tag:blogger.com,1999:blog-1141932539860553199.post2803057357300316948..comments2024-03-05T10:52:24.691+00:00Comments on Mark Wadsworth: Why we don’t have a Housing Crisis.Mark Wadsworthhttp://www.blogger.com/profile/07733511175178098449noreply@blogger.comBlogger33125tag:blogger.com,1999:blog-1141932539860553199.post-27461454963072514082015-12-08T14:02:14.653+00:002015-12-08T14:02:14.653+00:00Thank you, M. Another reason why "supply and...Thank you, M. Another reason why "supply and demand" doesn't work with land - there's no real need to sell.Bayardhttps://www.blogger.com/profile/15211150959757982948noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-67086510390970602482015-12-08T13:24:40.935+00:002015-12-08T13:24:40.935+00:00@B, the lack of a tax on land and very low interes...@B, the lack of a tax on land and very low interest rates are directly responsible for the nonsense of empty, unsold homes and high prices. If prices are going up by 5-10% a year but money costs nothing and you don't pay any meaningful property tax on more expensive locations, it's very cosy to just sit tight and watch paper profits go up and up...mombershttps://www.blogger.com/profile/09650866436764567516noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-38135121657564926202015-12-07T23:59:32.443+00:002015-12-07T23:59:32.443+00:00Also, if land, and therefore houses, follow supply...Also, if land, and therefore houses, follow supply and demand, how do you get the following scenario, reported on the radio recently: 50% of the homes on estate agents' books empty and empty for more than one year (lots of supply) and prices rising locally (lots of demand)?Bayardhttps://www.blogger.com/profile/15211150959757982948noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-55732990489658449872015-12-07T23:55:56.117+00:002015-12-07T23:55:56.117+00:00"I am pretty sure that the people who paid fo..."I am pretty sure that the people who paid for lots of homes to be built in Elche didn't think that they were going to cause prices to crash."<br /><br />They could be bloody sure of that, because they didn't. It wasn't the supply of houses that caused the price to crash, it was the banks going tits up. What happened was that the financial system that made it possible for all those houses to be built and offered at high prices, came to an end and therefore the prices went down as they no longer had the backing of the financial system that drove them up in the first place. If this wasn't the case, then prices would only have fallen in places where lots of new houses had been built, and they didn't, they fell everywhere, same as in Ireland.<br /><br />Saying building lots of houses brought the prices down in Spain and Ireland is confusing cause and effect. High house prices mean that it is profitable to build lots of new ones, therefore, in the absence of planning controls, lots of new houses are built. This is what happened in the the UK in the 60s and 70s. While lots of new houses are being built and coming on the market, prices continue to rise, despite the enormously increased supply, tThis is what happened in Spain and Ireland. However, with the law of supply and demand, you would expect the price rise to start to tail off there was no sign of this. Prices were still merrily going up when the financial crisis cut of the source of funding for both buyers and builders. That is what brought the prices down, the fact that no-one could afford to either build the houses or buy the houses already built.<br /><br />"To build "too many" near London would mean about 1 million a year or something, which is not physically possible."<br /><br />However, it is perfectly possible to build "too many" in a marginal location, as happened in Ireland and, to a lesser extent, in the UK. What happened then was not that prices came down (this was before the crash), but the houses went unsold. There is a development near me, built at the height of the boom, which is still empty. The flats are still for sale, still at more or less the same price.Bayardhttps://www.blogger.com/profile/15211150959757982948noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-42888898192418863612015-12-07T20:41:39.826+00:002015-12-07T20:41:39.826+00:00L, if home builders build homes which never get so...L, if home builders build homes which never get sold and stand empty, that is destruction of wealth quite clearly.<br /><br />If they sell flats for €130,poo which fall to €30,000 that is clearly a massive transfer of wealth, primarily to landowners.<br /><br />As to "building too many" that depends on how much infrastructure and people are already somewhere. Build 100,000 tiger homes in the middle of nowhere that's too many. Build 100,000 near London or a major city and it wouldn't touch the sides. To build "too many" near London would mean about 1 million a year or something, which is not physically possible.Mark Wadsworthhttps://www.blogger.com/profile/07733511175178098449noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-86894247668688656762015-12-07T19:52:15.868+00:002015-12-07T19:52:15.868+00:00"There's no point building houses unless ..."There's no point building houses unless people would move there.<br /><br />So build 100,000 homes within commuting distance of London, they will soon be filled up and agglomeration benefits will cancel out 'added supply'."