How far will house prices fall [volume 4]
Discussion
Rovinghawk said:
I also give you my earlier comments about house refurbishment which you seem determined to misunderstand.
I don't misunderstand, I just think that a bit of painting and decorating to BTL flat standard is semi-skilled labour at best that should attract only a small premium to the national minimum wage.JeremyH5 said:
The answer to the housing cost and availability problem is as simple as basic economics. More demand than supply. Increase the number of houses built. I’ve been saying it for decades nobody listens.
Build. More. Houses.
It's not as simple as that, though.Build. More. Houses.
Rents are set by supply of rental property and demand to rent somewhere, I agree with that. But what sets the relationship between rents and house prices (i.e. the yield in a commercial property context)? Fundamentally, that's interest rates and the supply of money / credit.
We can build our way to lower rents but not to lower house prices. Not without substantially increasing interest rates or reducing credit availability.
edh said:
LVT is a transformational tax and will only work as a replacement for existing taxes. If imposed at a low rate as an additional tax it would fail. Some proponents call it the "single tax"
Like you, I think LVT is an interesting idea. However, I also agree with Rovinghawk that no government would ever replace all other taxes - particularly income tax with LVT. They just won't. It is hopelessly naive to believe otherwise. The closest to introducing LVT is Labour and it is clearly an additional tax - there is no discussion about moving away from other forms of taxation.So it remains an interesting idea but actually a very dangerous and misunderstood one that will, as you point out, fail if ever introduced.
hyphen said:
Rovinghawk said:
I paid tax on my earned income to invest.
I paid tax on the materials & tools I bought to use.
I paid tax when buying the properties (SDLT).
I pay tax on the rental income- not only on the profit but on the turnover.
I pay tax on any CG when I sell the properties.
I'd say that society has had a decent share already.
I'd suggest that certain parts of this society go out & earn some wealth rather than have some of mine distributed to them. If that makes me a bad person IYO then so be it.
Normally, yes. But if you have benefitted from the extraordinary house price increases, than should this 'free money' be accounted for?I paid tax on the materials & tools I bought to use.
I paid tax when buying the properties (SDLT).
I pay tax on the rental income- not only on the profit but on the turnover.
I pay tax on any CG when I sell the properties.
I'd say that society has had a decent share already.
I'd suggest that certain parts of this society go out & earn some wealth rather than have some of mine distributed to them. If that makes me a bad person IYO then so be it.
I have a similar amount of cash tied up in funds as I do in property. The gains on my funds are better than property, and as almost all of it sits in tax efficient wrappers society see's very little of it. Is right that I'm accumulating this wealth rather then it being spread out more fairly?
Realistically I get about a 4-5% gross yield on my property, and the capital gains work out at about 8-10% per year (lower if you consider compounding). Once you take off the odd trashed property and my own time running and maintaining the properties the figures start to look pretty average.
As ever when it comes to property, the call for extra taxes comes from a dislike of landlords and that's somehow immoral to profit from property. People/companies profit from water, food, heat, light, etc even building or financing houses (for profit) is ok, but not providing rental accommodation.
As ever the real issue is a lack of supply. No amount of bashing or taxing landlords will make 11 families fit into 10 properties. That's what's putting pressure on the market.
Supply was keeping up with demand then house prices would be far more stable/lower.
anonymous said:
[redacted]
Cheap money is a part of the demand side of the equation, but not the main driver. It's never been easier to finance a new car, yet we don't have car price inflation. That's because there's plenty of supply, and competition.If house builders were competing for buyers then pressure on prices would be downward no matter how much cheap money was about.
More to the point restricting finance doesn't resolve the problem that that we don't have enough houses for the number of families who needed them (no matter how they are financed). Increasing supply resolves that problem.
AstonZagato said:
edh said:
LVT is a transformational tax and will only work as a replacement for existing taxes. If imposed at a low rate as an additional tax it would fail. Some proponents call it the "single tax"
Like you, I think LVT is an interesting idea. However, I also agree with Rovinghawk that no government would ever replace all other taxes - particularly income tax with LVT. They just won't. It is hopelessly naive to believe otherwise. The closest to introducing LVT is Labour and it is clearly an additional tax - there is no discussion about moving away from other forms of taxation.So it remains an interesting idea but actually a very dangerous and misunderstood one that will, as you point out, fail if ever introduced.
