House prices and housebuilding

[RT4038]

Everyone should be able to have a suitable home, though, which means one properly sized for their family unit, even if that unit is of 1. That's the basics of civilisation. As the Levellers put it recently - food, roof, family. The basics of life.

If there are more households of one, we need to build more houses (flats, more likely) suitable for that.

I don't think it is quite as simple as that - economics has to play a part too. Otherwise, we have a 'shortage' if there isn't a 1 bedroom flat for every 18 year old who wants to leave home, or everyone in a 'partnership' who wants to have separate flats available if they wish to have some space from time to time.
I'm not sure that there are many civilisations that have this?

 

[Bletchleyite]

I don't think it is quite as simple as that - economics has to play a part too. Otherwise, we have a 'shortage' if there isn't a 1 bedroom flat for every 18 year old who wants to leave home, or everyone in a 'partnership' who wants to have separate flats available if they wish to have some space from time to time.
I'm not sure that there are many civilisations that have this?

Within reason, and I do see your point about the 18 year old. However, we are in a position where a family with 2 minimum wage breadwinners can't afford to rent a reasonably sized dwelling in a proper state of repair for their family (i.e. complying with the law on when children can share bedrooms), and that is not OK.

 

[Meerkat]

The increased feasibility of working from home in office jobs may well do just that. Liverpool-London, say, is no great hardship once a week.

My concern about that would be the same as for other London commuting - locals working locally get priced out of their area by people on London wages.
Maybe turn it round. Move the office to Liverpool, and the current workforce can commute once a week making the transition to more local workers/moving easier than before.

 

[Bletchleyite]

My concern about that would be the same as for other London commuting - locals working locally get priced out of their area by people on London wages.

That's a possible issue (and parts of the urban North West, most notably south Manchester, have reached Southern prices) but equally those jobs will now be open to existing Liverpool residents, too. So to keep people in jobs in Liverpool, employers will have to up wages.

I'm not saying it'll be pain-free but it could certainly smooth the north south divide somewhat.

 

[Meerkat]

Within reason, and I do see your point about the 18 year old. However, we are in a position where a family with 2 minimum wage breadwinners can't afford to rent a reasonably sized dwelling in a proper state of repair for their family (i.e. complying with the law on when children can share bedrooms), and that is not OK.

That dwelling exists though doesn’t it? It’s just owned by an investor and the occupier can’t put the work in to upgrade it.
Personally I think we should build lots of small units that old folk WANT to move in to, to free up the inefficient occupation of family homes. I think we could flex the green belt for that as bungalows have less visual impact if you expand the footprint of villages and small towns.

 

[Bletchleyite]

That dwelling exists though doesn’t it? It’s just owned by an investor and the occupier can’t put the work in to upgrade it.
Personally I think we should build lots of small units that old folk WANT to move in to, to free up the inefficient occupation of family homes. I think we could flex the green belt for that as bungalows have less visual impact if you expand the footprint of villages and small towns.

There is certainly a shortage of small (2 bed, but with the second bedroom just really a guest/box room) wheelchair accessible[1] bungalows with small but pleasant gardens, and building more of those would be a very good thing, and as you say it might indeed be attractive for older people to move into them to free up family homes (and some capital to spend on e.g. holidays). They needn't take up that much space, they can for instance be in short terraces rather than being detached/semi as most bungalows now are, or even as "cluster homes" (a 1990s term for back to backs, but they do work quite well for space efficient small homes built as blocks of 4).

[1] Not only for wheelchair users; the same features will benefit people who are unsteady on their feet too.

 

[Meerkat]

There is certainly a shortage of small (2 bed, but with the second bedroom just really a guest/box room) wheelchair accessible[1] bungalows with small but pleasant gardens, and building more of those would be a very good thing, and as you say it might indeed be attractive for older people to move into them to free up family homes (and some capital to spend on e.g. holidays).

