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View Full Version : House prices gone up but rents stayed static?


mrsurrey
1st Feb 2014, 16:10
I was looking at looking at a flat being repossessed today. They were asking 125k and it was completely wrecked inside, needs another 10k spent on it. Incredibly it's only been on the market 1 day and they've already had an offer accepted at the asking price.

I said that's plain ridiculous - 135k is about 5 times average earnings and we were standing in the middle of a pretty run down council estate well outside london. The agent agreed - and said 3 months ago it would have sold for 105k, but the buyers are on the 'help to buy' scheme and didn't seem particularly interested in what price they paid. She also said the same seemed to be true of a lot of their buyers since the start of January.

Which makes me wonder, if 'help to buy' is artificially overpricing the housing market and helping people move from rented to owned housing, surely rents will become static/fall? Isn't it better to just invest the house deposit elsewhere and rent?

airship
1st Feb 2014, 16:40
Every 1 spent today in various government-sponsored "supports" to house-prices, must be worth at least 100 if they do eventually work and get the UK out of its' problems of over-reliance of property prices to support its' economy tomorrow. And if it all doesn't (work out), the politicians (if not current house-owners) can all say that at least it was a cheap bet (based on 1:100 gamble), the bet was financed out of general tax coffers, ignoring the interests of all those who rent their abodes. But one day (barring huge net immigration, NIMBY individuals and councils, the UK's general propensity across all political divides to favour house-ownership when it comes to tax provisions etc.), the current imbalances must find an equilibrium.

Of course, by that time the '50-'70s generations will have all retired and eventually died out, leaving lots of properties vacant and available for redevelopment; global warming and/or more frequent storms will have lead to many parts of the UK being classed as "flood-prone" and where properties won't find any insurers; the UK would have long-ago quit the EU and become a 3rd World country on the borders of a flourishing Europe and independent Scotland and Wales. ;)

G-CPTN
1st Feb 2014, 16:43
invest the house deposit elsewhere

Such as where?

As long as house prices are rising - as you say - for whatever reason - it makes more sense to buy - especially if the buyers are getting 'help'.

I don't think you will see rents falling (or even being static) as the demand outstrips the supply.

The house price situation is not uniform across the country.

bcgallacher
1st Feb 2014, 22:09
GCPTN
Indeed the housing situation is not the same throughout the country. I am in the letting business in a small way in Scotland - the area I am in has experienced no increase in house prices in the last three years. My rents have not been increased in that period either as there has been no real rise in costs.

RatherBeFlying
1st Feb 2014, 22:38
The price of housing is heavily dependent on the supply of money. In most localities the money supply is tied to local wages -- but in fashionable locations outside money typically inflates prices beyond what local wage earners can afford.

Many high fashion ski resort towns find it necessary to undertake mid income subdivisions to attract teaching, police, fire etc. personnel.

While house prices can exceed what can be afforded on typical local wages, rents of non-holiday properties are more strictly tied to local incomes.

My sister got bit by the rent to own bug a couple bubbles ago. Every single scheme failed and her mortgages were too low in priority for her to make any meaningful recovery. The renters also ended out of pocket.

llondel
1st Feb 2014, 23:56
Any attempt by the government to inject money into the housing system is going to bump prices up to compensate for the extra. The only way they'll fix it is to build a load of council houses and let those for a relatively low rent and pull the rug from under the rental market. Then you get the cascade effect that if landlords who were relying on rental income to pay the mortgage costs while the property appreciated in value suddenly can't pay the mortgage because no one will pay the rent they need, they'll sell. The smart ones will see it coming and sell fairly quickly and get a good price, but then the :mad: hits the fan and the rest need to sell because prospective tenants won't pay the high rents. There will be a glut of property for sale and the price will drop.

The government broke the free market by pumping money into it, now they need to fix it by becoming a major player and taking that money back out. It'll be a financial bloodbath though, negative equity everywhere.

Metro man
2nd Feb 2014, 00:59
High class areas of London have seen massive price increases driven by foreign investors, in effect it is a separate market to the rest of the country. Properties in Knightsbridge, Kensington and Belgravia are attractive for those seeking capital appreciation and also command high rents.

A property in a depressed area in the Midlands or North East isn't going to gain much in price and rent will be determined by local incomes, i.e. low wage jobs or social security payments.

In the UK there is unlikely to be a sudden boom in a particular area due to a mining or construction project, which happens in Australia when a new development is announced and there is massive demand for the few houses located within a reasonable distance.

MG23
2nd Feb 2014, 02:50
The government broke the free market by pumping money into it, now they need to fix it by becoming a major player and taking that money back out. It'll be a financial bloodbath though, negative equity everywhere.

