Monday 8 June 2015

None so blind as those who will not see.

Din said, on the topic of new development tending to push up the price of existing homes, not down:

I can see an issue with statistics that could affect the calculation of the average house price when new houses are built.

The new houses will be in less desirable location areas and so they will in fact be cheaper than the established houses. Therefore a naïve calculation of all house prices that does not take that into account will conclude that in the short term the average prices have gone down and incorrectly include the established houses in that statement of price movements.


Correct. We have to compare like with like and just look at selling prices of pre-existing homes before and after the new development.

Then people just start making stuff up:

The new houses will be in more desirable location areas (1) (less social housing) and bigger (2) and so they will in fact be more expensive than the established houses(3). Therefore a naïve calculation of all house prices that does not take that into account will conclude that in the short term the average prices have gone up...(4)

WTF?

1) Clearly, you build houses in the most favourable locations first - overlooking the river, the sea or the park, near the station, near the shops; the newer homes will be further away from all these lovelies.

It is only in very expensive/densely populated areas where it is just about worth while knocking existing houses down and building more densely that the new homes are in the most favourable locations - happily, the study focused on "suburbs or villages" so we can more or less rule this out.

2) From The Independent: "The average floor space for a dwelling in the UK as a whole is currently 85 sq metres, whilst new-builds average only 76 sq metres"

3) Any real life evidence for this? According to Nationwide, there's actually not much in it - average price of 'new-build' currently £192,434, average price of 'older' a shade higher at £192,434.

4) He has missed the point anyway, the point is to compare like with like, and it is pretty clear that this is exactly what the LSE did, i.e. they looked at selling prices of pre-existing homes, which went down slightly during construction period and then went up even higher afterwards.

Something else we ought to mention is s106 Agreements, whereby the developer has to fund all sorts of goodies to keep the local NIMBYs happy, you don't need to know much about economics to realise that these will push up values of existing homes.

17 comments:

L fairfax said...

"He has missed the point anyway, the point is to compare like with like, and it is pretty clear that this is exactly what the LSE did,"
They didn't - they did not compare 2 areas where Barrett wanted to build and one when they didn't get permission and one where they didn't.
Another headline "Barrett pays for study to reassure NIMBIES that building homes are a good thing."


Dinero said...

Also as housing density increases as towns are developed the land is going up in value faster than the simple house price measure would show.

Mark Wadsworth said...

LF, why waste your time here? Why don't you e-mail the LSE and call them charlatans?

D, you are on fire today! Keep up the good work.

Dinero said...

Cheers!

L fairfax said...

Fortunately the comments on the FT have already let the (LSE authors whose names are not quoted). This is a pilot study not peer reviewed research so doesn't prove anything.
It is a little bit like this
http://io9.com/i-fooled-millions-into-thinking-chocolate-helps-weight-1707251800

L fairfax said...

Apologies that should have read -
Fortunately the comments on the FT have already let the LSE authors (whose names are not quoted) know they are charlatans.
The comments say things like
"
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/f5b7cb3a-0b91-11e5-994d-00144feabdc0.html#ixzz3cUBcLKm9

Thats becuase housebuilders will mostly build in areas where they can be certain of high prices. Why would a builder begin a project where input costs being almost equal, double profits could be earned in a high price area such as London."
And

"Research commissioned by Barratt and the National House Building Council finds that rural housebuilding is a good thing. How can the FT report that as news?

Disgraceful, lazy journalism.

"

ThomasBHall said...

I have great fun with this one- if you talk about redevelopment, it goes with people's ideas of raising values of the area, but at the same time, people see no contradiction with the idea building new houses reducing prices.
I always ask people to consider East London- a complete crap hole and bomb site for decades, yet, billions of investment and Olympic legacy, and thousands of new apartments on the market have done what exactly to existing house prices in the area? Raised them.
Do people really think that building all those lovely luxury flats in Battersea will reduce prices of property in Battersea?
Ireland and Spain are different because houses were built where nobody wanted to live, but the speculation got so crazy people still bid the things up in price. Building houses where people actually want to live is different, and leads to increases in values all round.

Random said...

http://www.theguardian.com/politics/2015/jun/07/what-will-happen-if-uk-leaves-eu-ten-ways-life-could-change
Title of this post would better fit this ;)

Bayard said...

