Tuesday, 1 May 2018

"Based on ONS data, immigration has put English house prices up by 20% over the last 25 years"

I must admit that I have downplayed the impact of immigration on house prices and rents, clearly, it must have had some impact. AFAIAC, it's just a population increase. As we well know, even at pathetic modern UK house building rates, supply has more than kept pace with demand. The real reason is the phasing out of Georgism Lite.

Via FullFact, who link to the ONS press release concerned:

Immigration has contributed 21% towards house price growth in England, according to analysis by the Ministry of Housing, Communities and Local Government. But MHCLG also says the data doesn’t provide a complete answer and should be used cautiously. It found that income growth is the biggest driver of increased house prices.

English house prices have risen by 320% on average over this period... When factoring in inflation, according to the Consumer Price Index, the increase amounts to 137%.

People still throw this in my face when I try to explain about Georgism Lite. One cretin on Twitter linked back to the ONS figure and said, there, that proves it, it's all down to immigration.

I asked him, OK, even if the 20% figure is correct (it does seem plausible - even though FullFact do their usual and point to other research showing the impact was negligible or even negative at local level), how do you explain the other bloody 300% or 117% or however much can't be explained by immigration/population increases?

* Deafening silence*


Graeme said...

Meanwhile have we reached peak "because Brexit"?

Mark Wadsworth said...

G, off topic, but nice one.

In answer to your question, no, we have not reached Peak "because Brexit" yet. I think they will start ramping it up again and sneak in a second referendum.

As to licensing medicines, my view is "If the Europeans have tested a drug and found it to be effective and cost effective, then we will just nod it through." But Brexit means we won't be able to do this any more, sadly.

Graeme said...

In a rational world, why would we need our own drug licensing process, provided we could trust the other drug licensing organisations? This is where it starts to get unreal. A friend of mine, 10 years ago, in London, was prescribed a drug which she had to pay for privately because it was not licensed in the UK but it was licensed in Switzerland. Makes you think, doesn't it?

Sackerson said...

The increase in population owing to immigration is pretty much balanced out by the 8 million or so, erm, terminations of unborn children since 1967. https://theylaughedatnoah.blogspot.co.uk/2013/10/immigration-abortion-and-demographics.html

Perhaps bigger factors are the ballooning of house prices in the SE owing to lax lending, very low interest rates and an influx of money from rich foreigners looking for a bolthole when Russia and China turn on their oligarchs. The lottery-winners of the SE then sold up and started looking for Escape To The Country dream homes, spilling money into the provinces and/or abroad.

Oh, and Government getting into bed with hutchbuilders and pretending to believe in a "housing shortage", in their search for something to keep the economy looking as if it's healthy (plus backhanders?)

George Carty said...

Chinese millionaires looking for boltholes probably have a disproportionate effect on rents and house prices, because the Chinese (and IIRC other East Asians) have a very strong cultural preference for living in new-build properties, and this means they keep their properties empty rather than letting them out.

formertory said...

Perhaps bigger factors are the ballooning of house prices in the SE owing to lax lending....

Why did the lax lending come about? Seems to me that it was part of what followed on naturally from the decision to sell off Council houses at a discount (which, incidentally, was a Labour Party manifesto item in 1959/60 - not Mrs T, then) and the later deregulation of building societies . There was little wrong with the idea of selling Council houses to their tenants, in principle, but the discount "for having paid rent for years" was an obscenity - rent was the money paid for having a place which kept the weather on the outside and that was maintained by the landlord. The net effect of the discount was that everyone with an elderly parent in a council house became an immediate property speculator and made money, helping light a speculative bonfire under other house prices as people became landlords.

Fast forward ten years, and Building Societies suddenly found themselves effectively deregulated and started chasing customers instead of sitting on their useless arses waiting for customers to arrive. Suddenly, they knew it all and were fighting it out with the Banks for customer relationships, cross-selling opportunities and profit. Again, nothing wrong with deregulating Building Societies in principle but add in a tax regime which failed to tax capital gains and a planning system which means builders can make more money sitting on land than by developing it, and the framework for the whole sorry mess is made.