There's a big gap between imposition as an additional tax and a single tax... I think it could work somewhere in between. Replace CT, IHT, SDLT, Bus rates for starters (this is a pretty direct replacement of other property taxes). Other taxes in the firing line for reduction would be VAT, IT/NI. Essentially just move the balance from taxes on work and transactions onto land.
98elise said:
More to the point restricting finance doesn't resolve the problem that that we don't have enough houses for the number of families who needed them (no matter how they are financed). Increasing supply resolves that problem.
Unfortunately, the number of households is also a function of house prices - household sizes vary a lot between countries, and how cheap or otherwise it is to move out of mum and dad's is a big determinant of this. Plus the more responsible members of our society still assess how many children they can afford to support before having them (quaint, I know).98elise said:
If someone rents or buys,bits still one property no longer in the market, and one less family looking for for a home. BTL is just the financial mechanism to get the person in that home.
But that's the point. People aren't primary concerned with homelessness, they're concerned with renting indefinitely rather than being able to buy. Most of us would agree that owning one's own home is preferable to renting, particularly in old age.anonymous said:
[redacted]
It's very difficult to increase the supply of landHousebuilders have an understandable need to maximise profit per plot and to restrict the supply of new houses in order to do this.
UK house prices took off about the time mortgage lending was de-restricted - correlation or causation?
98elise said:
Cheap money is a part of the demand side of the equation, but not the main driver. It's never been easier to finance a new car, yet we don't have car price inflation. That's because there's plenty of supply, and competition.
If house builders were competing for buyers then pressure on prices would be downward no matter how much cheap money was about.
More to the point restricting finance doesn't resolve the problem that that we don't have enough houses for the number of families who needed them (no matter how they are financed). Increasing supply resolves that problem.
We certainly have "car quality inflation" that leads to people paying more for cars. No one in their right mind would actually hand over £1000 for alloy wheels on their base spec Audi, but cheap finance means that everyone does. If house builders were competing for buyers then pressure on prices would be downward no matter how much cheap money was about.
More to the point restricting finance doesn't resolve the problem that that we don't have enough houses for the number of families who needed them (no matter how they are financed). Increasing supply resolves that problem.
At every level in the housing market, there is limited supply, but there is pretty much unlimited supply if you're willing to trade down. If finance was expensive, people would live in s
ttier houses than that do today - it is because people have access to insane amounts of credit that the prices are so high. If you couldn't borrow, there would only be cash buyers, and there would be sod all of them. Now matter how much is built (unless it gets really ridiculous), the availability of cheap finance will support prices - because there is always someone from a lower part of the market who is desperate to trade up. Fundamentally, we do have enough houses - the number of empty properties vastly exceeds the number of homeless people.
anonymous said:
[redacted]
LOL 😂 Provision of property to rent is immoral
So why not hotels also immoral? And student accommodation? And Airbnb .
And why not running profitable businesses to provide other basics like transport, phones, water, power, airlines, cars, groceries, pubs, restaurants ?surely also immoral to make money doing that.
Cos it always works so much better and more efficiently under government management and ownership
To be fair ... supply is a huge issue ... if public / council housing building had continued rather than being sold off .... maybe the issue would be less acute.
Govt could take some lessons from some Asian counties where there is a much higher state provision of housing.... because of massively high cost of private condos and houses.
NickCQ said:
I don't misunderstand, I just think that a bit of painting and decorating to BTL flat standard is semi-skilled labour at best that should attract only a small premium to the national minimum wage.
You do misunderstand- I didn't say a bit of P&D, did I? I rather specifically mentioned refurbishing wrecks of houses not glossing a skirting board in a flat.For those whingeing about high prices & shortage of supply due to evil BTL consider this: I bought some uninhabitable wrecks, did roofing, wiring, plumbing, carpentry, flooring, tiling, window fitting & god only knows what else to turn said wrecks into decent homes. You don't know the situation but seem determined to go LL bashing as the panacea for all price & supply issues within the housing market.
Please get it into your head that turning a hovel into a home is hard & decently skilled work and is helping rather than hindering housing supply in this country. As such I do not believe that it should be demonised & punished.
Rovinghawk said:
Please get it into your head that turning a hovel into a home is hard & decently skilled work and is helping rather than hindering housing supply in this country. As such I do not believe that it should be demonised & punished.
