In quite a few parts of the UK, it's a renter's market as rental property supply outstrips demand, so it might not be quite as desperate as you fear.Mr Q wrote:One key concern should be the impact on the rental market.
House prices crashing - good or bad?
Sure - but how do you engineer that? The problem with a bubble is that when its overinflated, it's prone to bursting. In particular, when asset prices start going backwards, then while long term investors (particularly those who've bought a home to live in) will likely stick through it, short term investors will want to sell at the first sign that prices are going down. In the presence of a "slow deflation", you won't see a leisurely stroll to the exit - they'll all run for it, because those investors have an interest at selling at the top, not the bottom of the cycle. Hence it becomes a rather quicker tumble in the market. The challenge for such a policy is what people expect to happen tomorrow. If tomorrow looks worse than today, they'll sell today. Equally in such an environment, people will be willing to buy less today as well - what potential homeowner is going to want to take out a mortgage on a property that'll lose value in the short term? You're just going to wait for the bottom of the market anyway.Sput wrote:Perhaps a slow deflation over the next 6 years then.
Of course, it's a slightly different story if you're talking about a deflation in real terms, where the rate of increase in property values simply slows down - that's not going to be so bad, and indeed I suspect that'll be the eventual outcome if the Bank of England keeps its head - but then that's not likely to substantively address the initial issue of people struggling to buy into the market, at least not immediately.
In which case, then this is kind of a non-issue. I understand the desire of people to get on the property ladder (in the metaphorical sense - not the TV show), but the immediate priority is to have a roof over one's head. If the rental market is favourable, then there's no doubt in my mind that people should simply rent and wait until the time is right for them to enter the property market. Where the rental market is soft, and there's a large number of investment properties not making any return to their owners, then I think inevitably you'll see the property values in those areas stagnate or fall anyway. All else being equal, a lack of rental demand over time translates into a lack of investment demand, which will take the heat out of house prices.Neil Green wrote:In quite a few parts of the UK, it's a renter's market as rental property supply outstrips demand, so it might not be quite as desperate as you fear.Mr Q wrote:One key concern should be the impact on the rental market.
I think a crash is inevitable - and to all those who say it will never happen, well it's happened before. The 3 bedroom bungalow my parents own was £85,000 when new in 1986. When they bought it in 1994 it was worth £65,000 - the crash of the late 80's meant at 8 years old it was only worth 75% of it's value when new. But it's present value is ridiculous - a seller with time to waste could get the better part of £300,000 for their property, and even if sold 'cheap' for a quick sale they could still easily price in the region of £220,000-£250,000). With all respect to my parent's house, a 3 bedroom detatched on a housing estate is not a property which should be worth over a quarter of a million pounds in 2008 - it just isn't.
Property changing hands at this kind of stupid money is not a sustainable solution. The only people who benefit from it are those coming out of the property ladder and downsizing. Those still on the ladder find that any property they wish to progress up to has increased in value by the same ridiculous proportions therefore have no more leverage than they did 10 years ago, and the first time buyer market feels the crunch.
Firstly we had couples no longer setting their sights on owning a house, but a flat. Then the mortgage for a flat became horrendous. Then people stopped being seriously interested in buying so looked into renting, hence the boom in buy-to-let a few years ago. But now even the rent on anything nice is astronomically high, so renting a flat is now beyond what most can consider, so people are looking into renting rooms - returning housing space to Edwardian levels.
I personally had my sights set on renting some studio apartments towards the end of last year. But even though I'm paid well above the minimum wage, I just couldn't make the figures add up and so my permanent relocation back to Plymouth will be a room in a shared house, when 15 years ago the same money I'm paying in rent (reducing for inflation) would have paid the mortgage on a small house.
Meanwhile, back on the property ladder, fewer and fewer new people joining which means those allready on it struggle to move up.
What's the inevitable result - IT WILL CRASH!!! Because it has before. Because wiping tens of thousands of pounds of off property prices is the only way to restore order so that people can afford property.
Those who bought into property up to a few years ago and end up in negative equity have my sympathy - but those who are so caught up in the British obsessive belief that renting is a dirty word and owning your own house is a sign of worthiness and continue to find ways to own now - taking out 100% mortgages, shared equity mortgages, or owing a ridiculous sum of money just to own a studio apartment have no sympathy from me at all - you're all just stupid.
And when the inevitable crash happens, I'll swoop in and have myself a nice little 2 bed semi on an afordable mortgage. Until then, I'll be happy just to rent.
