The video [1] was interesting, although the dead comment seemed to completely ignore the video's [1] main point, where Louis talks about a hypothesis [2] where in New York City there may be an incentive structure between real estate investors and banks which is creating a market failure. The hypothesis [2] is that a building's assessed value is based on the rental prices that the landlord asks for even if nobody will reasonably pay those rents. The hypothesis speculates that, if a building's assessed value is lowered, it could trigger conditions in loan contracts that penalize the landlord or investor. Because of this, there may be an incentive for the landlord to keep buildings vacant instead of lowering their prices to market rate.
[1] https://www.youtube.com/watch?v=xfHQZj3_TX4&t=580s
[2] https://www.reddit.com/r/nyc/comments/innhah/nearly_twothird...
The factors that primarily control pricing in the housing market are supply and demand.
In Seattle, London, Los Angeles and elsewhere demand has risen steadily but supply has not. This causes prices to increase sharply.
The solution is to increase the housing supply. If the government removes regulations preventing developers from building new houses and apartments, many more will be built and prices will drop.
Many young people prefer to live in inexpensive high density housing. I remember looking at renting an apartment without a kitchen (there was a big shared kitchen for the whole floor) and without its own bathroom in my early twenties. Monthly rental price on this is around $300 per month as compared to $1,600 for a single bedroom apartment. Why aren’t there more of these? Government regulation prevents them from being built.
Government permitting processes take years to go through and cost millions of dollars for big new apartment buildings or for residential developments. If we lighten / remove these regulations, housing supply will decrease dramatically.
If you don’t want housing investors bidding up housing prices, then allow the supply to continuously increase. This will continuously drive down prices and no investors will want to buy.
Here in Australia we are seeing remarkable growth in property prices over the last quarter!
Sydney prices grew at $AU1200 per day!
In the residential housing market there just isn’t enough supply!
I can say anecdotally that’s younger buyers are being accompanied by their parents, who are assisting with finance.
Its well observed that people are queuing down the street to inspect properties, and literally writing offers out on the kitchen table!
Properties are selling on minutes, with prices being pushed up by desperate buyers with access to finance from loans with low interest rates with deposits from their parents!
When you take a 20 or 30 year mortgage, what’s $20 or $30k here and there!
That’s what’s driving prices up!
Supply and demand!
The owner of one property owns 8 other newly built homes within the city. The 2nd property is owned by a person that has 14 other properties listing them as the registered owner.
I miss the people that lived in the homes that were razed to make way for these million dollar blights on the neighborhood.
These vampire homes just accrue damage (whether the glass garage door panes start shattering, or the siding starts going, or the owner decides the landscaping should be ripped out and redone again for god knows what reason?) followed by the sons or cousins of the property owners dealing with it a few weeks later.
No value is gained by these vagrant properties existing. Less people live in my neighborhood due to it, housing is harder to find, the city and county have less reason to invest in making local transit infrastructure better.
We need to tax vagrant properties. USPS has the data on which units are not collecting their mail on a daily basis, SPU/City Light knows who is not putting their trash out or using any power or water, and voter registration records are public. We could easily start assessing a 3 cent per square foot daily vagrancy tax until residency is established at the formerly vagrant address.
This is the issue exactly. A commercial mortgage lender will insist on a certain maximum Loan-to-Value ratio. The value of the property is directly related to the long-term income that it generates (i.e., the net present value of all future cash flows). If the amounts of cash flows go down, then the value of the property goes down and the loan-to-value ratio goes up. In a commercial loan, the lender can often call the loan due at certain times during the term of the loan for any reason. One big reason to do so is if the loan-to-value ratio goes up beyond the level that the lender was comfortable with. Refinancing in such a circumstance could be very expensive. Thus, it may make more sense for an owner to keep a property vacant and lose money temporarily than to take on a tenant at a lower rent and possibly cause the lender to call the loan.
As it turns out, after 18 months, as the city comes back after the pandemic, the vacancies are now suddenly much lower. The building for 1/3 full for years.
Forgive me since I’m American, but wasn’t getting rid of foreigners taking jobs one of the selling points of Brexit?
It also exposed the loss of influence the UK had in the EU. Many provisions were carved out for them in the 80s. But when it came to the EC the EU was not making any exceptions for them this time.
Note that laurent92 talks about "Englishmen" not "British voices". That's incredibly telling.
- Staff at a restaurant is £8 an hour, that is minimum wage.
- Expect two shifts far apart, around 11am-2pm and 7pm-11pm.
- Work on Saturday and Sunday and some of the week. You will never know more than a few days ahead when you are expected to work.
It was a lie, EU citizens in the UK earn significantly more than the locals. If I wanted to be a member of the underclass, say a cleaner, I’d be in Germany, where I wouldn't have to pay 6K£ for pregnancy and 12K£pa to send a child to a half-decent primary school.
EU citizens living in the UK on average earn a lot more than the locals and are better qualified. So saying that migration from the EU was driving down wages was indeed a lie.