If you believe that last comment then do you have an issue with earnings from renovating BTL property being taxed as regular labour income (40%), rather than capital gains (28%), with no additional exemptions above the personal allowance? It's hardly 'demonising or punishing' something to tax it at the same rate as anyone else's job, right?To look at it another way, what do we reckon is the going hourly rate for resi renovation and construction work?
My suspicion is that until things slowed down recently most BTL'ers have been exorbitantly compensated for their labours, above and beyond what your average builder type would expect.
NickCQ said:
To look at it another way, what do we reckon is the going hourly rate for resi renovation and construction work?
My suspicion is that until things slowed down recently most BTL'ers have been exorbitantly compensated for their labours, above and beyond what your average builder type would expect.
maybe in the south east, elsewhere i doubt it.My suspicion is that until things slowed down recently most BTL'ers have been exorbitantly compensated for their labours, above and beyond what your average builder type would expect.
edh said:
Housebuilders have an understandable need to maximise profit per plot and to restrict the supply of new houses in order to do this.
That's a common misunderstanding of the market. Housing is governed by sales rates, not build rates (which does rather fly in the face of the simplistic black/white, supply/demand view). Trust me (I'm a property developer 
), I would rather make 20% on 100 houses sold in a month and move on to my next 100, than squeeze 22% from 100 over 2.5 years. BTL as we have known it, really is up s
t creek. There are the obvious changes to the tax regime, but there is also a whole new asset class emerging backed by institutional investors that will decimate the traditional BTL product. A block of tired, 15 year old flats owned by a number of individual landlords with no single responsibility for the building, offering short term leases is a very different animal to a brand spanking new, well managed facility owned by a pension fund offering 3 year tenancies and a man to 'fix your boiler' the moment you report it. More so when they are initially aggressive on rents to compress the local market.There was an earlier point which I can't now find about don't tell me that people chose the rent. A lot of young people do now choose to rent. They make a conscious lifestyle choice to rent a nice swanky pad where everything is taken care of, rather than scrimp to buy a 2 up 2 down in a s
tty part of town. Whether you think that is the right or wrong thing to do doesn't really matter, it happens. Plus you are all their parents, so should have taught them better 
Here is the fact that startled me a little the other day.
The median household net income in the UK is considerably greater than the median household take-home salary.
If we think about that for a moment, we have drifted to a position where the "normal" situation is for a family to be receiving some form of benefits (over and above a little child benefit, say). Not a safety net. Normality.
There is little doubt but that this is a situation born solely of rising housing costs compared to incomes.
There are wider societal problems - lack of ability to "look after one's own" leads to a range of major problems, whilst real incomes are essentially a decision now in the gift of politicians - talk about socialism
But in strictly housing terms, those on median incomes can't necessarily get mortgages predicated on benefits...
We've propped this up for so long. Shared ownership started at 50%, now dropped to IIRC 25%? Help to buy. Smaller housing units. When added to QE, I'd agree with the poster who said that the state has (in effect) compensated property owners for the inherent market risks in their investments - we've just propped it up before it had a chance to crash.
But what next? 10% shared ownership? Tower blocks for all? The Japanese model would suggest 100 year mortgages handed down from parent to child. The Japanese example also points to stagflation and lost decades.
Contrary to what at least one poster feels, I'm not against private landlords. I'm against a system that was designed in the 1980s to increase the supply of short-term rented accommodation becoming a millstone around the necks of a society that now needs long-term rented accommodation. I'm against the long-term effects of a deliberate policy of ensuring that property wealth has been insulated from market forces and market risks.
If there were a way of combining all of those things then I would support, but I'm struggling to see where it is.
Right now, we seem to be trying to "take the heat out" by locking-in a lot of gains and accepting a new normal of dependence upon the state for access to housing (rented or bought). That also sounds quite unlike a "capitalist" society.
So regulation is increased. Affordability is decreased. Lending is markedly constricted. Wages have stagnated. Europeans are leaving the country (and recall that a 1% shift in demand can lead to a 10%+ drop in market prices). Middle-paying jobs are vanishing to be replaced by lower-paying jobs.
I happen to think that a US-style approach (the idea that investments can go bad and some people make losses) is actually not at all bad. Those who buy wisely make money in the ups, and are free to sell before the crashes. Those who just want a house can ride out the peaks and troughs and enjoy their house, choosing to buy at a point in the cycle at which they can afford. Those who want houses as a one-way ticket to capital appreciation are those who may suffer.
