Monday, 12 November 2018

"Lies, damned lies and rent statistics"

Fine article by Ian Mulheirn, who is one the heroic few pointing out that the "lack of housing supply" explanation for high prices is a bit of a myth. Sure, selling prices have rocketed, but that's largely due to easy credit availability/low interest rates. The true measure of housing costs is of course rents. They have shot up in London/south east over the last twenty years, but that's due to higher wage differentials and not lack of supply. Overall, they'd been pretty flat.

The housing supply numbers commonly used and, until recently, the housing need numbers bandied about, have long been wrong or misleading. Given the importance of rent — the ‘price’ that tells us whether demand for housing services is outstripping the supply — using the right measure of that is particularly vital...

Unfortunately [the ONS Index of Private Housing Rental Prices] only goes back to 2005. However, combining it with the prototype index for the UK prior to 2005— albeit based on a much smaller sample —suggests that real like-for-like rents have been pretty benign since 1996, and comfortably below average household income growth.

10 comments:

Ben Jamin' said...

Nobody is going to listen because there's too much now invested in the supply side explanation/solution.

As it happens, I think we should expect rents to increase relative to incomes. But's that's probably just me.

Ben Jamin' said...

Regarding selling prices, perhaps London property as a safe haven for foreign capital is another factor in higher prices, though not the major driver?

George Carty said...

What exactly is the purpose of those high-rise London buildings sometimes derisorily called "safety deposit boxes in the sky"? Why waste money on actually building on the land when you have no intention of selling or letting out space within those buildings?

Ben Jamin' said...

@ GC They certainly do have the intention of selling/renting them out. But there's no point in flooding a market that's not rising in value. They know the numbers and what's going to be coming onto the market. It's all about timing, and I'm not sure there's anything wrong with that per se. We all know what is actually wrong though.

Incidentally, I just read this. Just shows how potty things are.

https://blog.shelter.org.uk/2018/11/letwin-review-public-led-land-assembly-model-for-large-scale-projects/

Mark Wadsworth said...

BJ, I also think that rents increase as society becomes wealthier overall, but I'm not sure it's important. In the short or medium term rents are surprisingly stable.

BJ, GC, the 'prime London' house price bubble is unfathomable to mere mortals, and also pretty irrelevant to most of us.

Dinero said...

"Given the importance of rent — the ‘price’ that tells us whether demand for housing services is outstripping the supply"
That is not comparing like for like if "demand for housing services" is owner occupation.

Mark Wadsworth said...

Din, rent and paying off a mortgage are similar in economic terms and £ terms, same thing. Mortgage repayments as % of income are not historically high (the deposit us the big problem).

Bayard said...

"Given the importance of rent — the ‘price’ that tells us whether demand for housing services is outstripping the supply"

That's just moving the error. Ricardo's Law says rents are dictated by income, not demand. Just after the Rent Acts were repealed, the excess of demand over supply was very great, the Rent Acts having reduced the supply to almost nothing, but rents, while they went up compared to the controlled rents of the old style tenancies, did not go anything like as high as one would expect with such a large supply/demand mismatch.

Mark Wadsworth said...

B, that is also true, and another way of debunking the lack of supply myth.

But to all intents and purposes, income = denand = price/rent. It's three ways of describing the same thing.

Not that the supply siders understand such subtleties anyway, the "rents are stable" point has a better chance of getting through to them.

Ralph Musgrave said...

George Carty,

At least we aren't as bad as China, where it seems that a fifth of all houses are empty. See:

https://www.bloomberg.com/news/articles/2018-11-08/a-fifth-of-china-s-homes-are-empty-that-s-50-million-apartments