A taxpayer-backed drive to boost house building could backfire and cause a house price crash, leading to a fresh wave of difficulties for banks and triggering another credit crunch.
The warning has come from think tank Fathom Consulting, as ministers are believed to be preparing to announce new plans to address Britain’s housing shortage.
They have been dropping hints about launching new incentives for house builders in September, with speculation rife that they could drop affordable housing requirements.
But Fathom says that despite reports of a desperate shortage of homes, demand at current prices is simply not there. It says homes are over-priced to the tune of 30%.
Philip Lachowycz, who wrote the report for Fathom, says: “If there was pent-up demand for housing in the UK, then surely the private sector would step into the breach? But it has not.
“The private sector is not building houses because, at current house price levels, there is no effective demand. Housing starts have not recovered following the house price crash of 2007-2008, and are 24% below their level of a year ago.
“This speaks volumes about what lies at the heart of the problem – namely an overvalued housing market, and excessive private sector debt.”
According to the report, an artificially induced house building book could cause prices to ‘correct back to fair value’ and fall by 30%, forcing banks to take large losses.
The report argues: “Banks would be forced to recognise their losses. In the absence of further Government intervention, this is likely to push a number of lenders to the brink of insolvency. In short, there would be a further contraction in the supply of credit.”
Fathom says a better way of stimulating the house building market would be to force banks to repossess properties owned by borrowers struggling to pay their mortgages, and disclose their hidden bad debts.
It says that the effect of this would be a fall in house prices, making them more affordable again. Quantitative easing could be used to recapitalise the banks, leaving them free to lend.
%20A%20property%20tale%20for%20our%20times.png)
Comments
That bit is something inside your head, 720,000 families move home each year, about 5%. now given that neither you nor I know what % of that 5% is Boomer and what % is non whinging sub 35's then it is still probably fair to say that the majority of home owners care not a fig about the value of their home and are happy to live there without regarding at as a windfall or a mill stone.
There are a teeny weny number of folk who are benefiting from rising prices and a teeny weeny number of folk who are suffering by any price drops.
Go and rent mate, forget buying, the market will never be the secure flat line you seem so desperate for. Happy never to see a increase in value despite that being the natural order of things, but scared beyond reason that you might lose out.
As for the investors subsidising mortgage borrowers, what does one do when one's mortgage is paid off other than save. Doesn't that put the shoe suddenly on the other foot?
And I get tired of the Boomer generation treating the price of property as an investment rather than the cost of shelter which it really is.
I know just how badly off some under 35's are they never stop bleating about how hard done by they are.
Why would I "enjoy an increase in the value of my home"??? It would most likely mean all property going up in price and thus me needing to borrow more to move up the ladder. Strange argument you've made there, unless you're a banker.
You also seem to think the current situation and last decade of an unsustainable boom has had no downside. There is a whole generation priced out of the housing market, whilst mortgage payers are reaping a massive boost of lower payments, completely subsidised by this country's prudent savers (many of whom are pensioners). If you think there has been no pain to date with the current obscene levels of house prices then you need to get out more and start speaking to the under 35s.
As expected you don't want others to benefit from circumstance yet are happy for others to suffer because of circumstance.
So lets move this story forward a few years when prices are not being held back because propaganda Dave and his banking mates have stuffed up the banking system and are looking to manipulate a Bear market from which a few will benefit. You bought from Mr and Mrs Negative Equity in late 2012 and like dave and his mates are now enjoying an increase in value of your home. You think it morally wrong that you are beneficary of a windfall that you neither requested or want. Will you stay in the property forever, sell at the late 2012 price or sell at the market value provided by RightCalZoo the global future of property transfers?
I think I know the answer to this question too!
and another thing Rant on 2012-08-31 08:45:54
Why are Mr and Mrs. Vendor here trying to move if they are in negative equity? No-one forced them to buy into a housing bubble. They could stay longer and use today's record low interest rates to build up some more equity. Or, as I have suggested before on this site, a way is found to transfer negative equity mortgages. It happened during the last crash and will happen again at some point soon in this one I'm sure.