I also agree with the poster form overseas who couldn't understand why the UK didn't act to prevent the entire world competing against UK buyers for property and capital growth. Yes, overseas buyers can buy in the USA too, but they have an awful lot more land. They also have quite a lot more regulation around certain property transactions, especially rent levels in many cities - by our standards it really isn't "the land of the free."
US property taxes are also somewhat anti-inflationary, since they much more closely track changing values than, say, Council Tax bands do in the UK (comedy gold though those are). That those taxes also attach to the property (not the occupiers) is also a reasonable proxy for the taxing of property wealth. And, yes, I do know that local/state taxes are usually deductible against US federal taxes, so act as a way of redistributing some wealth (and arguably place a disproportionate burden upon those from lower land value areas to pay for the federal government), but that's a different debate.
As Mark Twain said: "buy land; they've stopped making it." So very true in the UK at least
The fundamental failure in the UK is to understand the magnifying effect of small changes - the combination of market forces and high leverage mean that tiny changes in demand, in regulation, in income, and so on can have a massive effect upon prices. Each change, each shift, each economic trend has resulted in very large consequences, which governments of both major colours have made it their apparent mission to mask by adding further layers of support (transparent or otherwise).
Frankly, I think the chips have to be allowed to fall. Lower housing costs and a higher overall tax burden would sort out social care without relying upon property wealth to pay for it. Meanwhile, changes to regulation to support a shift towards longer-term renting in a context of maintaining social cohesion are also needed.
Back to the thread title; how far will house prices fall? That really is a political question as much as an economic one. How far will they be allowed to fall? Like sterling during the ERM crisis, how far will (and/or can) government go to further prop things up? Referencing the film The Big Short, who fancies shorting the entire housing market?
At the expense of conflating threads, I might suggest that requiring all householders to upgrade their properties' EPC level to a minimum level in the name of climate change might be quite useful - it would be a tax of sorts, it would create a beneficial change, it would help with environmental targets, and it might potentially generate a little employment. But now I'm just going to be accused of lobbing more grenades in, I'm sure
The median household net income in the UK is considerably greater than the median household take-home salary.
If we think about that for a moment, we have drifted to a position where the "normal" situation is for a family to be receiving some form of benefits (over and above a little child benefit, say). Not a safety net. Normality.
There is little doubt but that this is a situation born solely of rising housing costs compared to incomes.
There are wider societal problems - lack of ability to "look after one's own" leads to a range of major problems, whilst real incomes are essentially a decision now in the gift of politicians - talk about socialism
But in strictly housing terms, those on median incomes can't necessarily get mortgages predicated on benefits...
We've propped this up for so long. Shared ownership started at 50%, now dropped to IIRC 25%? Help to buy. Smaller housing units. When added to QE, I'd agree with the poster who said that the state has (in effect) compensated property owners for the inherent market risks in their investments - we've just propped it up before it had a chance to crash.
But what next? 10% shared ownership? Tower blocks for all? The Japanese model would suggest 100 year mortgages handed down from parent to child. The Japanese example also points to stagflation and lost decades.
Contrary to what at least one poster feels, I'm not against private landlords. I'm against a system that was designed in the 1980s to increase the supply of short-term rented accommodation becoming a millstone around the necks of a society that now needs long-term rented accommodation. I'm against the long-term effects of a deliberate policy of ensuring that property wealth has been insulated from market forces and market risks.
If there were a way of combining all of those things then I would support, but I'm struggling to see where it is.
Right now, we seem to be trying to "take the heat out" by locking-in a lot of gains and accepting a new normal of dependence upon the state for access to housing (rented or bought). That also sounds quite unlike a "capitalist" society.
So regulation is increased. Affordability is decreased. Lending is markedly constricted. Wages have stagnated. Europeans are leaving the country (and recall that a 1% shift in demand can lead to a 10%+ drop in market prices). Middle-paying jobs are vanishing to be replaced by lower-paying jobs.
I happen to think that a US-style approach (the idea that investments can go bad and some people make losses) is actually not at all bad. Those who buy wisely make money in the ups, and are free to sell before the crashes. Those who just want a house can ride out the peaks and troughs and enjoy their house, choosing to buy at a point in the cycle at which they can afford. Those who want houses as a one-way ticket to capital appreciation are those who may suffer.
I also agree with the poster form overseas who couldn't understand why the UK didn't act to prevent the entire world competing against UK buyers for property and capital growth. Yes, overseas buyers can buy in the USA too, but they have an awful lot more land. They also have quite a lot more regulation around certain property transactions, especially rent levels in many cities - by our standards it really isn't "the land of the free."
