4 ms·

The problem I see with this article and arguably all classical economics is that housing as a market is lead by irrational concerns (feelings), you could list m

The problem I see with this article and arguably all classical economics is that housing as a market is lead by irrational concerns (feelings), you could list many of them... for example I’ve bought a 1960 absolutely disgusting council flat for probably too much money but once renovations are done up I should be able to rent the rooms for near £2800 while the mortgage is £1600 per month. A Victorian house in the same area barely rents for more (£3400-600) but the mortgage with a 10% deposit would lose you money renting it out. This makes zero sense, but regularly happens. Also property is not fungible as no two properties or areas are the same.

djmobley 7y ago
Is that £1,600/month the cost of a buy-to-let mortgage, which you would need if you planned to rent out the property? You would also need to factor in costs like landlords’ insurance, letting agents’ fees, the risk of non-payment of rent, etc.
- andy_ppp 7y ago
  Sure but those costs are applied on top of both properties. I doubt you could get a buy to let mortgage on a Victorian house in London unless you had a 60% deposit.
tonyedgecombe 7y ago
Some of that will be down to the clients, margins get higher the further down market you go. A family in a house is more likely to treat it as a home than someone in a flat who expects to move in 12 months.
nabla9 7y ago
Economists talk about aggregates. Layman thinks individual houses and their differences. The differences in individual houses smooth over in large scale. The context of the article is whole economy at macro level. They specially mention how they ignore even regional differences.
- Retric 7y ago
  > The differences in individual houses smooth over in large scale. Not really. In aggregate you get the same discrepancy between rental prices and purchase prices in many ways including different areas. https://smartasset.com/mortgage/price-to-rent-ratio-in-us-cities https://smartasset.com/mortgage/price-to-rent-ratio-in-us-ci.... That exists because renters and buyers have measurably different desires, for example buyers want more space than renters as transaction costs are higher. This is often true when it’s the same person is considering buying vs renting. Ignoring those differences does not smooth them out, it just ignores them.
  - nabla9 7y ago
    As they say in the article. Can you explain how these differences are relevant to the subject of the article?
    - Retric 7y ago
      Sure, when increasing a regions housing supply it matters what kind of housing is being added. Adding single family homes in the suburbs is different than a 60 story apartment building down town. The markets responds differently to price drops. Land lords care about occupancy and generally respond more quickly than people selling their homes who will wait longer.
- andy_ppp 7y ago
  I don’t understand how this explains the irrational nature of accommodation purchases. Just because economists do X does not make it relatable in the real world.
  - nabla9 7y ago
    I don't see how this article should explain what you want it to explain because it's not related to the subject at all. If you are not interested in national monetary policy policy and it's relation to aggregate house prices this article is not for you. They talk about aggregate house prices in national level and only there. Their asset pricing model seems to explain prices in in England and Wales much better than traditional dividend discount model. Real house prices for last 20 years be explained almost entirely by lower interest rates.
kzrdude 7y ago
All economical decisions have some degree of irrationality like that. Behavioral economics is making strides, but the old models still have a huge mind share.
TrackerFF 7y ago
Not sure how much renovations cost in the UK, but here in Norway they can be ridiculously expensive IMO. A -7 m^2 bathroom alone can easily cost you £30k-£40k when using pros - and a bathroom needs to get renovated every 10-15 years. I think there's good money in renting and flipping, but in the long term there's a lot of costs involved, even if you're quite the handyman that can fix most things yourself.
- lotsofpulp 7y ago
  That is crazy to me. Watch a few hours of YouTube videos, and one can do it yourself a bathroom 10 times for that cost in the USA, and you’d be an expert at it by the end. Also, I don’t see why a bathroom needs to be renovated every 10 to 15 years. Cast iron tub and porcelain toilets and sinks don’t go bad.
  - jfk13 7y ago
    > I don’t see why a bathroom needs to be renovated every 10 to 15 years Yes, that struck me as crazy, too. Some minor maintenance and redecorating from time to time, sure. But a multi-thousand-pound renovation every decade? Not if it was built decently in the first place, and cared for sensibly through the years.
lordnacho 7y ago
I don't get this. Why would you lose money renting out a place for more money?
lazyjones 7y ago
> This makes zero sense, but regularly happens. It makes a lot of sense in many ways. A house would yield higher rents and be profitable just as easily if demand was similar. But not too many people are willing or able to pay such high rents, regardless of whether it's deserved or not. Try to do the same with a very large flat or penthouse, yields will also be lower than for your council flat.

