Policymakers are believed to be preparing plans for a major publicly-funded housebuilding programme to kick-start growth at the same time as addressing the perceived housing shortage. Vince Cable, the Business Secretary, has indicated plans are afoot, and an increasing number of economists have endorsed the idea.
According to Fathom Consulting, however, the plan "could have exactly the opposite effect from the one desired" – causing prices to fall by as much as 30pc, forcing banks to take large losses, and triggering a new credit crunch.
http://www.telegraph.co.uk/finance/economics/9500516/State-backed-housebuilding-drive-would-cause-price-crash-warns-Fathom.html#
So what'a happening to house and building land prices in your areas? Around here prices are down but only by a bit, maybe 10%.
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As long as the numbers of prospective first time buyers earning the minimum wage increases there is no other eventuality.
The only other possibilty is wage hyperinflation - yeah right.
Don't think prices have changed much around here. The oil & gas filled Aberdeenshire bubble continues to float. If any tradesmen are out of work and don't mind relocating then this is the place to be!
What I think is that you have to look at the two sectors that affect house prices, the buying population and the type of houses they buy.
So say you are 50 (wife, 2 kids at home), household income of £60,000 pa, have a 4 bed detached in a mediocre area that is worth £250,000. You are very average for the area.
There are 400 similar properties in your area all worth about the same (because estate agents only value on the last sale, hence not much selling and house prices are not very elastic).
Three scenarios coming:
Scenario 1, 100, 1 and 2 bed starter homes are built with a selling price of £90,000 (total capital value of £9m)
Scenario 2, 36, mediocre 4 bed detached houses are built at £250,000 (total capital value of £9m)
Scenario 3, 5, Luxury homes are built at £1.8m (total capital value of £9m)
Scenarios 1 and 3 are not in you sector, though may be in your kids that are hanging around upstairs or your Boss at work.
So that leaves Scenario 2 that may affect you, your local market stock has increased by 9% (capital value £100m to £109m) but the household incomes are about the same at £60,000 (there will always be variation), so the money in your sector economy will increase from £24m/pa to £26.16m/pa. So that matches the increase. So not a problem at a 9% increase in housing stock (about what is claimed nationally is needed)
Another way to look at it is to work out how much free equity is in the housing stock, say in your sector the housing was bought ten years ago for half the price but on a 60% loan that is near enough 1/3rd paid off and the 36 new households take out the same deal but at today's prices.
Old housing stock free equity is £80m
New housing stock free equity £3.6M
That is 4.5% capital value increase in your sector, or about half of the increase in the local sector economy, so not going to affect you in my opinion (this assumes that there is no fraud going on and everyone that buys can afford to).
Uk average -9.3%
London +3.4%
Outer met area -1.7%
Outer SE -6.9%
East Anglia -8.2%
South West -7.3%
East Midlands -10.4%
West Midlands -10.7%
North West -14.9%
Yorks & Humberside -13.4%
North -14.6%
Wales -14.9%
Scotland -8.4%
and the crash
NI -51%
For more granularity http://www.landregistry.gov.uk/__data/assets/pdf_file/0019/18352/june-hpi-report.pdf has figures for the last year.
Of course these figures tend to be self selecting in an upward direction as lenders only deal with the middle of the market where most transactions are discretionary. If people see prices falling they stay put, the number of transactions fall and the crash is masked. That happened after the 1989 slump.
Any government money is likely to be put into social housing so there won't be any direct effect on the private owner occupier sector.
There's a fair amount of building activity round here. 2 small developments in Much Wenlock have just finished and a 3,500 house development in Telford is being restarted after being mothballed in 2007-8.
A non representative sample of one. My parents put their house on the market in 2007 for £295,000. It didn't sell. Put it on the market in September last year for £250,000; hopefully it has sold for £210,000. That's a theoretical 30% drop.
years) house prices in western countries have always followed an average of 3.5 times average earnings. speculative bubbles created by easy access to credit(debt) means that th
ere are cycles of boom and bust around this average.
Someone said to me recently that i would make at least 40% on my house if I sold it now, but i replied that in that case the market had risen by 40% over the same period so I would be no better off:cry:
In this case my parents have left the housing market, so purchase price is not relevant.