[/TWO PENNETH MODE]
Property changing hands at this kind of stupid money is not a sustainable solution. The only people who benefit from it are those coming out of the property ladder and downsizing. Those still on the ladder find that any property they wish to progress up to has increased in value by the same ridiculous proportions therefore have no more leverage than they did 10 years ago, and the first time buyer market feels the crunch.
Firstly we had couples no longer setting their sights on owning a house, but a flat. Then the mortgage for a flat became horrendous. Then people stopped being seriously interested in buying so looked into renting, hence the boom in buy-to-let a few years ago. But now even the rent on anything nice is astronomically high, so renting a flat is now beyond what most can consider, so people are looking into renting rooms - returning housing space to Edwardian levels.
I personally had my sights set on renting some studio apartments towards the end of last year. But even though I'm paid well above the minimum wage, I just couldn't make the figures add up and so my permanent relocation back to Plymouth will be a room in a shared house, when 15 years ago the same money I'm paying in rent (reducing for inflation) would have paid the mortgage on a small house.
Meanwhile, back on the property ladder, fewer and fewer new people joining which means those allready on it struggle to move up.
What's the inevitable result - IT WILL CRASH!!! Because it has before. Because wiping tens of thousands of pounds of off property prices is the only way to restore order so that people can afford property.
Those who bought into property up to a few years ago and end up in negative equity have my sympathy - but those who are so caught up in the British obsessive belief that renting is a dirty word and owning your own house is a sign of worthiness and continue to find ways to own now - taking out 100% mortgages, shared equity mortgages, or owing a ridiculous sum of money just to own a studio apartment have no sympathy from me at all - you're all just stupid.
And when the inevitable crash happens, I'll swoop in and have myself a nice little 2 bed semi on an afordable mortgage. Until then, I'll be happy just to rent.
[/TWO PENNETH MODE]
I think there are / have been several factors at work.
Supply and demand is the crucial one. Imo it all kicked off with the sale of council properties to tenants. People who had lived in their houses for years got them for a song. I know someone who paid £12,000 for a property worth [at the time] £75,000, then sold it a couple of years later and went back into rented.
Less council houses available contributed to the increase in [already large] council house waiting lists. Some couldn't wait [relationship breakdown etc.] and went into private accommodation, thus boosting pressure on that sector. The increase in the number of people attending university was another contributor. Also, it's well known that a lot more people are choosing to live alone these days - the market has responded by building more one and two bedroomed flats. Unfortunately for students or someone on a low wage these are often in prime locations and unaffordable.
A few years ago people recognised what was happening and started to snap up lower price properties in order to rent them out. That further cut the supply drastically.
To redress the balance more houses need to be available and of the right type. The Government has embarked upon an ambitious housebuilding programme [much of which is opposed by environmental campaigners of course] and private builders have been snapping up land too. As a possible sign that they are over-pricing I can tell you that a house I [and another] were going to buy a year ago has dropped in price because people just can't afford what they were charging. I watched a programme a few months ago about the boom in apartments on the riverside in Leeds. One apartment had gone up for sale for over £200,000 but was reduced to [sorry this is from memory, might be a bit out] around £130,000. Whatever, it was a BIG drop from the purchase price.
Supply and demand is the crucial one. Imo it all kicked off with the sale of council properties to tenants. People who had lived in their houses for years got them for a song. I know someone who paid £12,000 for a property worth [at the time] £75,000, then sold it a couple of years later and went back into rented.
Less council houses available contributed to the increase in [already large] council house waiting lists. Some couldn't wait [relationship breakdown etc.] and went into private accommodation, thus boosting pressure on that sector. The increase in the number of people attending university was another contributor. Also, it's well known that a lot more people are choosing to live alone these days - the market has responded by building more one and two bedroomed flats. Unfortunately for students or someone on a low wage these are often in prime locations and unaffordable.
A few years ago people recognised what was happening and started to snap up lower price properties in order to rent them out. That further cut the supply drastically.
To redress the balance more houses need to be available and of the right type. The Government has embarked upon an ambitious housebuilding programme [much of which is opposed by environmental campaigners of course] and private builders have been snapping up land too. As a possible sign that they are over-pricing I can tell you that a house I [and another] were going to buy a year ago has dropped in price because people just can't afford what they were charging. I watched a programme a few months ago about the boom in apartments on the riverside in Leeds. One apartment had gone up for sale for over £200,000 but was reduced to [sorry this is from memory, might be a bit out] around £130,000. Whatever, it was a BIG drop from the purchase price.