But even if we assume that the UK had been swarmed by millions of illiterate cretins, there isn’t any evidence anywhere in the world that immigration suppresses wages permanently (there may be some temporary short term effects, but before, you say anything, the UK has been in the EU for decades, so we are indeed in the long run).
Name a single country that succeeded to leave EU without retaliation from said EU and I’ll eat my hat. EU is not a choice for most of us on the continent. We’re not free to leave, and we were manipulated into joining.
Long story short: The simple fact that it required not 1 but 3 blatant-majority votes for elites to register that yes, UK people wanted to leave EU, is a sufficient proof that EU is not listening to the most numerous.
And let’s not even talk about the quantity of funding, sponsorship and 4x3 billboards it took to swerve Scotland’s, Wales and NI in favor of EU. Manipulation is in plain sight here.
That's what the media like to repeat, but I would suggest that you ignore them and take a broader view.
Reality is that both the UK and EU government failed to keep the population happy and continuously messed up. So much so, that the majority of people voted to leave the EU as they were discontent with their current situation. As someone who lives in the UK is that very little really has changed yet pre-brexit and post-brexit. It turns out outside of some temporary instabilities, things aren't doom and gloom. They're still crap like before though.
The only place where housing was really affordable in the UK was in Northern Ireland and sure enough, it's still very affordable in Northern Ireland.
General rule for getting on the housing ladder in the UK is the best time to buy was yesterday, the next best is now. Even if the housing market has a price crisis. It will never return to pricing to match up a decade ago; so don't live a fantasy waiting for it.
Population growth and lower family formation rates - which is hard to blame on anyone but women actually having a choice for their own lives - are much bigger reasons for price increases than AirBNB and second homes pretty much everywhere outside of the most touristy vacation destinations.
But we have fools that celebrate rising house prices because their nominal net worth went up
Everyone wants prices to remain the same forever. That takes a neutral population growth or more supply
The optimal situation is for cars and houses to be as cheap as possible relative to earnings, that's what we call economic growth and improved quality of life.
The real economy is the one that fulfills people's needs. Real-estate investment is parasitic to the real economy - it locks money away and artificially increases the price of a basic necessity. This has always been recognized in even basic economics with the concept of "rent-seeking" - unproductive activity that still makes money, such as literally charging rent.
The idea that holding a property and doing absolutely nothing with it is an "investment" is absurd. The only people who would buy that home are those who want to live in it or who want to rent it out to someone who wants to live in it.
No I wouldn't make that "investment". I would just rent the property out without "investing" the property.
And I've noticed that in the US, the observations that cars are typically depreciating assets never really stopped people from buying them.
That's exactly the problem right there. A house can be a place to live or an investment, but not both. I myself think it's a bit to silly to spend labour and resources building a concrete box for the latter purpose, so I'd much rather houses fulfill their purpose as homes for people to live in.
Certainly a place to live can also be an investment.
Just like a work of art can also be an investment.
And a plumbing business can be an investment and also fix your pipes.
If houses are to be an investment, their prices will keep rising and they become unaffordable. When consumer goods themselves are an investment, standards of living fall
The self correction should actually be the house price crashing, but the UK government consistently props up, and pumps, the market.
The average house price in Salcombe (Devon) is £950,000! That's 30 average salaries.
Interest rates have been kept low, which drives real property prices up. Everyone intuitively knows that collapse or high inflation is the endgame, so money flocks to property, which drives up demand.
The issue isn’t the coffee shop in the fishing village, it’s that the fishermen are selling real estate now and nobody actually lives in the village.
You can see this in many places. Lake George, NY is a great example - beautiful village, great location, but can only support tshirt shops from Memorial Day to Labor Day. Manhattan is the same way — the Lower East Side is like a museum of what Manhattan was like, with $2M condo apartments being randomly dropped in and 1/3 of the storefronts vacant.
However, make no mistake. The problem isn't money. Even if you buy your house with Bitcoin you will run into the same problem. The problem is that location is a a monopoly. You can tax it or let it run wild.
My former mentor bought a house on Nantucket for $150k in 1990, sold for $3.5M earlier this year. That appreciation isn’t due to inflation or the constrained supply of homes — it’s always been constrained. It’s due to increased demand fueled by excess capital.
There’s no money in traditional banking. Even with negligible interest, the spread is very tight. The only way to compete is with volume, aggregation and fee for service, and the only way to get volume is to lower standards.
IMO, we’re in an economic time period similar to the 1860’s.
That is literally a luxury good with a fixed supply. As the # of people who desire that good has sky rocketed generation to generation, of course the price went up.
There are limited production run cars from that era that underwent similar price inflation.
For someone who wants to live in Nantucket, there is literally no substitutable good!
We’re arguing the same thing. Everyone wants to go to the beach. The ability to get cash to do so increased demand.
Having more people willing to pay contributes to price increases
Or reference the points you are trying to make to make it easier to search? For instance, most of my results right now are pertaining to the civil war economies of the north / south United States
I think the the internet and technology is the equivalent to the railroads and industrialization in the 19th century. You also have the currency issues with silver and gold standards which may play out similarly to some of the crypto issues of today.
