There’s some scepticism about the prevailing wisdom of a housing crisis. I referred to a piece by Merryn Somerset Webb last year. There’s some very interesting analysis by Ian Mulheirn at Oxford Economics on the so-called ‘housing crisis’. In a number of posts, he takes a critical look at some of the stylized facts about the housing market. I don’t have enough in-depth knowledge myself to evaluate the arguments but there are some interesting points that come out of the various blogs (see here, here and here)
- Growth in the stock of houses has been running at around 176k per year since 2008 (some 24k per year morethan household growth).
- ONS’s newish Index of Private Housing Rental Prices …shows…that the cost of renting on a like-for-like basis actually fell in real terms from the start of the series, in January 2005, to the end of 2014. (Rents have been rising a bit in real terms since then but up to November 2016 they’re still roughly 4% lower than their 2008 peak)
- The true cost of owning a house — not the asset you accumulate by paying down the mortgage principal since, to repeat, this isn’t a cost — has been falling since prices and interest rates dropped after the financial crisis. Indeed we can see that the cost of owning has tended, with temporary divergences, to fluctuate around the cost of renting, which is exactly what we’d expect to see, according to simple asset pricing theory, when the housing market is in equilibrium.
- Many econometric studies in the UK (see page 43 herefor a comparison of results) have concluded that a 1 percent increase in the housing stock per household will only cut prices by at most 2 percent. Consequently, even if we were to add 300k new houses per year (about 150k in excess of household formation, approaching 0.5 percent of current stock), this would only lower prices by about 1 percent per year. This is peanuts in the context of price rises over the past 20 years.
The BBC have also been doing some interesting research on land use in the UK that suggests that there might be a disconnect between our perception of large parts England as a congested, concrete covered country and, er, reality.
Ordnance Survey data suggests that all the buildings in the UK – houses, shops, offices, factories, greenhouses – cover 1.4% of the total land surface. Looking at England alone, the figure still rises to only 2%. Buildings cover less of Britain than the land revealed when the tide goes out.
All thought provoking stuff.