Episodes of exuberance in housing markets: in search of the smoking gun

For decades, the housebuilding lobby has repeatedly screeched, like ducks with limited vocabularies, that the problem of housing unaffordability can be solved by building more and more houses.

This incessant diet of propaganda – tastily flavoured, no doubt, by the accompanying political quid pro quo – has been swallowed whole by successive Secretaries of State for Communities and Local Government.

This old and worn canard needs to be shot. And finally some serious research is proving just what a load of old tosh the housebuilders’ claims are. Please bear with us through some slightly technical language …

Dr Alisa Yusupova of the Management School at Lancaster University has just presented a paper to the Royal Economics Society analysing the UK housing market with innovative statistical techniques. The conclusion she comes to is that much of the movement in house prices over recent decades has been driven, not by a shortage of houses, but by speculation and exuberance.

Where does that speculation and exuberance originate? (This is us speaking here.) In Quantitative Easing – the Bank of England’s policy of holding interest rates well below their natural level by flooding the financial markets with freshly made money. As one of the City’s most respected economists, Albert Edwards, put it last year:

“I’m sorry, but if monetary policy is too loose, you can concrete over the entire length and breadth of the UK and house prices would still rise. There is no shortage of housing. What there is, is an imbalance between demand and supply and demand is excessive because of crazily loose monetary policy. It’s as simple as that.”

To us that sounds eminently sensible. No-one round here expects, say, that if the Jockey Club and Redrow build 3000+ extra houses at Kempton Park – or even develop the entire Green Belt around London – it would have even the slightest effect on making housing more affordable.

Just like an ounce of gold, the price of a house can go up and down. And house prices have gone up too far in recent years. That is because house are viewed by many simply as investment assets, forgetting the fundamental purpose of a house, which is to keep the rain off your head.

Various media articles relating to this topic can be found at the following links:

http://uk.businessinsider.com/britains-housing-market-is-not-being-driven-by-a-supply-and-demand-imbalance-2017-4

http://www.res.org.uk/details/mediabrief/10502534/EXUBERANCE-CAUSED-THE-UK-HOUSE-PRICE-BOOM.html?platform=hootsuite.

http://www.hl.co.uk/news/2016/4/25/you-can-concrete-over-the-entire-length-and-breadth-of-the-uk-and-house-prices-would-still-rise

 

Kempton may be reprieved … ?

kpreprieve

Click here to read the full article

The back page of The Times (27 Feb 2017) carries an intriguing item claiming that the plans by Redrow and The Jockey Club to bulldoze the entire Kempton Park estate might be reversed.

We have several comments:

  1. If this contains any grains of truth then it indicates just how un-thought-through this whole plan was to build 3000 + homes on the estate in the first place. To make a major “strategic decision” like this (The Jockey Club’s words), and then reverse it in a matter of weeks, does not reflect well on the top management of The Jockey Club.
  2. The article mentions that a new plan might be to rather build 1200 homes on the eastern half of the Kempton Park estate which is not taken up by the racecourse. As we already know, of course, their original plan was to build, not 1200, but 2000 units on that site. The 1200 figure simply does not ring true. (Click here to read the evidence for that.)
  3. We’ll believe it when we see Redrow withdrawing their application, through Spelthorne Council’s Call for Sites, for the Green Belt status to be lifted from the whole of the Kempton Park estate.

Postscript: The Jockey says there is no change.  http://www.getsurrey.co.uk/news/kempton-park-redevelopment-nothing-changed-12617648

 

Council opposition boosted by new government guidelines

 

Ian Harvey - Leader, Spelthorne Borough Councillor
Ian Harvey – Leader, Spelthorne Borough Councillor

“An hour before the Jockey Club made its announcement I was contacted by agents for Redrow saying they had put the whole site forward but that we shouldn’t panic as it wasn’t their intention to seek development of the whole site. Lo and behold, the Jockey Club then announced it does want to build on the whole site. If I’m being polite I’d say that from the very beginning the Jockey Club has been disingenuous.”

https://beta.racingpost.com/news/council-opposition-boosted-by-new-government-guidelines/274232?authme

 

“Significant increases in house prices have not been driven by supply constraints.”

redfern-review

At last someone is pointing out the fallacy, relentlessly being put about by developers, that building more houses will reduce house prices.

“Rising earnings and falling interest rates, rather than insufficient supply, drove the boom in house prices between 1996 and 2006.” (Oxford Economics Report, Section 1.3)

Click here to read the Redfern Review Press Release

To read the full Report, click here.

 

 

 

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