10 ms·

I'm beginning to look at the housing market in the UK, a bit like the diamond market. Where the market is effectively controlled by 1-2 companies that ensure th

by awjr 10y ago

I'm beginning to look at the housing market in the UK, a bit like the diamond market. Where the market is effectively controlled by 1-2 companies that ensure the release of a controlled quantity into the market at any one time. Developers have a huge land bank upon which they could develop high density cheap accommodation using modern commercial property techniques however this would destroy their market. It's better to release 200k of 'stock' per year in the market to maintain high house prices. It helps that the government has pretty much stripped the ability of councils to build houses, and more importantly, the sale of council houses (right to buy). Bring in the fact none of these houses have a 'no second home' clause means they are bought up as buy to let facilitated by a change in banking regulation in 1996 that allowed buy to let mortgages. So yeah, we have a housing stock problem. Start thinking about it like the diamond business and the similarities are quite scary.

chrisseaton 10y ago
What do people such as yourself have against buy-to-let? It doesn't change the supply level (unless for some reason you need to buy and can't rent). I always thought buy-to-let seemed rather nice and progressive - a good way for ordinary people with a little spare money to invest and build up money for their retirement while their asset still benefits society by being maintained and housing someone. That seems like a great example of sensible British middle-class aspiration.
- djmobley 10y ago
  In the typical UK buy-to-let model, the renter pays more than the landlord's mortgage in rent. The only thing separating a buy-to-let landlord and their tenants is mortgage availability (i.e. Existing wealth and income multiples)
  - mafribe 10y ago
    the renter pays more than And why is this a problem? The landlord takes on administrative hassle, and -- more importantly -- risk, for example - Can't rent out the property. - Property needs to undergo repair. - Tenants don't pay rent, destroy the property. - Liquidity risk: property is not as easy to sell as many other goods, in case of emergency. All of the above happen with a certain probability and that needs to be priced in. The last one is rarely a problem but the others are major considerations. And I have not even mentioned transaction costs for buying/selling a property, not to mention taxation. For these reasons, property typically doesn't have a good ROI, vis-a-vis e.g. investing in shares. A lot of property investors are naive, and would be better off investing in a passive index fund. So in many cases tenants get a good deal. In my experience buy-to-let is lucrative primarily when - Landlord has multiple properties, Economies of scale kicks in. - Landlord has relevant skills (plumber, electrician, or ... tax expert, lawyer) so he can get some jobs that need to be done substantially below market price. - Is physically close to the property, so can visit/check easily. - Has unusually low cost of capital (lower than bank-based mortgages). Ideally more than one of those. only thing separating The landlord has already proven financial stability, while the tenant typically hasn't. Many tenants tend to be young, e.g. students who are by-and-large not yet ready to take on the major responsibility of buying and maintaining a house. My heuristic for when you are ready to buy a property: > 10 years in a stable job, enough savings to put up 1/3 of the price up-front. After-tax income high enough so the mortgage can easily be paid. Good timing for a mortgage when you pay it off a bit before you stop earning (i.e. before retirement). Given a 25 year payment schedule and retirement at 65, age 35-40 would be a great time to get a mortage. Plenty of countries do quite well with mostly-rent based system. German Chancellor Merkel rents, for example.
    - Nursie 10y ago
      Those with a good financial record thus get to crowd out the market and push up prices for those without the record (and mortgage). >>For these reasons, property typically doesn't have a good ROI, vis-a-vis e.g. investing in shares. Have you seen the UK property market recently? This seems a bizarre assertion given market patterns over the last 15-20 years.
      - mafribe 10y ago
        crowd out the market Which market? To a pretty good approximation, most people live in exactly one property. If they own more, they rent out the surplus. (Please don't What-About-XYZ me with exceptional cases like billionaires who own multiple properties and let them stand empty. Yes, that happens, but is marginal.) So the owner/renter fraction doesn't as such directly change the amount of available property. push up prices Rental prices are largely determined by two three things: (1) salary levels of the tenants, (2) what fraction of their salary tenants are willing to spend on their dwelling, and (3) supply/demand of housing. I doubt (1, 2) have changed all that much. The main problem in London is (3) because a lot more people moved to London that new housing was built. Neither have all that much to do with buying vs renting.
        Nursie 10y ago
        >> So the owner/renter fraction doesn't as such directly change the amount of available property. It changes the prices of properties. When existing owners have much easier access to cheap credit than potential owner-occupiers, they compete with these folks and push prices up. There is more demand to purchase. Not more demand for properties to live in, but more demand to purchase. First time and young buyers get priced out. >> Rental prices I wasn't talking about rental prices, I was talking about purchase prices. The result is that instead of younger people paying a mortgage and gaining an asset over time, they are doing that for someone else.