[1] Not only for wheelchair users; the same features will benefit people who are unsteady on their feet too.

All homes have to be wheelchair accessible now don’t they (downstairs only obvs!)?
I often look at the rows of old almshouses bungalows and think ‘that’s what we need’!
Those and blocks of small flats, just big enough to justify two lifts, and effectively gated - so the elderly can wander about and visit each other even when it’s dark.
Need to ban pets though if we want to build them on the fringes...

 

[Bletchleyite]

All homes have to be wheelchair accessible now don’t they (downstairs only obvs!)?

Yes, only downstairs (hence a downstairs loo now being mandatory) - but that's more for visitors than living in them. These would be fully accessible throughout.

 

[py_megapixel]

hence a downstairs loo now being mandatory

Hmmm.... some downstairs loos are far from wheelchair accessible!

I actually quite like the "upside down house" layout where the main living space is upstairs with bedrooms downstairs. However that's not really wheelchair accessible which probably explains why it's so uncommon outside of custom designs.

Edit - "upside down house" doesn't seem to actually be as common a turn-of-phrase as I thought it was, and a quick Google search reveals it's also a name for a type of mortgage (which isn't what we're discussing here)

 

[Bletchleyite]

I actually quite like the "upside down house" layout where the main living space is upstairs with bedrooms downstairs. However that's not really wheelchair accessible which probably explains why it's so uncommon outside of custom designs.

I know what you mean but I wouldn't want to live in one of those as I like to sleep with the window open. It'd also put me off a ground floor flat or bungalow.

 

[RT4038]

Within reason, and I do see your point about the 18 year old. However, we are in a position where a family with 2 minimum wage breadwinners can't afford to rent a reasonably sized dwelling in a proper state of repair for their family (i.e. complying with the law on when children can share bedrooms), and that is not OK.

I don't think there should be a correlation between 'minimum wage breadwinners' and house rentals. Minimum wage jobs are not for exclusively supporting your example family; they are not a viable unit if both 'breadwinners' are on minimum wage only. Minimum wage jobs are for youngsters living at home, partners where the other partner has a reasonable paying job, retirees topping up their pension etc.

 

[Bletchleyite]

I don't think there should be a correlation between 'minimum wage breadwinners' and house rentals. Minimum wage jobs are not for exclusively supporting your example family; they are not a viable unit if both 'breadwinners' are on minimum wage only. Minimum wage jobs are for youngsters living at home, partners where the other partner has a reasonable paying job, retirees topping up their pension etc.

Meanwhile, in the real world, people are having to take those jobs because they can't get anything else. It's the same with zero-hours contracts - they are perfect for e.g. students, but they are being misused.

 

[DynamicSpirit]

I don't think there should be a correlation between 'minimum wage breadwinners' and house rentals. Minimum wage jobs are not for exclusively supporting your example family; they are not a viable unit if both 'breadwinners' are on minimum wage only. Minimum wage jobs are for youngsters living at home, partners where the other partner has a reasonable paying job, retirees topping up their pension etc.

I think that logic would be fine if minimum wage jobs formed only a small proportion of available jobs - so that the minimum wage was really a floor to protect those on unusually low paid jobs from their wages becoming so low that it becomes akin to exploitation - which I believe is what the minimum wage was originally intended to be. However, over the years the minimum wage has become much more than that: It's become the de facto standard wage rate for millions of jobs. For all practical purposes, in some industries, the minimum wage has become the salary that you will get paid unless there is some reason why your job requires skills that justify a higher salary. In that situation, millions of families are inevitably going to see their breadwinners earning minimum wage, and it therefore doesn't seem acceptable to me to argue that people shouldn't be able to support themselves, independently of any support from others in your family, on the minimum wage.

