Do we need a house price crash?

From another link ...

I just got an e-mail from Newsnight; it seems tonight they will be debating whether we need a house price crash in the United Kingdom.

I think the answer to that is:

Yes, if we want young people to be able to afford to buy a home.
Yes, if the people stuck in rabbit-hutch sized flats want to buy a bigger home.
Yes, if we want our economy to be based on producing something other than buy-to-let investors.

But crash is quite a harsh word. I think correction is more pertinent. We need the market to return to a state of sanity, where a professional such a policeman or a nurse can afford (on their own salary without government help) something bigger than a 1 bedroom flat.

To fix things in the longer term…

We should loosen planning laws to allow the market to create enough supply to meet demand. There is plenty of land available; only 8% of the UK is urban, half that of the Netherlands, and lower than Belgium, West Germany and Denmark.

We should encourage larger family homes with gardens to be built. Only 2% of the population aspires to live in a flat, and yet half of new homes built are now flats. Houses with gardens are better for bio-diversity than even an open green field.

Britain has the smallest and oldest houses in Europe, and despite advances in technology recent new builds are even smaller.

We should scrap shared equity schemes that matters worse by effectively propping up the market with tax payers money. If people stopped buying because they couldn’t afford to, then developers would be forced to lower prices.

The Bank of England should target money supply growth when they target inflation.

Banks should not be allowed to lend more than three and a half times income.

Hiya

Reading that I just can't see how it'd even be remotely achievable now or in the forseeable future!

The general thing with the UK population when it comes to property is a 3 bedroom house. Whenever you hear the 'average price' of a UK property, it's based on that. The Average UK salary across all industries is circa the £23K mark, so to not lend more than 3.5 times salary and for someone such as a Policeman or Nurse to get the benchmark 3 bedroom house, then average 3 bedroom house price would have to come down to £80,000, and in the more populous areas of the UK too, meaning London & South East, the midlands conurbation and the Manchester conurbation...

Nah - that's not happening anytime soon !

The buy to let market wasn't/isn't as large as many people seem to believe - just they get flak becuase they were making money from property.

Build larger homes for family sized living? - yep price of land needs to come down, alot for that to happen, the developers are 2nd tier there, the landowners need to drop prices first before developers can purchase.

I've said for a number of years now, we should build upwards, tallest UK building is 50 storeys high..  which looks utterly pathetic on the world stage, I can only imagine the tallest domestic building in storeys can't be much more than 10 or 12 or so ? possibly some of the nasty 60's blocks are higher - but who 'wants' to live in those?!

I think there is some law or something which dictates UK can't build higher, which is stupid nowadays - seeing as the economy is/has been the closest to collapse - that needs to be updated/changed if at all possible.

with the 2012 olympics coming, and the infrastructure needed to support that 2 weeks of world focus I can't see any reductions in Council tax for Londonners and the UK wide taxpayer - the costs are probably going to rise, and lets not forget that like many other Olympic cities around the globe, the UK will probably still be paying for it for many many years to come in the form of higher taxes etc.

Nope - somehow I don't think much will change - I don't see salaries rising to meet the cost of the basic need of housing and also other basic needs..

No idea either what the 'solution' will be, except it'll probably be a combination of smaller elements. I was talking recently with some people - for the next few years lending will be tight, and then it'll probably return to silly 5/6/7 salary multipliers. I put forward that I really hope that isn't the case - as it'll mean another return to what we are going through now, and potentially worse.

who knows what'll happen....!!

Cheers! DtM! West London & Slough UK!

Nope - somehow I don't think much will change - I don't see salaries rising to meet the cost of the basic need of housing and also other basic needs..

I know, it is so depressing.  I thought earnings were pretty low in America, but they are even lower here.  There are two of us working and we still can't afford to buy a house.  I came over with a master's degree and only make £12,000 a year!  (But, to be fair, I didn't come here for wealth!)
Not sure about the skyscrapers, we live out here in the country, so it definitely wouldn't happen out here!  But to have a big enough plot of land just to have a decent-sized yard is outrageously expensive.  In America it is actually cheaper to live in the middle of nowhere (other than commuting costs), yet here it doesn't seem to make much difference. 
Urgh, I'm bummed out today and talking about how broke we are and how unlikely it is to change isn't helping much, so I will throw in the towel now!! 

I still don't really see why people are so obsessed with buying their own home.  The levels of home ownership are far higher in the UK than they are in most other European countries, and they all seem to cope.  I knwo it will be years before I can ever buy a house (self employed, won't leave London) and I just get on with it.

I disagree about building more and building up as well.  Certainly in London there are a huge number of empty and derelict properties, and owners, property developers and councils should be encouraged to do something with these before building more houses on greenbelt.

Vicky

agreed, Vicky.  I am not at all fussed about owning a home anytime soon (would be nice one day perhaps, but there are other things that are much more important to me), but DH is telling me that he really wants to buy a house as soon as we can for no discernable reason other than we need to "establish ourselves." Sigh.