Which is why they won't do it. The Tories had a chance immediately after the last election, when they could have blamed everything on Labour and let the market crash; but now it's their problem, and they won't do anything that would push much of Britain into massive negative equity.

cavortingcheetah
2nd Feb 2014, 03:16
The Help to Buy has a Highway to Bankruptcy clause or two built into the repayment schedule.
https://www.gov.uk/affordable-home-ownership-schemes/help-to-buy-equity-loans
Quite apart from the index linked periodic payback schedule there's likely to be some wriggling when people realise that when they sell their house for a profit, then the same proportion of the profit goes to the government as the original Help to Buy mortgage was to the original purchase price. After five years the government gets Retail Index linked loan fees (whatever fees may mean) on top of its capital return. This'll likely be a Labour/Liberal Democrat problem when it begins to come to fruition.This honey trap may well prove to be a balls up.

sitigeltfel
2nd Feb 2014, 04:41
The price of housing is heavily dependent on the supply of money.

I would say that it has a lot more to do with the supply of people, there are just too many of them.

Many of the worlds problems stem from the exploding human population and if nothing is done to arrest its increase the lack of housing will be the least of our worries.

MG23
2nd Feb 2014, 06:03
I would say that it has a lot more to do with the supply of people, there are just too many of them.

The number of people without money is irrelevant to house prices.

House prices are high because, for years, banks would lend ten times annual income to just about anything with a pulse. Banks no longer seem to be quite so lax, but those who borrowed 200,000 pounds to buy a flat made from half of what used to be a council terrace cannot afford to move without getting their money back, so they're either waiting years to sell or not even getting on the market.

Labour, as usual, completely stuffed the British economy. The funny part will be if the British people decide to 'throw the Tory bastards out' and replace them with the very party that created the problems.

CelticRambler
2nd Feb 2014, 09:09
Unless they replace them with the UKIP/BNP. After all, if the Tories blame all the problems on Labour and Labour blame the Tories, it's obvious that everything is really the fault of the EU. :}

Capot
2nd Feb 2014, 10:04
We had a well-known expenses embezzler and ex-Labour minister on the telly this morning, telling us all how the world looks from the POV of a wealthy North London resident with no knowledge or experience of real life.

As she lectured us about this and that, I was thinking that if Grommit wants us to vote Labour, he needs to shoot all these relics of Labour's incompetent past.

BenThere
2nd Feb 2014, 11:35
I can't comment on UK's rental market as I'm not in touch with it.

I did observe first hand, however, that when the US housing market imploded from about 2007-2011, particularly in the Detroit area where I live, shortly after a quarter or so of existing mortgages went into foreclosure or other forms of distressed liquidation, rents started a strong run of increases that continues today.

A huge number of people who were forced or chose to default on their real estate buying obligations now have no choice but to rent as their creditworthiness was lost.

That dynamic is, I think, is the basis of a sound principle.

Buying property when nobody wants it is the best way to build a profitable real estate portfolio. Buying when people are camped outside the gate waiting for new builds to be released, or when they outbid each other to secure property well above the asking price, and such, is a recipe for financial disaster.

Of course, all factors should be considered, but when the cocktail party conversation is dominated by how much everyone is making on their real estate, it should set off alarm bells.

cattletruck
2nd Feb 2014, 11:57
I know of someone who is thinking of selling their inner Melbourne house where the average property for the area is going for about $1.2m AUD - which is a lot of mulla for an average looking house on an average size block of land.

He knows a real estate agent with contacts in China who lines up buyers looking for just these kinds of properties. He's going to offer his house for $300K above market value and thinks it will find a buyer. Why? Because he reckons the people from China that are buying these properties are doing so with secret sponsorship from their government.

Even though this scam puts normal buyers out of the market and forces them to rent which creates more rental demand, the Australian government turns a blind eye to it because it brings in a lot of foreign currency.

Interestingly, US analysts (including one that predicted the GFC) are predicting the Australian property bubble will burst when China's economy burps. Australian analysts are predictably discrediting their opinions while this merry-go-round keeps spinning.

Krystal n chips
2nd Feb 2014, 15:04
Rental charges have hardly stagnated....

BBC News - Rents in the private sector are close to a record high (http://www.bbc.co.uk/news/business-24159580)

I know two people in the social housing world, one a CEO, the other a solicitor....both say the same....the reduction in benefits and increase in rents is having a drastic effect on people who are not in a position, in the main, to earn more.

The UK has always had a fixation with buying, rather than renting, property and estate agents and letting agents are both equally culpable with regard to inflating prices for their own avarice....and commission.

"Help to Buy" as CC said, has a nasty little sting in the tail, but the scheme does make good political propaganda....

mrsurrey
2nd Feb 2014, 15:51
Rental charges have hardly stagnated....


