How I won the housing market without trying(theguardian.com)
theguardian.com
How I won the housing market without trying
http://www.theguardian.com/society/2015/feb/05/how-i-won-the-housing-market-without-really-trying
115 comments
I am fully with you on a capital tax. It would ensure a system of constant high utilisation.
Where it gets shouted down is from old people that have lived in their homes for 50 years and seen their property prices rise to make them millionaires on paper but with no real income. They claim its unfair to force someone from their home.
Having studied Alzheimer's disease, it's easier on the mind to live in one place for the majority of your life. Being forced to move later in life can be traumatic.
Once you start taxing capitol you'll end up with no more overpriced valuations, conservative banking will be back in vogue.
Where it gets shouted down is from old people that have lived in their homes for 50 years and seen their property prices rise to make them millionaires on paper but with no real income. They claim its unfair to force someone from their home.
Having studied Alzheimer's disease, it's easier on the mind to live in one place for the majority of your life. Being forced to move later in life can be traumatic.
Once you start taxing capitol you'll end up with no more overpriced valuations, conservative banking will be back in vogue.
Extrapolating the data from the US http://taxes.about.com/od/statetaxes/a/property-taxes-best-a... the states with highest property taxes (New Jersey, New Hampshire) don't seem to be the economic powerhouses compared to the states with ultra-low property rates as the theory would imply. (The rates there are on "property value", so the rate for land value would be higher than indicated.)
> A person holding a land in the city for 25 years didn't make anything new, their profit is a direct zero-sum transfer from someone else.
For one, he took the opportunity risk of locking his liquid capital into a piece of land, which only accumulates property taxes, as opposed to owning a bond or a stock that pays dividend or interest. When you calculate the IRR, land doesn't necessarily come out ahead of S&P 500 over longer periods of time.
For two, he took on the appreciation risk - the land is not guaranteed to go up in value all the time.
> A person holding a land in the city for 25 years didn't make anything new, their profit is a direct zero-sum transfer from someone else.
For one, he took the opportunity risk of locking his liquid capital into a piece of land, which only accumulates property taxes, as opposed to owning a bond or a stock that pays dividend or interest. When you calculate the IRR, land doesn't necessarily come out ahead of S&P 500 over longer periods of time.
For two, he took on the appreciation risk - the land is not guaranteed to go up in value all the time.
>the states with highest property taxes (New Jersey, New Hampshire) don't seem to be the economic powerhouses compared to the states with ultra-low property rates as the theory would imply
These are property taxes, not land taxes, unless the article is lumping them. A property tax doesn't provide incentives for more efficient use of land, on the contrary actually.
Even if they were land taxes, they would be way too small for a meaningful difference. Also the biggest effect would come from replacing income tax with land tax, as the most productive people would gain the most, and presumably invest the gain in whatever productive thing they're doing.
>For one, he took the opportunity risk of locking his liquid capital into a piece of land
>For two, he took on the appreciation risk
There's nothing valuable in risk. Your argument works even better for buying a piece of a rock for a million dollars and expecting profits, as the opportunity risk and appreciation risk are way higher than buying a piece of land.
These are property taxes, not land taxes, unless the article is lumping them. A property tax doesn't provide incentives for more efficient use of land, on the contrary actually.
Even if they were land taxes, they would be way too small for a meaningful difference. Also the biggest effect would come from replacing income tax with land tax, as the most productive people would gain the most, and presumably invest the gain in whatever productive thing they're doing.
>For one, he took the opportunity risk of locking his liquid capital into a piece of land
>For two, he took on the appreciation risk
There's nothing valuable in risk. Your argument works even better for buying a piece of a rock for a million dollars and expecting profits, as the opportunity risk and appreciation risk are way higher than buying a piece of land.
> These are property taxes, not land taxes, unless the article is lumping them.
I am not sure I understand. The property tax in the US is the tax on land + additions, both subjects to appraised value, so yes, the rates listed do include both.
> Also the biggest effect would come from replacing income tax with land tax, as the most productive people would gain the most
How would this be sustainable for farmers or ranchers? If they have to radically increase their prices to account for new 30% land value tax, does the society benefit or lose?
> There's nothing valuable in risk.
He provided liquidity to the market when somebody was willing to sell that piece of land. If you're taxing someone for providing liquidity, the price of the underlying good will plummet, as that removes incentives for current buyers, and then you're back to square one - low tax revenues collected from land owners.
> Your argument works even better for buying a piece of a rock for a million dollars and expecting profits
People do invest in gold and silver.
I am not sure I understand. The property tax in the US is the tax on land + additions, both subjects to appraised value, so yes, the rates listed do include both.
> Also the biggest effect would come from replacing income tax with land tax, as the most productive people would gain the most
How would this be sustainable for farmers or ranchers? If they have to radically increase their prices to account for new 30% land value tax, does the society benefit or lose?
> There's nothing valuable in risk.
He provided liquidity to the market when somebody was willing to sell that piece of land. If you're taxing someone for providing liquidity, the price of the underlying good will plummet, as that removes incentives for current buyers, and then you're back to square one - low tax revenues collected from land owners.
> Your argument works even better for buying a piece of a rock for a million dollars and expecting profits
People do invest in gold and silver.
>I am not sure I understand. The property tax in the US is the tax on land + additions, both subjects to appraised value, so yes, the rates listed do include both.
Land tax is a tax on a value of unimproved land only [0]
>How would this be sustainable for farmers or ranchers? If they have to radically increase their prices to account for new 30% land value tax, does the society benefit or lose?
Why would it change anything? The land prices would just fall so that the net result would be neutral for average farmer.
>He provided liquidity to the market when somebody was willing to sell that piece of land
Land tax increases liquidity drastically by making it much more expensive to hoard it.
>and then you're back to square one - low tax revenues collected from land owners.
It's not back to square one - it's a situation in which people with more productive use of land can get it much more cheaply. Think of a situation in which a prime residential city land costs one average annual wage.
>People do invest in gold and silver.
People do many weird things. https://images.angelpub.com/2014/17/24245/returns-on-stocks-...
[0] http://en.wikipedia.org/wiki/Land_value_tax
Land tax is a tax on a value of unimproved land only [0]
>How would this be sustainable for farmers or ranchers? If they have to radically increase their prices to account for new 30% land value tax, does the society benefit or lose?
Why would it change anything? The land prices would just fall so that the net result would be neutral for average farmer.
>He provided liquidity to the market when somebody was willing to sell that piece of land
Land tax increases liquidity drastically by making it much more expensive to hoard it.
>and then you're back to square one - low tax revenues collected from land owners.
It's not back to square one - it's a situation in which people with more productive use of land can get it much more cheaply. Think of a situation in which a prime residential city land costs one average annual wage.
>People do invest in gold and silver.
People do many weird things. https://images.angelpub.com/2014/17/24245/returns-on-stocks-...
[0] http://en.wikipedia.org/wiki/Land_value_tax
Exactly, capital over the past couple of decades has been unfairly undertaxed vs labour which has been overtaxed to some degrees in places.
If we don't alter this course we, I fear will end up at early 1900s distribution of ownership with a crippling economy because actual growth driven by labour will significantly decrease.
If we don't alter this course we, I fear will end up at early 1900s distribution of ownership with a crippling economy because actual growth driven by labour will significantly decrease.
I suspect that "productive use" of capital has simply worn away. What's left is buy and hold of property.
Henry George is credited with land rents taxation as a theory. He built on Ricardo's work to posit a complete theory of taxation based purely on land rents.
Henry George is credited with land rents taxation as a theory. He built on Ricardo's work to posit a complete theory of taxation based purely on land rents.
In the UK it's normal practice to get in a chain. You sell yours, line up the one you want to buy, and all 14 people in the chain complete on the same day. Not sure you should be selling your house, then deciding to look.
You have to ask yourself what changed in the UK mortgage market to create this increase in housing value. It comes down to a bank regulation change the government put in place in 1996. Banks were able to offer buy-to-let mortgages.
This has fundamentally distorted the housing market in the UK.
In London you also have another issue. Apparently 40% of new build apartments are bought and never lived in. They are used as an investment to hold money 'safely' primarily by foreign buyers.
[EDIT] Citation for "buy to leave" http://www.theguardian.com/business/2014/dec/04/property-inv... http://www.theguardian.com/commentisfree/2014/dec/08/islingt...