US property taxes are also somewhat anti-inflationary, since they much more closely track changing values than, say, Council Tax bands do in the UK (comedy gold though those are). That those taxes also attach to the property (not the occupiers) is also a reasonable proxy for the taxing of property wealth. And, yes, I do know that local/state taxes are usually deductible against US federal taxes, so act as a way of redistributing some wealth (and arguably place a disproportionate burden upon those from lower land value areas to pay for the federal government), but that's a different debate.
As Mark Twain said: "buy land; they've stopped making it." So very true in the UK at least
The fundamental failure in the UK is to understand the magnifying effect of small changes - the combination of market forces and high leverage mean that tiny changes in demand, in regulation, in income, and so on can have a massive effect upon prices. Each change, each shift, each economic trend has resulted in very large consequences, which governments of both major colours have made it their apparent mission to mask by adding further layers of support (transparent or otherwise).
Frankly, I think the chips have to be allowed to fall. Lower housing costs and a higher overall tax burden would sort out social care without relying upon property wealth to pay for it. Meanwhile, changes to regulation to support a shift towards longer-term renting in a context of maintaining social cohesion are also needed.
Back to the thread title; how far will house prices fall? That really is a political question as much as an economic one. How far will they be allowed to fall? Like sterling during the ERM crisis, how far will (and/or can) government go to further prop things up? Referencing the film The Big Short, who fancies shorting the entire housing market?
At the expense of conflating threads, I might suggest that requiring all householders to upgrade their properties' EPC level to a minimum level in the name of climate change might be quite useful - it would be a tax of sorts, it would create a beneficial change, it would help with environmental targets, and it might potentially generate a little employment. But now I'm just going to be accused of lobbing more grenades in, I'm sure
anonymous said:
[redacted]
So you object to shops, supermarkets, cafes & restaurants? Food is a basic need yet people are profiting from it.anonymous said:
[redacted]
Read up on the subject & get back to us- policies are far from favourable.anonymous said:
[redacted]
Same comments applies- learn a little about eviction law & realise tht it can't be done on a whim. Also consider the fact that LLs don't want to get rid of good tenants, only the bad ones.anonymous said:
[redacted]
If the LL was well off he wouldn't need a mortgage. We don't magically come up with deposits & finance, we have to work for them just the same as everyone else, apart from the addional restrictions that accompany BTL.anonymous said:
[redacted]
Leaving aside your inability to use proper English, one of the effects that I have is to provide homes to people who would otherwise be unable to have a place of their own. One house, one family- exactly the same amount of people housed in exactly the same number of properties.If you just hate LLs then say so, but at least learn about the subject first. Then learn the difference between affect & effect.
skwdenyer said:
There is little doubt but that this is a situation born solely of rising housing costs compared to incomes.
Please show your evidence for this statement.ben5575 said:
'Stuff'
Interesting viewpoint- I first thought that there was a lot of London bias in your statements but then saw your location. I'll give your comments some thought.Edited by Rovinghawk on Tuesday 8th May 23:45
Rovinghawk said:
anonymous said:
[redacted]
So you object to shops, supermarkets, cafes & restaurants? Food is a basic need yet people are profiting from it.Tesco has a target to bump its operating profit margin up to 3.5-4.0% by 2020. Major housebuilders, by comparison, have taken operating margins in the 20% bracket frequently.
Those high margins are considered "normal" - in setting out a "viability" assessment for a new development, for instance, local authorities are forced into accepting these excess profits as a justification for ever-lower levels of social housing provision. Witness developments in Elephant and Castle and North Greenwich, for instance (as a London example).
In terms of operating property rental businesses, each is different. I'm not going to suggest that yours is average (and you've made it very clear that you are an active operator not just a paper speculator). But it is nonetheless indisputable that as property rents rise, those holding property to rent earn proportionally greater and greater profits each year since their asset purchase price has not been in some way re-based to compensate. Whereas a shop, say, has to buy stock at today's wholesale price.
Rising house prices have made property the go-to investment, to the considerable detriment of other investment classes. We have chronically low levels of non-bank lending to businesses in the UK because, honestly, why would one have put money anywhere else than property? If nothing else, a rational market model would suggest that a re-balancing is necessary, whilst the interests of the wider economy (you can't, after all, export housing) would suggest a need for that re-balancing.
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