I bought my house last September and now I wish I hadn't.  What felt  like a happy purchase of my first home now feels like a millstone around my neck and now with lower property prices we're probably in negative equity so we can't even sell it.  Having your own home is nice in some ways but I miss the freedom of renting. 

I still don't really see why people are so obsessed with buying their own home.  The levels of home ownership are far higher in the UK than they are in most other European countries, and they all seem to cope.  I knwo it will be years before I can ever buy a house (self employed, won't leave London) and I just get on with it.

I disagree about building more and building up as well.  Certainly in London there are a huge number of empty and derelict properties, and owners, property developers and councils should be encouraged to do something with these before building more houses on greenbelt.

Vicky

Europe has more protection for renters and allows more as well.  Here in Cambridge it is hard to find a place that will allow pets, some three bed houses here even state "no children". 

No redecorating, no planting in the garden, my landlord doesn't care if the house isn't up to date in terms of insulation or if the boiler is efficent.  I would like a decent stove, but there would be no place to put the one that came with the house.

Finally, since I don't have any kids, where do all these people who rent their whole lives live when they retire?  I couldn't afford to keep paying rent after retirement.

Those are some of the reasons I would like to have a place of my own. 

There are benefits to renting of course, some days it seems better than others.

I agree completely Vicky. The US and UK obsession with home ownership is the main reason why so many people are in so much debt and the economy is in its current state. The types of partial ownership or right of occupancy schemes available on the continent and better legal protection for landlords and tenants combined with development of derelict buildings and brownfield sites would do much more to help the housing shortage than building skyscrapers or using up green land! There was a show on Channel 4 recently with a guy going to the neighbourhood in Liverpool where Ringo Starr grew up, and all these huge Victorian houses with gardens and which need only a bit of modernisation are empty; apparently it was a government scheme where if a council showed there wasn't demand for properties over a long period of time they would get a bunch of cash for redevelopment, so the council created a false lack of demand by forcing people out! I'm also a big supporter of Hugh Fearnley–Whittingstall's campaign to get more allotments and general food-growing going on in urban areas. Perhaps the economy will force governments to take this stuff seriously now!

I still don't really see why people are so obsessed with buying their own home.
Vicky

Yeah. This is one of the things that I found weird about the UK when I moved here.

My family have always rented. Then again, they get 2-year leases and rent stabilisation (limits on the amount rents can go up with each lease renewal.) And New York City has its own court dedicated to landlord/tenant disputes.

Maybe if UK laws better protected tenants more people would rent.

Buying a home is seen as a dual purpose action.  Not only is it somewhere to live but it's also an investment for retirement.  The dominant culture in the UK and the US (maybe not New York?) assumes that, by the time someone retires, they will own their own home.

Finally, since I don't have any kids, where do all these people who rent their whole lives live when they retire?  I couldn't afford to keep paying rent after retirement.

I'd guess this is the most common reaction in our culture when we think of retirement, I know it's mine... but as has been pointed out home ownership is much less common in some other countries, how do they manage?  It's not a simplistic as the UK having rubbish laws, a lot of it is how people plan for retirement.

The assumption here is that people will retire owning property and therefore have equity to release, as well as not having to need to pay rent - these assumptions are reflected in most off-the-shelf retirement investment products.  In countries where these assumptions don't hold investments take the need to pay rent into account.

There's no reason why doesn't work in the UK (or US) either but if I was planning on being a long term renter, the only way I'd feel comfortable was if I invested at least the difference between my rent and an equivalent mortgage in some kind of retirement fund (on top of what I already did.)

Hi all

Yes, I agree there is a very popular thinking within the UK of owning your own home. Reading back some articles about this very subject and in a nutshell, 2,3,4 generations ago, houses were family orientated, you grew up there and your parents passed it onto you as an inheritence, thus a house became much more than just bricks and mortar - it became a place of new families and kids and grandkids etc. That mentality has of course stayed with many people and hence wanting their own place.

of course, nowadays with much more choice, and becuase of rising prices, rentals is a good alternative, there will always be some people saying well, it'd 'dead money' and 'your throwing money away and to the landlord' etc - I don't beleive that's true, todays society is much more fluid, jobs are not for life and situations can change very quickly - new promotion mate, but its at X office which is 200 miles away - renting solves that. However, as people mature, then priorities change, having an Asset in your name is difficult enough as it is, so houses and property have become the best way for millions of people to actually own something rather than just 'renting' it - also has the benefit that it 'could' appreciate in value!. Housing is a basic necessity in life, so it's natural enough to want to own it as it's yours.

It really does boil down to your own viewpoint - other countries its the opposite - in Germany renting is considered the best way to go - certainly in Berlin, it's just that in the majority of the richer nations, ordinary people have the ability and chance to own something outright and so they do or at least aim to do!