I’ve worked in a large enterprise for a long time, going from project to project that essentially automated away some semi-professional human work with automation at a 50-90% savings. Over 15 years, there’s about 35% fewer people doing 50% more work.
That trend is only speeding up. I don’t see how the current model of using cheap money to prop up real estate is a sustainable economic model.
Take with appropriate grain of salt. I’m not an economist, and my understanding is that of a layman.
Lots of land exists, the issue is desirable cities, and western countries have gotten really bad at making those.
China spent the first decade of the 21st century creating urban cities left and right, ignore the western propaganda of "ghost cities", and also spent time urbanizing what America would consider "suburban" towns.
Meanwhile western nations are dead set on never increasing the # of desirable urban environments, and then it is all surprise Pikachu when house prices skyrocket.
How do you reliably isolate the effect of the pandemic from other effects occurring at the same time?
Until one of us creates a free-ish software to help them do that ofc.
Buy it from who? Locals. So who gets the money? Locals.
But anyway the point was don’t divide people into insiders and ‘outsiders’.
The 500 are also the most likely not to be local or own the land (which means a single sale can convert a low cost apartament building in a mansion).
Also the reverse is possible...
South Kensington is a bit of a curiosity.
It is predominantly bordered by Chelsea and Knightsbridge.
Chelsea is Russian country, if you are a wealthy Russian, Chelsea is the place to be. Unless you are a Russian oligarch, in which case there are one or two spots a bit further away where you can splash super serious cash on rarer properties.
Knightsbridge is wealthy Arab country, when it gets too hot in the Middle East summer, they flock to Knightsbridge with their imported Ferraris to stay in their London houses.
But South Kensington is a bit different. Its not attractive to the Russians or Arabs. Not many of the properties there remain single occupant, they've been mostly subdivided in to individual flats or re-purposed for office (or educational use ... there are lots of cram-schools, colleges and nurseries round there).
One bedroom is not sufficient to raise a family, I think that's safe to say.
So let's move on to the 2 and 3 bedroom properties
Location Ttwo br 3Wbr swestmisnster£ 2,920 £4,152 Camden £ 2,254 £2,880 Kensingtonelsea £3,030 £4,938 Islington £1,934 £2,487
Hammersmith a 1,922 £2,653
Sorry for the formatting.
Cheapest
BBexley£. 1,105 £1,281 Havering £1,120 £1,384 Redbridge £1,293 £1,589 Sutton £ 1,163 £1,498 Waltham Forest £1,364 £1,649
These are before council tax and other costs, which are gonna be laughed at by oligarchs but they do count for normal people.
The new houses nnextto Westfield shopping centre cost around 2000 quid before council tax , zone 3 classic houses with a garden go for 1500 before council tax. its really bad in all London, unless you make 50k after taxes and most devs don't make that money there. t
I don't disagree with you there.
Aside from the Chelsea and Knightsbridge style stories, overall London suffers from a problem of (a) too much buy-to-let nonsense going on (b) off-plan new-build developments which are sold off-plan predominantly to offshore buyers (mostly Chinese using it as a way to get chunks of money out of China, but also other nationalities too). All those new-builds South of the River for example, almost exclusively off-plan jobs.
The present government is not helping either. They are unashamedly on the side of the property developers out there to make a quick buck, not Londoners.
I absolutely do feel for those on low / minimum wage in London who are pushed out of the market and having to face horrible commutes to be able to live somewhere remotely affordable.
But mostly it's that they're not residential to begin with. Many more are linked to an embassy, restaurants, clubs, nurseries, storage, etc. than you'd realise from 'walking back to hotel at night'.
Regarding point 1:
There's no real issues with long-term vacancies (the municipality already has laws in-place which fine owners of vacant homes), typically sits between 1 and 2%. That should obviously go down to 0 as much as possible, but it's clear that (1) the problem has an extremely minor effect on the market, (2) it's not exclusively caused by investors, a lot of them are pied-a-terres or homes owned by temporary migrants working abroad and (3) the problem of vacant homes that can be attributed to investors, can be addressed in many other ways than a total ban.
In other words, not an effective or suitable policy on this point.
Regarding point 2:
The price increases aren't caused by investors in Amsterdam, studies have shown this over and over again. If buy-to-let is banned, rental supply drops, rental prices go in overdrive, and there'll be more pressure to buy under any circumstance. The have-nots who're unable to buy will be even worse off. There's no magical panacea to a lack of sufficient supply.
You mention a couple points around 2nd homes, which are fair. I think in a world where there isn't enough housing for everyone, we should at minimum disincentivize owning second homes that go unused most of the time. But apart from the fact that Amsterdam is the capital, a working town, not a place where people have second homes that they enjoy on the weekend, this policy doesn't address 2nd homes at all. You're not banned from buying and owning a 2nd home in Amsterdam after this policy goes into effect.
In other words, an entirely ineffective policy regarding point 2.
