Comments on: The Harvey files 2: housing market part 1 http://blog.prospectblogs.com/2007/08/07/the-harvey-files-2-housing-market-part-1/ Wed, 07 Jan 2009 13:48:59 +0000 http://wordpress.org/?v=2.6.5 By: Harvey Cole http://blog.prospectblogs.com/2007/08/07/the-harvey-files-2-housing-market-part-1/#comment-2031 Harvey Cole Tue, 04 Sep 2007 14:58:47 +0000 http://blog.prospectblogs.com/2007/08/07/the-harvey-files-2-housing-market-part-1/#comment-2031 It is tempting to conclude that house prices must continue to rise indefinitely because there is a persisting shortage of home – but the reasoning is defective. Persistent shortage has not prevented substantial declines in prices in past periods, most recently at the end of the ‘80s and early ‘90s in this country. While the US certainly has more acres than we do, its population is increasing at nearly three times our rate, but recent events show that this does not suffice to underpin prices: a cumulative decline widely expected to reach 15 per cent rather than 10 per cent is now under way. The explanation is that the housing market is not simply about the provision of a need – shelter. There is also a large, and fluctuating, speculative element in setting prices. When this ebbs, and is combined with tightening interest rates (and, imminently, tougher conditions for obtaining mortgages, prospective buyers are unable to purchase – regardless of their need. Sellers can then dispose of their property by cutting their prices, and this can rapidly become self-reinforcing, particularly if speculative owners (buy-to-rent?) rush to try and take a profit while they can still see one. It is tempting to conclude that house prices must continue to rise indefinitely because there is a persisting shortage of home – but the reasoning is defective.
Persistent shortage has not prevented substantial declines in prices in past periods, most recently at the end of the ‘80s and early ‘90s in this country. While the US certainly has more acres than we do, its population is increasing at nearly three times our rate, but recent events show that this does not suffice to underpin prices: a cumulative decline widely expected to reach 15 per cent rather than 10 per cent is now under way.
The explanation is that the housing market is not simply about the provision of a need – shelter. There is also a large, and fluctuating, speculative element in setting prices. When this ebbs, and is combined with tightening interest rates (and, imminently, tougher conditions for obtaining mortgages, prospective buyers are unable to purchase – regardless of their need. Sellers can then dispose of their property by cutting their prices, and this can rapidly become self-reinforcing, particularly if speculative owners (buy-to-rent?) rush to try and take a profit while they can still see one.

]]> By: steven leighton http://blog.prospectblogs.com/2007/08/07/the-harvey-files-2-housing-market-part-1/#comment-1560 steven leighton Wed, 08 Aug 2007 20:42:23 +0000 http://blog.prospectblogs.com/2007/08/07/the-harvey-files-2-housing-market-part-1/#comment-1560 Bubbles burst and the metaphor is usually applied after the fact. House prices will not suddenly go down. There are simply too many people chasing too few houses on an island of too few acres. The rate of price rise may well slow down but it's already too late for most working CLASS families. A building programme of new housing to be rented not sold to people at a rent based on cost of land and construction rather than "market price" will take some of the heat off. The houses will have to first go to a special class of vital workers such as the usaual nurses, firemen, coppers, civil servants and poor young families with 3 kids (for example). They could be given an option to buy after 10 years or whenever a government comes along that thinks government owned housing is a threat. The market won't like that. Bubbles burst and the metaphor is usually applied after the fact.

House prices will not suddenly go down.

There are simply too many people chasing too few houses on an island of too few acres. The rate of price rise may well slow down but it’s already too late for most working CLASS families.

A building programme of new housing to be rented not sold to people at a rent based on cost of land and construction rather than “market price” will take some of the heat off. The houses will have to first go to a special class of vital workers such as the usaual nurses, firemen, coppers, civil servants and poor young families with 3 kids (for example). They could be given an option to buy after 10 years or whenever a government comes along that thinks government owned housing is a threat.

The market won’t like that.

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