House prices and housebuilding

[chorleyjeff]

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.

The old model of building council houses with a forty year payback and ( low ) rents that paid back the loan seemed a good way to provide decent quality housing that met Parker Morris standards.. But who now thinks long term except major house builders who hold on to development land for long periods and release only when there is a high demand for what they build.

 

[Tetchytyke]

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

Except they don't and, in any event, many councils no longer own their own housing stock. Successive governments have pushed councils to either transfer their housing stock to independent ALMOs (Arms-Length Management Organisations) or outright sell their stock to housing associations.

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.

I think it can be more nuanced than that. Part of the issue is you, as many UK people do, seem to be treating buying as preferential to renting.

People need somewhere to live. It doesn't matter if they're renting or buying. If they're not buying, they're renting. If they're not renting, they're buying. The ultimate ownership of the property shouldn't make any difference.

There is the issue that BTL investors drive demand up in the purchase market, and because people are priced out of buying, that drives demand in the rental market. It does work like that sometimes. But in reality it is more about supply-and-demand; if a owner-occupier bought the house instead of a BTL investor, there would be -1 potential renter in the market but also -1 available property in the rental market, so no net change to the supply-and-demand economics.

Rather than BTL investors, I'd say the mortgage affordability rules that the Financial Conduct Authority brought in following the collapse of Northern Rock have distorted things more. You have people trapped in high-cost mortgages because they can't pass affordability checks for a cheaper mortgage, and you have people trapped paying high rents because they can't pass affordability checks for a cheaper mortgage. An unintended consequence of the demand for "responsible" lending.

 

[Meerkat]

But in reality it is more about supply-and-demand; if a owner-occupier bought the house instead of a BTL investor, there would be -1 potential renter in the market but also -1 available property in the rental market, so no net change to the supply-and-demand economics.

But in your one house model you went from two people competing to buy the house to one person wanting the house - that is a net change to the supply and demand economics which will affect the price

 

[Tetchytyke]

But in your one house model you went from two people competing to buy the house to one person wanting the house - that is a net change to the supply and demand economics which will affect the price

The purchase price, definitely, but not the rental price- obviously the BTL landlord isn't competing in the rental market.

As I said, home ownership isn't the only way of having somewhere to live, and it isn't always the most desirable way of having somewhere to live.

I'm a reluctant landlord because I moved and couldn't sell my house quickly enough; if I had a secure tenancy, I'd have just quit the tenancy.

 

[Meerkat]

The purchase price, definitely, but not the rental price- obviously the BTL landlord isn't competing in the rental market.

Depends how much of the demand for renting is from people who want to buy. Obviously that isn’t all of them, but it’s probably a lot of them.
I guess there is a weird and unpredictable dynamic to consider. If you broke the trend for ever increasing house prices would demand naturally fall as people lose the fear of missing out, and your own house becomes less of an investment.

 

[Tetchytyke]

Depends how much of the demand for renting is from people who want to buy. Obviously that isn’t all of them, but it’s probably a lot of them.

It's definitely hard to unpick it sometimes.

In simple supply-and-demand terms, that shouldn't make a difference. If a renter buys a house, that it is one less household looking for rental properties, but it is also one less rental property on the market. Demand goes down, but so does supply. The net effect is nil.

But those who are close to being able to buy will, usually, have a bit more disposable income, and so they will be able to bid slightly higher on rents. That would drag rents upwards. But, then again, you see plenty of people who move in with parents to get the last bit of money together to buy a house, and that reduces demand without reducing supply.

I guess there is a weird and unpredictable dynamic to consider. If you broke the trend for ever increasing house prices would demand naturally fall as people lose the fear of missing out, and your own house becomes less of an investment.

A value crash would have unpredictable consequences. If you end up in negative equity but can comfortably pay the mortgage then you simply cannot move, reducing demand and supply. If you can't comfortably pay the mortgage you'd be looking at a quick sale or a repossession; both those sales favour quick cash buyers, who are primarily BTL investors, so a purchase crash could, ironically, increase rental prices. But, as you say, a permanent reduction or stagnation of prices could also take the heat out of the market, as the pressure to act fast whilst you can afford something is lost.

I still think Help to Buy is massively distorting the market, inflation in new build prices just inflates everything else too, and that is not a good thing for anyone except the directors of house builders.

 

[Bletchleyite]

Depends how much of the demand for renting is from people who want to buy. Obviously that isn’t all of them, but it’s probably a lot of them.
I guess there is a weird and unpredictable dynamic to consider. If you broke the trend for ever increasing house prices would demand naturally fall as people lose the fear of missing out, and your own house becomes less of an investment.