        mafribe 10y ago
        young buyers get priced out It's good that younger people can't easily buy property. They have a substantially higher risk of financial irresponsibility. As dwellings are pretty much the biggest financial investment we make in our lifetimes, care is warrented. Dwellings should be purchased only by those who are very likely to be able to afford this -- even in the event of unplanned and costly life events like illness, children, the dwelling needing costly and unexpected repair etc. That's why stable job with good career prospects, married with children, being able to afford substantial deposit, being older, are good heuristics for who should by property. Giving a mortgage to everyone encourages financial rectlessness, which lead to the financial crisis of 2007–2008.
  - pnutjam 10y ago
    As a US Midwest renter, it's exactly the same over here, sadly.
- awjr 10y ago
  If you look at the issue of 'buy to let' you will see a significant upshift in housing values that started in 1996. http://www.housepricecrash.co.uk/ http://www.housepricecrash.co.uk/ The change that happened there was enabling buy to let mortgages. We're now in situation where upwards of 40% of council houses are buy-to-let owned. In fact you now have a situation where people hitting retirement, buy houses to let to ensure good income. We are now in a situation where generation X will almost not be buying a home for until their late 30s. It's go so bad that St Ives introduced a 'no second homes' clause to all new builds. I actually think there is nothing wrong with buy to let however you need strong rights for tenants as well as rent contol. Something Germany has successfully done and people are quite happy not owning houses and renting for their life knowing they have strong rights to stay with safe rent levels.
  - mafribe 10y ago
    generation X will almost not be buying a home for until their late 30s. Why is that a problem? Assuming the usual repayment schedule of 25-30 years, that means the houses are paid off before retirement, i.e. before they stop having an income. That's exactly how it should be. Most people are too unstable (in many senses of the work) in their 20s to take on a major responsibility like a house. rent contol. This leads to massive misallocation of resources such as illegally subletting at market price. It's quite simple in fact: supply and demand of dwellings needs to be in synch. If you have immigration and/or reduction in family size, you need to build more. For various reasons the obvious solution is typically rejected ... Germany I'd argue that the reason is different, namely that big organisations such as trade unions and (the german version of) pension funds have traditionally provided rental homes at large scale, which kept supply and demand in check. Cf sozialer Wohnungsbau [1]. [1] https://de.wikipedia.org/wiki/Sozialer_Wohnungsbau https://de.wikipedia.org/wiki/Sozialer_Wohnungsbau
    - deleted 10y ago
      [deleted]
  - rbehrends 10y ago
    > I actually think there is nothing wrong with buy to let however you need strong rights for tenants as well as rent contol. Something Germany has successfully done and people are quite happy not owning houses and renting for their life knowing they have strong rights to stay with safe rent levels. Germany only has "soft" rent controls. Their purpose is not to actually keep rents low, but to slow their increase so the market has time to react by building new homes. The rent index that municipalities maintain for that purpose also helps with keeping rents transparent, but that's more of a side benefit.
rwmj 10y ago
If you're looking for a new house in the UK, then you're going to get ripped off. Poor quality construction, too many tiny rooms, no outside space, design deficiencies which mean the house is unlikely to last 30 years without major reconstruction, an insurance policy that's not worth the paper its written on, an emerging scandal in leasehold contracts. Buy an old house, preferably a Victorian terraced house or a solidly constructed 1930s-1960s council house.
- chrisseaton 10y ago
  New build houses in the UK all seem to have those crazy American-style hollow walls - that's the worst thing about them.
  - rwmj 10y ago
    Also similar to American houses, they now are all built around wooden frames. That's cheap and easy (the frames are made in a factory and just screwed together on site), but in a wet and windy island it's a very bad idea. Any significant roofing leak which isn't fixed immediately will destroy the house, and helpfully these wooden framed houses are dressed in fake brick and plastic cladding which cover up evidence of leaks.
    - mason240 10y ago
      Having lived in American houses for about 30 years now, leaking isn't an issue if you have a good roof that is maintained. I live in the north, an even worse than rain we get lots of snow that leads to "ice dams" forming on roofs. Even with that we don't have problems with leaking.
      - rwmj 10y ago
        Absolutely, if you have a good roof which is maintained, not the cheapest possible roof which goes unmaintained because naive buyers think that because it's a new house with an "insurance" policy they will never need to maintain anything.
spangry 10y ago
There's an easy solution to the developer land-banking problem: levy a tax on the unimproved value of land. Most taxes have some sort of efficiency cost (e.g. income tax means people work less hours than they otherwise would have). Recent modelling by the Australian Treasury suggests that a LVT (set at a sensible rate) actually has a negative efficiency cost: that is, it increases economic efficiency, resulting in higher levels of economic output. Modelling: http://i.imgur.com/NxWo7DP.png http://i.imgur.com/NxWo7DP.png EDIT: and just for some general background - https://en.wikipedia.org/wiki/Georgism https://en.wikipedia.org/wiki/Georgism