I think building with a good strategy and with a good degree of sense is much better than just building for the sakes of it. I didn't mean to build anywhere, just bulldoze green belt land etc. to an Extent it already happens, there's many an old building that's been torn down and a block of flats has replaced it, we are short on space, so gradually, newer, more efficient and much better looking property takes it's place. I really like how some buildings keep their olden style facades and inside it's totally modern, yes keep those wherever possible. With long term projections in mind, population increase etc, then hopefully those new regenerated properties will suffice, I have a feeling they won't and instead of using up greenbelt, maybe give planning permission for a 20 storey apartment block instead of just a ten? the USA and Canada does it, so why can't we? even more of a reason is we have much much less square footage/acerage available! the US and Canada have vastly more space and they still build far more upwards!

As ever, theres a multitude of different views - I just like to discuss!

Cheers! DtM! West London & Slough UK!

Buying a home is seen as a dual purpose action.  Not only is it somewhere to live but it's also an I was planning on being a long term renter, the only way I'd feel comfortable was if I invested at least the difference between my rent and an equivalent mortgage in some kind of retirement fund (on top of what I already did.)

That is, in fact, what long-term renters do. I'm fortunate to be on the receiving end of a semi-decent inheritance because my parents took the money that could have gone into purchasing a home and saved/invested it instead. It's a lot easier for me to access needed cash in this form than if I had to go through the process of selling a home in the US.

Of course the propensity to save depends on the individual - the type of renter who would put away money for the long-term is probably the same type of person as the home-buyer who saves up for a large deposit; another type of renter would  not save anything for retirement, similar type of potential homebuyer would search for a 100%+ mortgage and worry about monthly payments later.

In New York there are government provisions for elderly people who have difficulty affording to pay rent, including an automatic rent discount for people over a certain age.   I'm sure similar provisions exist in the UK and in other US states.  Not the most luxurious accomodation I'm sure, but you get what you pay/save up for.

That's another thing that I've been thinking of: If I, as a renter, couldn't afford to pay my rent, my landlord would threaten to evict me. I would then go to my local authority for housing assistance, and take what I can get, perhaps not the nicest home, perhaps not the best neighbourhood, perhaps staying with relatives in overcrowded conditions until I could be relocated. At least I wouldn't be sleeping on the street.

On the other hand, why is it that when homeowners can't pay their mortgages, it's deemed a national problem and the responsibility of government to ensure that they can remain in their homes? Why is it that they are too good for Council Housing but I'm not?

That's another thing that I've been thinking of: If I, as a renter, couldn't afford to pay my rent, my landlord would threaten to evict me. I would then go to my local authority for housing assistance, and take what I can get, perhaps not the nicest home, perhaps not the best neighbourhood, perhaps staying with relatives in overcrowded conditions until I could be relocated. At least I wouldn't be sleeping on the street.

On the other hand, why is it that when homeowners can't pay their mortgages, it's deemed a national problem and the responsibility of government to ensure that they can remain in their homes? Why is it that they are too good for Council Housing but I'm not?

I don't think the fuss now is because it's home owners might lose their homes - this has always happened so why only make a fuss now?  The difference is that a lot of home owners might lose their homes at the same time, which is obviously more worrying.  I'm sure if some quirk of the market resulted in the evictions of a large number of renters the government might take some small interest.

maybe give planning permission for a 20 storey apartment block instead of just a ten?

Because 20 story apartment blocks are horrible, much more dangerous in case of fires than lower buildings, and discriminatory towards the disabled- if the lift breaks, they're stuck. Also, as casawi said, only 2% of the population aspire to live in flats, so rather than tearing down houses to build tall blocks of flats, making do with what already exists is the more responsible option for many reasons. As for population projections, for the most part people are having fewer kids, but bigger houses are being built and bought. Why does a childless professional couple need a 4 bedroom house? More 2-3 bedroom houses built with effective space considerations would be better.

Europe has more protection for renters and allows more as well.  Here in Cambridge it is hard to find a place that will allow pets, some three bed houses here even state "no children". 

No redecorating, no planting in the garden, my landlord doesn't care if the house isn't up to date in terms of insulation or if the boiler is efficent.  I would like a decent stove, but there would be no place to put the one that came with the house.

Finally, since I don't have any kids, where do all these people who rent their whole lives live when they retire?  I couldn't afford to keep paying rent after retirement.

Those are some of the reasons I would like to have a place of my own. 

There are benefits to renting of course, some days it seems better than others.

I think that, in due course, the rental market will begin to change, and landlords will realise that are going have to be more flexible in terms of decorating houses, having long lets, pets allowed etc.  Either that or rents will drop drastically. 

By the time I retire (if that ever happens) well...I suppose that Dan and I will benefit from the fact that our parents have owned their own homes for many years.  That's just the way it goes.   And it wouldn't be like this if I had done what my mum and many others of her generation did, and what many do in other countries, and stayed living in the family home once I had my own family.  Because more people move out of the family home as soon as possible, there is a bigger need for smaller houses.  So, really, it's all our own fault!

Vicky