So you have a situation where the Banks leant like crazy inflating the housing market, the crash happened, the banks hardened their mortgage lending criteria, which forced most people into renting, enabling landlords to maximise returns and invest further in rental properties using buy to let mortgages that use rental income as part of the payment calculation.
It's one hell of a vicious circle.
From my point of view I have benefited, but I honestly cannot see my 11 year old daughter ever owning her own property.
You have to ask yourself what changed in the UK mortgage market to create this increase in housing value. It comes down to a bank regulation change the government put in place in 1996. Banks were able to offer buy-to-let mortgages.
This has fundamentally distorted the housing market in the UK.
In London you also have another issue. Apparently 40% of new build apartments are bought and never lived in. They are used as an investment to hold money 'safely' primarily by foreign buyers.
[EDIT] Citation for "buy to leave" http://www.theguardian.com/business/2014/dec/04/property-inv... http://www.theguardian.com/commentisfree/2014/dec/08/islingt...
So you have a situation where the Banks leant like crazy inflating the housing market, the crash happened, the banks hardened their mortgage lending criteria, which forced most people into renting, enabling landlords to maximise returns and invest further in rental properties using buy to let mortgages that use rental income as part of the payment calculation.
It's one hell of a vicious circle.
From my point of view I have benefited, but I honestly cannot see my 11 year old daughter ever owning her own property.
"Apparently 40% of new build apartments are bought and never lived in" : this is totally incorrect
Errr... have you been following the Battersea Power Station development at all?
Can anyone provide a more accurate figure?
I posted above but here are a couple of links on "buy to leave" http://www.theguardian.com/business/2014/dec/04/property-inv...
http://www.theguardian.com/commentisfree/2014/dec/08/islingt...
I'm guessing it very much depends on the development with some stating sales being 85% to foreign investors.
I'm guessing it very much depends on the development with some stating sales being 85% to foreign investors.
<< Only 2.1% of homes in London are empty compared to 3.12% of the rest of England >>
http://www.londoncouncils.gov.uk/londonfacts/default.htm?cat...
http://www.londoncouncils.gov.uk/londonfacts/default.htm?cat...
> Not sure you should be selling your house, then deciding to look.
It's buying a house before you've sold yours that's a problem, not this way around (think cashflow), especially if you don't mind putting your furniture in storage and renting for a few weeks in between.
It's buying a house before you've sold yours that's a problem, not this way around (think cashflow), especially if you don't mind putting your furniture in storage and renting for a few weeks in between.
I seriously doubt that 40% figure. Why would "foreign buyers" who by flats as investments not take home the (very substantial) London rents? It would be financially imprudent.
I suspect that this is really a form of xenophobia, used, among other things, to sensationalise newspaper articles.
I suspect that this is really a form of xenophobia, used, among other things, to sensationalise newspaper articles.
> I seriously doubt that 40% figure. Why would "foreign buyers" who by flats as investments not take home the (very substantial) London rents? It would be financially imprudent.
Would they be? What's a realistic amount of rent to charge on a GBP 5,000,000 flat? How many people can afford that and are looking to rent?
(Also I think many appreciate having their London flat available for the few days a year they're in town)
Would they be? What's a realistic amount of rent to charge on a GBP 5,000,000 flat? How many people can afford that and are looking to rent?
(Also I think many appreciate having their London flat available for the few days a year they're in town)
I don't know about rent for such luxirious flats. There are so few of them that they cannot account for the 40% empty rate that has been claimed. Almost all new housing in London are small 1 and 2 bedroom flats that cost under £1,000,000.
Use diminishes value.
Having tenants requires work, adds cost, and might just not be worth your time.
You might just want a house for a weekend, and not want plebs messing your shit up.
And it probably has some degree of truth, You can stand outside 'new' buildings for a week and never see lights on in some windows.
Having tenants requires work, adds cost, and might just not be worth your time.
You might just want a house for a weekend, and not want plebs messing your shit up.
And it probably has some degree of truth, You can stand outside 'new' buildings for a week and never see lights on in some windows.
Use diminishes value, but this is nicely compensated for by rent, and more than compensated by London rental levels. Leaving a property empty is also not without problems (think heating, burglary, squatting, taxes). The number of people rich enough to buy pied-a-terres in (one of) the world's most expensive real estate markets is too small to justify the 40% figure (or anything like it).
These buy-to-leave flats are generally newly built (and were bought off plan), in high rise buildings with concierge / security, so there are no worries about heating, burglary or squatting...
I'd guess the price of these is around £350k - £1.5m (for a reasonable 1 - 3 bed flat in a new build), which is well within the reach of well off foreign middle class investors.
I'd guess the price of these is around £350k - £1.5m (for a reasonable 1 - 3 bed flat in a new build), which is well within the reach of well off foreign middle class investors.
It is within reach, but it would be financially wildly imprudent to forgo the £1000 - £3000 monthly rental income that such properties would fetch. Bear in mind that you will have to pay council tax and other fixed costs anyway. It would be a desperately terrible investment, much worse than other, more liquid assets. The global middle class cannot afford such investments. Maybe members of the Saudi royal family, but they won't be that interested in 1 bedrooms in Islington.
It's interesting that I'm being downvoted for the message above. What's wrong with it?
Incidentally, I just had lunch with an architect and a guy who runs a building company, both London-based. I asked them about this. They both agreed that no sane investor would leave flats bought as investments empty. Investment means basically having tenants. The agreed that there is a media-driven moral panic about this. The architect said he had one client who had a 12 bed-room house in central London that was empty for most of the year ... that customer was a member of Kuwait royal family.
Incidentally, I just had lunch with an architect and a guy who runs a building company, both London-based. I asked them about this. They both agreed that no sane investor would leave flats bought as investments empty. Investment means basically having tenants. The agreed that there is a media-driven moral panic about this. The architect said he had one client who had a 12 bed-room house in central London that was empty for most of the year ... that customer was a member of Kuwait royal family.
There is not much of a rental market for these £1m flats which to cover costs would have to rent at £40-50k a year. The number of people who can afford this us minute.
True, but rent and property value are strongly positively correlated, so there would also not be a very liquid market for buying and selling such flats. That would make it even worse as a speculative investment. `
I'm not saying such speculative investment doesn't exist, I just doubt it is as ubiquitous a phenomenon as claimed.
I'm not saying such speculative investment doesn't exist, I just doubt it is as ubiquitous a phenomenon as claimed.
http://www.theguardian.com/business/2014/dec/04/property-inv...
http://www.theguardian.com/commentisfree/2014/dec/08/islingt...
It's called "buy-to-leave" and no it's not xenophobia, it's a symptom of a housing bubble very much centred on London.
It's called "buy-to-leave" and no it's not xenophobia, it's a symptom of a housing bubble very much centred on London.
The article is a bit sketchy on the methodology used. The fact that not everybody flat investigated has somebody on the electoral register can easily be explained by several factors.
- The central London population is very transient. Many stay only for a few weeks, months or at most a year or two. Why bother registering?
- Many central Londoners, especially the young and newly arrived, move about quite a lot before they settle in one place for longer. They would not bother with registration.
- Many, probably the majority of central Londoners are foreign and don't bother with the electoral register because they can't vote in the general elections anyway, and may not know that the can vote for the major (or may not care).
- There's a lot of legally questionable subletting going on (think AirBnB), where the subletter and / or sublettee might not necessarily want to be on an official register.
- Some owners may simply fail to find a tenant, for example because they pitch rent too high.
As a piece of anecdotal evidence, I offer myself: I only got on the electoral register about 10 years after I moved to London.
- The central London population is very transient. Many stay only for a few weeks, months or at most a year or two. Why bother registering?
- Many central Londoners, especially the young and newly arrived, move about quite a lot before they settle in one place for longer. They would not bother with registration.
- Many, probably the majority of central Londoners are foreign and don't bother with the electoral register because they can't vote in the general elections anyway, and may not know that the can vote for the major (or may not care).
- There's a lot of legally questionable subletting going on (think AirBnB), where the subletter and / or sublettee might not necessarily want to be on an official register.
- Some owners may simply fail to find a tenant, for example because they pitch rent too high.
As a piece of anecdotal evidence, I offer myself: I only got on the electoral register about 10 years after I moved to London.
Because it's probably less hassle to sit on the property while it increases in value. Seriously, this is becoming a major problem in London, especially from overseas buyers.