Chris
Good to see you back here - thought you'd done a disappearing act. I have to say though, I would have a lot more respect for your views if you weren't continually advocating people make much greater sacrifices to get on the housing ladder than you ever did. It is also true, is it not, that folk in your position would be the primary beneficiaries of those extra sacrifices?
Negative equity; given your belief that un earned equity is a moral crime against society and in particular your generation, this negative equity bizzo must give you a right old dilema.
Lets say that you and Mrs Rant find the house of your dreams in just the right location and at a price well within your diligently saved means. During negotiations you find out that Mrand Mrs Vendor are actually in an un-earned negative equity situation, they are victims of the falling market and have done nothing to deserve the lower price of their home, I can understand you being envious of the unearned equity situation but will you be as enthusiastically compassionate to the negative equity vendor and stump up a fair price that sees them break even?
You don't have to type a post Rant, I know the answer to that one! More Cake?
Salary multiples need to be modified from the traditional 3x salary they used to be in the 80's because of globalisation!
The cost of a small black & white TV used to be a months salary when my parents brought one home, but now a 46 inch 3D LED TV can be bought for £500 these days aproximately a third of an average take-home wage!
"I'm also not sure why the cost of today's raw materials means that the price of a house built 40 years ago can't fall?"
Everything is linked to supply & demand. I remember when canal boats and park homes were selling for over £100k, because house prices were considerably higher. It never cost £100k to build them, but they were attracting great prices because buyers were fighting over each other to find somewhere to live.
Actually older style properties tend to have bigger gardens, bigger rooms and sometimes stronger materials. (Like London wire bricks that have been kiln dried twice and are very tough)
Also, as was already mentioned, these people that are selling older properties, still need to buy on again, so they need to sell at the market rate. Furthermore, even if they were not buying again, they would want to sell for the best possible price rather than just give their money away for free. You would do the same in their shoes.
Back on topic, the market should be left to find it's own level. Stimulating first time buyers to buy new-builds with damage the second hand stock and today's new-build is tomorrow's second hand stock, so you are effectively trapping these buyers in their starter homes and they will sell at a loss later if they need to move!
We clearly don't need any more homes in this country with sufficient unsold properties up and down the country. We just need the banks to start offering mortgages at sensible rates and with 5% deposits again.
As for the builders, if they can't make money out of private new-build sales right now, they should stop building and do something else like build roads/ bridges etc. or even upgrading/ extending the current housing stock instead.
Sorting out the banks will sort out everyone. If a car has a broken engine, you don't change the tires to get it going, you fix the engine!
This un-earned equity..... how exactly does anyone access it? Given that most folk will want somewhere to live once they have sold, logically at a lower price than they just sold for, isn't your latest scheme a bit hair brained given that it will simply increase demand for lower priced properties?
Oh by the way you can buy my place at 17x your salary if you like, I was a commision only negotiator during the 92 crash but still managed to feed a family and pay a mortgage which was swallowing 80% of my after tax salary. Never missed a payment, never late but more impotantly didn't moan to the world how hard done by I was.
I'd quite happily buy a house from someone who bought there's in say 1992 and would sell it for the same salary multiple they paid.
I have no intention of using my savings to gift someone a stack of unearned equity though. Ditto for bailing out those who reckless bought at peak prices without doing their research beforehand, or lied on their mortgage application form.
You haven't told us which one of those you are though Brian - looking to sponge off the work of others through unearned equity or bought recklessly at the peak of the boom. My guess is the latter, but feel free to correct me.
PeeBee - if there was a personal message system on this site, I'd tell you more. Otherwise it's the assassination option I'm afraid.
There are non Trolls in Japan Rant, perhaps you can go there?
rant: "Property is of course a unique market."
Thank you - you rest my case!
It is SO unique, that it has no sense; no logic; no 'laws'.
The rules are there are no rules. The goalposts are only there to be moved just as you kick the ball.
Those who play the market are trying to second-guess the minds and emotions of amateurs in the main.
