The myth has reared its ugly head a few times recently, so let's have another go at busting it.
Thankfully, Economics Help has done a good article on this to save me the bother.
To cut a long story short, whether there is a housing "shortage" or not is not a serious question. Most people would prefer to live in a larger home than the one they do, so what? That goes for most things. But assuming that somehow there is an objectively assessed shortage, we would expect rents to have risen dramatically over the last ten to fifteen years and they have not.
They have gone up in line with wages, eating up approx. one third of monthly extra net incomes after tax (I'm surprised it's that low, but there you go). Although extra supply in the last ten to fifteen years was pitiful, it has been just about enough to cope with population increases (assuming two people per new dwelling).
What has risen is the multiple of rental value which people will pay, which by and large is the inverse of interest rates. Interest rates have fallen to more or less zero, adjusted for inflation, so the multiple has gone up from ten to thirty.
(I accept that London is an extreme case, but I've explained that one to death as well and it is not really relevant to the rest of the UK.)
End of discussion.
Wednesday, 16 November 2016
That "high house prices are all down to lack of supply" myth (yet again)
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But wages limit rent because there comes a point where a tenant cannot afford the rent on their current wages and leaves (or gets evicted). So rents can rise for a while if they were low compared to wages, but rent growth is eventually limited by wage growth surely.
(I'm sorry if you have covered this before, I must have missed it.)
RT, I have but good point nonetheless.
So do low interest rates make it easier to buy or harder to buy or somewhat neutral.
Din, what do you think? I think at best neutral but probably negative because you need a larger deposit.
This one will run and run: the government would much rather blame the housebuilders than their own shonky economic policy.
B, that's a bit off topic. It assumes that "lack of supply" is such a big issue in the first place, which is a fundamental point.
If not, then house not builders are not to blame, if yes, hmm...
Sorry, I was too laconic: what I meant was the government would rather blame high house prices on housebuilders....
B, there is a widely held belief that more supply leads automatically to lower prices. I also subscribed to this until a few years ago when you ground me down.
I suppose it suits the home builders and the government to pretend that it is true, because the government can use it as an excuse for handing out more planning to the land bankers. Who promptly don't build anything.
Win win, house prices stay high so govt gets re-elected and land bankers make nice windfall gains.
Yes its the larger deposit I was thinking off, a big simplification being - first the effect is properties are easier to buy then, as the low rates have the effect of increasing the prices and deposit, and the properties are harder to by.
As for supply , there is a huge difference between houses depending on the location which is a big clue that supply attenuating prices does not fit simply into the housing market.
Prices are lower in the north and in the suburbs. What is imagined by the supply argument is lower prices in the high price location, which all else being equal is self contradictory.
"Win win, house prices stay high so govt gets re-elected and land bankers make nice windfall gains."
and the GBP don't get to realise that the government have stiffed them both ways with lower interest rates - higher house prices and no returns for savers.
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