<br />That is assuming that builders don't by mistake too many as happened in Spain.<br /><br />I am pretty sure that the people who paid for lots of homes to be built in Elche didn't think that they were going to cause prices to crash. This is not the middle of nowhere but a place which was booming. (It is possible that they were philanthropists but as they were advertising for quite high prices I doubt it).<br /><br />Of course no one is ever going to plan to build so many homes that prices drop. <br />However it (in a free market so not the UK) can happen.L fairfaxhttps://www.blogger.com/profile/12274756119129254373noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-16380600262774928232015-12-07T18:36:00.908+00:002015-12-07T18:36:00.908+00:00Din: "what do you mean where you write "...Din: <i>"what do you mean where you write "tax system being essentially flat"</i><br /><br />If I may butt in, we have a weird mixture of regressive and progressive taxes which pretty much cancel out. the overall effective rate on income ends up quite flat from bottom to top. I mean there are plenty of wiggles in the curve but overall it's flattish.Mark Wadsworthhttps://www.blogger.com/profile/07733511175178098449noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-57680652616034167172015-12-07T18:25:47.246+00:002015-12-07T18:25:47.246+00:00LF, it is not always a one-way bet. Read the post....LF, it is not always a one-way bet. Read the post. It says:<br /><br /><i>... adding capacity where demand is highest will simply suck in more people, increasing aggregate land values in that area (prices will only fall in the areas with no new construction and net emigration). </i><br /><br />There's no point building houses unless people would move there.<br /><br />So build 100,000 homes within commuting distance of London, they will soon be filled up and agglomeration benefits will cancel out 'added supply'.<br /><br />Build 100,000 homes on the Shetlands and its money down the toilet.Mark Wadsworthhttps://www.blogger.com/profile/07733511175178098449noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-53181884933952638662015-12-07T15:38:19.967+00:002015-12-07T15:38:19.967+00:00Yes I was agreeing with you, - building in or outs...Yes I was agreeing with you, - building in or outside of the population center doesn't lower the prices existing inside the population center.<br /> Question - , what do you mean where you write "tax system being essentially flat"Dinerohttps://www.blogger.com/profile/14632385731642361211noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-44571205363024369422015-12-07T14:34:43.280+00:002015-12-07T14:34:43.280+00:00@ D
Leaving efficiency issues to one side, let...@ D<br /><br />Leaving efficiency issues to one side, let's assume that aggregate land values across the UK are fixed. But they can be spread around in different ways.<br /><br />At the moment, the Greenbelt/planning acts like an dam. Artificially high one side, artificially low on the other. Because of this it also slows down the rate to which people would move to London/SE.<br /><br />Build, build, build, takes away that dam and spreads those values over a wider area, lowering the average Land to Capital ratio, thus average HPs, but increasing vacancies/under occupation.<br /><br />This also means those currently priced out of London/SE will now be able to move there, and more people are the fuel that makes the London/SE economy grow. Which is good for London/SE economy and existing landowners as this raises demand, but not so great for the rest of the UK or it's economy as a whole.<br /><br />If we want max aggregate land values, which I believe we do, then we need a balanced growth across the UK.<br /><br />So, the answer to your question is, yes building loads of homes will of course lower average HP's (although not in London/SE), but it will not lower aggregate land rents, they just get spread differently, and in my view further concentrated towards the SE.<br /><br />This issue about housing is really one of inequality. I understand why people think building more houses is the only answer, but it's not. It's a piss poor answer, which I think will make marginal improvements at best.<br /><br />LVT sorts it all out, once and for good. Easy peasy. And we get all the efficiency gains on top. Which is for me personally is the important part. The fact it makes housing tons more affordable for one groups vs another is a side issue for me.<br /><br />We shouldn't need a Greenbelt, but without a proper LVT, we do.<br /><br />benjhttps://www.blogger.com/profile/11544297406005346095noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-90764873791306309092015-12-07T12:56:26.472+00:002015-12-07T12:56:26.472+00:00> Ben Jamin
so if you build in the population...> Ben Jamin <br /><br />so if you build in the population center then prices don't fall in the population center, and the alternative is to build outside of the population center and that does not cause prices to fall in the population center either.<br />Dinerohttps://www.blogger.com/profile/14632385731642361211noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-35964184322913403232015-12-07T12:38:45.236+00:002015-12-07T12:38:45.236+00:00@ D