Believe me, selling to and buying for 'normal' people is far more satisfying (albeit also far more challenging...) than investors etc.
No other market operates in the same way. None other could. THAT is why all the averages; the comparisons with other countries - even with other periods of the same market - cannot help to determine the future. There are NO "experts" in this field. You are only as good as your last sale - and the last sale will bear no resemblance to your next. The goalposts, as I said before, will be moved.
On the subject of moving - you say you are moving on. Care to enlighten - or would you have to shoot me? ;o)
Oh - and as far as 'favourites' go - you're up there with them as far as I am concerned, matey! Your posts - along with Sibley's..., FTB Dan's etc - have given me a real insight into a new mindset, and as I have said before I would far rather debate with you than wade through countless posts of ignorance, irrelevance and downright rudeness - all to the detriment of an otherwise excellent discussion and information platform.
At that, I shall go and put on my greaseproof paper sou'wester and await the inevitable...
....fluent in Troll?
Wad ee say?
Just to confrim "old favourites", t is not your site! You have made differnce to anything what so ever depsite countless posts. Please advise if you need £1.47 to buy diesel to go.
"I love fuel taxation", good view on taxes on fuel, never quite lookd at it like that.
It is the one tax that the work shy, Crooks, drug dealers etc all pay.
I am surprised at you Wardy you are smart enough to give the idiots and trolls a run for their money. My personal mission is to jump all over them and shut "Them" up.
Many of them are not actually trolls but people who just need a bit more wisdom. take Rant's suggestion that anyone who falls on hard times should be displaced so he and his can have somewhere to live at a price he judges to be reasonable. That is just nuts! it isn't trollng just someone who hasn't worked out why this country is where it is.
Mr Lachowycz is the same but the thing about him is he is getting paid to type rubbish and Ros for some reason saw fit to publish it. My guess is that the reaction this article receives for the depth of its stupidity should alert those who are actually in a position to act or make change, that the means to publish a "report" does not actually give any credibility to the contents of a report.
When people like you Wardy sit and say nothing then you are actually doing what the trolls want you to.
I must say, I can't see much point anymore. Until EAT force a login, the site will continue to be trolled by idiots.
Interesting that folks are complaining about the price of filling up their cars - a direct consequence of the low interest rates that are propping up property prices of course.
I'm not sure if markets function as smoothly as you portray PeeBee. Being made up of thousands or even millions of customers, sentiment can be a big driver, as Edwina discovered about eggs. Can an egg farmer change profession so quickly if he / she suddenly starts making a loss though? Or to use the oil example again; oil hit $150 a barrel in 2008 then six months later slumped to $35. The oil companies had to work around that. There's only so much that can be done to adapt in the short-term.
Property is of course a unique market. It responds slower to external pressures. It is also quite possibly the only market which most people use leverage to access. Thus, property is subject to swings in credit availability to a much greater extent than any other market.
On a different note, the site is definitely not the place it was say 12 months ago. Don't think I'd ever be considered an 'old favourite' either (more likely the opposite), but I'm moving on in the near future so might not be around much too.
is payin £1.47!
rant: Likewise - a bit of decent banter is always appreciated and welcomed, and way better than the majority of current comments appearing here recently.
Haven't 'been away' - more like 'kept away'. It is a great pity that some of the old favourites (certainly not including myself in their circle...) now very rarely post or have disappeared entirely - but I think we all know why.
Sad, really - their input was brilliant...
Now then - back to the price of oil. Or, why not eggs? Or pretty much anything, for that matter.
Is the price of eggs restricted by supply and demand? No. There are, I believe, MILLIONS of eggs binned by the supermarkets every year. Same with bread; milk; meat - you name it - it goes in the skip at the rear when for just a small reduction across the board to establish the "market price" (the old Peter Hendry cherry), they could have sold the lot.
Truth is, SOMEONE decides how much eggs etc are to end up on the shelves for. Certainly not the farmer - he is basically told how much to sell them at. No-one sits down and works out how many people will be queuing up to buy this egg - it is simply put on the shelf with all the others and waits its next move - either into the shopping basket or the bin-wagon.
