarbs said: “[b]This form of government intervention won't help, if anything it will make things worse as there are even fewer houses on the free market for people to buy.[/b]” Taken alone, without the other measures I recommend then maybe not but then rentals would be much, much closer to cost price ad the housing market would most likely be flatter. LoC said: "[i][b]3. Stop people having the 'Right to buy' council homes (if they can't afford it in the first place then they shouldn't get subsidised by the more productive, working population)."[/b][/i] Swarbs said: “[b]Agree that they shouldn't be subsidised, but then the alternative is to have people staying in the council house and the council continuing to incur the maintenance costs.”[/b] Once again your argument doesn't make sense. If they stay in council accommodation but can afford to pay then they'll have to do what happens now: pay rent which covers the cost of maintenance and servicing. I don't understand why you think they'd live rent free. LoC said: “[b]3. Tax land so that it's utilised more efficiently.”[/b] Swarbs said: "[b]Interesting idea, but I'm not sure how you'd make it work. It smacks of stealth tax, and landlords would just add the cost onto the rent.”[/b] Firstly, don't take it as a sole measure. Secondly I'd use Land Value Tax and it would be very transparent and progressive (i.e. a non-Labour policy). LoC said: “[i][b]4. Encourage high-level job growth outside of London.”[/b][/i] Swarbs said: “[b]To be fair the government is already doing this to some extent.”[/b] Err, no. They appear to have continued some old Tory policies which were left over from 1997 but when they finished they didn't start any more, which led to a reversal of job gains in places like Birmingham. “[b]BBC moved to Manchester etc.”[/b] That wasn't because of government action. That was because of the London weighting and because it's cheaper to provide services from there. “[b]But this would just shift the problem away from London and into other areas.”[/b] No, I disagree. It would actually spread the 'problem' about and in the short term alleviate it. As I've said already, you can't just use one measure, you need to use all of them. “[b]Very few parts of the country have a significant surplus of housing available.”[/b] I don't know if that's true or not but I do know that there are vast areas of land, available for building on and which exists as land banks doing nothing. OK, they're mainly in the Midlands/Northern England etc., but so what? “[b]It's also interesting that you chose Germany as an example in the month in which its economic recovery stalled[/b]” It's funny. Whenever I mention Germany in BTL discussions I've noticed that BTL'ers nearly always like to try and find ways of attacking that country but without attacking the policies I mention. I wonder why? As for your comment on it's GDP numbers, Germany has had a much lower stimulus than us and they've so far managed to break even (no growth, possibly*). We on the other hand have amassed and continue to amass really serious amounts of public sector debt and all for just 0.3% 'growth'. And in addition to that, Germany looks set to experience future growth rates which are well above our own because future generations will still be paying off the debts we have and are acquiring now.

LoC said [i][b]"It won't happen. Unless we get a government who's interest is in promoting productivity there will always be parasitical landloads and land speculators. The only way to avoid them is to make renting a public-sector only service, in which case all proceeds go back to the state."[/b][/i] Swarbs said: [b]"It's a nice socialist utopian idea, but I can't see it working. The state is an inefficient provider of housing - there will always be the incentive to make short term poltical gains and the state will rapidly destroy any profits it makes."[/b] Socialists might consider it utopian (unlikely since private ownership would still be allowed) but I don't understand your point of the state being "an inefficient provider of housing". In what way would the state be "inefficient"? "there will always be the incentive to make short term poltical gains" There always are but how would that effect a rental market controlled by local government, with central government guidance? "[b]and the state will rapidly destroy any profits it makes[/b]" This is not an argument, unless you're so far to the right that you believe that the government should not tax anyone. I'd rather the state wastes the money produced from renting out a social asset (which, incidentally belongs to everyone) than have private landlords sit at home doing nothing while the money rolls in. "[b]The state is also very bad at reacting to market demand - what happens if lots of people suddenly want to rent in one area, and the number in another area suddenly drops sharply?"[/b] I'm not aware of any situation in which this has happened, barring natural disaster so unless you can provide such an occurrence or can think of a situation for me to analyse, your point simply doesn't exist. I would also like to point out that even in of a natural disaster?? private rentals don't work??.?????? ??"[b]As the state is the only permitte?d buyer of rented houses, they will be ????held to ransom by the home owners who they have to buy from[/b]"???? Not necessarly . The government could buy some existing over time as well as doing what they currently do: buying housing from builders at discounted prices. They could/should also stop subsidising those that cannot afford or who have the necessary financial nuance to buy a house by removing the right-to-buy. “[b]and likewise they will end up fireselling all the homes off for a big loss in the area where rental demand has suddenly dried up.”