 

[RT4038]

I think that logic would be fine if minimum wage jobs formed only a small proportion of available jobs - so that the minimum wage was really a floor to protect those on unusually low paid jobs from their wages becoming so low that it becomes akin to exploitation - which I believe is what the minimum wage was originally intended to be. However, over the years the minimum wage has become much more than that: It's become the de facto standard wage rate for millions of jobs. For all practical purposes, in some industries, the minimum wage has become the salary that you will get paid unless there is some reason why your job requires skills that justify a higher salary. In that situation, millions of families are inevitably going to see their breadwinners earning minimum wage, and it therefore doesn't seem acceptable to me to argue that people shouldn't be able to support themselves, independently of any support from others in your family, on the minimum wage.

An unintended consequence of minimum wages, I suspect. I don't know how many jobs there are on minimum wage, but I think that for this situation that is what the social security system is for. I would not expect someone working full time on minimum wage to be able to afford to rent a flat (only a room).

 

[Bletchleyite]

An unintended consequence of minimum wages, I suspect. I don't know how many jobs there are on minimum wage, but I think that for this situation that is what the social security system is for. I would not expect someone working full time on minimum wage to be able to afford to rent a flat (only a room).

Perhaps not, but I would certainly expect a couple both on the minimum wage to be able to rent a small house, sufficient for themselves and a kid or two.

I suppose to be fair that's what social housing is for, but the provision in the UK is woefully inadequate.

 

[Tetchytyke]

I don't know how many jobs there are on minimum wage, but I think that for this situation that is what the social security system is for.

Many jobs in the service industries are minimum wage. In-work poverty is the biggest issue in the UK, even more so than out-of-work poverty. It's an absolutely massive problem.

And, of course, why should the taxpayer subsidise employers paying substandard wages? As I've said before, if a business "can't afford" to pay a viable minimum wage then it isn't a viable business.

The minimum wage should be enough to live on. Indeed the Tories officially rebranded it as the "National Living Wage" a few years ago.

 

[Meerkat]

And, of course, why should the taxpayer subsidise employers paying substandard wages? As I've said before, if a business "can't afford" to pay a viable minimum wage then it isn't a viable business.

It’s a crude redistributive tax that moves money from the richer to the poorer whilst keeping their jobs in this country/in existence.

 

[DynamicSpirit]

Many jobs in the service industries are minimum wage. In-work poverty is the biggest issue in the UK, even more so than out-of-work poverty. It's an absolutely massive problem.

And, of course, why should the taxpayer subsidise employers paying substandard wages? As I've said before, if a business "can't afford" to pay a viable minimum wage then it isn't a viable business.

The minimum wage should be enough to live on. Indeed the Tories officially rebranded it as the "National Living Wage" a few years ago.

Ideally, it should be (although it's a bit more complex because different people have very different requirements. If you make it just enough for a family with a couple of kids to live on, then it would be enough for a single person with no family commitments to live a life of luxury, which is probably not the intention. I've never really heard any good suggestions for how to deal with those kinds of differences).

But more seriously, the minimum wage is *never* going to be enough to live on, no matter how high you raise it, until you fix the housing crisis. The reason is simple: You have a commodity (places to live) that basically everyone absolutely needs, but for which there isn't enough supply in the country to go round. The result is that people will constantly outbid each other, stretching their finances to pay as much as they can afford if necessary, to be the ones that get the houses and not to be the ones that get forced to live with parents/in temporary accommodation/etc. That means that rent and house prices will always rise to match what people can afford. That's exactly what's been happening the last 20 years or so, and is the reason house prices (whether to rent or buy) are so high. Raise the minimum wage, and you raise what people can afford - which means rents will inevitably rise to match, leaving people on the minimum wage no better off. That will keep happening until the Government sorts out the housing crisis and makes sure there are enough houses for everyone. Calls to raise the minimum/living wage are well meaning, but are basically useless until we do serious house-building.