House prices will always increase because of inflation, because otherwise they would be depreciating, which would make no sense, because unless you don't maintain them they don't deteriorate like cars, they effectively last forever. Therefore the thing to aim at is an increase in value of the inflation figure each year.

 

[AM9]

Except they don't and, in any event, many councils no longer own their own housing stock. Successive governments have pushed councils to either transfer their housing stock to independent ALMOs (Arms-Length Management Organisations) or outright sell their stock to housing associations. ...

We've got Thatcher to thank for that. That was probably the most damaging thing that her government did to British society, (she didn't believe that society existed anyway), and it has created the psyche that people who don't own homes are lesser beings. Soon after the Conservatives took power in 1979, they passed the Housing Act 1980 which gave council hose tenants the right to buy the house that they were renting. That in itself wasn't so much an issue as many local authorities already had schemes that permitted long-standing tenants to buy. The new scheme forced councils to offer their rental stock to sitting tenants at discounts up to 50% of market value, eventuall rising to 70% discount in 1986, depending on how long they had been living there.
The scheme was an idealogical project to convert ordinary council house renters into house owners, - something that was seen as a Conservative voter's aspiration. Even more damaging was the stipulation that councils were prevented by the Act from replenishing their housing stock if they had any debt. By this mechanism, over 1m properties suitable for renting to ordinary families were lost and became 'investments' that were designed to divide society into those who owned their homes vs those who rented, i.e. Conservative (voting) property owners vs. 'failed working class' people. It was a cruel wheeze that many are still paying the price for. The possibility that Labour might repeal the law should they gain power in 1987 and 1992 was used as a threat at both elections which is why when Labour did eventuall gain power in 1997, it was politically too difficult to completely fix the housing problem.
I do think that there will be a change, brought about not directly by the housing shortage, but possibly by the need to fund social care for the elderly. With so many families sitting on an asset that has an absolute cash value way above what was paid for it, this will be seen as a source of funding for care. There's no need to evict anybody, a charge on the property that would be repaid on its sale would be easy to administer. The question has already been asked why the less wealthy should pay for homeowners' care just so that they can pass the wealth on to their children/friends/etc.. To me it is totally unjustifiable for young poorer families to fund the care of better off people to protect their children's inheritance.

 

[Bletchleyite]

I think it can be more nuanced than that. Part of the issue is you, as many UK people do, seem to be treating buying as preferential to renting.

The thing is in UK terms it is preferable, because when you've paid your mortgage off your income needs reduce, and the UK pensions system is predicated around that reduction in income. If we paid a higher State pension to cover rent until you die, as I'd imagine Germany does, the problem would indeed not occur.

 

[Meerkat]

We've got Thatcher to thank for that. That was probably the most damaging thing that her government did to British society, (she didn't believe that society existed anyway), and it has created the psyche that people who don't own homes are lesser beings. Soon after the Conservatives took power in 1979, they passed the Housing Act 1980 which gave council hose tenants the right to buy the house that they were renting. That in itself wasn't so much an issue as many local authorities already had schemes that permitted long-standing tenants to buy. The new scheme forced councils to offer their rental stock to sitting tenants at discounts up to 50% of market value, eventuall rising to 70% discount in 1986, depending on how long they had been living there.
The scheme was an idealogical project to convert ordinary council house renters into house owners, - something that was seen as a Conservative voter's aspiration. Even more damaging was the stipulation that councils were prevented by the Act from replenishing their housing stock if they had any debt. By this mechanism, over 1m properties suitable for renting to ordinary families were lost and became 'investments' that were designed to divide society into those who owned their homes vs those who rented, i.e. Conservative (voting) property owners vs. 'failed working class' people. It was a cruel wheeze that many are still paying the price for. The possibility that Labour might repeal the law should they gain power in 1987 and 1992 was used as a threat at both elections which is why when Labour did eventuall gain power in 1997, it was politically too difficult to completely fix the housing problem.
I do think that there will be a change, brought about not directly by the housing shortage, but possibly by the need to fund social care for the elderly. With so many families sitting on an asset that has an absolute cash value way above what was paid for it, this will be seen as a source of funding for care. There's no need to evict anybody, a charge on the property that would be repaid on its sale would be easy to administer. The question has already been asked why the less wealthy should pay for homeowners' care just so that they can pass the wealth on to their children/friends/etc.. To me it is totally unjustifiable for young poorer families to fund the care of better off people to protect their children's inheritance.