There was an article posted on HN a few months back (which I can't locate right now) which explained this problem.
There was an article posted on HN a few months back (which I can't locate right now) which explained this problem.
The rental income from properties is not worth the hassle. It turns a relatively liquid asset into a much more illiquid one – tenancy rights in the UK are quite strong.
If you want to park your money in property, the worst thing you could do is hand control of that money to a group of people with legal right to keep if for certain periods.
If you want to park your money in property, the worst thing you could do is hand control of that money to a group of people with legal right to keep if for certain periods.
I agree on liquidity, but housing, occupied or not, is quite illiquid anyway. If you care about liquidity, you'd rather invest in other asset classes.
Property prices and rental income in London are extremely high. I cannot see how anyone but the extremely wealthy could afford letting London property stay empty as an investment. And there are not enough extremely wealthy around to account for the large number of empty properties that London is allegedly seeing.
Property prices and rental income in London are extremely high. I cannot see how anyone but the extremely wealthy could afford letting London property stay empty as an investment. And there are not enough extremely wealthy around to account for the large number of empty properties that London is allegedly seeing.
They've already shown financial imprudence by buying property at over the market rates.
I thought a major reason was Thatcher letting people who should not be owning a house buy one at a cut price?
"who should not be owning a house"
I think that's a bit harsh - my wife's parents bought their house under the Thatcher Right to Buy scheme and they were both hard working and financially prudent - they could have purchased a house but it wasn't what skilled working class people did in Glasgow so they didn't do it for cultural, not financial, reasons.
People used to joke that you could tell council houses where the owners had purchased because they had a new front door - and that is true - people look after property a lot more when it's there and whole neighborhoods have been improved that way.
What I do think was wrong with the Right to Buy Scheme was that it didn't spend the money raised on building new social housing.
I think that's a bit harsh - my wife's parents bought their house under the Thatcher Right to Buy scheme and they were both hard working and financially prudent - they could have purchased a house but it wasn't what skilled working class people did in Glasgow so they didn't do it for cultural, not financial, reasons.
People used to joke that you could tell council houses where the owners had purchased because they had a new front door - and that is true - people look after property a lot more when it's there and whole neighborhoods have been improved that way.
What I do think was wrong with the Right to Buy Scheme was that it didn't spend the money raised on building new social housing.
No - 'right to buy' is not related to the UK's housing crisis, aside from the fact it depleted social housing stock (which is a separate issue that should not have been allowed to happen).
Offering cut-price sales of social property to council tenants is an amazingly powerful tool for giving people ownership over their communities.
Offering cut-price sales of social property to council tenants is an amazingly powerful tool for giving people ownership over their communities.
Depletion of the social housing stock was an explicit objective of the policy. It was part of a transfer of power from the labour-controlled ""collectivist"" councils. That's why they were prevented from spending the revenue on new housebuilding.
It gives people ownership of their houses, not their communities. It's a micro version of the general privatisation problem of selling public assets at a discount for the benefit of private interests; it's just a variant that everyone's allowed a crack at, like the royal mail shares.
It gives people ownership of their houses, not their communities. It's a micro version of the general privatisation problem of selling public assets at a discount for the benefit of private interests; it's just a variant that everyone's allowed a crack at, like the royal mail shares.
Thanks to banking deregulation housing has become an investment commodity. In major cities in Australia at the moment half the purchases are for investment rather than owner-occupier. Government incentives like first-home buyer grants (if you can't save for a deposit) have only lifted the prices and helped vendors. Another one is negative-gearing introduced a couple of decades ago allowing tax deduction for investment properties making a loss (after rent), pushing prices higher. Only a few years ago the rules were changed around Australian pension funds (superannuation) allowing leverage. Property purchases from these funds sky-rocketed. All of this while Foreign Investment Review Board (who should be in charge of making sure foreign investors only buy new properties) has not had a single prosecution in last 8 years making you wonder if the rules are being followed at all. It is hard not to make a connection between constantly rising house prices and baby boomer generation dominating the government. It has been recently estimated Australian politicians hold a $300m property portfolio. Talk about conflict of interest..
I think blaming banking deregulation for making housing an investment is a pretty difficult case to make.
Negative gearing, and the flight to safety by overseas investor do have significant impact though.
I suspect many people who think that governments should act to try to cut prices miss the fact how hugely unpopular this would be with the majority of the population.
Many (most?) people have the majority of their savings tied up in a family house and rely on rising prices as retirement savings. That's worked well for the past 60 years or so, and there is no real structural reason why it needs to stop (in Australia anyway).
Negative gearing, and the flight to safety by overseas investor do have significant impact though.
I suspect many people who think that governments should act to try to cut prices miss the fact how hugely unpopular this would be with the majority of the population.
Many (most?) people have the majority of their savings tied up in a family house and rely on rising prices as retirement savings. That's worked well for the past 60 years or so, and there is no real structural reason why it needs to stop (in Australia anyway).
Its basically transferring wealth for those who don't own to those who do.
My parents house has quadruple in price over the last 20 years, (while wages have gone up maybe 50%). Where does that money come from? The younger generation that have to buy it from them when they sell up of course.
My parents house has quadruple in price over the last 20 years, (while wages have gone up maybe 50%). Where does that money come from? The younger generation that have to buy it from them when they sell up of course.
Its basically transferring wealth for those who don't own to those who do.
What is? Banking deregulation? Or the features of the tax system like negative gearing?
They are very different things, and talking about them both as they are the same thing or have the same effect is just plain wrong.
What is? Banking deregulation? Or the features of the tax system like negative gearing?
They are very different things, and talking about them both as they are the same thing or have the same effect is just plain wrong.
Pumping up house prices as high as possible, and not allowing free markets to exist - by lowering interest rates as soon as a crash should have happened.
Banking deregulation contributes by allowing people to take out loans they can't afford, then the tax payers have to bail them out when they go titsup.
> Where does that money come from?
I think the question is more about where does that demand come from, as it clearly increases faster than supply.
Where does that demand come from? Population growth, particularly immigration, as well as migration of people within nations.
I think the question is more about where does that demand come from, as it clearly increases faster than supply.
Where does that demand come from? Population growth, particularly immigration, as well as migration of people within nations.
Credit growth as well.
As long as those same people don't then complain that retirement forces them to leverage against their house to pay for it. But all of them do, because they feel it's their right to retain ownership to pass on through inheritance which of course only worsens the problems of property access.
Why would housing not be an investment commodity if banks were more strongly regulated? What specific regulation do you propose that would prevent housing investments?
In Australia we have negative gearing. In layman's terms it means you can offset property expenses against your real income.
So if you have a big income with a corresponding big tax burden, you can reduce you extra income to purchase a property and by using the expenses of that investment, reduce you net income and hence reduce you net tax burden.
So rather than paying the tax man, you end up paying the bank, which for you the rich investor, is not bad since the value there is a chance that second, third, forth property that you are now gearing will appreciate in value.
So while the tax receipts of the country go down, your paper wealth goes up, that is until the next GFC.
So the end result is the rich continue to reduce their tax burden, reducing the tax income of the country, hence passing the tax burden onto the middle and lower classes and in the process the rising house prices encourage those same rich to invest in yet another property as their paper wealth continues to climb.
Any one can see that is not good for the country, not good for the community and also not sustainable.
It's easy to create a bubble but at some time the buble has to burst.
So if you have a big income with a corresponding big tax burden, you can reduce you extra income to purchase a property and by using the expenses of that investment, reduce you net income and hence reduce you net tax burden.
So rather than paying the tax man, you end up paying the bank, which for you the rich investor, is not bad since the value there is a chance that second, third, forth property that you are now gearing will appreciate in value.
So while the tax receipts of the country go down, your paper wealth goes up, that is until the next GFC.
So the end result is the rich continue to reduce their tax burden, reducing the tax income of the country, hence passing the tax burden onto the middle and lower classes and in the process the rising house prices encourage those same rich to invest in yet another property as their paper wealth continues to climb.
Any one can see that is not good for the country, not good for the community and also not sustainable.
It's easy to create a bubble but at some time the buble has to burst.
Negative gearing is not a banking regulation, it's a tax subsidy.
I suspect the parent was replying to the second part of your question: What specific regulation do you propose that would prevent housing investments?.
The parent's response is (presumably): "remove negative gearing".