Compared with August 2012, they are up 1.3%. However that is still below the inflation rate of 2.7%.

??? - they're down in real terms....

Krystal n chips
2nd Feb 2014, 16:09
Are they really ?

Have a read of this article then :

How Osborne disguised the truth about the rising housing benefit bill (http://www.newstatesman.com/politics/2013/04/how-osborne-disguised-truth-about-rising-housing-benefit-bill)

MG23
2nd Feb 2014, 18:28
Reducing rents is easy. Just cut the amount the government pays in housing benefit.

Just as house prices are largely driven by the amount the banks are willing to lend to people who can't afford to pay it back, rents are largely driven by how much taxpayers' money the government is willing to hand over to landlords for people who can't pay their rent.

Also, in the last recession, my rents went down because so many people with spare rooms started renting them out to pay the bills, and created a huge new supply of low-cost rentals. However, that's less likely to happen this time, because so few people can afford to buy a house with a spare room.

bcgallacher
3rd Feb 2014, 05:46
I think you are misinformed regarding rentals - even at the lower end of the market most rentals are to people with a job. I have three single mothers in some of my properties and they are all in employment.Rents like any other commodity are influenced by supply and demand - many properties available,low rents and vice versa.

cockney steve
3rd Feb 2014, 11:52
There's a lot of socialist hogwash here!

Landlords are not depriving first timers....it's a free market and all have a chance to purchase.

Council housing was a social service , in it's broadest sense......the Council..IE local ratepayers raised finance (which had to be repaid with interest) built housing estates for those who filled a "need"criteria. the rent did not truly reflect the cost of provision, maintenance,upgrade,refurbishment,rent-collection and debts left by flitting tenants they were subsidised.

For some unfathomable reason it was decided that tenants would be given the option to buy, at a discount based on their length of occupancy....so, another subsidy, but this time, to those who could afford to buy, hence, could afford to rent privately and leave the council stock foor the needy.....Now we're in the position that a vast proportion of stock has been sold-off,not only below market -value, but below replacement cost net result:-

Fewer low cost council homes to rent, many have been handed to "housing associations" which appear to be a way of putting at arm's length, rent-rises and fat-cat salaries.

Until housing stock catches up with population needs, prices won't come down. We're overcrowded. too many people chasing too little land and too few houses.

Landlords are businesses, they hope to get a better return on their cash than putting it in the stockmarket or other investments. they are not there to subsidise those who cannot or will not make the commitment to buy a home.

CelticRambler
3rd Feb 2014, 15:00
Help-to-Buy is a jolly good scheme. For far too long the Buy-to-Let merchants have been depriving would-be buyers of the first rung on the property ladder, this gives bona fide buyers a leg up.

Why the obsession with getting on a ladder? It gives no "leg up" to anyone. Post-adolescent workers don't need a "starter home" when most of them haven't any clue what they're going to do with their lives. Renting a one or two-bed flat/house gives them the freedom move in search of love/employment/experience until they decide what kind of house really would be a home for a significant chunk of their adult life.

It amuses me that many sites offering financial advice for the masses still peddle the line "buying your home is one of the most important financial decisions you'll ever make" ... to people who make it again and again and again.

MG23
3rd Feb 2014, 15:15
I think you are misinformed regarding rentals - even at the lower end of the market most rentals are to people with a job.

Prices are set at the margin.

What do you think happens when the government cuts the amount of rent it's willing to pay by 100 pounds a month?

Hint: rents go down, because the landlords of those marginal properties now have to rent for less or not rent at all.

MG23
3rd Feb 2014, 15:26
Landlords are not depriving first timers....it's a free market and all have a chance to purchase.

But, uh, landlords are the only ones who get to write off the mortgage expenses against income.

And the idea that housing in the UK is a 'free market' is the funniest thing I've read today. The government tells you where you can build a house, the government tells you what kind of house you can build, and the government sets the base rate for lending, which feeds into mortgage rates.

Funny kind of 'free market', eh?

For some unfathomable reason it was decided that tenants would be given the option to buy, at a discount based on their length of occupancy.

Because 'council housing' was a way for councils to reward their friends and buy votes. Who'll vote for a councillor who wants to raise council housing rents?

Until housing stock catches up with population needs, prices won't come down. We're overcrowded. too many people chasing too little land and too few houses.

Last I looked, about 93% of Britain was not built on. Every person in the country could have an acre of land, but the government won't let them build a house there because it might spoil the view.

Get government out of the housing market, and the problem will solve itself. Of course that 200,000 pound half-an-ex-council-terrace flat will suddenly only be worth 20,000.