No-one goes into Tesco and puts in an offer on a half-dozen free range. They wouldn't be very successful if they did - they simply pays their money and that is it.
But, at the end of it, eggs must still be selling at a profit - despite the wasteage. And, despite the fact that we all know they are being sold at a profit; and that they could be sold cheaper if there wasn't so many destined to be binned, we still buy them.
And I'll guarantee you that they'll be more expensive this time next year to boot! ;o)
Talking of Mr Hendry (it was the first poster that raised him, not me...) he is obviously far too busy to grace this site these days. Or still licking wounds - not sure which. No - I'll say too busy, as I note from his Tw@tter page that he's stalking Mr Shapps and asking for a return call...
Can't wait to read his twisted transcript of THAT conversation! ;o)
I took Mr. Lachowycz's comments about property being 30% overvalued to refer to the whole market, not just newbuilds.
As for oil - go back about a hundred years and Saudi nomads could literally dig the stuff up with their bare hands. I bet it didn't cost much down the local market then? Most of today's costs is down to transportation, tax and buying the machinery to get it from further and further out of the ground. Not sure how that links to the housing market...???
Appreciate a sane discussion of the subject matter though. You've been quiet here of late - been away?
Diesel £1.43 here PeeBee
rant...
Like it or not - Ray is essentially right. New build prices are influenced by no more than five things - materials, labour, overheads, land, and profit. The only one of those which the developer has real 'control' of is their profit - which, in lean times like now, generally is whittled away to not very much of anything. Materials prices are constantly rising; labour is releatively flat at present but the last boom pushed wage expectations through the roof; land is still being held high by the landowners cutting supply and the ridiculous costs of remediating 'brownfield' sites - not to mention the idiotic requirements of LAs in terms of 'sustainability' and 'affordability'...
If new-build house prices are, as suggested in this cockamamie report, some 30% overcooked, then why are NO mainstream developers making ANYTHING like that in terms of profit?
Mr Lachwhoever needs to have a lesson in common sense - not Economics 101. Take 'yer average' medium-size housing development of 40 homes - end-value say eight million quid. The developer needs to sink roughly three million quid into the ground in terms of land purchase, planning, infrastructure and actual bricks'n'mortar building BEFORE the first completion will take place - bringing in the princely sum of a couple of hundred grand. Generally their market research will have been carried out quite some time pre-purchase - so if the market has shifted more than a few points in the intervening time they are heading towards building virtually for no profit - and if the market has swung completely away from their intended mix of property (as easily can and has happened all over the country...) then their sales rate slumps and costs escalate further again.
Don't get me wrong - over a period of years of course it is worth the hassle - otherwise Sir Lawrie et al would have traded in their JCBs long since. But this is the worst period of 'down' that I have experienced since I entered property in the late seventies - and it shows little sign of improvement. I reiterate, however, my previous words to you. People (and you must include those who build to sell in there...) can not and generally will not sell for less than they can afford to do so.
You quote the price of raw materials of a forty-year old property as being a good reason why that house can't be sold cheaply now. I ask you this, then. As the raw materials for oil were deposited sometime in the carboniferous period of the earth's history - and deposited there FREE to boot - then why is diesel currently creeping back over £1.40 per litre?
Kinda knackers your argument, matey... ;o)
What are you asking me Rantnrave?
"those who can really afford to buy and there are plenty who want to and can"
That's a bold claim. I agree that the desire to buy remains strong. The means to buy at today's prices is significantly lower though, especially for those not already on the ladder and a recipient of unearned equity. It's only proceedable demand that counts, shirley?
You seem keen to talk about the inflation of costs involved in new builds. Surely the cost of the land is highly significant too? That is most certainly not fixed and unlike other materials, less subject to imported inflation through the exchange rate.
I'm also not sure why the cost of today's raw materials means that the price of a house built 40 years ago can't fall?
Prices rise when progress is made and Tesco comes to town Ray?