I'm not saying you are wrong. I'm saying that what you pose as established facts are highly debated in the Netherlands at the least.
I'm on mobile, so finding English studies is hard. Maybe parent author could cite some of the studies (s)he mentions? https://www.eigenhuis.nl/huis-kopen/starters/artikelen/beleg... https://www.kadaster.nl/-/opkomst-particuliere-investeerders...
If you read it, you'll find it explicitly states they could not establish a causal relationship between investors and increased prices. (i.e. it says exactly what I stated).
They do find a correlation (which is heavily referenced in the news and misinterpreted), which would be expected. Investors who study the market and are investing professionally, are more likely than the average, and definitely more likely than below-average, to invest in neighbourhoods which turn out to see more price increases than neighbourhoods that investors chose not to invest in. That's of course because it's their job and their expertise. It doesn't mean they're causing the price increases.
It's a bit like saying there's a correlation in prices between prices of stocks of companies that professional investors choose to invest in or not. That's obvious, professional investors seek returns, and are expected to invest in such companies. But the investors aren't causing the tech stocks to become valuable. They simply are, by way of their profits. Google (once established) isn't high-value because investors choose to buy its shares. Investors detect the value and pursue to own it. Real estate is no different. Which is why the study found a correlation, but explicitly did not establish a causal relationship.
Both supply and demand are incredibly constrained: building new houses is slow and not exactly being stimulated by the government, whereas demand is fixed because people need a place to live.
Property rental is an extremely attractive investment opportunity. Demand is guaranteed and due to the low cost of obtaining money it is basically risk-free. Even at near-zero rent you'll still make a profit - as long as the housing market doesn't crash.
On the other hand mortgages always carry some risk, and banks are aware of this. There are quite strict limitations on the amount you are allowed to borrow. This directly means that individuals will always be outbid by investors.
This directly results in price increases. Individuals are now no longer able to buy a home, forcing them to rent. Landlords, in turn, are happy to let you rent a property which you wouldn't be able to afford because it is way easier to evict you. And because demand is higher than supply, they'll happily increase the price. Rent prices are already in overdrive.
So now you're paying €1200 in rent instead of €800 in mortgage payment - for the same property.
Banning buy-to-let would result in a sale of the properties currently being rented out - which means a drop in the housing price. Rental supply will drop, but those houses don't magically disappear! People who previously were unable to get a mortgage can now suddenly afford to buy instead of rent. This lowers the demand for rentals, which decreases rent.
People don't need landlords - they need homes. With the exception of a very small number of short-term rentals, landlords provide zero value. Removing them from the equation decreases the prices for everyone.
The CIA even lists the Dutch housing market as the largest risk factor in the stability of the Dutch housing market.
For example: https://www.kadaster.nl/documents/1953498/3407456/Onderzoek+...
Happy to read your sources as well.
> The CIA even lists the Dutch housing market as the largest risk factor in the stability of the Dutch housing market.
I don't understand?
"The WILD Dutch housing market and our home buying flop | American in the Netherlands"
This seems to contradict your earlier claim that:
> the municipality already has laws in-place which fine owners of vacant homes
The answer is to reduce the centralization of jobs and other factors that cause everyone to want to live in Amsterdam, e.g. building out Lelystad or Buitenveldert. To a certain extent, COVID and WFH has started doing that.
I lived in Amsterdam in 1999 and house prices there seemed quite reasonable to me compared to Paris where I was coming from, but of course many things may have changed in two decades.
You're sort of "begging the question" here.
> The answer is to reduce the centralization of jobs and other factors that cause everyone to want to live in Amsterdam
Obviously I'm not against that happening but it's not either-or.
> but of course many things may have changed in two decades.
Oh, you have no idea. It was hard to even get the owners to get back to you, because they'd already accepted an offer; and I was being asked for 1,500 EUR - 1,650 EUR/month for a bedroom+living room apartment. And while that wasn't in Diemen or Bijlmer, they weren't in posh super-central locations.
And no matter how much the prices go up people can and will pay. Unless there's a mayor economic recession things will not get better.
Wait, you’re making it sound like this is an obvious case of not enough supply — which could potentially be solved by building more homes! — but in fact, it’s the total opposite: the average Dutch household has 2.14 people, so that’s 8 million households vs. 10 million houses! (I assume this is overwhelmingly folks who want to live together: partners, kids, etc., not just folks who can’t afford to live alone.)
Sounds to me like there are 2 million extra houses, not 7 million missing ones.
So what, exactly, causes the problem? Presumably, those 2m extra houses just aren’t in the right places?
2.14 per home vs 3.54 in 1961.
I have no explanation why 17280000 / 7900000 = 2.187
Once you get past the hurdle, banks give you insane amounts of money to buy these insanely priced houses with. And due to the low rent, you're not that much worse off than 5 years ago. Since no one who buys a house today wants to end up losing out, many homeowners will vehemently oppose any measure which could make the prices sink, so more borrowed money, so even higher prices as long as there isn't a suitable alternative (cheaper/affordable and easy to attain rent).