 

[Meerkat]

but for which there isn't enough supply in the country to go round

What’s the evidence that there aren’t enough homes in this country?
There are 29m homes, and a rising population - how many homes are you planning to build to make a difference to prices, and where are you going to put them?
The problem is the amount of money chasing the homes as investments. You could crash the market by ending BTL so if you want to drop prices reducing BTL is where you want to start.

 

[Bletchleyite]

The problem is the amount of money chasing the homes as investments. You could crash the market by ending BTL so if you want to drop prices reducing BTL is where you want to start.

But you also need to balance that with the fact that the private rented sector, while arguably too big at the moment, is needed and isn't pure evil like some think it is.

 

[Tetchytyke]

It’s a crude redistributive tax that moves money from the richer to the poorer whilst keeping their jobs in this country/in existence.

I can understand the argument, but I think it's probably the opposite. If wages are subsidised then that reduces employer overheads and increases their profit, it also reduces the amount paid into tax coffers through income tax, employee NICs and employer NICs. Where profits stay in the UK and are taxed that isn't so bad, but we know that's often not the case.

But I'd agree if you push it too far then you just end up with the jobs being sent offshore. Or you end up with widespread non-compliance, as we see in the textiles industry in Leicester.

Back on topic, I don't think "house building" as it's meant in this country solves anything. Houses being built commercially are not for people on lower incomes. There needs to be more proper genuine social housing, but that requires investment and there's no evidence that governments are prepared to do this.

What I will say is that the current government's strategy of Help to Buy artificially inflates new build prices, with a net effect on the whole market. And their solution of reducing building control rules, allowing office blocks to be converted into slum apartments, isn't going to reduce prices either, it's just going to increase rental yields. Imagine if the money wasted on Help to Buy had been given to housing associations to build new social housing.

 

[chorleyjeff]

Do we really want to concrete over England with more and more houses?

England is nowhere near being concreted over. Even Southern England. NIMBYs rule OK. Or even BANANAs ( build absolutely nothing near anybody )

== Doublepost prevention - post automatically merged: 27 Aug 2020 ==

I can understand the argument, but I think it's probably the opposite. If wages are subsidised then that reduces employer overheads and increases their profit, it also reduces the amount paid into tax coffers through income tax, employee NICs and employer NICs. Where profits stay in the UK and are taxed that isn't so bad, but we know that's often not the case.

But I'd agree if you push it too far then you just end up with the jobs being sent offshore. Or you end up with widespread non-compliance, as we see in the textiles industry in Leicester.

Back on topic, I don't think "house building" as it's meant in this country solves anything. Houses being built commercially are not for people on lower incomes, and Help to Buy has just distorted the price even more. There needs to be more proper genuine social housing, but that requires investment and there's no evidence that governments are prepared to do this.

But we managed that after WW2 when the country was skint. It is a matter of political will.

 

[Tetchytyke]

But we managed that after WW2 when the country was skint. It is a matter of political will.

I completely agree. I think it would be a good investment- it would create jobs whilst the stock is being built and it would create a revenue stream once built. But recent governments of all colours seem more content to let "the market" build things, and of course "the market" wants to build 4-bedroom "luxury executive homes" that they can sell for half a million quid a pop.

Although many immediate post-war houses were not what you would call high quality.

 

[Bletchleyite]

I completely agree. I think it would be a good investment- it would create jobs whilst the stock is being built and it would create a revenue stream once built. But recent governments of all colours seem more content to let "the market" build things, and of course "the market" wants to build 4-bedroom "luxury executive homes" that they can sell for half a million quid a pop.

Although many immediate post-war houses were not what you would call high quality.

I wonder have they considered allowing investment into social housing? Clearly this wouldn't be on the same terms as buying a rotting, leaky terrace in the armpit of Liverpool for £1 and renting it to students then selling it 10 years later for 20 times the price, but it would be a solid investment, stress free and could provide a chunk of the capital required to build. You wouldn't get capital gain in quite the same way as you would for investment in private housing, but you would get a solid, reliable monthly income from the rent minus expenses, and most likely your capital back plus a bit on selling the investment.