Are people still misquoting/misunderstanding Thatcher re the society comments!!?
Home owning is popular, it’s not an evil ideology.
i tend to agree re putting charges on property for care fees but there is always that nagging feeling it’s unfair on those who have saved and been sensible whilst there will be people who have lived the high life (relatively) get their care for free. Obviously it’s largely an image thing as those who ‘suffer‘ will be the inheritors who have not earned that money, but many people put great store in leaving their kids something, and you might increase the demand for care if people don’t see a ‘return‘ on having given up careers to look after parents.

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

The thing is in UK terms it is preferable, because when you've paid your mortgage off your income needs reduce, and the UK pensions system is predicated around that reduction in income. If we paid a higher State pension to cover rent until you die, as I'd imagine Germany does, the problem would indeed not occur.

I guess that would free up family houses as the elderly wouldn’t be able to keep renting them, rather than just living in a paid off asset!

 

[DynamicSpirit]

Are people still misquoting/misunderstanding Thatcher re the society comments!!?
Home owning is popular, it’s not an evil ideology.

Yes, home owning is great. And if the Thatcher Government had allowed people to buy their council houses at market prices (and allowed the councils to do whatever they wanted with the money, including building new council houses), I would have no objection to the policy. But the problem is, the Government forced councils to sell houses at huge discounts - amounting to an effective subsidy paid by (often, cash-strapped) councils to people who, on the whole, were not the poorest in society - since they were the ones who could afford to buy houses. That doesn't look to me like a sensible policy - more akin to trying to bribe people to get votes. And the long-term consequence for people who need social housing has been disastrous. To be clear, council-house-selling did not (as many on the left claim) reduce the overall supply of housing - it simply transferred houses from council-owned to privately owned. But because the Government - so far as I can tell, for purely ideological reasons - imposed restrictions preventing councils from building new houses to replace much of their sold housing stock - it did drastically reduce the numbers of houses available to people who need housing and can't afford market rents, which has caused huge social issues. Worse - as I understand it, research has found that a very large proportion of council houses sold at a discount (in other words, with a subsidy), have actually ended up as buy-to-let houses, rather than as owner-occupied houses. So, to that extent, the policy simply meant more people having to rent from the private sector - paying higher rents - rather than from councils. For those reasons I would strongly share @AM9's dislike of the Thatcher's council house policy.

Also, if the idea of allowing tenants to buy their homes is so great, why on Earth did the policy apply only to councils? Would it not have been just as good to apply that right also to people who rent long-term privately? That double standard suggests to me that the aim of the policy was at least in part political - a way of eliminating social housing, without thought for those who need social housing - rather than entirely motivated by a desire to let people own their homes.

 

[AM9]

Are people still misquoting/misunderstanding Thatcher re the society comments!!?
Home owning is popular, it’s not an evil ideology. ...

I presume that you haven't read into my post that I think home ownership is an 'evil ideology'. What was a cruel idealogical move was to exacerbate a divide in the UK housing market by effectively bribing some council house residents with the freehold of their landlords' properties at well below market prices. That was done in the belief that the resulting benefactors would become loyal conservative 'owner-occupier' voters, - something that to a degree succeeded in the shape of the thinly stereotyped 'Essex Man'. *

... i tend to agree re putting charges on property for care fees but there is always that nagging feeling it’s unfair on those who have saved and been sensible whilst there will be people who have lived the high life (relatively) get their care for free. Obviously it’s largely an image thing as those who ‘suffer‘ will be the inheritors who have not earned that money, but many people put great store in leaving their kids something, and you might increase the demand for care if people don’t see a ‘return‘ on having given up careers to look after parents. ...

I think the point about taking wealth into consideration when the state is asked to fund social care (in this case, generally of the 'end of life' type) may seem unfair, but the presumption that a significant number of those living the 'high life' because they haven't saved anything is probably so small that only the likes of the Daily Mail would see it as being an issue. And to call it as 'saved' is misleading because as has been inferred above, housing is a necessary part of living needs and for most lifetime owner-occupiers, is also very likely to increase more in value than what was put into it even after all inflationary aspects are reckoned.
I think that the attitude that houses are as much an investment as a home might diminish if that was to be regarded as a source of payment for state welfare services. Of course, if a wealthy house owner didn't like the idea of those with the ability to contribute being charged, they themselves would be free to use the private care services.
* I should at this point qualify my views with the following:

I was born in Essex​

Have lived in three owner-occupied houses in Essex​

Have a mother (now deceased) who purchased her council house, a few years later sold it and moved to mid Essex, (ironically into an ex-council house)​

Am retired, have no mortgage, and at the insistence of my children will not sacrifice any social care that we might need in order to protect their 'inheritence'.​

 

[Meerkat]

I think the point about taking wealth into consideration when the state is asked to fund social care (in this case, generally of the 'end of life' type) may seem unfair, but the presumption that a significant number of those living the 'high life' because they haven't saved anything is probably so small that only the likes of the Daily Mail would see it as being an issue

Unfortunately the DM and Express would rouse the grey vote and they do vote.
Look at the ‘dementia tax’ - a sensible start in the right direction that was shamefully blocked by electoral grandstanding by Labour.