Just to clarify, I would expect HP's acro...@ D<br /><br />Just to clarify, I would expect HP's across the UK to come down if we build X amount of extra housing, but the headline rate of average HP's isn't the same as affordability for working households in London and the SE. <br /><br /><br />It's discretionary incomes that makes everything, not just housing, affordable or unaffordable. Looking at headline average house prices across the UK doesn't therefore really tells us that much about true affordability. <br /><br />Due to our tax system being more or less flat, because the land by value is highly concentrated, there will always be a net transfer of wealth/welfare, unless a) the value of land drops to zero b) the rental value of land is shared equally. <br /><br />Build, build, build will not even come close to achieving A, it's main target. And it comes with efficiency costs. At the very best, it's a suboptimal solution.benjhttps://www.blogger.com/profile/11544297406005346095noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-37204536507945691802015-12-07T12:05:16.067+00:002015-12-07T12:05:16.067+00:00What Ben Jammin's post says, is that a policy ...What Ben Jammin's post says, is that a <i>policy</i> of building houses in London to bring down prices does not stand up to scrutiny, due to agglomeration.Dinerohttps://www.blogger.com/profile/14632385731642361211noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-77502623389791349752015-12-07T11:49:24.129+00:002015-12-07T11:49:24.129+00:00It is not normal for firms to over estimate demand...It is not normal for firms to over estimate demand and create an oversupply?<br />Are Spanish building firms and Banks less intelligent than British ones? (There has been some real stupidity from both so I am not quite sure how you can say that).L fairfaxhttps://www.blogger.com/profile/12274756119129254373noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-24507352959381957772015-12-07T11:39:21.968+00:002015-12-07T11:39:21.968+00:00Yes, agreed, that's the point, they didn't...Yes, agreed, that's the point, they didn't do it on purpose in Spain, but they would have to do it on purpose to get the same result in London, and that is not a normal condition.Dinerohttps://www.blogger.com/profile/14632385731642361211noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-637695688327771032015-12-07T11:20:13.111+00:002015-12-07T11:20:13.111+00:00"True , but no-one is suggesting that builder..."True , but no-one is suggesting that builders in London put up the money to build so many houses in London that they have some left unpurchased and unoccupied"<br />I don't think they did it on purpose in Spain. What happened was that the price of a good increased and suppliers mistakenly (aided by easy credit) responded by making more of the good. As often happens they over produced.<br />In the UK we don't have a free market in housing.L fairfaxhttps://www.blogger.com/profile/12274756119129254373noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-17170148286060297262015-12-07T11:17:13.924+00:002015-12-07T11:17:13.924+00:00True , but no-one is suggesting that builders in L...True , but no-one is suggesting that builders in London put up the money to build so many houses in London that they have some left unpurchased and unoccupied. That would be what was required , and probably quite unrealisically, of a "build to reduce prices" policy.Dinerohttps://www.blogger.com/profile/14632385731642361211noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-26532819349942423902015-12-07T10:58:49.701+00:002015-12-07T10:58:49.701+00:00@"The building in Spain was not accompanied b...@"The building in Spain was not accompanied by proven demand"<br />In Elche they were being occupied at first (not at the end of course).<br />If you built enough houses in London (and didn't have housing benefit) you could probably have empty houses after a while.L fairfaxhttps://www.blogger.com/profile/12274756119129254373noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-43917996130944281102015-12-07T10:49:28.475+00:002015-12-07T10:49:28.475+00:00The building in Spain was not accompanied by prove...The building in Spain was not accompanied by proven demand, unlike the demand in London. And It was also occurred around the time of the credit crunch. In London each unit would be built and occupied accordingly. And so you have an increase in agglomeration with each new unit and resident, unlike Spain.Dinerohttps://www.blogger.com/profile/14632385731642361211noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-37604046280571661172015-12-07T10:26:30.640+00:002015-12-07T10:26:30.640+00:00"
If we build 5 million cardboard homes in th..."<br />If we build 5 million cardboard homes in the middle of nowhere, left to rot, then prices in the UK will drop by 20%. ie"It is a commonplace that building extra housing will lower aggregate house prices."<br />"<br />They didn't build all the extra homes in Spain in the middle of nowhere. In Elche they were placed in convenient locations and still crashed to 25%. (Amazingly but I guess the money had already being budgeted they were still building loads in 2010)<br />L fairfaxhttps://www.blogger.com/profile/12274756119129254373noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-33642454823441686762015-12-07T10:16:25.271+00:002015-12-07T10:16:25.271+00:00@ L F