> The Square Mile has the highest percentage of empty homes in the entire country, fresh data states.
> Some 42.4 properties per 1,000 sit unused in the City of London, leaving it top of the charts and the only London authority to feature in the nationwide top 10.
> Data compiled by insurer Admiral also shows that as many as 29,242 London homes have been unoccupied for at least six months, to a collective value of roughly £15 billion.
I wish a data scientist at utilities (water, electricity and gas) providers pick up this line and provide some statistics on this. I wish also that city-services companies (e.g. Electricity/water/parking service provider) can collaborate to provide better and justified policy making.
I did similar studies based on open data to provide insights on road/sidewalk optimization usage, and I still see value in collaboration with policy makers.
Punitively heavy land taxes on non-primary dwellings solves this overnight. It also raises a lot of capital that can be used to provide services in the area.
I don't dispute your underlying point that punitive taxes are a big part of the solution, but I take issue that it's an easy or overnight fix unfortunately because of the interests aligned against imposing them.
[1] https://gov.wales/welsh-government-announces-three-pronged-a...
So your proposal will for sure hurt those vested interests, and I would expect it be very hard to pass the parliament. It's great to see Dutch cities actually made that far, I'll keep my eyes wide open to see what's next for them.
If your business made a loss, you get to deduct that loss from your revenue, before getting taxed.
This is the exact same concept, but applied to investment properties. As for the "dodgy" accounting methods - it's not really dodgy, but merely depreciation of the property at play. Depreciation is real. After all, a house doesn't last forever, so why shouldn't depreciation be allowed for investment properties when it is allowed for all other business capital expenditure?
People like to argue that by taking away negative gearing for property (i.e., treat it differently), that it would increase affordability. It won't make a big difference.
That was the case. A colleague of mine, originally from St Just, moved to London for work as so many have to do. Another from near Cockermouth did the same. Both now work remotely full time from their 'home towns' on decent wages.
Covid has done wonders for local communities - good jobs are now available for people without having to move across the country.
https://www.rightmove.co.uk/properties/112353359 for example is under £300k. Assuming you got it for 300k (asking price is 285k) with a 15k deposit you're looking at £1,278.19 a month with nationwide on a 30 year rate, well within the range of a couple earning £35k each, which is a reasonable
Now sure if you didn't get the education to get a decent job. Hell even on 25k each, Nationwide can lend upto £275k for a first time buyer - just need that deposit.
I'm baffled by your comment to be honest; not very long ago I could buy a house in Bristol for the same or less.
Not really, people want to live there, and can now live there while working in a decent job, raise a family, send kids to school, etc.
Without remote work, villages like that are meaningless. Communication and social changes caused by covid have allowed people to actually live in remote villages.
> For a small village of less than 5,000 people nowhere near any sort of city or population centre, this seems like a lot.
Not really, people want to live there, and can now live there while working in a decent job, raise a family, send kids to school, etc.
Without remote work, villages like that are meaningless. Communication and social changes caused by covid have allowed people to actually live in remote villages.
House prices have shot up since the mid 90s as they become more affordable. A new 3 bed home in say east anglia is more affordable now (compared with median wages) than it was in 1980, despite being far far more expensive to buy. That's because
1) Most households have two incomes rather than one 2) Interest rates are much lower
House prices rise to the level people are able to pay for them. Remote work has allowed people to live in villages like St Just and continue in a decent job, which is great. Before it was mainly retirees and holiday owners, neither of which were good for the area.
Admittedly this includes households including people who are "retired" but I think that's reasonable as plenty of people have to keep working even though they're receiving a pension.
https://www.ons.gov.uk/peoplepopulationandcommunity/personal...
That's £30k a year.
[0] https://www.ons.gov.uk/employmentandlabourmarket/peopleinwor...
This horrifies me. Even the slightest increase in interest rates will ruin a huge number of home owners.
On the other hand, home ownership in the UK isn’t normal either. It’s only since the 50s or perhaps 60s that the average person has been able to afford a home. And then again in the 80s with council houses sold off to tenants.
Is the situation very different in the UK? Do Britishers actually prefer variable rate mortgages for some bizarre reason?
Edit: I did my own research and was shocked to find that in the UK it sounds like variable is indeed more or at least as common as fixed and that even fixed tends to be fixed only for the first 5-10 years!This is the opposite of the US, where I know someone on a normal middle class circumstance who just secured a 3.25% 30 year fixed mortgage, and this is extremely common right now if you have good credit. Even the "scary and risky" variable mortgages in America are things like a 5/1 ARM which is fixed for the first 5 years, which sound like they'd be relatively low risk for the UK!
I am baffled. Is the great advantage for the American homeowner simply due to the wages of empire, ie dollar supremacy? Federal policy favoring homeowners? Or what? I did always wonder how banks could afford to provide such a good deal.
This is a vast difference really worth wondering about; I hope someone has some insight.
Source: https://www.money.co.uk/mortgages/should-you-get-a-fixed-tra...
