House price inflation at 26%. Avg London House £400K. How long can this really go on?

[DotCommunist]

This madness is not going to stop until people simply decide, en masse, to stop paying rent. Landlordism has no place in this century, morally speaking it's no different to feudalism.

bit o/t but I was delivering a wine cooler to a very nice pile in glousctershire once and asked to use the toilet. I never forget the moment of wow and then the anger. The fucking toilet room was bigger than the one I was grafting to rent.

these people.

 

[existentialist]

The government's approach is to bring in more stringent mortgage conditions, which makes it a bit harder for people buying with a mortgage. Does nothing to limit investors or landlords paying with cash.

I can remember working out a few years ago (before BTL mortgages became widespread) that one of the student landlords round where I was living was making enough in rent to buy a new house outright every month. Nothing will put the brakes on them unless they do something nasty with stamp duty/the gallows.

Oh, I think something nasty will happen. An awful lot of these BTL landlords are meshed up in a web of mortgages, with not huge amounts of equity involved. I suppose that the kind of one-house BTL landlord who bought his property 10 or 20 years ago and is happily just paying down his mortgage out of the rental will be OK, but the greedy ones who, just as soon as they'd got enough equity in their first property to put against a second property, and so on, will be sitting on a big pile of debt.

And if house prices fall, more people will (perhaps at that point unwisely) see ownership as a preferable option to rental, and the rental market (which thrives on high house prices) will contract. And if all those fat cat BTL types start to struggle to make the payments, there really is only one option for them - start flogging the stuff back onto the market again. Or go bankrupt. One can only hope.

Course, this could all take rather a long time, but I wonder how most of them would cope with, say, a 3% increase in interest rates?

 

[Quartz]

Landlordism has no place in this century, morally speaking it's no different to feudalism.

I disagree. There's a clear need for a medium term housing solution between a hotel and property ownership, and renting is it. And for renting to work, you need to let the landlords make a profit. ISTM that the real problem is the intense concentrations of people, particularly in SE England, but also in other major areas - the Glasgow-Edinburgh and Liverpool-Manchester-Leeds corridors for example. The UK has the population of France, but in a quarter the area, and a third of that population is in SE England.

I have no answers, but doing away with renting isn't an answer either.

 

[FridgeMagnet]

Landlords increasing rent is pure profiteering. Their costs haven't gone up.

 

[DotCommunist]

unless they've had to replace the boiler or have the radiators bled or do general maintenance. To thier own property.

 

[FridgeMagnet]

unless they've had to replace the boiler or have the radiators bled or do general maintenance. To thier own property.

Maintenance costs haven't really gone up much. Rents go up because they can.

 

[The Boy]

bit o/t but I was delivering a wine cooler to a very nice pile in glousctershire once and asked to use the toilet. I never forget the moment of wow and then the anger. The fucking toilet room was bigger than the one I was grafting to rent.

these people.

Friend of my old man's who is a joiner had loads of stories like that from doing work for proper landed gentry in SW Scotland.
There was one where he was directed to the toilet to be used by the tradesmen while on site. When first he went for a leak he found himself admiring an original work by... I forget who actually...but it was a constable or a turner or someone of that calibre.

Heaven knows what they had on the walls in the proper lavs.

 

[weltweit]

I wish I could move out of the SE, I don't really get many of the benefits of being here but I do get the costs. I have to stick around because my son is here but I would really prefer the midlands.

There is a lot of money around here, new or newish cars, expensive houses, I have no idea where the money comes from but it does seem to be there.

As I mentioned earlier house prices have to reflect what buyers can afford, but assuming people have managed to get on the ladder in the first place, price inflation means their equity increases as time goes by. But for people who are not on the ladder getting the initial deposit together is not easy.

 

[existentialist]

I wish I could move out of the SE, I don't really get many of the benefits of being here but I do get the costs. I have to stick around because my son is here but I would really prefer the midlands.

There is a lot of money around here, new or newish cars, expensive houses, I have no idea where the money comes from but it does seem to be there.