by awjr 10y ago

chrisseaton 10y ago

What do people such as yourself have against buy-to-let? It doesn't change the supply level (unless for some reason you need to buy and can't rent). I always thought buy-to-let seemed rather nice and progressive - a good way for ordinary people with a little spare money to invest and build up money for their retirement while their asset still benefits society by being maintained and housing someone. That seems like a great example of sensible British middle-class aspiration.

djmobley 10y ago
In the typical UK buy-to-let model, the renter pays more than the landlord's mortgage in rent. The only thing separating a buy-to-let landlord and their tenants is mortgage availability (i.e. Existing wealth and income multiples)
- mafribe 10y ago
  the renter pays more than And why is this a problem? The landlord takes on administrative hassle, and -- more importantly -- risk, for example - Can't rent out the property. - Property needs to undergo repair. - Tenants don't pay rent, destroy the property. - Liquidity risk: property is not as easy to sell as many other goods, in case of emergency. All of the above happen with a certain probability and that needs to be priced in. The last one is rarely a problem but the others are major considerations. And I have not even mentioned transaction costs for buying/selling a property, not to mention taxation. For these reasons, property typically doesn't have a good ROI, vis-a-vis e.g. investing in shares. A lot of property investors are naive, and would be better off investing in a passive index fund. So in many cases tenants get a good deal. In my experience buy-to-let is lucrative primarily when - Landlord has multiple properties, Economies of scale kicks in. - Landlord has relevant skills (plumber, electrician, or ... tax expert, lawyer) so he can get some jobs that need to be done substantially below market price. - Is physically close to the property, so can visit/check easily. - Has unusually low cost of capital (lower than bank-based mortgages). Ideally more than one of those. only thing separating The landlord has already proven financial stability, while the tenant typically hasn't. Many tenants tend to be young, e.g. students who are by-and-large not yet ready to take on the major responsibility of buying and maintaining a house. My heuristic for when you are ready to buy a property: > 10 years in a stable job, enough savings to put up 1/3 of the price up-front. After-tax income high enough so the mortgage can easily be paid. Good timing for a mortgage when you pay it off a bit before you stop earning (i.e. before retirement). Given a 25 year payment schedule and retirement at 65, age 35-40 would be a great time to get a mortage. Plenty of countries do quite well with mostly-rent based system. German Chancellor Merkel rents, for example.
  - Nursie 10y ago
    Those with a good financial record thus get to crowd out the market and push up prices for those without the record (and mortgage). >>For these reasons, property typically doesn't have a good ROI, vis-a-vis e.g. investing in shares. Have you seen the UK property market recently? This seems a bizarre assertion given market patterns over the last 15-20 years.
    - mafribe 10y ago
      crowd out the market Which market? To a pretty good approximation, most people live in exactly one property. If they own more, they rent out the surplus. (Please don't What-About-XYZ me with exceptional cases like billionaires who own multiple properties and let them stand empty. Yes, that happens, but is marginal.) So the owner/renter fraction doesn't as such directly change the amount of available property. push up prices Rental prices are largely determined by two three things: (1) salary levels of the tenants, (2) what fraction of their salary tenants are willing to spend on their dwelling, and (3) supply/demand of housing. I doubt (1, 2) have changed all that much. The main problem in London is (3) because a lot more people moved to London that new housing was built. Neither have all that much to do with buying vs renting.
      - Nursie 10y ago
        >> So the owner/renter fraction doesn't as such directly change the amount of available property. It changes the prices of properties. When existing owners have much easier access to cheap credit than potential owner-occupiers, they compete with these folks and push prices up. There is more demand to purchase. Not more demand for properties to live in, but more demand to purchase. First time and young buyers get priced out. >> Rental prices I wasn't talking about rental prices, I was talking about purchase prices. The result is that instead of younger people paying a mortgage and gaining an asset over time, they are doing that for someone else.
        mafribe 10y ago
        young buyers get priced out It's good that younger people can't easily buy property. They have a substantially higher risk of financial irresponsibility. As dwellings are pretty much the biggest financial investment we make in our lifetimes, care is warrented. Dwellings should be purchased only by those who are very likely to be able to afford this -- even in the event of unplanned and costly life events like illness, children, the dwelling needing costly and unexpected repair etc. That's why stable job with good career prospects, married with children, being able to afford substantial deposit, being older, are good heuristics for who should by property. Giving a mortgage to everyone encourages financial rectlessness, which lead to the financial crisis of 2007–2008.
- pnutjam 10y ago
  As a US Midwest renter, it's exactly the same over here, sadly.
awjr 10y ago
If you look at the issue of 'buy to let' you will see a significant upshift in housing values that started in 1996. http://www.housepricecrash.co.uk/ http://www.housepricecrash.co.uk/ The change that happened there was enabling buy to let mortgages. We're now in situation where upwards of 40% of council houses are buy-to-let owned. In fact you now have a situation where people hitting retirement, buy houses to let to ensure good income. We are now in a situation where generation X will almost not be buying a home for until their late 30s. It's go so bad that St Ives introduced a 'no second homes' clause to all new builds. I actually think there is nothing wrong with buy to let however you need strong rights for tenants as well as rent contol. Something Germany has successfully done and people are quite happy not owning houses and renting for their life knowing they have strong rights to stay with safe rent levels.
- mafribe 10y ago
  generation X will almost not be buying a home for until their late 30s. Why is that a problem? Assuming the usual repayment schedule of 25-30 years, that means the houses are paid off before retirement, i.e. before they stop having an income. That's exactly how it should be. Most people are too unstable (in many senses of the work) in their 20s to take on a major responsibility like a house. rent contol. This leads to massive misallocation of resources such as illegally subletting at market price. It's quite simple in fact: supply and demand of dwellings needs to be in synch. If you have immigration and/or reduction in family size, you need to build more. For various reasons the obvious solution is typically rejected ... Germany I'd argue that the reason is different, namely that big organisations such as trade unions and (the german version of) pension funds have traditionally provided rental homes at large scale, which kept supply and demand in check. Cf sozialer Wohnungsbau [1]. [1] https://de.wikipedia.org/wiki/Sozialer_Wohnungsbau https://de.wikipedia.org/wiki/Sozialer_Wohnungsbau
  - deleted 10y ago
    [deleted]
- rbehrends 10y ago
  > I actually think there is nothing wrong with buy to let however you need strong rights for tenants as well as rent contol. Something Germany has successfully done and people are quite happy not owning houses and renting for their life knowing they have strong rights to stay with safe rent levels. Germany only has "soft" rent controls. Their purpose is not to actually keep rents low, but to slow their increase so the market has time to react by building new homes. The rent index that municipalities maintain for that purpose also helps with keeping rents transparent, but that's more of a side benefit.