You have little to no incentive to stick around as a long-term customer when there will be a fresh new deal enticing you to switch whenever your last contract expires. It's often more expensive not to switch as there's no benefit to being loyal to an energy or telecoms firm.
This arguably extends to mortgages too.
At the root of it all is that there's more competition between these elements and legislation has forced businesses to make it easy to switch providers at no cost. Anecdotally, I've been through three different ISPs in as many years in order to keep my internet costs down.
That doesn't directly address the question, it just highlights a mindset.
Mortgage rates in the UK are far lower than 3.25% though -- 80% LTV on a 10 year fix with nationwide is 2.8%, 2 year fix is 1.54%.
Drop that to 60% LTV and 2 year is 1%, 5 year 1.1% and 10 year 2%.
It all falls down if rates were to shoot up, or house prices were to shoot down. The UK government traditionally protects house prices like the US government protects the S&P though. A house price crash is bad for polling.
Now there are Australian type mortgages, basically repay as quick as you can, that are variable rate plus X. Or fixed and floating, or pure fixed. It generally depends on your personal position.
Note that the very low share of ARMs is a recent (post Great Recession) phenomenon. Prior to that, ARMs were typically a large minority of loans.
https://www.newyorkfed.org/medialibrary/media/research/curre...
The bank wasn't taking much risk on the adjustable rate.
And the slightest increase in inflation will benefit them.
A competent central bank would make sure that it all balances out.
We can make promises to each other. Essentially write debt contracts to each other at no fee. The problem is that we trust each other but if we want a more complex economy than a barter system allows, then we need to make it possible for a third party to trust the debt contract. Through the introduction of banks as middlemen they use their resources to check how trustworthy the debt contract you offer to the bank is. In exchange you get money, which is a liquid claim on your debt contract and thousands or even millions of other debt contracts. Thus the bank is primarily in the business of managing risk and the management of risk demands a net interest margin. If the bank didn't make money off of loans then any bad loan would lose the bank money and it would go bankrupt over the long term. In other words, the surplus profit that the bank made off your loan is its reward for correctly managing risk.
>This is why housing is so expensive to begin with.
Or it could be that housing is in high demand and banks offer financing so people have more money but since location is a monopoly, supply never catches up with demand in popular areas. Speculators themselves simply predict that there is sufficient demand for you to be willing to bay $400k for a house. Speculators didn't create that profit margin, it is the monopoly of land that created it and they merely exploit it.
I think mortgages are pretty competitive, especially for reasonably well-paid people and there isn’t really that much profit made by the banks (your interest corresponds to inflation and the risk that you default on your loan with the house price having fallen.
Money today is worth more than money in 25 years and you have to pay the difference.
Literally every loan a bank gives out is mostly made up on the spot, everywhere in the world.
In some countries, banks are subject to reserve requirements — typically from fractions of a percent to some percents of their liabilities to depositors. Basically: banks need to cover the savings of people.
In the UK (and many other countries), this is not the case; banks are not required to have cash on hand in relation to their liabilities to depositors.
Instead, they are subject to capital requirements, which means they need to have sufficient equities (cash, securities, other financial instruments) with sufficient liquidity in relation to their risk-weighted assets (credit and loans). In effect: banks need to cover the investments of the investors.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
Charging 0% interest means the bank is losing money.
Anyway, if you sign a contract that says you shall pay me every month for 30 years OR ELSE I get to sell your house (and whatever else you own, seize your income etc) then the document with your signature IS the value created and I can sell that document for what it is worth.
So the bank creates money not entirely out of thin air but against this contract.
This is a fantastic deal for them as there is almost no risk.
The seemingly few percent interest per year over 30 years quickly ads up to 2 or 3 times the initial sum.
I suppose this would be a reasonable amount roughly around the point where 3 out of 4 houses and the ground under them would just vanish in thin air with their owner stopping all payments after about 5 years on average.
The reality was that some people still had to pay rent for their flooded home.
So we are all suckers for putting up with the scheme, welcome to the club.
Rather than have 0% interest and 2% inflation there would be -2% interest and 0% inflation. Less need for endless debt growth and government stimulus.
> I don't get how people can keep saying this. Is it that people are told banks lend out money from depositors in school?
They don't? Where is the money from? Due to complicated reasons (ie. bundling mortgages into mortgage backed securities and selling them), it might not be the case that the mortgage issued by Bank A is funded by Bank A's depositors, but it is the case that it's funded by depositors/investors somewhere.
https://www.investopedia.com/articles/investing/022416/why-b...
However, saving does have one important function. It creates a hole in the economy and that hole can then be used for investment spending (motivated by a borrower taking on a loan) without causing inflation.
...except for reserve/capital requirements, right?
>However, saving does have one important function. It creates a hole in the economy and that hole can then be used for investment spending (motivated by a borrower taking on a loan) without causing inflation.
In other words, capital isn't free as the parent poster suggests.
It is created ex nihilo, limited by reserve concerns (which include hard requirements for some banks)
Note that the most of the money never exists in the form of currency, it is just accounting entries in the banking system.
