Thursday, May 31, 2007

Fighting over their castles / UK / Economist

there is not much to add..... the chart says it all.....and the fact that they have a have a (shadow) "housing minister" makes it even more weird....

dem ist nicht vile hinzuzufügen....der chart spricht für sich...... und die tatsache das die sogare "einen hausminister" haben kann einem schon merkwürdig vorkommen....

How a long boom in house prices has altered Britain

OF ALL the forces that have changed Britain over the past decade or so, the long bull market in housing is perhaps the strongest—and the most anonymous. High house prices have done their work quietly, reshaping concentrations of wealth and stoking clashes over supply. Other rich countries have had house-price booms too, but Britain's has been faster and more furious (see chart). And high levels of home ownership (Britons are more likely to own bricks than even Americans but less likely to own equities) have magnified their effect.

As problems go, the fact that the proportion of properties fetching £1m ($2m) or more in 1996 prices has increased more than tenfold since then (according to Nationwide, a mortgage provider) seems a nice one to have. For a decade, buying a house has been a one-way bet, which is one reason why more people are anxious to make it. But this windfall largely represents transfers from young to old. Those who have houses may choose to help their children get one too—over 40% of first-time buyers now receive help from their parents, according to the Council of Mortgage Lenders. But children whose parents do not own homes will be left behind....
High property prices have also intensified conflicts over supply. MPs frequently receive complaints from constituents about new housing developments in their neighbourhoods. These are now balanced by complaints from parents who worry about their children staying at home indefinitely, stretching adolescence into a fourth decade. Since 2000 the number of loans made to first-time buyers has declined to levels last seen in the early 1990s, when interest rates touched 15% and many people could not afford to borrow.

Below the bottom rung of the private housing ladder, a different sort of conflict has arisen. One side-effect of high prices has been to increase demand for the social housing that is home to about 4m households. Unfair allocation of subsidised housing has become a favourite theme for the right-wing British National Party (BNP). Last year its candidates prospered in local elections by whispering that Nigerian immigrants were being favoured. Similar stories abound in areas that have seen lots of immigrants arrive from eastern Europe. Last month Margaret Hodge, a Labour minister, suggested that indigenous folk should have first refusal.

These problems are likely to get worse as the housing supply, which has only crept up while prices have been rocketing, comes under pressure from a bulge in demand. This stems from two trends. The first is a rising population, thanks to increased longevity and higher net immigration (up from 50,000-60,000 a year in the mid-1990s to an annual average of 185,000 in the three years to 2005). The second is that more people are living alone. As a result, the number of households in England will increase from 21.1m in 2004 to 26m by 2026, according to official projections......

The capital, circa 1860
To see how these conflicts are playing out, take a look at London. The city's population has been rising steadily, and yet parts of its centre are becoming less densely populated. Westminster, and Kensington and Chelsea, two expensive boroughs, are the most popular places to own second homes, according to council-tax returns. Add to that the fact that London attracts wealthy foreigners who are willing to pay several million pounds for a home to live in part-time, and the result is a city whose most desirable parts are emptying.

Yet away from London's expensive centre, things are getting more cramped. Election-registration officials in east London, a favoured destination for new arrivals, report finding 15 registered voters living at a single terraced house with a couple of bedrooms. ...

A political head of steam is building behind the idea of fixing things by building more homes. Gordon Brown, the prime-minister-to-be, has argued for this recently. It will be hard to sell to the 70% of households who already own their homes, however, and especially hard for the Conservative Party, which is strong in the south-east where people think their neighbours are too close now.

Yet Michael Gove, the shadow housing minister, believes his party will accept a bonfire of planning restrictions when it is convinced that there is a good, economically liberal case for it. “The longer it goes on unchanged, the worse it gets,” says Mr Gove. Which seems a melancholy verdict on what has looked for a decade like the closest thing yet seen to a mass lottery win.

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Anonymous uk renter said...

Brilliant Spitting Image clip, I used to love that show...guess that must be from circa 1991 or so.

Housing here in the UK is absolutely on fire right now. London booming thanks to another good year of bonus payments in financial services, and rich foreigners moving to London because of its tax-exile status.

For those not familiar with the UK market, to get an idea of pricing, I would give this as an example: an ok 2-bed flat in London, 700-750 sq foot in an ok area, will cost you maybe $900,000 a year, or you could rent the same place for approx $40,000. So gross rental yields are around 4%, far to low to give a "value-bid" to the market if it were to fall. With base rates at 5.50%, why someone would want to own an illiquid asset at all-time highs for 4% gross (not even counting other expenses incurred when letting out property), I don't know.

And the rest of the country is even more over-stretched, with bigger percentage gains in prices despite rates being the highest for years, and continued building of new housing. Although there are stories of not enough housing being built, the last 2-4 years have seen more housing being built in the country than I've ever seen before, and there is still plenty space outside the South-East of England to develop.

One of the things that could bring about the down-fall is interest rates. The standard mortgage in this country is to lock in a discounted rate for 2 years, usually about 50-100bps below Bank of England base rates, and then after 2 years you switch to a rate that is usually 200bps over BoE rates. Of course, right now you can refinance your mortgage after the 2 years into another great deal below base rates, but if at some point the ability to refinance below BoE rates dries up, and/or rates go considerably higher (last time inflation was at current levels rates were about 7.50%, currently are just 5.50%), the boom will be over. The whole country has this massive rate gamble on right now.

6:43 AM  
Blogger jmf said...

hello uk renter,

thanks for the very detailed comment.

as one who lives in germany (the only bubble free country in the western world..) i´m stunned on a daily basis how this could go on for so long (and still is).

this will end sooner or later in a disaster. the us is facing the first signs of a "cold turkey"....

spain is following.

it´s only a matter of when not if this bubble will pop.

but this would have been my comment 12-18 month ago....

my fear that the bubble will pop on a global basis is the main reason i´m not participating in the global rally.

but it has lead me to gold/goldstocks, oil/oilsandstocks
and some shorts on builder, reits, lender.

and the more i read and the longer the mania goes on the better i sleep with the positions. :-)

the "exotic" financing maybe will delay the slump another 12-18 month. but the fall will be even more brutal.

but at least in the uk they have to verify their income. look at this chart from the us...

8:33 AM  

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