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Why can’t you afford a home?


Hardhat

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A new book on the housing crisis.
Interesting to think that this version of the narrative might take over from "build more houses!"
Extract:
Money creation, bank lending and house prices

When property prices rise faster than incomes, it becomes harder to buy a home. Mortgage loans bridge this gap, allowing households to access home ownership without having to save for many years. But there is a side-effect. Banks create new money in the act of lending. When a bank makes a loan, it creates both an asset (the loan) and a liability upon itself in the form of a new deposit in the bank account of the borrower. No money is borrowed from elsewhere in the economy. The main limit on bank money creation is the bank’s own confidence that the loan will be repaid.

If mortgage lending supports the building of new homes, this new money can be absorbed into the economy. However, in most cases mortgage finance enables people to buy existing property on existing land. As households, supported by banks, compete to purchase, the result is increasing land and house prices. Higher prices lead to more demand for mortgage credit, which further pumps up prices, and so on.

This feedback cycle runs against standard economic theory where an increase in the supply of goods, all else being equal, should eventually lead to a fall in prices. An ‘equilibrium’ price will be reached at the point when the quantity of goods supplied exactly matches the demand for them. But with bank credit and land, we have two phenomena that are quite unlike standard commodities. Bank credit is highly elastic and essentially infinite; in contrast land, as discussed in the preceding chapter, is inherently inelastic due to its scarcity.

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The reason i wont buy is because in 2013 Gideon and his sidekick Phil Hammond came up with Help to Buy to boost the price of houses this policy worked in sync with Funding For Lending where the Bank of England decided to gift tens of billions of pounds per annum to banks to enable looser lending and lower interest rates.

Browns bailed out housing bubble was deflating at this point and imho house prices were about to fall off a cliff, but the Tory party decided to fuck over a 2nd generation to give free money to boomers and the financially retarded who had bought into the LIBLABCONS bubble.

 

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UnconventionalWisdom
7 hours ago, Hardhat said:

new book on the housing crisis

Good find. Worth the eBook price? 

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3 hours ago, UnconventionalWisdom said:

Good find. Worth the eBook price? 

Can't say I've read the whole thing, although I probably will download it.

For me it's fascinating that the viewpoint we've been reading about on ToS/ on here for years is finally being articulated by the "mainstream" / "academic" media.

Only a decade too late for most of us...

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3 minutes ago, Hardhat said:

Can't say I've read the whole thing, although I probably will download it.

For me it's fascinating that the viewpoint we've been reading about on ToS/ on here for years is finally being articulated by the "mainstream" / "academic" media.

Only a decade too late for most of us...

It was stated by all up until the 2nd property bubble then the LIBLABCON party along with the MSM changed the narrative to the housing shortage nonsense.

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UnconventionalWisdom
26 minutes ago, Hardhat said:

Can't say I've read the whole thing, although I probably will download it.

For me it's fascinating that the viewpoint we've been reading about on ToS/ on here for years is finally being articulated by the "mainstream" / "academic" media.

Only a decade too late for most of us...

Although it's good to see something out there stating that it's bloody credit and not number of houses built, I fear its still too little. 

I'm perhaps too pessimistic, but it's going to take a huge change for the mentality of people to change. The media are owned by people who want high house prices to keep their wealth. The government is full of MPs will vested interest in property. I just can't see them being able to change tact and make people change their mentality. On both here and TOS, it has been discussed how BTL is getting slaughtered, yet there are still idiots who are signing up because they haven't done their homework. 

The only way I can see a change in mentality on house prices is for house prices to come down leading to pain for debt-heads. Over-leveraged LLs need to be screwed and lose their home, and HTB people not being able to move due to the negative equity with a big mortgage and loan, before people realise that you shouldn't put 100% faith in property. 

 

In any case I will probably give the book a read. Still amazes me that virtually everyone has accepted these stupid high house prices without realising the damage they are causing our country. 

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Talking Monkey

But it has to correct at some point, so if the thinking we have held on ToS and here for years finally filters through to the general population, then when it finally corrects wouldn't prices fall off a cliff and we get that epic correction. My understanding is that prices tend to ultimately revert to the mean, and in that process sometimes overshoot a little too, so with the heady prices we now have it will be a huge/yuge collapse in prices

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1 minute ago, Talking Monkey said:

But it has to correct at some point, so if the thinking we have held on ToS and here for years finally filters through to the general population, then when it finally corrects wouldn't prices fall off a cliff and we get that epic correction. My understanding is that prices tend to ultimately revert to the mean, and in that process sometimes overshoot a little too, so with the heady prices we now have it will be a huge/yuge collapse in prices

I remember the crash of the late 80s. Property prices halved in London. They had had a massive increase and then sentiment just turned. 

At the weekend I was down in Sussex. Posh as posh and very expensive. There were loads of for sale signs. It might be about to go 

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UnconventionalWisdom
33 minutes ago, One percent said:

I remember the crash of the late 80s. Property prices halved in London. They had had a massive increase and then sentiment just turned. 