 

[LSWR Cavalier]

Hard to know what to believe about land use, one reads conflicting opinions

One phrase I found helpful: someone explained that a vehicle has three parking spaces: at home, at work and at the food store. Vast car parks are built at new shopping centres, most of the time most of the spaces are empty

 

[DynamicSpirit]

What’s the evidence that there aren’t enough homes in this country?

This seems pretty strong to me

An estimated 8.4 million people in England are living in an unaffordable, insecure or unsuitable home, according to the National Housing Federation.

8.4 million is a LOT of people.

That also matches my personal experience - I've moved around a fair bit, and experienced life renting, buying and letting. My experience is that up until the late 1990's, if I wanted somewhere to rent, it was pretty easy to find places. Around 2000, it suddenly became very hard, and over the following 10 years became increasingly harder, with quite a lot of people chasing any suitable place, and rooms/flats/houses being snapped up very quickly. On the other hand, experience letting (in NW England) is that finding tenants is usually very easy.

House and rental prices and the % of income people tend to spend on rent also provides evidence - because houses do obey the normal laws of supply and demand, and rising prices therefore indicates rising demand relative to supply - although I appreciate care needs to be taken in interpreting this because of things like legal constraints on mortgage lending and buy-to-let, which will impact the market.

There are 29m homes, and a rising population - how many homes are you planning to build to make a difference to prices, and where are you going to put them?
The problem is the amount of money chasing the homes as investments. You could crash the market by ending BTL so if you want to drop prices reducing BTL is where you want to start.

Money chasing homes as investments doesn't change the total supply of housing. Each time a buy-to-let investor buys a house, the reduces by 1 the supply of houses to sell, and increases by 1 the supply of houses to rent. All other things being equal, in a functioning competitive market, that would slightly increase market prices for buying, and slightly reduce market rents. Homes as investments therefore seems unlikely to be able to explain that rents have increased sharply over the last 20 years - whereas not-enough-houses explains that perfectly.

As for how many I'd want to build - that would take some analysis of demand, but I'd want to build as many as are necessary to ensure that in all parts of the country, there are as many homes as there are families+couples+single people who realistically need a home. Remember, back until the mid 1970s we were building about 300K homes a year, so building more houses than we currently do does appear to be possible.

 

[Tetchytyke]

I wonder have they considered allowing investment into social housing?

I'm not quite sure what you had in mind with this. Housing associations can, and do, raise private capital for new projects.

I don't think that the student accommodation funding model- selling individual accommodation units in a block to investors- is a good thing in any sector, but certainly not the social sector. Was that what you were thinking of, housing associations selling new units as individual investments?

As an aside, I think a lot of student accommodation investors will lose a lot of money due to Covid; whilst pleasing from a schadenfreude point of view, I actually don't think it will make any difference to property prices, even in the student sector. Because you have a disconnect between the property ownership and the property management, individuals can't reduce rents to protect their investment, it just ends up being in the gift of the developer if you have a tenant or a void.

The issues housing associations face are that rental yields are lower and so they are a less attractive investment. There's also the ongoing issue of rental default, which the misguided "bedroom tax" has only exacerbated. Housing associations issue assured tenancies (the only real difference between assured and assured shorthold being the lack of s21) but there are additional steps they have to take. There's also the issue of, realistically, never being able to recover arrears from social tenants as they have neither the income nor the assets to enforce a debt against. I know this to be the case because, until yesterday, my job as a money advice supervisor involved putting arrears into Debt Relief Orders (a mini form of bankruptcy)!

There's also the ongoing issue of landbanking by the big developers.

Finally, if you end up forcing housing associations down a very commercial route, you just end up with the likes of London and Quadrant, who now act as though they're a big property developer and have pretty much forgotten their social housing roots and obligations.