djmobley 7y ago

Is that £1,600/month the cost of a buy-to-let mortgage, which you would need if you planned to rent out the property? You would also need to factor in costs like landlords’ insurance, letting agents’ fees, the risk of non-payment of rent, etc.

andy_ppp 7y ago
Sure but those costs are applied on top of both properties. I doubt you could get a buy to let mortgage on a Victorian house in London unless you had a 60% deposit.

tonyedgecombe 7y ago

Some of that will be down to the clients, margins get higher the further down market you go. A family in a house is more likely to treat it as a home than someone in a flat who expects to move in 12 months.

nabla9 7y ago

Economists talk about aggregates. Layman thinks individual houses and their differences. The differences in individual houses smooth over in large scale. The context of the article is whole economy at macro level. They specially mention how they ignore even regional differences.

Retric 7y ago
> The differences in individual houses smooth over in large scale. Not really. In aggregate you get the same discrepancy between rental prices and purchase prices in many ways including different areas. https://smartasset.com/mortgage/price-to-rent-ratio-in-us-cities https://smartasset.com/mortgage/price-to-rent-ratio-in-us-ci.... That exists because renters and buyers have measurably different desires, for example buyers want more space than renters as transaction costs are higher. This is often true when it’s the same person is considering buying vs renting. Ignoring those differences does not smooth them out, it just ignores them.
- nabla9 7y ago
  As they say in the article. Can you explain how these differences are relevant to the subject of the article?
  - Retric 7y ago
    Sure, when increasing a regions housing supply it matters what kind of housing is being added. Adding single family homes in the suburbs is different than a 60 story apartment building down town. The markets responds differently to price drops. Land lords care about occupancy and generally respond more quickly than people selling their homes who will wait longer.
andy_ppp 7y ago
I don’t understand how this explains the irrational nature of accommodation purchases. Just because economists do X does not make it relatable in the real world.
- nabla9 7y ago
  I don't see how this article should explain what you want it to explain because it's not related to the subject at all. If you are not interested in national monetary policy policy and it's relation to aggregate house prices this article is not for you. They talk about aggregate house prices in national level and only there. Their asset pricing model seems to explain prices in in England and Wales much better than traditional dividend discount model. Real house prices for last 20 years be explained almost entirely by lower interest rates.

kzrdude 7y ago

All economical decisions have some degree of irrationality like that. Behavioral economics is making strides, but the old models still have a huge mind share.

TrackerFF 7y ago

Not sure how much renovations cost in the UK, but here in Norway they can be ridiculously expensive IMO. A -7 m^2 bathroom alone can easily cost you £30k-£40k when using pros - and a bathroom needs to get renovated every 10-15 years. I think there's good money in renting and flipping, but in the long term there's a lot of costs involved, even if you're quite the handyman that can fix most things yourself.

lotsofpulp 7y ago
That is crazy to me. Watch a few hours of YouTube videos, and one can do it yourself a bathroom 10 times for that cost in the USA, and you’d be an expert at it by the end. Also, I don’t see why a bathroom needs to be renovated every 10 to 15 years. Cast iron tub and porcelain toilets and sinks don’t go bad.
- jfk13 7y ago
  > I don’t see why a bathroom needs to be renovated every 10 to 15 years Yes, that struck me as crazy, too. Some minor maintenance and redecorating from time to time, sure. But a multi-thousand-pound renovation every decade? Not if it was built decently in the first place, and cared for sensibly through the years.

lordnacho 7y ago

I don't get this. Why would you lose money renting out a place for more money?

lazyjones 7y ago

> This makes zero sense, but regularly happens. It makes a lot of sense in many ways. A house would yield higher rents and be profitable just as easily if demand was similar. But not too many people are willing or able to pay such high rents, regardless of whether it's deserved or not. Try to do the same with a very large flat or penthouse, yields will also be lower than for your council flat.