This is just a weird bandaid. Mostly trying to blame landlords for this housing crisis when mortgage tax credits, and scarcity due to weird eco regulation shenanigans are to blame.
The eco regulation shenanigans is about nitrogen emissions. They are limited by European regulations near protected areas. The government ignored and worked around these regulations for a long time. Then environmental parties sued, and we were so far above the limits it was essentially ruled "no more emissions". Whilst building new houses causes a decent amount of emissions. This meant that country wide, getting building permits became almost impossible.
This contributed partially to our current housing shortage.
https://www.rightmove.co.uk/house-prices/detailMatching.html...
Pepperidge farms remembers.
South Kensington is one of the most expensive area of London and not representative at all. Whatever happens there does not affect the average person, and quite of few of the grand houses there are also actually offices.
In any case, it is not true that 30% of homes are empty there. Apparently the City of London (i.e. the square mile, not London as a whole) has the highest rate in the country and that is still only about 4% [1].
In Cornwall the issue is quite different: The area is very attractive for second homes and, at the same time, it is the second poorest region in all of Northern Europe. This means that local resident have a very low purchasing power and indeed cannot compete with people from London and the South East. I think that they are starting to implement restrictions in some areas in order to give priorities to buyers who will occupy the property as their main residence in order to keep second homes in check.
[1] https://www.cityam.com/15bn-worth-of-london-homes-sit-empty-...
That means that normal people cannot afford to buy anything in London even with HTB which is a terrible policy the people who can afford to use it are already in the top percentiles.
A £600K property as a first time buyer requires you to have about £100K to get on a property ladder.
10% deposit for a 90% LTV mortgage is £60K, stamp duty is £17,500 (£20K from end of Sep 21) that’s already ~£80,000 then you have mortgage fees, legal fees, furnishing costs (since new builds don’t even come with blinds)…
The average salary in London is £41K, that leaves you with take home pay of about £30K after tax (if you have no student loans).
So a house hold of two people living in London has about £60K per year if both earn the average pay, £25K or more of which would go to rent per year, another £4000 will go to various utility bills and council tax, another 5-5.5K would go for travel (assuming you live within zone 1-4), then you have food, clothing and other living expenses, so if you are somehow lucky and can save up £10K per year that’s 10 years to save up enough for a median property which is most likely a 54 sq/m flat.
Add kids to this mix and well you are royally fucked.
I mean, nobody complains in the US if the average family can’t buy a home in Manhattan. That’s just unreasonable.
Personally if I had to work in London, I'd look at buying a 2 bed house somewhere like Leighton Buzzard (30m Euston), Gravesend (22m St Pancras), Tonbridge (35m London Bridge), for about 250k.
Average wage in London, not average overall.
Whats's next, "why should an average person be able to afford an education or healthcare"?
What a load of rubbish. HTB really helped us when buying by giving 5 years of interest free
We bought a 240k house with a 12k deposit and 48k htb. Moving costs etc meant we had to find about £17k, which we borrowed.
Assuming you do that now, HTB means paying £647 a month on the mortgage and £330 a month on repaying the deposit. Total of £977pcm.
After 5 years we sold for 240k with £48k htb and £160k mortgage, leaving us with 32k in equity. We could have remortgaged and repaid the htb at that point for a total outlay of £911pcm (with about £500 in fees)
With two earners on a middle 28k a year that's falls into well into the "affordable" bucket.
Even in London, a 600k house with htb will mean a £30k deposit (a problem) and a £330k mortgage. Two people on 41k each can borrow up to £368k with nationwide which gives an idea about affordability (you'll have to knock some off for things like service charges which are ubiquitious in new houses)
And 41k a year with a coalition loan means you have £30,310.51 per year after student loan, not before. If you still have a labour loan from pre-2012 you'll be paying an extra £600 a year.
All that's assuming a 600k loan. Reality is that help to buy homes aren't that expensive. This is a decent sized 2 bed flat for £375k.
https://www.helptobuyagent2.org.uk//property-search/property...
Personally I think you'd be crazy to live in London when there are far more reasonable places to live just half an hour out of a one 1 station and far far less cost, but it London is affordable for people with two London incomes.
If you're single on minimum wage and wanting to live in central London? Well tough. Move somewhere else. Plenty of choice for houses in Crewe and Stoke, and plenty of minimum wage jobs.
People could borrow much more than they could because the government covered 40% in London and 20% outside of it.
Look at the new developments in London, the price is well just under the HTB limit for the handful of HTB flats, then there is the shared ownership racket too.
And commuting towns aren’t that cheaper either, and that is even before you account for the insane costs of rail passes.
It let me buy a property which I wouldn't be able to without HTB, therefore your statement is objectively wrong.
> And commuting towns aren’t that cheaper either
Plenty of 2 bed houses in daily commuting distance for £250k - easily affordable on a London wage.
Really, HTB should not have had a restriction on new builds. It's laughable because the restriction would make sense if the Gov was allowing anyone to actually build new properties.