"Everything costs - and is costing more each day"
So that means, inter alia, that houses, labour, materials, ibcluding taxes etc. will only be provided if they can be at a profit to the provider for/to those who can really afford to buy and there are plenty who want to and can. Those who cannot will not, they will rent probably with help from the taxpayer.
The moneylenders are still the main problem (they used to take some of the 'risks' to make a profit - now they do not. Within five years a balance will be found, until then current owners and builders who can should do nothing and "Keep calm and carry on!"
Food (a spicey feast!) for thought Rant, Brit and Sibley etc.?
Actually I think it could end in tears.
Met a very nice bloke last week. He was very stressed and unhappy.
He (and his missus) are both keyworkers and bought a brand new flat back in 2004.
They have found that:-
1. The HAssoc charges have skyrocketed.
2. The Mortgage Rates went up and the banks won't help them because they are not straightforward cases.
3. Their service charges have nearly doubled since they moved in.
In fact, the could rent a bigger, better flat in the non-HA bit next door for less money than they are currently paying out.
The schemes always end up in some poor unsuspecting soul being screwed over - in this case a fireman and his teacher wife.
Bit crap really, certainly not deserved, and he's not the first one in the block.
"Everything costs - and is costing more each day"
So people have even less money to spend on housing.
“Banks would be forced to recognise their losses. In the absence of further Government intervention, this is likely to push a number of lenders to the brink of insolvency. In short, there would be a further contraction in the supply of credit.”
Except that the difference between savings rates and mortgage rates has never been greater. The banks have been spending years recapitalising themselves for such a scenario. Another reason why deposits for the best mortgages are so high is because the banks are expecting a further drop in property prices and want the borrower to lose as much of their money first.
You have got that slightly wrong, the big Exlocal authority Estates are already ringfenced by the 80's newbuild estates.
The stuff in the early 90s stuff had social housing nicely integrated with private housing and it is hard to say now which are which.
This story isn't about anything really it is some HPC crank who I am guessing has never owned a home and certainly has no idea how housing in the UK works dishing out his latest blog to an ought to be interested audience.
Lets see what Rant, Brit and Sibley have to say once they have finished watching Jeremy Kyle
The reason land ownership is a "long term investment" is scarcity value - they ain't making it any more!!
One of the biggest detriments to house values is the proximity to massive council estates, full of single mums and the benefit brigade, so if the left wing mob build loads of these, house prices will fall and then it will be affordable for all.
Then they will moan when the richest folk move away and push up prices of property in areas away from the non-working class!
"......It says homes are over-priced to the tune of 30%......"
Are they! Who says that builders and owners should sell at a certain price 'artificially restricted' by greedy money lenders. Everything costs - and is costing more each day
Both of the previous posts are very relevant.
It does not matter to the land owner whether or not they build houses on their land. There is not a single reason why anyone should build and sell properties at prices artificailly restricted by lending.
There is demand and shortage for property which is increasing by the day and during this period of restricted transaction landowners are simply concentrating on buying up more land; zoned and un-zoned.
It does not matter to them that the chap who drives the digger , lays the bricks or plasters the walls has no work, below senior board level, employment and wages are of no concern. Land ownership is a long term investment so nothing Mr Lachowycz says is going to change that.
Dropping the requirement for affordable housing will mean one thing and one thing only, builders will crack on and build homes that people who can afford them want to buy. The shame is that it is not the first and second buyers.
Our society has been split by the 2008 banking implosion, there are folk with money and investments and there are folk with debts and loans.
I think this report speaks volumes about Philip Lachowycz!
If all that guff was posted as a reply to a story it would get dismissed as the rantings of one of the HPC crowd.
Tony Blair gave us "celebrities"; low order, talentless hords famous for no reason other than selling tabloids or late night telly. It seems that this Tory/Lib Dem combo is spawning a mass of "Experts" in Housing matters, all of whom have sod all real knowledge of what is actually going on in the industry or the minds of the people who own property.
This is the biggest pile of tosh to feature on EAT since the rantings and theories of Peter Hendry!