Chuck in a few "affordability" schemes in the last two decades and ten years of catastrophically low interest rates which few have used to pay down debt, and there you go.......

Well, it seems to make sense to me, anyway. Always happy to learn that someone knows better :-)

ontheotherhand said...

The number and proportion of under-occupied households in the owner occupied sector increased between 1996-97 and 2016-17 from 39% (5.4 million households) to 51% (7.3 million households).

Mike W said...

As it happens, I was looking at a two, old, slave trading cities: Liverpool and Bristol, inspired by the recent BBC series about generational house ownership near Liverpool city centre. I thought it might be fun to dig down and see where they are today.

Population: Bristol 449,300, Liverpool 484,600

Wage weekly 2017: Bristol £547, National Average £539, Liverpool £512

Mean House price 2017: Bristol, £292,813 Liverpool £137,107

(I would like to find/add per capita GDP by region, I saw it once but did not keep link)

Conjecture based on numbers above :) If wages go into rents at MW's 30% figure then I would expect the Mean House price to be closer in this comparison. I suspect immigration may play a part,ownership stucture (Bristol full of retired civil servants,landlords and coupon clippers? ) but if I were a betting man, then I should 'wager' that the extra = pure rentier speculation from the banks, that the meme in the City of London(heard in Moscow, China, USA, etc) was that Bristol 'is a going places city' and Liverpool.. er is it still there?

Mark Wadsworth said...

G, in a rational world, we wouldn't. Or we'd do the decent thing and take part in some pan-European scheme, for example.

S, I'm as agnostic on abortions as I am on immigration. Lax lending and low interest rates are two key parts of the Home-Owner-Ist agenda, and a complete reversal of old Georgism Lite. The Oligarchs only affect a few small areas that were unaffordable anyway.

GC, Chinese wanting unused homes must have some impact, but let's not blame it all on foreigners.

FT, the 'deregulation' was an important part of the H-O agenda i.e. the opposite of Georgism Lite, when there were mortgage caps. If people can't borrow more than twice their income, then clearly, house prices will settle at slightly above twice average incomes.

OTOH, that's largely due to longevity I guess. Poor Widows In Mansions.

MW, good work on Bristol v Liverpool. That is one heck of an outlier. I've done comparisons (between towns or areas) like that before and I've never seen an outlier (or two outliers?) quite as crass as that.

Mark Wadsworth said...

MW, I never said 30%, that's an overall average. What I did say is that rents are close to 100% of the additional average wages compared to the place in the country with the lowest average wages.

Rightmove says Liverpool average rent £768 and Bristol average rent £1,077.

Bristol wages are £35 a week higher, times that by four is £140, but rents are £300 higher. Hmm. Still does not compute. But the gap in rents is much smaller than gap in prices.

Sackerson said...

Mark: I'm not arguing the morality of abortion here, merely pointing out that without it we might have had endogenous growth in population approximately equivalent to the increases caused by immigration. Without abortion, then yes, we would probably have a real "housing shortage" now.

As to the minor importance of oligarchs/foreign investment in UK real estate, a small minority can make a big difference - as happens in the game Musical Chairs. If someone buys my house for twice what it was worth last year you get excitement about valuations for the whole area. No?

I'm generally with you on disenchantment with an economy based on housing. We can't all make a fortune taking in each others' washing. When will the system crack?

Mike W said...

Hi Mark,

As you always say, rents are more useful as they take out the froth of pure house speculation via bank mortgages; which is what I think we are looking at here.


I have been meaning to write up this.


The UK city GDP figures are at the bottom. I was surprised! In the PPP/GDP UK city index on Wiki you get another odd result.

See BBC for wage data I used: http://www.bbc.co.uk/news/business-43729508

Mark Wadsworth said...