The parent's response is (presumably): "remove negative gearing".
That is correct.
The original parent said "housing has become an investment commodity" and that it very true here in Oz.
Thanks to a climate of very low interest rates and "negative gearing" it means only those with high taxable income and a high tax burden can afford to invest in housing and in the process pushing housing prices ever higher.
But this is a bubble and it is unsustainable. If the world economy ever gets over the problems of the 2007 GFC and we finally see any form of real growth, interest rates will have to increase from their near zero position.
When that happens it will cause yet another crisis when that housing bubble is pricked.
By removing that unhealthy gearing tax, the Oz government could at least take some of the heat out of what is an already overheated property market.
Edit: Before someone points out Oz interest rates are actually not zero but rather high, unlike the majority of the developing world. Last Tuesday the overnight cash rate came down to it's lowest level since the 1950's.
And since the Oz economy is not running as well as it should, all predictions are we'll be seeing several more rate cuts in the future.
And with the current tax settings, that means we're in for a booming of house prices. We only have to go back to 2007 to see how over inflated house prices can destroy a world economy.
The original parent said "housing has become an investment commodity" and that it very true here in Oz.
Thanks to a climate of very low interest rates and "negative gearing" it means only those with high taxable income and a high tax burden can afford to invest in housing and in the process pushing housing prices ever higher.
But this is a bubble and it is unsustainable. If the world economy ever gets over the problems of the 2007 GFC and we finally see any form of real growth, interest rates will have to increase from their near zero position.
When that happens it will cause yet another crisis when that housing bubble is pricked.
By removing that unhealthy gearing tax, the Oz government could at least take some of the heat out of what is an already overheated property market.
Edit: Before someone points out Oz interest rates are actually not zero but rather high, unlike the majority of the developing world. Last Tuesday the overnight cash rate came down to it's lowest level since the 1950's.
And since the Oz economy is not running as well as it should, all predictions are we'll be seeing several more rate cuts in the future.
And with the current tax settings, that means we're in for a booming of house prices. We only have to go back to 2007 to see how over inflated house prices can destroy a world economy.
(I'm Australian)
But this is a bubble and it is unsustainable.
So many people say this, presumably because "it must be true".
I just don't see why that is necessarily so - at least in the medium (20-30 years) term. Australian demand is propped up by Chinese flight-to-safety money, and housing demand (especially in Sydney and Melbourne) remains very high.
In the short term, yeah, it would be good to see lower growth in housing prices, or even a drop. I'm quite sympathetic to the idea of negative gearing reform.
A 5% drop in real terms is possible, or even likely at some point, and markets like Perth and Darwin will always be more volatile.
But that's very different to the 30-50% drops that "bubble bursting" implies.
But this is a bubble and it is unsustainable.
So many people say this, presumably because "it must be true".
I just don't see why that is necessarily so - at least in the medium (20-30 years) term. Australian demand is propped up by Chinese flight-to-safety money, and housing demand (especially in Sydney and Melbourne) remains very high.
In the short term, yeah, it would be good to see lower growth in housing prices, or even a drop. I'm quite sympathetic to the idea of negative gearing reform.
A 5% drop in real terms is possible, or even likely at some point, and markets like Perth and Darwin will always be more volatile.
But that's very different to the 30-50% drops that "bubble bursting" implies.
> So many people say this, presumably because "it must be true".
Consider this link:
http://www.smh.com.au/business/property/median-asking-price-...
* Across Australian state and territory capitals, the median asking price for detached homes jumped $6,400 over the week to $755,100, the figures show.*
At a rate of 6% the interested alone on that loan is $45,000.00 a year. Move that rate to 7% and that jumps to close to $53,000.00 a year.
How can any family earning average or better than average wages every have enough income to cover those interest re-payments?
> Australian demand is propped up by Chinese flight-to-safety money, and housing demand (especially in Sydney and Melbourne) remains very high.
I don't disagree with this and I have no doubt the prices are being over inflated by a large numbers of oversees investors.
Hover, part of that problem is the Australian government is not enforcing it's own rules regarding home ownership. If a foreign money buys a home in Australia the owner needs to be a student or a permanent resident.
Currently there is massive level of overseas investment in Australian driving up the prices in the housing sector but most of that investment is actually illegal:
http://news.domain.com.au/domain/real-estate-news/parliament...
Australia also suffers from demography issues in that there are so few cities where you can live.
Unlike the US where there are numerous big cities options, in Australia there are less than a dozen such big city locations to choose from.
That factor alone is also putting upward pressure on housing in those areas.
The question is will interest rate every go up. That is not certain since the world is still suffering with the issues of the last GFC.
But in Australia if those interest rates do ever start to move upward, which would be an indication the country is finally showing something in the form of economic growth, those rising interest rates are going to cause problems with those massive $1 Million+ home owner debts.
Consider this link:
http://www.smh.com.au/business/property/median-asking-price-...
* Across Australian state and territory capitals, the median asking price for detached homes jumped $6,400 over the week to $755,100, the figures show.*
At a rate of 6% the interested alone on that loan is $45,000.00 a year. Move that rate to 7% and that jumps to close to $53,000.00 a year.
How can any family earning average or better than average wages every have enough income to cover those interest re-payments?
> Australian demand is propped up by Chinese flight-to-safety money, and housing demand (especially in Sydney and Melbourne) remains very high.
I don't disagree with this and I have no doubt the prices are being over inflated by a large numbers of oversees investors.
Hover, part of that problem is the Australian government is not enforcing it's own rules regarding home ownership. If a foreign money buys a home in Australia the owner needs to be a student or a permanent resident.
Currently there is massive level of overseas investment in Australian driving up the prices in the housing sector but most of that investment is actually illegal:
http://news.domain.com.au/domain/real-estate-news/parliament...
Australia also suffers from demography issues in that there are so few cities where you can live.
Unlike the US where there are numerous big cities options, in Australia there are less than a dozen such big city locations to choose from.
That factor alone is also putting upward pressure on housing in those areas.
The question is will interest rate every go up. That is not certain since the world is still suffering with the issues of the last GFC.
But in Australia if those interest rates do ever start to move upward, which would be an indication the country is finally showing something in the form of economic growth, those rising interest rates are going to cause problems with those massive $1 Million+ home owner debts.
[deleted]
He mentioned a list of items, such as
Foreign Investment Review Board (who should be in charge of making sure foreign investors only buy new properties)
which is apparently a rule that's not being enforced. Lots of the western world is seeing housing bid upwards by capital flight from China.
Foreign Investment Review Board (who should be in charge of making sure foreign investors only buy new properties)
which is apparently a rule that's not being enforced. Lots of the western world is seeing housing bid upwards by capital flight from China.
It's not a banking regulation.
No, but a bank (either local or foreign) has a duty of care to ensure that a loan will not be used to finance an investment that potentially violates local or foreign laws placing said loan at higher risk of default.
Not prevent it. But around half the purchases in housing being for investment seems a bit distorted. As far as regulation I would start by encouraging lending to productive parts of the economy (business, innovation, startup, infrastructure, etc.) and limit lending for rent-seeking activities like market speculation.
It's basically inevitable though that in demand property will rise in price, especially with regulation constraining building height/form factor. Home cost in urban areas is much more about location than it's about any real cost to building the residence. Lots of people buy large houses for very little a few miles out of town where land is abundant and demand is more reasonable.
I guess I'm just having trouble really feeling sorry for anyone who decides that living within a select few square miles is worth paying an obscene percentage of their income towards that pursuit. It's a housing market and prices will rise to meet demand until buyers finally split off to other nearby locales.
As to your last line; There's a reason that most people don't want to admit that 2008 was the housing bubble popping and instead insist that homes are "finally returning to their true value".
I guess I'm just having trouble really feeling sorry for anyone who decides that living within a select few square miles is worth paying an obscene percentage of their income towards that pursuit. It's a housing market and prices will rise to meet demand until buyers finally split off to other nearby locales.
As to your last line; There's a reason that most people don't want to admit that 2008 was the housing bubble popping and instead insist that homes are "finally returning to their true value".
It is somewhat inevitable, but the problem we see here, I believe, is about the magnitude of this rise. I don't believe housing should be a _completely_ free market : investors should be regulated out of the tense areas (except of course for new developments).
Investment in older buildings in tense areas, combined with wealthy buyers who neither live in nor rent their property, are pushing prices way beyond acceptable ranges. I don't know about London, but in Paris for instance, 20 to 30% of the flats in the center districts are empty.