They did build loads of homes in Spain and ...@ L F<br /><br />They did build loads of homes in Spain and Ireland, and house prices kept going up until the crash.<br /><br />If we build 5 million cardboard homes in the middle of nowhere, left to rot, then prices in the UK will drop by 20%. ie"It is a commonplace that building extra housing will lower aggregate house prices."<br /><br />But, although aggregate prices would have dropped, they would remain unchanged where demand is highest.<br /><br />It's just hard to imagine, unless we banned people moving to London/SE from other parts of the UK/World, how building tons of homes would improve affordability over the long term. And what what cost?<br /><br /><br />Urban Sprawl(if we didn't have the GB) and our excessive North/South divide are symptoms of market disfunction. Personally, I'm all for scrapping the Greenbelt and letting the market sort everything out, but only after a 100% LVT. I seriously doubt we'd need to build any extra new homes for years if we had an LVT tomorrow.<br /><br />The build, build, build solution is certainly not going to end the net transfer of wealth, is therefore unlikely to make a significant impact on affordability for working households over the long term, and will come with huge efficiency costs. <br /><br />But we are going to do it anyway, so we'll see. As per Spain/Ireland expect prices to keep rising until the next crash. Rinse, repeat etc.<br /><br /><br /><br /><br />benjhttps://www.blogger.com/profile/11544297406005346095noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-7639805367714091832015-12-07T09:50:39.023+00:002015-12-07T09:50:39.023+00:00Sadly the town they live in is not touristy at all...Sadly the town they live in is not touristy at all. I cannot imagine anyone in their right mind would buy a holiday home in Elche.L fairfaxhttps://www.blogger.com/profile/12274756119129254373noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-27967413439472816852015-12-07T09:49:10.993+00:002015-12-07T09:49:10.993+00:00@LF Alicante is a tourist town I believe. Very sea...@LF Alicante is a tourist town I believe. Very seasonal employment, lots of second homes, quite different from a diverse, year round economy. Thoughts? The second home factor makes it quite easy for prices to crash I think.mombershttps://www.blogger.com/profile/09650866436764567516noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-91090874327808208652015-12-07T08:11:38.595+00:002015-12-07T08:11:38.595+00:00"So in an urban area where there is housing d..."So in an urban area where there is housing demand, building more houses always causes prices to rise. It is a one way bet as prices cannot fall? Is that a correct view of what you are saying?"<br />So you are saying that building more homes will not prices cheaper.<br />My sister in law lives near Alicante. Her town had a lot of property demand and unlike other parts of Spain they built lots of flats in the town. Prices have dropped from 130,000 Euros to 30,000 Euros.<br />Now maybe in the long term prices will be higher because of this (hard to prove).<br />However in the short term 7-10 years the excessive building has caused prices to fall. (I know that there is also a financial crisis although in Spain that was at least partly caused by the excessive building)L fairfaxhttps://www.blogger.com/profile/12274756119129254373noreply@blogger.comtag:blogger.com,1999:blog-1141932539860553199.post-63041561104588248392015-12-06T22:27:24.353+00:002015-12-06T22:27:24.353+00:00@ Fairfax
"So in an urban area where there i...@ Fairfax<br /><br />"So in an urban area where there is housing demand, building more houses always causes prices to rise."<br /><br />Anything that increases agglomeration effects, increases demand, increases the value of locations where agglomeration effects are highest.<br /><br />This isn't anything new. It's why we see the highest house prices in the middle of the successful, large cities.<br /><br />If we build more housing in London and the SE, this will likely only succeed in accelerating its population growth there still further. As MW says, building housing to accommodate the demand for housing here is like trying to put out a fire by adding more twigs. It might damp out the flames in the short term, but you've really just added fuel. People are the fuel that creates economic growth.<br /><br />What we actually want is increased agglomeration effects, and higher land values across the UK as a whole. London is not an island. It is a network hub. The other cities and towns are its nodes. For the UK economy to be strong the vitality of the whole network needs to be balanced.<br /><br />At the moment, our economic system is burdening areas outside London/SE with excessive liabilities. Only a LVT replacing taxes on output allows the network as a whole to balance itself out, optimising growth. Just like any other biological entity does.<br /><br />Human society and our cities/networks are only biological entities, and we are governed by exactly the same laws of scale.<br /><br />I'll post something on this subject soon, as it's very important to understanding economics. IMHO.<br /><br /> benjhttps://www.blogger.com/profile/11544297406005346095noreply@blogger.com