"They didn't - they did not compare 2 areas where Barrett wanted to build and one when they didn't get permission and one where they didn't."

Why do you need a village where a development failed to get permission? What difference does that make to house prices? Why can't any village where there has been no development work as a control?
Have you actually read the LSE report (as opposed to the FT article) and do you know that they didn't do any of these things?

L fairfax said...

"Why do you need a village where a development failed to get permission? Why can't any village where there has been no development work as a control?"
A village where no one wants to do development is obviously not comparable to one where someone wants to do development
"Have you actually read the LSE report (as opposed to the FT article) and do you know that they didn't do any of these things?"
No if you find it then I will read.
I will of course admit that I am wrong if the report talks about controls and gives details of their workings out etc.
What would make you that you are wrong?

L fairfax said...

@" ThomasBHall
if you talk about redevelopment, it goes with people's ideas of raising values of the area, but at the same time, people see no contradiction with the idea building new houses reducing prices."
Redevelopment is providing new amenities etc. If they had built houses in East London and NOTHING else no DLR etc would prices have increased as much as they have?
This article is about building extra houses not redevelopment.

TheFatBigot said...

The building of new houses and flats in an area of high demand is likely to have an upward effect on the market value of existing housing for two reasons:

(i) New builds tend to be pretty homogenous - square or oblong rooms, low ceilings, kitchens in living rooms, efficient but soulless use of space. Older properties with crusty features like fireplaces, a-symmetric rooms and gardens become a smaller proportion of the local housing stock and their character stands out more.

(ii)Once new properties are built there is a "trendy" factor with people thinking a previously scummy area has become desirable. This is seen all over east London and is currently most marked in areas north of Shoreditch (Haggerston, Hoxton, Dalston) where new builds and conversions are to be seen moving North at an extraordinary pace. Existing housing stock "benefits" from the new trendiness because the whole area becomes more attractive.

The overall balance between supply and demand is still a factor but for so long as there is far more demand than supply there is no reason why new builds should cause the price of existing properties to fall.

Mark Wadsworth said...

TFB, yes, 'trendiness' and 'snob value of old house with high ceilings' might have something to do with it as well.

Mark Wadsworth said...

LF: "What would make you that you are wrong?"

We admit that this particular report might - just might - be Barratts funded propaganda.

So what?

The only thing which would make us admit we were wrong would be if land and house prices in major cities (London, Tokyo etc) were zero and low respectively, and land and house prices in little rural villages were very high.

If it is were as simple as

"more homes = lower prices"

then flats on Manhattan would be given away for free.

Bayard said...

"A village where no one wants to do development is obviously not comparable to one where someone wants to do development"

Obviously? Why?

Anyway, you didn't say "a village where no-one wants to do development", you said "2 areas where Barrett wanted to build and one when they didn't get permission". There's hardly a village in the country where someone hasn't been refused planning permission to build at some time or other. In any case, since you haven't actually read the LSE report, you don't know if your "killer flaw" in their argument is valid or not anyway, so this whole argument is pointless.

L fairfax said...


I haven't read the report because it hasn't been published - that is not my fault.
It is the FT's report for publishing the conclusions and not letting anyone check the workings out.
Obviously no one believes
"more homes = lower prices"
What I believe that if the supply of homes increases greater than the demand than prices might drop. (Of course it is possible to have more homes and due to mass immigration that demand rises faster than supply).


What I think happened is that Barrett have noticed that people for some bizarre reasons like housing to be unaffordable. They think that if they create a report saying "if you let us build more homes then your house will be worth more" people will say please build more homes in my village/suburb.

IMHO they are wrong as the NIMBIES will say "don't buy more homes because if you do houseprices will rise and my children won't be able to afford a house"
There is nothing that will make NIMBIES support more houses.

Anyway I will not bother reading any more comments, if the report is ever published I look forward to reading it.

Dinero said...

Oh, Lf has gone.

As per the comments thread earlier , western seaboard USA town built from scratch, I looked up on the net.
Anaheim Hills, Rossmoor, Irvine, Ladera Ranch, Mission Viejo Talega, Thousand Oaks, Westlake Village, Newbury Park, Valencia,Marley Park, Talking Rock Ranch, McCormick Ranch, Rio Verde, Tartesso, Verrado Buckeye, Arizona,Rhonert Park.