When young professionals and less fortunate people are struggling to find housing and putting more than 40% of their income into the rent, I believe those 30% of empty flats are unacceptable and the owners should be taxed out of them.
There are plenty of legitimate vehicles for investment, but already-built real estate is definitely not one of them. Such investment is not productive for the economy as a whole and is not much more than generational ransoming.
Investment in older buildings in tense areas, combined with wealthy buyers who neither live in nor rent their property, are pushing prices way beyond acceptable ranges. I don't know about London, but in Paris for instance, 20 to 30% of the flats in the center districts are empty.
When young professionals and less fortunate people are struggling to find housing and putting more than 40% of their income into the rent, I believe those 30% of empty flats are unacceptable and the owners should be taxed out of them.
There are plenty of legitimate vehicles for investment, but already-built real estate is definitely not one of them. Such investment is not productive for the economy as a whole and is not much more than generational ransoming.
"There's a reason that most people don't want to admit that 2008 was the housing bubble popping and instead insist that homes are "finally returning to their true value"."
It may have burst in the US, but certainly nowhere else
It may have burst in the US, but certainly nowhere else
With the current prices just with a gun pointing to my head, I would agree to buy a house in Australia as investment.
With the money needed to buy a crappy flat, you can buy a luxury house in a lot of places around the world. Prices are crazy.
With the money needed to buy a crappy flat, you can buy a luxury house in a lot of places around the world. Prices are crazy.
Well, picking a shorter commute is a reasonable choice to make. Longer commutes don't take time from work, they take time from family, and are associated with higher divorce rates, at least amongst Swedes.
In a city like Melbourne, where I live, there's a lot of development which could still be done to reach a reasonable medium-density of 3-4 story apartment buildings in the suburbs immediately circling the CBD. It is being done, but not to such an extent that housing prices will stop rising. I really wonder what this city will look like in another 20 years, as people are pushed further and further out but the work is still centralised.
In a city like Melbourne, where I live, there's a lot of development which could still be done to reach a reasonable medium-density of 3-4 story apartment buildings in the suburbs immediately circling the CBD. It is being done, but not to such an extent that housing prices will stop rising. I really wonder what this city will look like in another 20 years, as people are pushed further and further out but the work is still centralised.
My personal opinion is that the need to physically be at your job will only diminish in the future. I honestly believe that VR will eventually offer a lot of potential for virtual office spaces that give you the illusion of being there but let you sit comfortably at home.
Of course I may just be a dreamer and we'll continue to see housing prices skyrocket as we try to cram 10's of millions of people into small geographical areas- I'm certainly not dismissing that possibility.
Of course I may just be a dreamer and we'll continue to see housing prices skyrocket as we try to cram 10's of millions of people into small geographical areas- I'm certainly not dismissing that possibility.
I agree with you about virtual offices, but I think social lives will still mean that people want to live near their family or friends. In an office with desk jobs, physical contact is almost never required, and so virtual spaces will be realistic far sooner. When it comes to friends and family where there is far more nuance in our interactions, I think it will take longer.
We were promised paperless offices decades ago and we're still nowhere close. Right now we can barely get video-conferencing done properly. Hence, I doubt VR will help us anytime soon.
I don't think it was a promise, more like a prediction. And it is becoming true, I think. At least in my line of work (engineering, software, telecoms, security) shuffling papers has decreased a lot over the past 15 years.
National legislation sometimes slows this development, e.g. by insisting on having a paper with a signature and possibly even a stamp.
As usual, we tend to overestimate how quickly the changed happens in short-term (hence "the broken promise"), but we also underestimate the social impact this change has (we don't just replace paper with electronic forms, we change the way we work and it changes businesses profoundly.)
National legislation sometimes slows this development, e.g. by insisting on having a paper with a signature and possibly even a stamp.
As usual, we tend to overestimate how quickly the changed happens in short-term (hence "the broken promise"), but we also underestimate the social impact this change has (we don't just replace paper with electronic forms, we change the way we work and it changes businesses profoundly.)
>I guess I'm just having trouble really feeling sorry for anyone who decides that living within a select few square miles is worth paying an obscene percentage of their income towards that pursuit.
There have been studies showing a negative correlation between long commute times and happiness.
I don't have a family, so I am happy to pay for a relatively small apartment in the city centre. If I lived in the suburbs I would get a lot more house for my money, but then I would have to spend and extra couple of hours every day commuting.
There have been studies showing a negative correlation between long commute times and happiness.
I don't have a family, so I am happy to pay for a relatively small apartment in the city centre. If I lived in the suburbs I would get a lot more house for my money, but then I would have to spend and extra couple of hours every day commuting.
What is interesting, is that the policy makers have a financial interest in ensuring that the housing market does not crash. Therefore every time it should have crashed big time (2001, 2008), the BoE has propped it up by making sure that borrowing remained dirt cheap and the government made sure that the market stayed liquid (raising stamp duty levels for example).
Every time they do this, they just exacerbate the problem long term, which is quite simply, that the market needs a correction, and the longer they put it off, the more painful the correction is going to be (like it was early 1990's in the UK but worse).
I for one say let it burn.
Every time they do this, they just exacerbate the problem long term, which is quite simply, that the market needs a correction, and the longer they put it off, the more painful the correction is going to be (like it was early 1990's in the UK but worse).
I for one say let it burn.
In many places in the UK, it did crash big time. Plenty of people I know even today are in homes well below their 2007 levels or have sold for painful losses. London is unusual in that many properties sell for cash, to investors, and in fact the BoE and mortgage lenders have surprisingly little influence in terms of rate changes. Not sure letting anything "burn" particularly helps anybody.
Edit: I suspect "let it burn" reflects a certain frustration, you have my sympathy if you or your family/friends are finding the situation a barrier. Facts and figures can mask the very personal cost of being unable to achieve fundamental goals in life such putting down roots for one's family.
Edit: I suspect "let it burn" reflects a certain frustration, you have my sympathy if you or your family/friends are finding the situation a barrier. Facts and figures can mask the very personal cost of being unable to achieve fundamental goals in life such putting down roots for one's family.
My mother just recently bought a studio flat in Wales for 31k. Prices are dropping around the country. London prices are forcing people away from living in London. Businesses are moving away. (If you are a young developer, I'd suggest moving to Bristol.)
I second that! Best city in the UK in my opinion- It has an amazing selection of bars, clubs and independent shops, a buzzing music scene and of course a great tech scene with plenty of meetups etc. Compared to London I would say it's much more friendly, you can cycle from one side to the other in under an hour, escape to the countryside or the coast in under an hour and you never feel trapped in a towering concrete jungle (often felt this in London!).
Almost anywhere in the country is more friendly than London
The data doesn't seem to support that view [1]. The headline claim there is that average property prices across the country rose by 7% last year, with London more than double that and no area showing an annual fall.
It seems like your example of Bristol is only becoming cheaper relative to London, not cheaper in any absolute sense.
[1] https://www.gov.uk/government/uploads/system/uploads/attachm...
It seems like your example of Bristol is only becoming cheaper relative to London, not cheaper in any absolute sense.
[1] https://www.gov.uk/government/uploads/system/uploads/attachm...
Agreed; in Scotland, we're now seeing steady, but not excessive, growth in volumes and prices. I'd say it's recovering, not worsening.
You'll severely limit your career and earning potential if you do that, particularly if you're not a founder or otherwise in a position to insulate yourself from pure market salaries.
Dev salaries are not high in Britain as a whole, outside of London.
Dev salaries are not high in Britain as a whole, outside of London.
Depends on whether you measure earning potential in pounds or houses. Someone earning £50k in an area of £250k houses is being paid 0.2 houses per annum. If they can get £40k in an area of £100k houses their spending power has gone up not down.
If only it weren't so necessary to be physically present for the work.
If only it weren't so necessary to be physically present for the work.
I tend to measure things in disposable income: how much money I have left over after paying the big bills. And this is a fairly absolute measure, rather than relative to living costs, as I spend much of my disposable income on stuff that costs similar amounts no matter where I live.
50k is a mediocre salary, mind.
50k is a mediocre salary, mind.
Mediocre salary???? Either you live in the square mile bubble, or you're not British.
£50k is what a senior software developer outside London gets.
£50k is what a senior software developer outside London gets.