As I mentioned earlier house prices have to reflect what buyers can afford, but assuming people have managed to get on the ladder in the first place, price inflation means their equity increases as time goes by. But for people who are not on the ladder getting the initial deposit together is not easy.

I would actually say, at this point, that considering stretching oneself to "get on the ladder" right now would be foolhardy.

I can't remember if I've told this story on here - probably - but back in '88, my father in law was giving me this "get on the ladder" schtick. The fact was, we simply couldn't afford to pay a mortgage of the size we'd need to get anything beyond a hovel, and I had trouble fending him off from suggesting we get the hovel, anything..."just get on the ladder".

We didn't. 2 years later, though, we did. At a significant reduction in price. At the bottom, or in the middle of a market, "get on the ladder" isn't bad advice. But at the top of the market - and those ominous creaking sounds are what tells you it's getting pretty close - the only people who should be getting in are those who can afford to take a (say) 40% hit and weather the storm, or lunatics.

"Get on the ladder" is not advice to be taken uncritically.

 

[FridgeMagnet]

Friend of my old man's who is a joiner had loads of stories like that from doing work for proper landed gentry in SW Scotland.
There was one where he was directed to the toilet to be used by the tradesmen while on site. When first he went for a leak he found himself admiring an original work by... I forget who actually...but it was a constable or a turner or someone of that calibre.

Heaven knows what they had on the walls in the proper lavs.

Buildings in the City often have lobbies the size of entire houses, with nothing in them apart from a couple of lifts and a bored security guard at a desk. Glass-fronted of course so that everyone can see. There's no function to them apart from to say "we have the money to do this", and also, of course, "fuck you".

 

[Quartz]

but it was a constable or a turner or someone of that calibre

I'd take that with a big pinch of salt: my parents have a Rembrandt, my aunt had a Claude Lorraine, signed & everything. Both copies, not originals (oh I wish...). They're quite common. Real ones would be behind serious security.

 

[DotCommunist]

Friend of my old man's who is a joiner had loads of stories like that from doing work for proper landed gentry in SW Scotland.
There was one where he was directed to the toilet to be used by the tradesmen while on site. When first he went for a leak he found himself admiring an original work by... I forget who actually...but it was a constable or a turner or someone of that calibre.

Heaven knows what they had on the walls in the proper lavs.

did my head in at the time, more sad than angry after a while. I'll never have a bog so big you have to do 40 paces from door to shitter.

I don't care if that sounds envious. Yes I envy their platial homes, yes I envy thier opportunities afforded by class, yes I envy that they can have land and say 'mine' and hang beutiful things in the toilet, have patterned china.

they are thieves. All that money is old blood money.

 

[sim667]

Maintenance costs haven't really gone up much. Rents go up because they can.

Rents go up in line with the cost of renting in that area..... Which is not how it should be.

I own a house in Surrey which I pay a £350 a month mortgage on, but my job is very badly paid (£11.5k a year, plus I normally get about 5K a year teaching, and I rent a room in my house out for £4250 a year).

I've been looking at a job in london, which is an hour and 45 minute commute each way, for me to rent a room in a house near there I'm looking at £800 a month, so £9,600 a year... By the time I've deducted the cost of renting there and travel, I would literally be no better off than I am currently.

For me the rental market literally makes it not worthwhile to try and further my career or even offer me a decent reason to be more flexible about where I work and live, its a joke.

 

[fractionMan]

I'd be fucked trying to live in london and support a family. I earn a decent wage but it would all be spent on rent. I have no idea how anyone does it.

 

[weltweit]

Rents go up in line with the cost of renting in that area..... Which is not how it should be.
....

That is a bit of a circular argument. I believe rents go up according to how much renters can afford to pay. For example, here, housing benefit for a single person is currently £600 pcm. That sets a minimum level for a bedroom in a shared house or a grotty one bed bedsit / studio / flat.

There is very little available at less than that. Then there are fixed levels for HB with two or three people respectively, also set by the local authority. After that there are private lets / houses at variously more according to what the landlords and agents think they can get.