Money chasing homes as investments doesn't change the total supply of housing. Each time a buy-to-let investor buys a house, the reduces by 1 the supply of houses to sell, and increases by 1 the supply of houses to rent. All other things being equal, in a functioning competitive market, that would slightly increase market prices for buying, and slightly reduce market rents. Homes as investments therefore seems unlikely to be able to explain that rents have increased sharply over the last 20 years - whereas not-enough-houses explains that perfectly.

I think I would agree with that, and it matches my experience pretty well. Rental inflation in London is off the scale and it's simply due to over-demand and under-supply. But on the other hand I noticed that the first flat I rented in Newcastle was recently advertised for rental. In 2004 I rented it for £450pcm and now, 16 years later, it was advertised at £495pcm. When I first moved to Newcastle prices were high due to under-supply but things have stabilised and it shows in the rental market.

In the context of having somewhere to live, it doesn't matter if the house is rented or bought via a mortgage. BTL investors may well distort the purchase market but they shouldn't distort the rental market. Leveraged BTL isn't the golden goose it used to be anyway, not with the government changing the rules on how mortgage interest payments are treated for tax purposes.

 

[Bletchleyite]

I don't think that the student accommodation funding model- selling individual accommodation units in a block to investors- is a good thing in any sector, but certainly not the social sector. Was that what you were thinking of, housing associations selling new units as individual investments?

Yes, essentially that (or selling to the mainstream public shares in an estate rather than just to corporate/pension fund investors).

 

[Tetchytyke]

Yes, essentially that (or selling to the mainstream public shares in an estate rather than just to corporate/pension fund investors).

I'd be cautious; the model as used in student accommodation blocks is riddled with problems, for the investors themselves as much as the students. But I'd hope a housing association would be a less exploitative developer.

 

[Meerkat]

There needs to be more proper genuine social housing, but that requires investment and there's no evidence that governments are prepared to do this.

Councils have access to huge sums of cheap cash to borrow from the government

This seems pretty strong to me



8.4 million is a LOT of people.

That also matches my personal experience - I've moved around a fair bit, and experienced life renting, buying and letting. My experience is that up until the late 1990's, if I wanted somewhere to rent, it was pretty easy to find places. Around 2000, it suddenly became very hard, and over the following 10 years became increasingly harder, with quite a lot of people chasing any suitable place, and rooms/flats/houses being snapped up very quickly. On the other hand, experience letting (in NW England) is that finding tenants is usually very easy.

House and rental prices and the % of income people tend to spend on rent also provides evidence - because houses do obey the normal laws of supply and demand, and rising prices therefore indicates rising demand relative to supply - although I appreciate care needs to be taken in interpreting this because of things like legal constraints on mortgage lending and buy-to-let, which will impact the market.



Money chasing homes as investments doesn't change the total supply of housing. Each time a buy-to-let investor buys a house, the reduces by 1 the supply of houses to sell, and increases by 1 the supply of houses to rent. All other things being equal, in a functioning competitive market, that would slightly increase market prices for buying, and slightly reduce market rents. Homes as investments therefore seems unlikely to be able to explain that rents have increased sharply over the last 20 years - whereas not-enough-houses explains that perfectly.

As for how many I'd want to build - that would take some analysis of demand, but I'd want to build as many as are necessary to ensure that in all parts of the country, there are as many homes as there are families+couples+single people who realistically need a home. Remember, back until the mid 1970s we were building about 300K homes a year, so building more houses than we currently do does appear to be possible.

The evidence in the BBC story is mainly of evidence of affordability, not lack of supply.
Rent goes up because more people need to rent as they can’t afford to buy those homes
Money chasing homes affects the supply of homes for sale, significantly so at the lower end. A street of two bed owner-occupier houses would have a significant turnover as people move on up the chain. Once those houses go BTL they won’t be for sale for a long time - the ‘float’ in the market disappears.
We can’t build enough of what people want to buy, where they want to live, there just isn’t space.