That's exactly my point: UK software salaries are not high outside of London, and that if you want a good salary, you need to work in London.
50k is a 90th percentile salary for the UK as a whole and competitive for non-London non-senior management software dev jobs.
Perhaps the context of this thread has been lost. It started out with me asserting that you get poor return outside of London.
Personally, I think there's little point in living in the UK outside of London. There's far nicer places to live if you're willing to take a hit in salary. (And no, I'm not British.)
Personally, I think there's little point in living in the UK outside of London. There's far nicer places to live if you're willing to take a hit in salary. (And no, I'm not British.)
What places would you suggest?
My argument was a PPP and quality-of-life one, really. Moving to Edinburgh has worked out quite nicely in that regard.
My argument was a PPP and quality-of-life one, really. Moving to Edinburgh has worked out quite nicely in that regard.
Somewhere with better weather and better connections to the rest of the world.
I spend most of my money on travel, motorcycles, food and fine wine (in particular, aged fortified wines in the 3-digit price range). Food is the only one particularly affected by PPP. A typical meal out for two costs £60 to £200, depending quality and wine bought. I'll spend more on a special occasion. But living outside London, I'd have a harder time finding great places to eat. My experience from touring the UK is that there are more hearty, good value options especially as you go north, but fine dining gets scarcer.
Travel is really important to me, touring by motorcycle specifically. But the south of England is very flat, and the fastest way to the continent is a train to France. Once you land in France, you have to cross it to get to wherever you're going. Alternately, one can take a ferry and suffer excruciating boredom only marginally worse than a motorway.
Almost anywhere in central Europe would be better for biking - southeast France, northern Italy, southern Germany, Austria - or northern Spain, if I didn't want to leave the country for some of the best roads in the world. More snow in winter, mind, but I could live with that. Certainly, the roads in the UK are among the worst in western Europe, outside of Belgium and possibly Ireland - though Ireland has had a lot of investment, they've built some very odd roads.
I grew up on the west coast of Ireland. My willingness to tolerate rainy days is no longer very high.
I spend most of my money on travel, motorcycles, food and fine wine (in particular, aged fortified wines in the 3-digit price range). Food is the only one particularly affected by PPP. A typical meal out for two costs £60 to £200, depending quality and wine bought. I'll spend more on a special occasion. But living outside London, I'd have a harder time finding great places to eat. My experience from touring the UK is that there are more hearty, good value options especially as you go north, but fine dining gets scarcer.
Travel is really important to me, touring by motorcycle specifically. But the south of England is very flat, and the fastest way to the continent is a train to France. Once you land in France, you have to cross it to get to wherever you're going. Alternately, one can take a ferry and suffer excruciating boredom only marginally worse than a motorway.
Almost anywhere in central Europe would be better for biking - southeast France, northern Italy, southern Germany, Austria - or northern Spain, if I didn't want to leave the country for some of the best roads in the world. More snow in winter, mind, but I could live with that. Certainly, the roads in the UK are among the worst in western Europe, outside of Belgium and possibly Ireland - though Ireland has had a lot of investment, they've built some very odd roads.
I grew up on the west coast of Ireland. My willingness to tolerate rainy days is no longer very high.
There are pockets outside London where demand for developers is very high. Don't be fooled into thinking it's London or nothing for the UK workforce. I'm in Central Scotland, and there's a thriving tech thing going on here.
In my experience jobs outside of London have a much lower earning potential. I went to university in Devon, and there are a fair few tech jobs around there, but even as a senior developer with 10 years experience I wouldn't get much more than £40k. Instead I moved to London, and was getting more than that two years after I graduated.
Sure London is more expensive, but if you don't mind commuting you can live further out of the city for not much more than the UK average - I'd imagine rents between Bristol and Reading are pretty similar, but Reading is easily commutable to London (Bristol isn't bad either, but I wouldn't like to do it every day).
There is also the question of technologies too, if you aren't happy working with legacy Java or .NET systems then you'll have a much harder time getting a job outside of London.
Also where exactly is Central Scotland (I'm a southerner)?
Sure London is more expensive, but if you don't mind commuting you can live further out of the city for not much more than the UK average - I'd imagine rents between Bristol and Reading are pretty similar, but Reading is easily commutable to London (Bristol isn't bad either, but I wouldn't like to do it every day).
There is also the question of technologies too, if you aren't happy working with legacy Java or .NET systems then you'll have a much harder time getting a job outside of London.
Also where exactly is Central Scotland (I'm a southerner)?
Central Scotland = Glasgow, Edinburgh and places along the M8 (eg Oracle at Linlithgow). http://en.wikipedia.org/wiki/Silicon_Glen also includes Dundee which isn't quite "central" but has a games cluster centered on Abertay.
It's a good way south of the centre of a map of Scotland, but it's the area where people are concentrated.
It's a good way south of the centre of a map of Scotland, but it's the area where people are concentrated.
In general you're probably right. I guess it's finding the exceptions that are out there that's difficult, and as you say, for someone based in the south of England, the middle bit of Scotland is pretty obscure.
There is a body, IIRC, promoting Scotland and awareness of its growing activity in tech as a place to come and live and work. Perhaps not "Mission Accomplished" quite yet :-)
There is a body, IIRC, promoting Scotland and awareness of its growing activity in tech as a place to come and live and work. Perhaps not "Mission Accomplished" quite yet :-)
> Prices are dropping around the country.
> London prices are forcing people away from living in London. Businesses are moving away.
Wouldn't this force prices higher across the country?
As someone living in Bristol, I have to say that there's been a (noticeable) influx of people from London, and that this is what I believe has forced local prices up to the point where many can no longer afford to stay.
Friends of mine, who are local (I am an Essex import), have scattered as far as Darwen and Bournemouth.
> London prices are forcing people away from living in London. Businesses are moving away.
Wouldn't this force prices higher across the country?
As someone living in Bristol, I have to say that there's been a (noticeable) influx of people from London, and that this is what I believe has forced local prices up to the point where many can no longer afford to stay.
Friends of mine, who are local (I am an Essex import), have scattered as far as Darwen and Bournemouth.
> What is interesting, is that the policy makers have a financial interest in ensuring that the housing market does not crash.
Exactly. Moreover, the housing value is tied into things such as total wealth (which is why after the 2008 crash the wealth of middle-income and low-income Americans crashed, too much of it was tied up into housing equity), which then ties into economic outlook and consumer spending, which then ties into lending and all things finances.
Presidents and parliament members do get voted out when there's a severe contraction in consumer spending and generally depressive feelings about economic outlook.
Exactly. Moreover, the housing value is tied into things such as total wealth (which is why after the 2008 crash the wealth of middle-income and low-income Americans crashed, too much of it was tied up into housing equity), which then ties into economic outlook and consumer spending, which then ties into lending and all things finances.
Presidents and parliament members do get voted out when there's a severe contraction in consumer spending and generally depressive feelings about economic outlook.
I don't think you achieve much by 'letting it burn,' as it were. All you do is force a large number of people into a bad financial situation – that's not good for anybody.
The market needs correction, but it needs to be well-managed. That basically means long-term house price stagnation and investment in social housing to remove the incentives for buy-to-let landlords and multiple property owners.
The market needs correction, but it needs to be well-managed. That basically means long-term house price stagnation and investment in social housing to remove the incentives for buy-to-let landlords and multiple property owners.
Property is a zero sum game. People without houses lose the equivalent in future spending as homeowners gain. So propping up a market is directly taking money from the young and increasingly old non homeowners. So not doing anything is putting a large number of people in a bad situation.
> Property is a zero sum game
No it is not. Properties - houses - can be built. When prices go up, the incentive to build more increases.
It could be argued that land ownership is a zero sum game, because you cannot manufacture land. But even that is not quite true, as can be seen in areas where more land is claimed from sea [0], effectively manufactured. Elsewhere, new land may emerge due to land rising after the recent Ice Age [1].
More importantly, land use - zoning - is something that can be changed, and it’s where economic incentives have an impact. For instance, in UK there's a lot of discussion about building on the green belt around London. And there are other factors here than just money, of course. It could be that money cannot buy a plot to build, but a racial or cultural identity can justify constructing what eventually become new properties. This does not always happen without conflict [2].
