From today's Metro:
Demand for rented accommodation has soared by two-thirds during the past year and is the strongest 'for decades'. The number of leases taken out during August was 65 per cent higher than in the same month last year... the strong demand for rented accommodation was not driving up rents, as the demand was being met by supply from sellers who had opted to let their home rather than accept a lower price for it in the current market... Latest figures from the Bank of England showed that the number of mortgages approved dropped by 71 per cent year-on-year during July.
As I have been saying for decades, rent levels are the most stable factor in the housing market; they are the Maypole around which everything else dances*. You can arrive at this conclusion by applying commonsense or observing what actually happens (as above); or you can apply economic theory that rents are a normal good, i.e. they rise in line with incomes, but this economic theory in turn is derived by observing hard facts and applying logic.
* In the long run, the cost of renting or buying the same property with a mortgage will be much the same, give or take 10% either way. In times of easy credit and low interest rates, the notional 'value' of the property increases disproportionately, leading to a bubble mentality. In a few years' time we will look back at the house price boom of the years 2001 to 2007 and file it in the same drawer as 'Tulip Bulbs' or 'dotcom shares'.
Plod and Mental Health
2 hours ago
5 comments:
I think there is a difference between the dotcom bubble and the property bubble.
in a lot of ways the dotcom bubble was a pioneering bubble, trying to make gains with little information, as it was a brand new market.
The property bubble is much more a technocratic bubble, pseudo science, governance issues, and most importantly not learning lessons of the past, we should by now understand the property market.
So I am more forgiving of the dotcom bubble, and if you think about it, if the internet infrastructure was like it is today with broadband, back then, a lot of the ideas being hyped would have worked.
PB, agreed. That was just an example. In particular, nobody was forced to buy dotcom shares - only rich, stupid people fell for this, so it did not hurt the average little guy. Unlike the house price bubble/crash...
Give the market and people 5 years to recover and forget and it will be off we go again...they just can't help it.
The tulip mania has got a bad nameIMO.The bulbs were a productive resource which, when planted, would over the seasons produce many little bulbs: unlike houses which deteriorate.
It's a very good point.
Thinking about it, rent is the cost of occupying a house now, whereas the purchase price of a house is the capitalised future rents, so a widening gap between rent and sale price is a sign of growing optimism about the growth of future rents.
Once that optimism begins to exceed reality, a burst property bubble is the only logical conclusion.
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