rwmj 10y ago

If you're looking for a new house in the UK, then you're going to get ripped off. Poor quality construction, too many tiny rooms, no outside space, design deficiencies which mean the house is unlikely to last 30 years without major reconstruction, an insurance policy that's not worth the paper its written on, an emerging scandal in leasehold contracts. Buy an old house, preferably a Victorian terraced house or a solidly constructed 1930s-1960s council house.

chrisseaton 10y ago
New build houses in the UK all seem to have those crazy American-style hollow walls - that's the worst thing about them.
- rwmj 10y ago
  Also similar to American houses, they now are all built around wooden frames. That's cheap and easy (the frames are made in a factory and just screwed together on site), but in a wet and windy island it's a very bad idea. Any significant roofing leak which isn't fixed immediately will destroy the house, and helpfully these wooden framed houses are dressed in fake brick and plastic cladding which cover up evidence of leaks.
  - mason240 10y ago
    Having lived in American houses for about 30 years now, leaking isn't an issue if you have a good roof that is maintained. I live in the north, an even worse than rain we get lots of snow that leads to "ice dams" forming on roofs. Even with that we don't have problems with leaking.
    - rwmj 10y ago
      Absolutely, if you have a good roof which is maintained, not the cheapest possible roof which goes unmaintained because naive buyers think that because it's a new house with an "insurance" policy they will never need to maintain anything.

spangry 10y ago

There's an easy solution to the developer land-banking problem: levy a tax on the unimproved value of land. Most taxes have some sort of efficiency cost (e.g. income tax means people work less hours than they otherwise would have). Recent modelling by the Australian Treasury suggests that a LVT (set at a sensible rate) actually has a negative efficiency cost: that is, it increases economic efficiency, resulting in higher levels of economic output. Modelling: http://i.imgur.com/NxWo7DP.png http://i.imgur.com/NxWo7DP.png EDIT: and just for some general background - https://en.wikipedia.org/wiki/Georgism https://en.wikipedia.org/wiki/Georgism