[0] https://news.ycombinator.com/item?id=8940235
[1] http://en.wikipedia.org/wiki/Post-glacial_rebound
[2] http://en.wikipedia.org/wiki/Dale_Farm
No it is not. Properties - houses - can be built. When prices go up, the incentive to build more increases.
It could be argued that land ownership is a zero sum game, because you cannot manufacture land. But even that is not quite true, as can be seen in areas where more land is claimed from sea [0], effectively manufactured. Elsewhere, new land may emerge due to land rising after the recent Ice Age [1].
More importantly, land use - zoning - is something that can be changed, and it’s where economic incentives have an impact. For instance, in UK there's a lot of discussion about building on the green belt around London. And there are other factors here than just money, of course. It could be that money cannot buy a plot to build, but a racial or cultural identity can justify constructing what eventually become new properties. This does not always happen without conflict [2].
[0] https://news.ycombinator.com/item?id=8940235
[1] http://en.wikipedia.org/wiki/Post-glacial_rebound
[2] http://en.wikipedia.org/wiki/Dale_Farm
Property isn't quite a zero sum game; as the last few years have show the overall losses from a crash outweigh the benefits of lower prices and greater liquidity to people without houses (especially if the result is that people without houses can't get mortgages even after the prices have fallen)
That's not to say there shouldn't be more pressure put on property price appreciation, not to mention confiscatory levels of capital gains tax on property speculators that aren't tax-resident in the UK. But inducing a property price crash (as opposed to slowing property price inflation) would be a bad move for the economy as a whole, as well as electoral suicide in a country where the majority of the population have a mortgage or own their house outright.
That's not to say there shouldn't be more pressure put on property price appreciation, not to mention confiscatory levels of capital gains tax on property speculators that aren't tax-resident in the UK. But inducing a property price crash (as opposed to slowing property price inflation) would be a bad move for the economy as a whole, as well as electoral suicide in a country where the majority of the population have a mortgage or own their house outright.
Doesn't "losses from a crash outweigh the benefits of lower prices" depend on who you're talking about?.
For me this has to be looked at from the point of who it affects the most. A person that already has a house is much better suited to "take the hit" of property prices than someone that doesn't have one (in general terms). Obviously you have to manage it, but in the end you should strive to protect those that are more vulnerable.
For me this has to be looked at from the point of who it affects the most. A person that already has a house is much better suited to "take the hit" of property prices than someone that doesn't have one (in general terms). Obviously you have to manage it, but in the end you should strive to protect those that are more vulnerable.
People most vulnerable to house price changes are people who own the title deeds to a house and an obligation to make mortgage repayments which may end up vastly exceeding the future value of the house. And the banks which see rising default rates from owners in negative equity, repossessed houses they can't sell. And anyone whose pension fund bought the wrong tranche of CDOs. Not to mention property developers, and workers in construction industries that support it, assuming the house price fall is generalised.
People least likely to be positively affected by a house price crash include people that don't have houses, the majority of whom face considerably more difficulty and up-front expense in obtaining a mortgage in an environment of falling or unstable property prices.
Sure, there are some beneficiaries from a house price crash, just like some people make money shorting a failing company. That doesn't mean there isn't a deadweight loss, and if your conception of people who are "most vulnerable" to property prices prioritizes the welfare of those with no significant exposure to property but plenty of liquid funds and a long term investment horizon, it's a very strange conception.
Much of the world is still suffering from the after-effects of a major house price crash in the US several years later; I'm genuinely quite saddened that some people are so adamant the effects of that must have been "zero sum" they feel obliged to reach for the downvote button when HN commenters have the temerity to suggest otherwise.
People least likely to be positively affected by a house price crash include people that don't have houses, the majority of whom face considerably more difficulty and up-front expense in obtaining a mortgage in an environment of falling or unstable property prices.
Sure, there are some beneficiaries from a house price crash, just like some people make money shorting a failing company. That doesn't mean there isn't a deadweight loss, and if your conception of people who are "most vulnerable" to property prices prioritizes the welfare of those with no significant exposure to property but plenty of liquid funds and a long term investment horizon, it's a very strange conception.
Much of the world is still suffering from the after-effects of a major house price crash in the US several years later; I'm genuinely quite saddened that some people are so adamant the effects of that must have been "zero sum" they feel obliged to reach for the downvote button when HN commenters have the temerity to suggest otherwise.
Zero sum, unless more houses are built...
On the other hand, the rising prices are leaving a lot of people in bad a financial situation already as they can't afford a house/rent. So "letting it burn" would benefit some people.
Also, I would imagine people in this second group struggle more than the ones that already have a house or are using it as an investment. I would expect a government to enact policies that benefit them the most.
Also, I would imagine people in this second group struggle more than the ones that already have a house or are using it as an investment. I would expect a government to enact policies that benefit them the most.
A couple of things are worth mentioning. Firstly, everything but housing is much cheaper now than in the 80s/90s. People will spend their money somewhere. The ability to do your own repairs is also much greater, as the huge (and cheap!) hardware stores have sprung up and the DIY culture has become stronger.
Secondly, I don't know about the UK, but here in Australia, home loans in the 80s had interest rates of almost 20%, as opposed to 5-6% today. It had calmed a little in the 90s though. The cost in dollar terms was much cheaper, sure, but it was still difficult to service at the time. Buying a house was still monumentally stressful. I know a few boomers who were unable to maintain their mortgages in that time.
Just because the sticker price was significantly smaller doesn't mean that it was all that much easier.
Edit: it's also worth mentioning that the median wage in the UK has increased about 50% from 1990 to 2010 (~16k to ~24k) and the average wage more than that. Housing is still depressingly expensive, but the numbers aren't quite so wildly different as shown.
Secondly, I don't know about the UK, but here in Australia, home loans in the 80s had interest rates of almost 20%, as opposed to 5-6% today. It had calmed a little in the 90s though. The cost in dollar terms was much cheaper, sure, but it was still difficult to service at the time. Buying a house was still monumentally stressful. I know a few boomers who were unable to maintain their mortgages in that time.
Just because the sticker price was significantly smaller doesn't mean that it was all that much easier.
Edit: it's also worth mentioning that the median wage in the UK has increased about 50% from 1990 to 2010 (~16k to ~24k) and the average wage more than that. Housing is still depressingly expensive, but the numbers aren't quite so wildly different as shown.
here in Australia, home loans in the 80s had interest rates of almost 20%, as opposed to 5-6% today.
That's a pretty big exaggeration. Rates peaked at 17% in 1989, but were below 15% for most of the 80's[1].
[1] http://www.loansense.com.au/historical-rates.html
That's a pretty big exaggeration. Rates peaked at 17% in 1989, but were below 15% for most of the 80's[1].
[1] http://www.loansense.com.au/historical-rates.html
Individual loan products from lenders would have been slightly different to rate shown in the graph. So "almost 20%" isn't that far off.
I'm old enough to remember rates in the 80's (though not old enough to have had one!). And I have a loan now, and the rates almost exactly match the rates in that table.
Here's another reference: http://www.abc.net.au/news/2007-08-08/the-reality-of-interes...
17% was as high as they got for mortgages.
Here's another reference: http://www.abc.net.au/news/2007-08-08/the-reality-of-interes...
17% was as high as they got for mortgages.
Well, I guess my argument is completely blown out of the water because they peaked at 17% (I guess 17 is not near 20...) instead of 18-19%, and averaged around a couple of percentage points lower. Hardly a "pretty big exaggeration".
It doesn't change the fact that mortgages, regardless of the percentage rate, were still not 'easy' back then. The smaller mortgages were not being paid off with today's rates and today's pay packets. They also had fewer flexibility features (things like redraw or offset accounts).
It doesn't change the fact that mortgages, regardless of the percentage rate, were still not 'easy' back then. The smaller mortgages were not being paid off with today's rates and today's pay packets. They also had fewer flexibility features (things like redraw or offset accounts).
Yes, but in the period you state, when the average wage has risen by 50%, the average house price has risen by over 200%, and RPI has risen by 117%.
It's true that back then, the average monthly mortgage payment might have been similar, if not slightly more (adjusted for inflation). However, a lifetime fixed rate is unusual and they would have moved to lower rates when they came available.
Also back then, more people had a 'job for life', defined benefit pensions, and inflation-matching or beating pay rises without the risk of moving to a new company. One could be reasonably confident that if a mortgage was affordable now, it would continue to be so in the future. Nowadays, with stagnant wages, interest rates that can only go up, and the need to invest more into personal pension funds in order to mitigate the risk of retiring at a market low point.