 

[thejuggler]

The old model of building council houses with a forty year payback and ( low ) rents that paid back the loan seemed a good way to provide decent quality housing that met Parker Morris standards.. But who now thinks long term except major house builders who hold on to development land for long periods and release only when there is a high demand for what they build.

From my experience housebuilders don't land bank to the extent many believe they do.

It may take years to get planning on some developments, but holding land costs money so it makes no financial sense to buy land and do nothing with it.

Its a factor of production which is in short supply, so housebuilders need to have a stock of land to be able to build the houses to supply the market.

 

[Typhoon]

Unfortunately the DM and Express would rouse the grey vote and they do vote.
Look at the ‘dementia tax’ - a sensible start in the right direction that was shamefully blocked by electoral grandstanding by Labour.

Similarly, when Labour was in power

Conservative leader David Cameron demanded to know whether Gordon Brown would rule out the controversial £20,000 'death tax' that would fund help and security for people in their old-age - but the Prime Minister would not answer the question.

from https://www.express.co.uk/news/uk/...-rule-out-20-000-death-tax-for-middle-classes. There are probably others going back years.

However, it does need to be tackled and soon otherwise it will be tied up in the next election. Still, this is drifting ...

 

[AM9]

From my experience housebuilders don't land bank to the extent many believe they do.

It may take years to get planning on some developments, but holding land costs money so it makes no financial sense to buy land and do nothing with it.

Its a factor of production which is in short supply, so housebuilders need to have a stock of land to be able to build the houses to supply the market.

Strange, I remember hearing a few weeks ago a developer's representative in an interview saying that they need a steady stream of sales so they sometimes 'have to' sit on land with full planning approval for buildings. I cannot give a reference for that so those that don't believe that landbanking goes on can ignore it.

 

[Meerkat]

Strange, I remember hearing a few weeks ago a developer's representative in an interview saying that they need a steady stream of sales so they sometimes 'have to' sit on land with full planning approval for buildings. I cannot give a reference for that so those that don't believe that landbanking goes on can ignore it.

That’s the problem with huge developments - you don’t want to build it all and dump it on the local market in a short timespan.
I have this random idea that you work out a percentage of new homes needed in an area, then every town and village has to build that percentage even if it needs a little nibble out of the green belt, with locals give input to where and what (within limits - can’t have posh villages only building big houses to keep the riff raff out!)

 

[Tetchytyke]

Are people still misquoting/misunderstanding Thatcher re the society comments!!?
Home owning is popular, it’s not an evil ideology.

Ironic, really, that many of these properties are no longer owned by owner-occupiers, instead being owned by BTL investors. So the property is still being rented out, just for significantly higher rents and without that revenue coming in to public coffers. It's a few years ago now, but a study by the GMB and the Mirror showed that one third of all ex-council houses are now owned by BTL investors; the son of the Tory housing minister who brought the right-to-buy policy in owns a mere 40 of them on one London estate alone.

Great Tory housing shame: Third of ex-council homes now owned by rich landlords

The son of a former Tory Housing Minister and Mrs Thatcher aide during the peak years of right-to-buy owns at least 40 ex-council property

www.mirror.co.uk

The multi-millionaire son of a Tory minister who presided over the controversial “right-to -buy” scheme is a buy-to-let landlord owning scores of former council flats.

A Daily Mirror investigation found a third of ex-council homes sold in the 1980s under Margaret Thatcher were now owned by private landlords.

In one London borough almost half of ex-council properties are now sub-let to tenants.

Tycoon Charles Gow and his wife own at least 40 ex-council flats on one South London estate.

His father Ian Gow was one of Mrs Thatcher’s top aides and was Housing Minister during the peak years of right-to-buy.

Right-to-buy was, and remains, a scandalous policy.


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

From my experience housebuilders don't land bank to the extent many believe they do.

It may take years to get planning on some developments, but holding land costs money so it makes no financial sense to buy land and do nothing with it.

Holding undeveloped land has little appreciable cost, so I'm not buying into that theory at all. And if the land doesn't have planning permission when they bought it, but subsequently gains planning permission, the value of that asset increases dramatically, even if the developer chooses not to build.

Developers landbank because they don't want to dump a glut of properties on the market all at once. From a financial point of view it makes perfect sense- it's what de Beers have been doing with diamonds for 100+ years- but it is still landbanking.