People Begging for a House Price Crash

It can't be each. There is nowhere, not even in Cornish villages full of "empty 46 weeks of the year" holiday homes, where a 1M home only rents for

550pm

tim

Not so, for most of human history, most families lived in a cottage with one room. That's sufficient to put a roof over a family's heads. If they want more rooms for comfort, they should go out and earn them.

FoFP

In message , tim.... writes

Then it must be all, and there are EIGHT, as I said.

By your standards they wouldn't need heating allowance, because their cattle and goats would be sharing the room also. Not achievable in one parliament.

I disagree. I don't believe it is beneficial for society to cram whole families into one room. It's not like everyone can get a job anyway.

Someone needs to make their mind up.

Either people who can't afford to buy houses don't but houses, or they do buy houses (thereby falsifying the proposition that they can't afford to buy houses).

Your position seems to rely upon the premise that people can't afford to buy houses if you don't think they can afford to buy houses, irrespective of what they think about it.

So anything one wants which one cannot buy out of income or savings is automatically "unaffordable", even if its purchase and - just as importantly

- its use, are spread over a large part of their adult lifetime?

On your basis, cars aren't affordable to the vast majority. To the extent that it cannot be readily paid out of a month's salary, council tax is unaffordable too.

Hmmm... maybe you've got something there...

Housing benefit does not cover mortgage interest. What "financial trouble" does one need in order to get the government to help with mortgage interest?

If housing benefit were abolished, it would make precisely no difference to anyone with a mortgage, except perhaps to enable taxes to be reduced (cet. par.).

Not sure what you mean by that latter bit, but glad you agree that there was never a time when just anyone could afford to buy.

Broadly agree with the principle but fear you go a little too far with it there... :-)

They do buy houses, but mostly not with their own money. Sundry experiments have shown that people are much more careless with someone else's money than their own (just look at politicians and bankers for the most glaring examples). These fools, loaded with a great deal of other people's money, recklessly bid against each other and took house prices to the moon. Then they thought they could all get rich playing the game and it would go on forever.

And that's how we arrived here.

Sure. I was certainly taught as a kid that "If you can't buy it, you can't afford it and only fools buy on the never-never".

The purchase may certainly be justified in economic terms, but if they had to borrow to get it, then by definition they couldn't "afford" it.

Quite possibly, though I suspect that most people who truly want a car would manage to save up for one. After all, the payments for the loan will always in aggregate exceed a cash purchase of a car.

Huh? It's usually paid by the month.

It wouldn't be the first time ;-)

Unemployment for a certain length of time.

If it changed house prices, it might well affect such a person, for example if they went into negative equity.

Pretty much as it reads. A Minister introduced the first UK mortgages for ordinary workers. A bunch of people took him up on the idea. A deflation hit and prices collapsed. Those folks were left owing nine times what the asset was worth (assuming a 10% deposit which may or may not be realistic for those times)). People took agin the Minister because of this and he was sacked.

There probably never will be. Some people are just too stupid with money.

Unless you go far enough, there'll always be someone taking the piss.

FoFP

The benefits cap is set at 26,000, so even with IS, CTC & CTB on top of HRA of 15,600 they'd probably be within the cap (just about). Even if not they can find a cheaper place to rent - the HRA rates are currently set at the median (50th percentile) of rents (this is going to be lowered to 30th). WTC and and disability benefits don't count towards the cap.

Higher than 26,000 per year??

They wouldn't *have* to move to Lambeth or Southwark, they could move to most parts of London and still be within the cap. Are you seriously suggesting it is right for the taxpayer to pay 39,000 in rent, rather than 15,600, just because someone wants to live in Westmisnster rather than couple of miles away?

Housing is a little different from other types of commodities.

You can't save up for it, because you need it now.

So you either pay £500pm rent forever (and increasing over the years).

Or pay £500pm rent plus £500pm to save up to buy a house outright (which will likely to take forever as property increases in value faster than that, and you might not *have* a spare £500pm to save).

Or pay £500pm mortgage now, which in real terms will reduce over 25 years, then you pay nothing. (With a bonus windfall should you downsize in future.)

Difficult choice isn't it?

If the rate is set at 30% then 70% of properties will be unaffordable. I assume if the new rules lead to a reduction of rents then the cap would be lowered too, thereby providing no advantage to the tenants.

It seems that rents have dropped around here since I last looked. A

4-bed house near me was being rented out at £2000pm a couple of years ago. I don't know what it is now but similar houses are about £1300pm right now (if you believe the adverts!).

Me too. Nowadays, however, this is difficult to stick to if you want to participate fully in society.

You will need to take on large debts if you buy a house or have a decent education.

That's clearly wrong.

You can rent it as you need it. There's certainly no need to buy.