At the weekend I was down in Sussex. Posh as posh and very expensive. There were loads of for sale signs. It might be about to go 

My boss was trying to sell in Kent. Very expensive due to great train links into London. Didn't get an offer in 6 months. Took it off last week to wait for spring. 

It is standard house up for over £400k. Average salery £28k. Things are slowly turning. 

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9 hours ago, UnconventionalWisdom said:

Although it's good to see something out there stating that it's bloody credit and not number of houses built, I fear its still too little. 

I'm perhaps too pessimistic, but it's going to take a huge change for the mentality of people to change. The media are owned by people who want high house prices to keep their wealth. The government is full of MPs will vested interest in property. I just can't see them being able to change tact and make people change their mentality. On both here and TOS, it has been discussed how BTL is getting slaughtered, yet there are still idiots who are signing up because they haven't done their homework. 

The only way I can see a change in mentality on house prices is for house prices to come down leading to pain for debt-heads. Over-leveraged LLs need to be screwed and lose their home, and HTB people not being able to move due to the negative equity with a big mortgage and loan, before people realise that you shouldn't put 100% faith in property. 

 

In any case I will probably give the book a read. Still amazes me that virtually everyone has accepted these stupid high house prices without realising the damage they are causing our country. 

Its breaking the tryptic, `prpoerty is an investment as prices only ever go up`, `renting is wasted money`, and `there is a shortage of houses/land`...unfortunately the hard lessons won't be learnt as the indebted will be bailed out gently (with the use of tax payers funding) with minor losses at worse...even then they will protest that they have been `hard done by` and their predicament is/was somebody elses fault!

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On 15/10/2018 at 10:03, Hardhat said:

.........

When property prices rise faster than incomes, it becomes harder to buy a home. Mortgage loans bridge this gap, allowing households to access home ownership without having to save for many years. But there is a side-effect. Banks create new money in the act of lending. When a bank makes a loan, it creates both an asset (the loan) and a liability upon itself in the form of a new deposit in the bank account of the borrower. No money is borrowed from elsewhere in the economy. The main limit on bank money creation is the bank’s own confidence that the loan will be repaid.

If mortgage lending supports the building of new homes, this new money can be absorbed into the economy. However, in most cases mortgage finance enables people to buy existing property on existing land. As households, supported by banks, compete to purchase, the result is increasing land and house prices. Higher prices lead to more demand for mortgage credit, which further pumps up prices, and so on.

This feedback cycle runs against standard economic theory where an increase in the supply of goods, all else being equal, should eventually lead to a fall in prices. An ‘equilibrium’ price will be reached at the point when the quantity of goods supplied exactly matches the demand for them. But with bank credit and land, we have two phenomena that are quite unlike standard commodities. Bank credit is highly elastic and essentially infinite; in contrast land, as discussed in the preceding chapter, is inherently inelastic due to its scarcity.

I would like to say "no sh*t Sherlock" but even Sherlock would have turned to his fiddle for comfort by now!  No-one gets it, or often likely, does not want to get it.  Lending and stupid uncontrolled immigration under the cover of "we're not building enough".  HTB the same.  But the comment "this feedback cycle runs against standard economic theory" really jumped out.  This is everywhere and this is just one (good) example.  A mix of crap economists and the corruption of economics by self serving neo-liberals (in this case).  You can make anything true by assuming enough!

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In 2008 a crash had started and had even reached where I live (mid-way along the M4).  I was trying to sell at the time and prices were plunging.  Potential buyers couldn't get mortgages.  I did sell in the end but had to take quite a hit.  Luckily the place I bought also came down substantially in price.  It was a new-build and people who'd bought in the summer of that year paid 000s more for the same house.  (I bought in Dec). Building on the site slowed substantially and the share price of all the major housebuliders sank to rock bottom.  It should have been allowed to run its course but he government panicked and that's when all the props started. The crash such as it was didn't even last as long as a year so everyone saw it as a blip and has been long-forgotten by the bricks and mortar brigade.  Maybe this time it will be a slow grind down but once momentum starts it could get going properly and this time there is the perfect excuse............Brexit!

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Asking prices in my area seem to be coming down now, albeit slowly. Thank Heavens.

I'm more accustomed to smaller flats. A flat in my block (same floorplan) went on the market for £120k. A swift drop to £100k a few weeks later (in July) and 3 months later it still hasn't sold.

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18 hours ago, UnconventionalWisdom said:

My boss was trying to sell in Kent. Very expensive due to great train links into London. Didn't get an offer in 6 months. Took it off last week to wait for spring. 

It is standard house up for over £400k. Average salery £28k. Things are slowly turning. 

We have recently moved in Kent on train main line, removal guy was saying they were very busy compared to normal for this time of year as people selling worried about Brexit.

Worst round here are the newbuilds tiny and in shit location for 500k+.

 

 

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