S, I must admit, when I was writing the post,bit occurred to me that most immigrants are filling in the missing bits on our population pyramid.

Mark Wadsworth said...

MW, I've done a few posts correlating wages vs rents, usually on regional rather than city level, the correlation is as high as you would expect (i.e. very).

ontheotherhand said...

I was trying to illustrate that there is no shortage of living space in the UK per person, it's just that no CGT on home and no LVT have encouraged people to stay in big houses.

Mike W said...

MW I agree. That is what I expected to see. I think it is Bristol that is the lending bubble for reasons that I conjecture above. I should say that I left out, our starting point, immigration data to the two cities, and assumed it is pretty much the same. Perhaps need to look at that assumption, but I suspect it won't bring Bristol back in line.

I know that there are some serious spreadsheet models to do this but one 'rule of thumb' model gives:

Liverpool average rents: £768x12x15 = £138,240 average house price £137,107 - £1133 :)

Bristol + £100,000 out :(

Further conjecture/question: Could some banker defined 'top draw' cities house price, now be set against anticipated future 15/20 year international bond yields(ie zero) rather than inhabitants incomes? And, of course, politically, no anticipated LVT, baked into the speculator's calculations.

Sackerson said...

@Mark: a factor re Bristol may be that over the years, a number of govt departments and major financial organisations moved there out of London.

Bayard said...

With the faster train service that was introduced with the HSTs (late 70's?), Bristol became a lot closer to London timewise (1 3/4 hrs), within commuting distance, if you are into extreme commuting, which some people are.

Ralph Musgrave said...

Sackerson and Formertory claim high house prices are down to low interest rates. Doubtless they are. However, there’s a more fundamental question here, namely what is the OPTIMUM or genuine free market rate of interest? Milton Friedman and Warren Mosler (founder of MMT) argued for a permanent zero interest rate (on state liabilities at least). I also argued for that at the link below. If Friedman, Mosler and the famous Ralph Musgrave are right, then interest rates are not actually artificially low at the moment: rather they were artificially HIGH prior to around fifteen years ago.


Mike W said...

Mark, Sackerson,

RE Bayard's rail network point,

So Russsians, Chinese,Yanks, etc buy into London for reasons above.

How about 'immigrationn' from London as the main cause? So as you move down from 500,000+ population in Bristol, the fleeing Londoners cause a greater and greater distortion in the standard relationship between rent and price. Should be able to test/model the effect.

Here: https://www.theguardian.com/uk-news/2017/dec/29/londoners-leaving-capital-for-brighton-birmingham-and-bristol

As it happens Bristol and Dartford, Kent seem to suffer from the same migration problem in pure, unwanted 'influx' numbers. Given the choice I would choose Bristol any day :)

Mark Wadsworth said...

RM, yes, the market rate of interest is clearly the lowest that the borrower needs to offer.

The real world shows that governments can get away with paying approx. zero interest. As a taxpayer, that's fine by me, in theory it saves me money.

But the government also has the responsibility/duty to prevent inflation. So if their zero interest depresses the rate that other people pay to the extent that we get inflation, something has to be adjusted.

As an MMTer, you know that the only point of taxation is to prevent inflation. Now, the price of most things falls over time (relative to wages) - except land rent/land prices. As the production cost of land is zero, every penny above that is pure inflation.

Ergo, from an MMT point of view, taxes should be collected from land values.

S, B, MW, that sort of explains high Bristol prices. Local average wages is the wrong metric, prices paid are dictated by London wages, minus season ticket costs.

George Carty said...

I wasn't suggesting that wealthy Chinese had a large impact on house prices (compared to other factors such as low interest rates and the concentration of well-paid jobs in London), only that the Chinese prefence for unused homes would mean their impact would probably be larger than one would anticipate based only on the numbers of Chinese involved.

And I wass also thinking that Bristol was considerably more expensive than Liverpool primarily because of London commuters. (The milder climate may also have a small impact: sort of an attenuated version of what makes California one of the most expensive US states.)