Or just until you buy, like the Germans.

If this was what was done, property would be bid by cash rather than by debt and so prices would have to match the cash bids. I think it's now very clear from our experience with the credit bubble that house price increases were driven by the vast increases in the amount of debt available.

In which case we return to my point: you can't afford it.

If there's inflation. What happens in a deflation?

If your point is that it's easy to paint a picture which will encourage people to borrow other people's money and then bid crazily with it, then I think recent history (and the history of every credit bubble before this) already made your point for you.

The more pertinent question: has this led to good or bad results for those countries which indulged it?

FoFP

I've modified my views as regards business investment. If the education you borrow to finance will produce returns greater than those required to service the loan, then it's a good idea. The same would apply to business.

I concede that the same analysis could be applied to housing. However a "business" predicated on capital gains based on the assumption of a never-ending credit bubble isn't really a business, but a bet. If housing (minus insurance and maintenance costs) paid back more in rent than the fully-amortised cost of the loan (I.E including the opportunity cost of the deposit) then I'd be prepared to concede that this too ought to be exempted.

Sadly, this was not the basis on which most people bought during the quarter-century credit bubble and Ireland is imploding as we speak as a result of this.

FoFP

The rate is currently 50% -- so 50% of properties are unaffordable. That doesn't seem to stop benefits paying rents of £39,000 or £100,000 pa according to recent examples. (Does that really mean that 50% of properties cost more than £39,000 or £100,000 pa to rent?)

I'm not sure if that follows (if it is a median and not an average). Some of the more expensive properties might cost less to rent, that won't immediately affect those in the bottom 30%, unless these reductions propagate down.

How often has there been sustained deflation over a 25-year period?

If everyone was to worry about it, no-one would buy anything, and there wouldn't be anybody to rent from anyway.

A certain amount of confidence and optimism is always necessary, otherwise who would even start any sort of business?

The Limits are set locally, per house size.

So yes it does mean that 50% of 5 bed houses in central London cost more than 100,000 to rent (but I suspect that the sample set is very small so there could only be a few 100 of them)

tim

You can't analyse things over just part of a credit cycle. I'd also argue that you can't do so even based on just the last credit cycle since it being the only one where fiat currency pertained over most of it, we've suffered an unusual amount of inflation during it. I note that there are now more sidespread suggestions we return to a gold or fixed commodity standard as we hit the down part of the latest cycle.

Britain has reasonable financial records for 400 years. Up until this cycle (starting after the 1929 bust finally reversed) there were roughly as many years of deflation as of inflation.

That's what we keep being told, based on US deflation in The Great Depression (or tecnically the Second Great Depresion since the US had already had something they called The Great Depression in the cycle prior to the last one). However deflation comes in different sorts. There's deflation where where prices fall because production becomes more efficient. This tends to drive slow but steady economic growth.

Less pleasant is debt-deflation: where the cure for a credit bubble is underway and debt is paid down or defaulted upon as asset prices fall (due to there being less debt to be used to bid them up) and falling demand leads to a more general price reduction. This is more commonly associated with very low economic growth or outright recession. Nevertheless it's good for an economy in that it's what's needed to cure the excesses of the prior credit cycle and prepare the economy to return to growth.

In fact the most stable and pleasant periods of growth tend to follow debt-deflations as economies have low and steady growth without inflation and without the instabilities generated by people trying to obtain wealth through debt-driven asset speculation rather than through productive work.

So no: deflation does not mean that nobody buys anything. That's extinction you're thinking of there.

A certain amount yes. The sorts of confidence that lad people to take out 125% mortgages in the belief that a credit bubble can last forever, no.

Some of the world's richest ever people bought in at the nadir of the credit cycle, just when everyone else thought that things could only get worse and worse until everything collapsed. Andrew Carnegie bought steel mills at 90% discount under just such circumstances. I daresay where house prices fall 90%, there'll be some people of a mind to do exactly the same thing 9with cash). They'll be the landlords of the future.

Cheers

FoFP

Yes. But tenants could pay some of the rent out of other income/benefits if they want a more expensive property. Many do now.

It's a percentile, so yes.

You can always find overpriced rental properties just like with anything else. What does the LHA site say (which is currently based on median rents) for your area?

In message , Andy Pandy writes

There was mention on Radio4 yesterday that I didn't hear completely, which appeared to say that *all* LHA amounts were to be reduced by 30%. Whether that was over the next few years I didn't catch, but a lady member of our walking group who is an age concern volunteer said that she heard something similar. Are you aware of the details of this? If true it will have a more wide-spread effect than the capping of more expensive properties in Londone for example.

For a pensioner on pension credit with a LHA paid rent of about £90 p/week (2 bed property in Manchester outskirts) it would wipe out the pension credit.