I've long argued that the numbers that matter in determining house prices aren't the total stock of housing because, at any point in time, 99% of that stock is not available to buy. This is one reason why the argument that "there are lots of houses already, why would building a few more change the price" is a bit misleading.
Here is something of an illustration (h/t Dan Cookson on Twitter) from the USA:
US house prices are showing a 5.4% rise year on year and this table gives us the reason. Sales are 11.6% higher perhaps something of a response to the hiatus of the pandemic and this reflects a surge of buyers entering the market. At the same time the NAR is reporting an inventory - the numbers of properties on their books - that has dropped 20% compared to the previous year. So fewer homes for sale and more buyers means, boom, a rise is house prices. The good old rules of supply and demand still work!
Turn this the other way round and imagine a situation where the numbers of houses entering the market rises because of new build activity but the numbers of buyers stays static - we can reasonably expect that the result would be lower (or more likely static) house prices. And remember that the higher the proportion of new homes in the real estate inventory the less pressure there is not to reduce prices. We also know that new development also tends to stall decisions to sell by existing owners in the area of that development providing further downward pressure on house prices.
Meanwhile the NIMBYs are out in force - Neil O'Brien, Tory MP for Harborough is their new cheerleader - telling us how dreadful it is that the government's new standard 'objective assessment of need' means much of the new housing ends up in suburbia (where people want to live):
The number for Birmingham comes down 15 per cent, while the rest of the West Midlands goes up 52 per cent.
Numbers for Leicester go down 35 per cent. The rest of Leicestershire goes up 105 per cent.
Nottingham goes down 22 per cent, the rest of Nottinghamshire goes up 48 per cent.
Southampton goes down 17 per cent, Portsmouth down 15 per cent and Basingstoke down 23 per cent, but the rest of Hampshire would go up 39 per cent.
Wealthy Bristol would see some growth (5 per cent) but much lower than the rest of Gloucester, Somerset and Wiltshire (47 per cent).
O'Brien gets his figures from this analysis by planning consultancy, Lichfields.
The AEI survey found large interest in those areas outside of cities, while interest in cities plummeted. Just 13 percent claimed that they would like to live in a city — a 55 percent decrease. In contrast, 29 percent of Americans said that they would ideally reside in a suburban area, and another 28 percent said a rural area. Small town living was the big beneficiary, with 29 percent of Americans stating that they would now like to live in a small town.Let's not let the NIMBYs spoil this chance to make housing much more affordable for ordinary families. Adopting O'Brien's NIMBY approach would set back housing delivery a decade and simply make homes less affordable - he is simply wrong.
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6 comments:
like the blog, thank you for writing it.
I agree with the overall thesis, one small point, how does this work?
"We also know that new development also tends to stall decisions to sell by existing owners in the area of that development providing further downward pressure on house prices"
I would have thought fewer sellers would support prices not depress them
1. Ban outward expansion of cities because "green and pleasant land" or "sustainability".
2. Ban upwards expansion because "human scale", "out of place in this neighbourhood", or some other aesthetic concerns.
Congratulations! You now have a housing crisis. To top it off:
3. Ban small flats because they are an outrage.
1. Ban outward expansion of cities because "green and pleasant land" or "sustainability".
2. Ban upwards expansion because "human scale", "out of place in this neighbourhood", or some other aesthetic concerns.
Congratulations! You now have a housing crisis. To top it off:
3. Ban small flats because they are an outrage.
As a premise, I think it would be wonderful if most UK residents could live in our blogger's vision of nice low density middle-class housing, I am merely skeptical about the economics and the politics of that vision:
«where new homes are focused on where people want to live»
If they are people of independent means then they want to live where they have a nice environment, but the vast majority of people want to live where they have access to good jobs, and it has been government policy for 40 years to invest in attracting jobs to the already congested south-east and London areas (and a side effect has been crashing property prices in most of the rest of the country) to maximize the valuation of property in those areas.
«and where the trendy urbanist obsession with densification doesn't prevent the development of family-friendly housing»
I have already quoted the head of the confederation of UK builders saying that densification as in shoebox houses is driven by the building industry itself to maximize their sales. The hip/hippy/hipster urbanists and architects are simply wrapping in fancy fashionable words the designs that their customers (the building industry) want to build.
«in good suburban communities and small towns»
There are some problems with that:
* Are there going to be good jobs in those good communities and towns?
* If there aren't that many good jobs locally, what's the price of 2 season tickets for a 2 hour commute to inside the M25 area?
* How many people want to spend 4 hours a day commuting?
But the fundamental problem is another: suppose that in various communities or towns there were plenty of well priced (that means under £250,000 for a couple of working buyers with a total gross income of £60,000/year) 3-bedroom semis with gardens, with short travel times to local good jobs. Then what would happen to prices in existing congested high-density high-priced areas in London and the Home Counties commuter belt? They would crash, as many people would move to those communities and towns. This would also blow up every english bank and most of the City corporates.
Shoebox or multiple occupancy houses in the Home Counties and London to commute to the good jobs in the M25 area are the necessary way to maximize the capital gains and rents of incumbent owners in those areas, and of the banks that lend them their mortgages or re-mortgages, and that is what matters. A commenter on "The Guardian" wrote quite sincerely:
“I will put it bluntly I don't want to see my home lose £100 000 in value just so someone else can afford to have a home and neither will most other people if they are honest with themselves”
But even that is way too mild a statement: those incumbents don't want merely for prices to not fall, they also want them to increase at their usual 7-10% per year, because their budgets and living standards and retirement prospects depend entirely on that.
The core of the Conservative electoral coalition is incumbent property owners, and the Conservative party will never betray their core voters, regardless of whatever talk they talk.
«densification as in shoebox houses is driven by the building industry itself to maximize their sales»
In case someone reading this is wondering why this is the case (our blogger surely knows), most estate builders' primary business is not actually building, which is cheap and low margin, but it is increasing the valuation of their often conspicuous land holdings, by building as little as possible on the smallest amount of land they can get away with.
Perhaps to summarise my previous comment the political problem is that the NIMBYs are the government and the government are NIMBYs and the economic problem is that “to make housing much more affordable for ordinary families” would result in enormous losses to nearly every english bank, as their solvency depends on keeping southern house prices very high and ideally growing (90-95% of bank loans are for property).
Some optimist proposed as a solution to reverse the past 40 years by having wages rise faster than property prices for the next 40 years, but NIMBY voters would regard that as communism.
The NIMBY voters will keep doubling down on policies that have made them so much profit for the past 40 years, presumably until there is a blow-up so big that the BoE and the Treasury cannot bail them out. I hope that I am wrong.
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