It's true that back then, the average monthly mortgage payment might have been similar, if not slightly more (adjusted for inflation). However, a lifetime fixed rate is unusual and they would have moved to lower rates when they came available.
Also back then, more people had a 'job for life', defined benefit pensions, and inflation-matching or beating pay rises without the risk of moving to a new company. One could be reasonably confident that if a mortgage was affordable now, it would continue to be so in the future. Nowadays, with stagnant wages, interest rates that can only go up, and the need to invest more into personal pension funds in order to mitigate the risk of retiring at a market low point.
I don't get it: she sold up and made a profit, but unless she downsized, the profit is gone on buying a new place.
It isn't so much about the profit from sale, but about being able to buy in the first place. 10 years after graduation, she bought a two-bed flat in Herne Hill. Such a place wouldn't leave much change from £600K today.
For context. Assuming a 3-year course and no gap year, that would make her 31 when she bought.
Were she in the same position today, she'd need to have saved up at least £60K for a deposit (90% LTV) and have a salary of £135K (4x is a common salary multiplier). Given that that's more than a top decile _couple_ in London currently earns, that's not likely. The average salary today for her job at the time, is less than £24K, less than a fifth of what she would need.
Given the high cost of private rent, and the fact that social housing is only available for existing tenants and people who _really_ need it, saving up that much in only 9 years is difficult.
Meanwhile, house prices continue to rise faster than incomes, the longer you wait, hoping for a crash, the less likely it looks that you'll be able to afford a place even after the crash happens.
Even as a direct response to your point, moving out of London makes your money go much further. With that money, you could get a pretty nice house even as close to London as Reading, Maidenhead or even the outer London Boroughs. Not to mention what you could do with the money if you moved away from the south east entirely. At an estimated 61 years old, she's in a position to think about retiring soon, and considering she's not from London, she might well be considering moving away when she no longer needs to be here for work.
http://www.zoopla.co.uk/for-sale/property/london/dulwich-roa...
http://www.theguardian.com/money/2014/mar/25/uk-incomes-how-...
http://www.payscale.com/research/UK/Job=Communications_Offic...
For context. Assuming a 3-year course and no gap year, that would make her 31 when she bought.
Were she in the same position today, she'd need to have saved up at least £60K for a deposit (90% LTV) and have a salary of £135K (4x is a common salary multiplier). Given that that's more than a top decile _couple_ in London currently earns, that's not likely. The average salary today for her job at the time, is less than £24K, less than a fifth of what she would need.
Given the high cost of private rent, and the fact that social housing is only available for existing tenants and people who _really_ need it, saving up that much in only 9 years is difficult.
Meanwhile, house prices continue to rise faster than incomes, the longer you wait, hoping for a crash, the less likely it looks that you'll be able to afford a place even after the crash happens.
Even as a direct response to your point, moving out of London makes your money go much further. With that money, you could get a pretty nice house even as close to London as Reading, Maidenhead or even the outer London Boroughs. Not to mention what you could do with the money if you moved away from the south east entirely. At an estimated 61 years old, she's in a position to think about retiring soon, and considering she's not from London, she might well be considering moving away when she no longer needs to be here for work.
http://www.zoopla.co.uk/for-sale/property/london/dulwich-roa...
http://www.theguardian.com/money/2014/mar/25/uk-incomes-how-...
http://www.payscale.com/research/UK/Job=Communications_Offic...
The article does say that she downsized, with about £200k difference in price. There's the profit!
Yes. Usually when you sell one house, you buy another, so it is a bit of a zero-sum game. However, what does matter is when you entered the market. Entering the housing market today is relatively speaking much more expensive than it was 20 years ago.
If you get lucky and don't particularly care where you live, you don't necessarily have to downsize. London house prices are a lot higher than the rest of the country and have gone up a lot more. You could get a decent-sized house with a garden in most of the UK for what she sold her flat for.
You could buy a McMansion in most of the UK for that price.
Or you upgrade to a bigger house, and roll the profits into a bigger down payment on the next property, keeping a similar sized mortgage.
My friend did this, sold his old place and bought a bigger nicer house, keeping his monthly mortgage payment roughly the same, which now is well below market rent.
My friend did this, sold his old place and bought a bigger nicer house, keeping his monthly mortgage payment roughly the same, which now is well below market rent.
Except as all equivalent property prices have also gone up, and consequently the price differential between a flat and a house has probably led to a bigger gap in the prices than than the profit than the flat in 1995 and 2015. Eg
£32,000 flat in 1995 -> £660,000 flat in 2015 is an increase of 2062%, or £628,000.
£100,000 house in 1995 increasing at the same rate of 2062% now costs £2,062,000, up by £1,962,000.
To move from the flat to the house you now need to find that additional £1,962,000.
Obviously not all properties increase at the same rate, and presumably the author of the article got a quite lucky with her 2062% increase. But even if the house only increased at half the rate of her flat it still costs £1,000,000 now, so she's £300,000 short.
Price increases only benefit you if the lower end moves up faster than the higher end (which is very rare) or if you're cashing out.
£32,000 flat in 1995 -> £660,000 flat in 2015 is an increase of 2062%, or £628,000.
£100,000 house in 1995 increasing at the same rate of 2062% now costs £2,062,000, up by £1,962,000.
To move from the flat to the house you now need to find that additional £1,962,000.
Obviously not all properties increase at the same rate, and presumably the author of the article got a quite lucky with her 2062% increase. But even if the house only increased at half the rate of her flat it still costs £1,000,000 now, so she's £300,000 short.
Price increases only benefit you if the lower end moves up faster than the higher end (which is very rare) or if you're cashing out.
I saw a startup tweeting yesterday about a shared investment.
The gist is that instead of investing in stocks and shares, you put your money into property and a shared structure gives you some % of the property in question. The startup actually owns the property, and there is some legal allocation of your portion, and they offer the means to exit your share of a property without the property itself needing to be sold... your share just gets sold to the next investor.
As a startup I can see this working, as an investor I could see this working, as a resident in London I'm frankly appalled.
The gist is that instead of investing in stocks and shares, you put your money into property and a shared structure gives you some % of the property in question. The startup actually owns the property, and there is some legal allocation of your portion, and they offer the means to exit your share of a property without the property itself needing to be sold... your share just gets sold to the next investor.
As a startup I can see this working, as an investor I could see this working, as a resident in London I'm frankly appalled.
This has been around, if you buy the house under LLC, you can divvy up the equity whichever way you want it.
How's liquidity provided when there's no "next investor"?
How's liquidity provided when there's no "next investor"?
Be nice to have got into the market early, many people over here in Australia get the benefit of negative gearing too as they accumulate more houses.
I'd particularly be worried as a young person in the States now, a hefty mortgage on top of some of the student loans I've seen look like it'd spell an entire lifetime of loan repayments.
I'd particularly be worried as a young person in the States now, a hefty mortgage on top of some of the student loans I've seen look like it'd spell an entire lifetime of loan repayments.
> A person holding a land in the city for 25 years didn't make anything new
Of course they did. When they took out their mortgage, none of that 'money' existed. They had to participate in the creation of wealth in order to pay back mortgage + interest.
I've finally paid-off my mortgage. If someone has a more 'productive' use for my land and building, they are welcome to make me a financial offer.
Of course they did. When they took out their mortgage, none of that 'money' existed. They had to participate in the creation of wealth in order to pay back mortgage + interest.
I've finally paid-off my mortgage. If someone has a more 'productive' use for my land and building, they are welcome to make me a financial offer.
The net result is an enormous redistribution from productive young people to (mainly) older owners and inefficient land use, a growth-killing policy.
The solution is simple. Abolish all personal income taxes (or at least reduce their levels) and replace them with land value taxes (not property), something like 30% of value annually. Unproductive use of land would disappear. Retiring people with homes close to jobs would move out fast somewhere else, as short commute times have no value to them. Uneconomical building limits would disappear (more efficient use of land - multilevel housing - would have much smaller land tax per living surface area) which would reduce transport costs and time wasted. It's easy to imagine many more positive effects.
Sadly that's never going to happen.
edit: After some thought, never is too strong. If aging gets cured, something like that will be a certainty, because the alternative is the world in which - more numerous - generations after the invention don't own almost anything, which won't work for long.