 

[Roadkill]

I thought this was quite an interesting article on the topic http://www.if.org.uk/archives/5393/housing-crisis-what-housing-crisis

That article does make a lot of good points, and houses are overvalued all over the country for all the reasons it gives. However, it's worth saying that the problem is a whole lot worse in the south-east simply because of the UK's grossly lopsided economy. One thing that would do a lot of good is some serious regional/economic policy aimed at flattening out economic differentials across the country and encouraging development outside the south-east. Prices are bad enough here, but there's no way I could even think of buying in London, even on what I was earning when I worked there.

 

[Monkeygrinder's Organ]

That is a bit of a circular argument. I believe rents go up according to how much renters can afford to pay. For example, here, housing benefit for a single person is currently £600 pcm. That sets a minimum level for a bedroom in a shared house or a grotty one bed bedsit / studio / flat.

No rents go up according to what the landlord can get. And like sim says the cost of other rentals in the area is a good indicator of that.

If ability to pay was the key then rents would increase more or less in line with wages and that really hasn't been happening.

 

[weltweit]

I said: I believe rents go up according to how much renters can afford to pay.

You said :

No rents go up according to what the landlord can get. ...

Aren't we saying the same thing. i.e. landlords charge as much as they can get punters to pay!

 

[DownwardDog]

people will stop wanting to live in London, and companies will want to re-locate, when its an 80 mile commute to get your children into school, or the nearest hospital is in Birmingham.

the lunacy will continue only so long as its just about possible (and seen as acceptable/normal to eek out an existance on the combination of Tax Credits and a 'normal' wage (for 'normal', i'd suggest any salary where you're not going to be able to save up £50K+ for a deposit in less than 20 years). once that line is crossed and it becomes impossible to employ a teacher, or nurse, or cleaner, or garage mechanic etc... in greater London then London ceases to be a viable society, and people/companies will have to leave and go where the essential services are.

Working class people couldn't dream of owning their own house in London in the 19th C. and that was viable. People with crap paying jobs will just live in ever shitter and more cramped rented accommodation. It'll be like The People of the Abyss except with smartphones.

 

[ViolentPanda]

House prices have to be limited by how much purchasers can afford to pay.
At some point it must stop.

Frankly, I wouldn't apply standard market tropes like "limited by how much purchasers can afford to pay", because the market in London isn't led by need, it's led by investment capital.

 

[ViolentPanda]

The problem is the distortion of the market by outside investors with effectively bottomless pockets.

e2a: And the more expensive houses get, the more people are forced to rent and the more money there is to be made from buying to let. It's a positive feedback loop that could theoretically continue until nobody who actually lives in London owns their own home.

Yup.
And while I think that your assessment is toward the gloomy side ( ), It's entirely possible that we'll end up with the same sort of clusterfuck as we had in Victorian times, with the workers confined to crumbling rental enclaves (and by "workers" here, in this specific context, I mean anyone who does a job and can't afford to buy, so a majority of the population).
I've been making comments about council estates gradually being turned into latter-day rookeries for years. Each time housing prices in London take a leap upward, that nightmare becomes more and more possible.

 

[ViolentPanda]

You guys can't have your cake and eat it. If you aspire to buying a house you are part of the problem.

Chill out, campaign for better rental regulations and laugh at the landlords when the prices drop.

You mean, like people have been campaigning for ever since rent controls and rent control officers were got rid of in the mid 1980s?
Yep, that's worked really well!

Here's the thing: It doesn't matter how much and how well you campaign, if a majority of the emotional cripples and incontinent drunks who sit in Parliament, many of whom have been investing in rental properties for the last 2 decades at least, don't want to legislate to take money out of their own pockets.

 

[ViolentPanda]

some of these places have electricity and supermarkets. Hereford has even stopped making Welsh people ring a bell as they walk down the street...

Fucking liberals!