[/b] You cannot argue that house prices are high because of demand and then say that you envisage a situation where demand is so weak and would be for so long that local governments would even have to think about a fire sale of housing assets. And I would also argue that if that were ever a problem then, and with the help of central government co-ordination, social cases could be moved into such areas, freeing up property elsewhere so that more productive people who want or need to rent can do so. “[b]Also, remember that most BTL landlords don't make massive profits[/b]” I've spoken to a number of BTL'ers in my time and I'm pretty sure I get how the model works. If you get in early enough then you can make money from both the rent and the capital gains. But as the market goes forward and begins to bubble, only the capital gains becomes realisable. I presume that this is what you mean by “don't make massive profits”? It doesn't hold H2O I'm afraid. [Please note that this post has been broken up due to LoveMoney's comment's section being inability to handle copy & paste operations from OpenOffice]

Swarbs, Sorry for being away for so long. I work Thursday->Sunday nights and last week I had the additional fun of having to sleep at a relatives' house while my parents had the kitchen refitted. [i][b]LoC said [/b][/i] [i][b]"my point was that affordability (what people can afford to pay) is the most important factor" [/b][/i] [b]Swarbs said[/b] [b]"No, I can't agree with that one. The theory and the evidence is against it. Affordability fell almost continuously from 2001 to 2007, but prices just carried on rising."[/b] Let's assume for a minute that demand for housing is almost infinite. Now people are still going to take their time when picking their house and so house sales won't just happen in an instant, all at once. They will occur over time. As housing is brought prices rise and affordability drops. Now, there are fewer participants but still near infinite demand. So what happens? Those that still want to buy increase their offer and prices rise. Eventually you reach the point where only those that [b]can afford [/b]to buy a house do so, and so affordability becomes the controlling factor, not demand and in fact we see this during crashes. If demand is/was the only or key driving factor then crashes wouldn't happen as other people would step in and compensate for the loss of buyers. But this doesn't happen. Instead, the economy deteriorates, [b]interest rates go up[/b] and affordability, which is in part a function of IR's goes up. Over time then, house prices recover because affordability and not demand gets better.  One other thing: [b]"Affordability fell almost continuously from 2001 to 2007, but prices just carried on rising."[/b] Affordability is a function of interest rates so you would expect affordability (and therefore houseprices) to increase if interest rates were cut. [url=http://www.housepricecrash.co.uk/graphs-base-rate-uk.php]This graph[/url] shows IR's since 1997 and [url=http://www.housepricecrash.co.uk/graphs-average-house-price.php]this graph[/url] shows house prices since 1975. Notice that when IR's rise or remain the same, house prices begin to fall (or stagnate when IR's reached effectively 0%). Demand presumably didn't change during this period (people still want housing) [b]but they were unable to afford it due to the sate of the economy[/b]. In other words affordability dictated prices. If I might make a quick digression for a moment, IR's are set in order to control inflation. House prices have a major influence on inflation, i.e. as HP'es go up, so does inflation. Why? Because at the end of the chain is someone disposing of a house or a builder taking profits. The money which pays for this usually comes in the form of a loan (mortgage) and this comes from created (printed) money and is therefore inflationary. Also, and before you ask, we didn't see massive level of inflation because someone stated flooding our markets with cheap goods, which had a [url=http://www.moneyweek.com/articles/money-morning/why-china-may-soon-ditch-its-biggest-export---deflation.aspx]deflationary effect[/url]. [b]LoC said[/b] [i][b]"Yes, and I noticed from another source (which I don't have to hand right this minuite) that the number of ower-occupiers is falling, year-on-year."[/b][/i] [b]Swarbs said:[/b] [b]"It peaked in 2007, and has fallen steadily ever since, largely due to people wanting to move but not being able to."[/b] So there was an [url=http://www.housepricecrash.co.uk/graphs-buy-to-let.php]increase in BTL?[/url] [b]"So they rent their large family house out (often as an HMO as the shortage I mentioned above means they get higher rents than single lets)"[/b] So they BTL then? They rent out their former family home and become BTL'ers and use the unearned profit so subsidise their new house (wealth parasitism)? [b]"The HPC graph is done from the quarterly data, and so skips straight from January to April 2009."[/b] This was done to remove seasonal and transient variations in property sales and is a statistically fair and valid methodology. Simply following month-on-month figures and jumping on any changes when such a small timescale and sample size is involved makes no sense so my point remains valid.  Also strictly speaking you said: [b]"Even the entirely unbiased housepricecrash.co.uk is showing that house prices have returned to their long term real price trend."[/b] [url=http://www.housepricecrash.co.uk/graphs-average-house-price.php]When it doesn't.[/url]