You're right bot. Prices in the middle of the market are determined by how much people can borrow, which is determined by pay (actual or imaginary!) and lending ratios. That also explains a lot of the regional variation. London prices have increased; lots of well paid jobs - further from London fewer and lower paid jobs and prices have dropped.
Jonti
Of course if people viewed houses as somewhere to live rather than an ongoing method of tax free profit, this may also help.
Jonti
It effectively meant that you had to have 2 people working full time to afford a house.
Jonti
Thats what I said
"speculative bubbles created by easy access to credit(debt)"
(2) it would reduce labour mobility even more than at present, and that's already a problem.
(3) it would benefit the rich, since companies would be likely to pay the tax when recruiting highly paid executives.
So say the banks are willing to lend a multiple of income, say 4 times, and they do that at say 2.5% above base rate, every month when the Land Registry and the HMRC look at the figures for median wage and median house prices (could be mode or mean, that is for clever people to work out), every time the house prices rise above 4 times income they invoke a tax on mortgage repayments as a a price signal sends a very fast message about taxing wealth. Not sure what it shoudl be, but would have to hurt, so say 3%, that would take the current lending rate to about 6%, or about what people are paying now after the 'special deals' have ended (I would put a stop to them as they are a complete nonsense). This would encourage people to think hard about asking prices, would be based on sales values, would raise income, would not affect people that own outright or rent. Think of it as a greed tax.
1) agreed it would robably be be a vote loser,
2) not sure why it would reduce labour mobility, all the tax does.is close a loophole where using your home as a speculative investment is tax free.
3) not sure it would benifit the rich disproportionately, after all the poor who are renting will be unaffected by this. The next rung up who love in cheap starter homes are unlikely to have a huge profit so I'll fall under the allowance calc. The middle will get hit a bit. The rich will get hit more as allowance is fixed but a 5% increace on a £1m house will be way over the allowance, whereas the 5% of a 250k house would not be. In addition the rich would tend to have other assets subject to cg, investments, art etc all of which would be inder the same allowance. There isn't anything you fan do to stop third parties paying tax on behalf of someone else. if your skills are valued so much that someone wants to pay you lots of money then good on you!
IMO the current planing procedures in the UK are broken and not fit for purpose.
http://www.nottingham.ac.uk/cfcm/publications.aspx
But was (for example) the relatively unfettered inter-war 'Ribbon development' which, among other things, gave rise to the Town and Country Planning Act, not indicative of a Planning 'process' (or non-process) which was ''broken and not fit for purpose''?
Just because the previous process was bad does not mean that the follow on process automatically must be good. All you can do is hope that the new does what is required and IMO it does not!
Of course if the constraint was removed this would then create other problems as many would have purchased in times of constraint and consequently paid prices according to that constraint. How this could be managed (other than just by saying 'tough') I have no idea.
to take your example, someones in a house they bought for 100k 10 years ago. They need to move.
Assume that house prices have kept pace with inflation only. At 2% per year we get a new price of ~125k. As the cg tax has an allowance for inflation if the house issold at 125k the capital gain is zero therefore no tax is due and all the person has to deal with is the usual housemoving costs. so no change to labour mobility.
Is house prices had risen slightly above inflation, say because the local area was getting better, then the house is sold for 150k, giving a 25k capital gain. As the seller has a cg tax allowance of (lets say) 15k tax is due on 10k of capital gain I.e. 4k tax. But that's tax that's on unearned income. Still the mobility of the seller has not been significantly impaired.
In the case of a bubble where the price had shot way above inflation and earnings, the cg after allowances could be 100k, so 40k tax.
What a cg tax would do is close the anomaly where you pay no tax on an unearned income. Say you bought a house and suddenly the previous owner becomes super famous. The house you bought for 100k is now worth 900k just because that fsmouse bloke used to live there. Id it fair that you get an 800k windfall (that's banker bonus sized) totaly free of tax?
on another issue, assuming any restriction in supply, the avalibikity of cheap credit has a massive impact on prices.