Via Peter Smith on FB, some research by Neal Hudson:
The level of private house building is closely linked to credit availability and turnover in the wider housing market. There has been a 10 to 1 ratio between overall market transactions and private house building starts for the last 25 years and it appears to have held firm despite recent policy interventions. The reasons for this ratio are poorly understood...
He then includes a chart showing that the ten-to-one ratio has held firm for a lot longer than that.
Fascinating.
I can understand that there would be some sort of correlation between the two, but not as striking as that...
UPDATE: Peter S explains why in the comments. Doh! Wish I'd thought of that.
Wednesday, 19 August 2015
The ten-to-one ratio between overall market transactions and private housebuilding starts.
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From memory the average chain is about 5 to 7.
L, that's what I've heard too.
But i wasn't saying this was the explanation, I'm just saying if my assumptions were correct (which they almost certainly aren't), then that would be a logically plausible explanation.
My explanation is that there would be a price damping effect if new builds were to exceed 10% of sales of existing stock. Developers want to avoid this. 10% represents the optimum ratio for developer profits.
U, good suggestion. Perhaps it is as simple as that.
It's me Peter S. It's not that developers actually look at the number of existing stock sales. The mechanism works automatically. Developers set their prices usually 5 or 10% above existing prices (new build premium). They aim to sell at a steady rate. If sales go too quick they jack up the prices (that's why they do phased releases). This price setting mechanism results in the 1 to 10 ratio. If developers were to try to sell more quickly to use their land bank then they would have to sell without adding on a new build premium. This would have a knock on effect and result in lower prices for the existing stock. This would be the way to get prices down by increasing supply, which is what every politician and think tank argue for (including the National Housebuilding Federation). But of course it ain't going to happen that way as it means lower profits.
Unknown. Yet another argument for LVT.
PS, having thought about I came to the same conclusion.
L, yes of course
"This would be the way to get prices down by increasing supply,"
but the effect would be very localised. Increasing supply in Town A isn't going to affect prices in Town B as the drop in prices in Town A won't be enough to persuade people who want to live in Town B to live in Town A instead. What the politicians and think tanks want is a silver bullet that wil lower house prices nationally, and that bullet has "LVT" on it, not "increased supply".
I completely agree about LVT being the real answer to making houses more affordable. The 1 in 10 ratio, and the pricing mechanism that causes it, invalidates the argument that affordabilty will be achieved through increased supply.
http://www.salon.com/2015/08/22/reich_leveling_the_playing_field_for_all_businesses_will_make_the_california_economy_more_efficient_partner/
A tale of corporate welfare and homeownerism.
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