I think you're FYIGM'ing. Idk where you're finding these decent 2 bed "houses" (I think you mean flats) in London for "250k". Hell even a 2 bed flat is mostly around the 350-400k mark in most of London, unless you want to raise your family in Croydon or something lol
This isn’t because of the deposit but because HTB essentially allows you to buy a property for double the price in London.
Most people couldn’t afford a 500K property not because they can’t save up £50K but because they won’t have a salary north of £100K for the bank to loan them the rest as lenders cap the loan amount at 4-4.5 times your annual salary.
So now people that earn £50K can buy a property that only people that earn £100-120K could regardless of their deposits.
Possibly you're taking the wrong counterfactual here?
"If I hadn't HTB but everyone else did" vs "If no-one had HTB".
It's possible you're quite right about the first, but it tells us little about the second. Possibly in the presence of HTB, prices just rise again until they reach their equilibrium of just-barely-affordable.
If they do pay it back they do it by remortgaging so the builders win, the banks win, the tax payer pays for any HTB loans that aren’t repaid and the tax payer gets shafted with higher housing costs.
For a £500K flat you need a £50K deposit but you also need a household income of £100K or more to be able to borrow £450K as banks cap the maximum amount they’ll loans at 4-4.5 of your annual income.
So HTB didn’t only increase the prices it also pushed people to take on loans that they normally would not be able to afford.
As for saving for a deposit, I think an issue is also that many people seem not to have been educated about the benefits of saving at all. Bluntly, many young people I see find the money for short term consumption and don't save anything.
This is because rents rise to the amount someone is willing to pay, which is basically what they earn, because they have to live somewhere near work. If they get free board then they can swiftly build up savings and buy a house and continue the cycle of wealth. If they have to pay, they're screwed.
How much cheaper would it be? I've just moved to London (living in zone 2, going a bit further didn't strike me as much cheaper).
2 bed terrace, £270k https://www.rightmove.co.uk/properties/111488087
40 minutes to Fenchurch Street (little less for Docklands), £65 per week//£2600 per year.
2 bed 230k https://www.rightmove.co.uk/properties/112846073
22 minutes to St Pancras, £127 per week//5k per year
If you can get a 2 bed house that close to central London at those prices that's great.
Also, presuming you don't work at Fenchurch Street, the commute would be anywhere from an hour (to Fenchurch street) to an hour fifteen minutes (nearbyish tube stations).
Preventing properties from being treated as bidding chips or bonds issued this could greatly improve the situation, but without addressing land use and land banking then the lack of new construction will continue to unbalance property markets.
You did explicitly say houses but possibly the area is quieter and less inhabited out of term time.
And then you get articles like this one: https://yorkmix.com/york-is-the-norths-property-hotspot-as-i... Funny thing is, this article happens to be a total submarine -- I recognise the development they're describing, it's been there for years and has not sold well (totally overpriced) -- this article and others like it are just an attempt to drum up further demand.
Really frustrating that when we have so many people needing housing, homes are built entirely with the objective of selling them to people who already have homes elsewhere!
First houses should have priority over second houses please.
I doubt this is the magical unique problem everyone claims it is, but “oh no think of people’s investment” when people are sleeping outside is valuing property over people.
Londongrad is an exception to what is otherwise a rule.
Of course you may argue that the difference is small in relation to multi-million pounds properties, but that is a more general issue with the council tax's range.
Yes, there are "rich foreigners" and some corporations are strategically acquiring the places and spaces where high rent can be extracted. But what has driven housing cost in the market of individual homes is simply that some citizens can afford to borrow at low rates, and other citizens are seizing the opportunity to realise gains that they could not attain through a lifetime of work, wage increases, and other investing.
It is grim to work for years and have nothing else to show for it.
Young families, workers, the elderly, and the poor will be unable to afford even tenancy in the big cities. (To turn dark for just a moment, we only really seem to have a plan for the elderly.) The future control of crucial urban voting-blocks in Western democracies will be in the hands of landlords.
Instead the government is letting people put low money down, low interest rates, and buy up many houses at once. That of course inflated housing costs.
Governments are reluctant to oppose profiteering. And with stagnant wages and rising COL, working people are being squeezed out of ownership.
The British band XTC had a prescient song -- "Where did the ordinary people go?" They couldn't afford to live in their hometowns anymore!
1) Visiting London and spending time in South Kensington - walking back to hotel at night, only about 30% of houses had any lights on. Suggestion is the others are effectively uninhabited, and a search on RightMove shows properties sell for £20-£30m for a 4/5 bed. This isn't normal Londoners, it's outside investment.
2) Cornwall, where I live - an insane house price rise over lockdown as city dwellers aim for the beautiful bits of the country. Literally no way now you could afford your first home round here on minimum wage, and some towns have a high (>50) % holiday or second homes.
It's an untenable situation. I think my generation (I'm nearly 50) are probably the last to be able to afford their own home on anything other than a massive wage.
Round here in Cornwall the jobs are things like surf instructor, supermarket worker, barperson, etc. That's not gonna stretch to the local house prices.