 

[Dogsauce]

The 'solution' will be ever smaller accommodation (I think Britain already has the smallest flat sizes in Western Europe) - bedsits rebranded as 'crash pads', apartments made out of shipping containers, people living on converted prison ships on the Thames Estuary etc. The government will laud this as 'innovative solutions to London's housing crisis'.

Thing is, London is attractive to young graduate types because of stuff going on culturally, and they'll continue to flock there and make do with what they can afford, displacing working class communities by being able to pay just that little bit more or able to call on the 'bank of mum and dad'. Most aren't wise enough to figure they're getting screwed (and people with less to pay screwed even harder) because they don't really care - existing is enough just to be somewhere where good gigs and so on are going on. Funding for cultural stuff (and loads of good social projects) outside of London was massively cut back firstly by money diverted to fund the Olympics, then by austerity. It's never come back, and a lot of other cities are relatively bleak despite the cost of living being much lower.

 

[Monkeygrinder's Organ]

I said: I believe rents go up according to how much renters can afford to pay.

You said :


Aren't we saying the same thing. i.e. landlords charge as much as they can get punters to pay!

No, I don't think so. What does afford to pay mean? If someone ten years ago was paying 30% of their income for accomodation and now they're paying out 60% does that mean what they can 'afford to pay' has changed? I don't think it does.

What people can afford to pay represents at most a bottom line - obviously if people literally can't come up with the money in any way at all then landlords can't rent to them at that price. Beyond that though it's not that meaningful on it's own. It certainly doesn't drive the increases in rent.

 

[Lo Siento.]

The other ridiculous element of London housing is that 26 per cent increases in prices make housing 10x better investment than anything else around. That kind of absurd situation basically means you can buy a house for £500k, do absolutely nothing, not even get a tenant, do the bare minimum of maintenance basically to stop the place falling down, and in 1 year you will have "earned" £108,000. That's fucking outrageous.

 

[Dogsauce]

The other ridiculous element of London housing is that 26 per cent increases in prices make housing 10x better investment than anything else around. That kind of absurd situation basically means you can buy a house for £500k, do absolutely nothing, not even get a tenant, do the bare minimum of maintenance basically to stop the place falling down, and in 1 year you will have "earned" £108,000. That's fucking outrageous.

...and also why increasing supply won't make any difference - any new development will be snapped up by investors and never be available to owner occupiers.

Tax the fuckers out of the game, but that'll never happen as the people with a stake in the game are those making the rules.

 

[existentialist]

That is a bit of a circular argument. I believe rents go up according to how much renters can afford to pay. For example, here, housing benefit for a single person is currently £600 pcm. That sets a minimum level for a bedroom in a shared house or a grotty one bed bedsit / studio / flat.

There is very little available at less than that. Then there are fixed levels for HB with two or three people respectively, also set by the local authority. After that there are private lets / houses at variously more according to what the landlords and agents think they can get.

I think that was what sim667 was saying. The market is essentially, like all (reasonably) free markets, pricing for what the market will bear. And, all the time there's a ready source of tenants who can pay the price - a bit like the property market itself - there's no reason to cut rents. Ironically, right now, all the "good" things that could happen in the economy - wage rises, increases in employment, continued increases in property prices - only serve to make the rents/property prices problem worse. I am really not sure that there is anything "good" that could possibly happen to gently reverse the upward trend.

 

[existentialist]

Frankly, I wouldn't apply standard market tropes like "limited by how much purchasers can afford to pay", because the market in London isn't led by need, it's led by investment capital.

TBF, though I see your point, even the investment capital thing is part of the market.

I suppose the one gratifying thing of it all is that, when the crash does come, a fair chunk of the equity hit is going to be taken by cold-eyed plutocrats, as well as, not so gratifyingly, actual families who only wanted somewhere to live.

 

[Quartz]

Thing is, London is attractive to young graduate types because of stuff going on culturally, and they'll continue to flock there and make do with what they can afford, displacing working class communities

It used to be the case that having a degree meant that you were no longer working class; that is no longer the case, and hasn't been for a generation.