The UK housing market is “broken”.
That’s according to communities secretary Sajid Javid. He was talking at the launch of a major government white paper on the housing market.
According to some analysis the UK has built 2.5 million too few homes in the last decade. I’m not exactly sure where that number comes from. Unless there are 2.5 million people out on the street, I can’t quite figure out what the “right” number of houses is.
But if you start from the position that you want everyone to be able to buy their own home – and often that means a place big enough to start a family. Certainly in London that’s difficult to do. So perhaps that’s what the shortfall relates to.
I’m not sure if that means the housing market is broken. I’d say the balance between available supply and demand is out of sync. How does that relate to Akhil Patel’s “Grand Cycle” theory – that we’re on the verge of a huge upswing in house prices?
I put that question to him. Specifically, I asked him to answer this note, which a Capital & Conflict reader put to me:
A huge bull market for property? Surely not!
I can’t agree with Akhil’s argument as the underlying economic fundamentals do not support it, at least not for property.
The UK property market is already in a bubble within a bubble, especially in the south. With interest rates on the floor and the BOE [Bank of England] printing money again like there is no tomorrow, it is clearly not sustainable.
Another property bubble is the last thing society needs if we are to have more social cohesion. Who can afford property in the south and south east? With another bubble everyone will be priced out or they will be debt slaves for a hundred years!
I suppose I should point out that what society needs… and what society gets… are often two different things.
Akhil doesn’t publish his ideas to tell you what should happen. He uses his understanding of 200 years’ worth of data to come to what he believes is an accurate and objective forecast about what will happen to the housing market.
Here’s what Ahkil had to say in response:
The main thrust of the first question is really about UK property being already far too expensive. You will get no arguments from me there, actually.
It brings to mind something I read in The Independent recently:
“Those of us sitting prettily in properties of our own can bask in the warm knowledge that our assets are increasing, unless of course we want to trade up. Not everyone is so smug, and for first-time buyers rising house prices equal rising panic and the fear of never getting even a toe on the property ladder.”
This about sums it up, right?
Except this quote is taken from the newspaper published in June 1998, almost 20 years ago. How we long for those days now, when property was supposedly so much more “affordable” than it is now. But not in the view of people at the time.
My point is that we have always felt that property is overpriced. And yet people have continued to buy. Maybe later in life or less often; maybe further out from the nicest areas; or they have bought smaller places; or have taken on more debt. For longer periods.
We must not mix up what we regard as expensive with what people are prepared to pay.
The reality is that people adapt to the property cycle rather than vice versa. And this supports property prices rising to previously unimaginable levels. It is assisted by the financial system which, over time, develops new products to enable purchase property. This is an earnings carousel that spins out an endless stream of earnings for the banking system.
You don’t have to take my word for it. Over 200 years of history bears this pattern out. Cycle after cycle. Falling interest rates have certainly supported price rises in the UK, but that’s not the only story – rising demand for housing as well as relatively stable growth have played as much of a role.
As economies grow the gains ultimately end up in the value of land. This is an ironclad law of economics that drives the cycle forward.
And, yes, the divide between those who own and those who do not gets wider and wider. Rising inequality is hardwired into our economies under the present arrangements, unfortunately.
If you want to see Akhil’s arguments in full. Keep in mind that all our products have a money back guarantee period of 30 days. That gives you the time to hear Akhil out and make a much more informed decision about whether his work will help you invest successfully.
Have you ever made ten times your money?
What’s the biggest gain you’ve ever made from your portfolio?
Most people have seen at least one or two “doubles” – unless you’re highly conservative. But what about stocks that could make you ten times your money? Ever got close to that?
I have something you should see. I’ve been working on a new project focused entirely around finding stocks with the potential to become “ten-baggers”. Not just one or two stocks, either. A whole portfolio.
I’m hosting a live event next Wednesday to celebrate us naming these stocks. I’ve also had a brand spanking new website built to share our research. And it’s all free of charge. If you’re interested, get your name down to find out more by following this link.
The consequences of failure
Let’s have another look inside the mailbag.
My letter about banking and freedom, got a lot of thoughtful feedback. Here’s one that caught my eye.
I think the point you are missing here is consequence.
It’s fine to give people/businesses the freedom to take risks, as long as it is only the risk taker(s) who is/are mainly exposed to the consequences if their ideas fail.
When the banks failed the risk/reward balance was clearly fatally flawed. The problem was not poor decision making (which is after all subjective and easy to identify with hindsight) but the fact that the people who took the risks were hardly exposed at all to the impact of the eventual consequences. In actual fact many of those involved got away virtually unscathed and society as a whole picked up the penalty.
On the contrary: the entire debate is about consequences.
All actions have consequences. The banks’ decision-making in the lead up to the crisis had severe consequences. I’d argue that the bailout and subsequent “emergency” monetary policies will have equally severe – and insidious – consequences.
But I agree, it feels unfair if shareholders in a bank – or even deposit holders – pay the penalty for failure of the management. By the way, that’s one of our motivations for fighting against the abolition of cash.
If you don’t like the way a bank is operating, you can move your money elsewhere. You don’t have to buy banking shares if you don’t want. And you can, in theory, move you deposits elsewhere. That might be another financial institution, or into gold, property or cash. Cash is the lowest risk move there. No cash means you’re locked in the system. It makes it more likely you’ll bear the brunt of someone else’s failure, because one avenue of escape is closed to you.
Some Thursday philosophy
And finally, a little philosophical riddle for you… courtesy of one of your fellow readers. It refers to another idea we discussed this week: how free should researchers be to develop gene editing technology? (Read the full piece here.)
I would say that science, and therefore technology, has both an inner and an external logic.
Inner: answers the imperative: Just do it! So, if it’s possible to invent a three headed “Frankenstein Monster’’ that eats dogs for breakfast, cats for lunch, and us for supper, then sooner or later, that could happen.
External: promotes the flourishing of the human race. But who defines and decides what is meant by “flourishing’’? A question for moral philosophers, perhaps, but who would listen to them? Would they necessarily agree?
So, it would appear that what happens is largely out our hands.
That may be, or it may not. But don’t be fooled into thinking that if something is “out of our hands” we should ignore or disengage with it.
In fact, if we cannot control something, it’s all the more important to understand and anticipate it.
Category: Economics