Dear God these people are idiots

An analysis released this week by the property firm Savills spelled out just one of the reasons why. A property downturn could, it estimated, reduce the number of affordable homes being built by a quarter. When prices fall, developers’ profits shrink and they retreat from the market. And when developers stop building, promises to stop future buyers being locked out of the market by building 300,000 new homes a year aren’t worth the manifestos they were written on.

If every home in the country has just become 30, 50% more affordable, why worry about how many affordable houses are being built?

56 comments on “Dear God these people are idiots

  1. What’s the suppossed mechanism behind Brexit causing a house price crash? Brexit causes tons of people to put their house up for sale or something? Brexit stops people wanting to buy a house?

  2. SHOCKER: Estate Agents AGAINST Lower Commissions

    Also lol @ Waitrose-socialist Guardianistas finally converging with the Daily Mail.

  3. If the mechanism is Brexit => Sterling crashes => imported inflation => Carney hikes rates to subdue inflation, then yes, house prices will fall because interest rates have been raised. But that will be because Carney, not because Brexit.

    The BoE’s mandate to target inflation may not work against external shocks.

  4. What’s the suppossed mechanism behind Brexit causing a house price crash?

    Presumably the economic blockade, mass starvation, return of cannibalism, devil-worship and avocado bathroom suites, etc. will put people off buying natty little wall-signs that say “LIVE. LOVE. LAUGH.”.

  5. Hang on. The ‘affordable’ housing is not generally for buying, some may be this shared ownership malarky, but most will be effectively council houses for rent by another name, but instead of the council owning the houses, a housing association will. The bulk of the end users will be people placed in these houses because they are otherwise homeless (and penniless) and their rent will be paid by the taxpayer.

    Ergo it doesn’t matter how much the price of houses to buy drops, the sort of people who end up in housing association rentals will not be able to afford them. So if less ‘affordable’ housing is built, there are less places to put those in need of housing that cannot afford to buy it.

  6. ‘Why worry about how many affordable houses are being built?’

    The Left exploits ‘the poor’ against the Right. The Left doesn’t actually care about the poor; the last thing they want is no more poor.

  7. Jim,
    but houses built by housing association are not built by ‘developers’ in search of profit. If builders are short of work because of less developers then the housing association, if they were astute, could get the builders cheap.

  8. “The Left doesn’t actually care about the poor; the last thing they want is no more poor.”

    Thats the game for the Left – find an ‘oppressed’ section of society, pretend to want to help, when in reality its just a means to an end. Once power has been achieved, or the former pet group have no longer any use they’ll be dropped like used Kleenex. The Left have abandoned ‘the working classes’ already, in favour of the non working welfare classes, the working classes had this terrible tendency to go all right wing when they got wealthier. Women (especially white ones) and gays had better watch out, their days in the Left’s good books are numbered as Islam and mass immigration from non-PC parts of the world are the current levers to power. Everyone is expendable to the Left in their never ending lust for power.

  9. Please let this happen.
    As the prices drop below stamp duty thresholds like 250k and 925k, then trade will pick up as trading becomes even cheaper.

  10. When prices crash, volumes crash too. There is no mechanism where prices can stay low and people get into the market in numbers. If there is credit to get a mortgage, prices will rise to the level of affordability of people who have a house to sell. NOT first-timers. When prices fall people who think their house is worth £1000000 are not going to take £700000 unless they really have to. It’s a human thing, not taking a loss of what you thought was a real value. They will not put the house on the market in such circumstances. Volumes crash, few houses actually change hands at the low price.

  11. Wondered the same as Jim. Are these the “affordable” homes get tagged onto developments as part of the development permission? The one’s get let by HA’s or on part purchase schemes? In which case, the Savills whine would be justified. If the developments don’t get built, the “affordables” don’t either.
    Not saying that’s the actual reason for the whine, of course.
    If house prices drop, buyers will stay away, anticipating further falls. Which, as there will always be forced sellers in the market, will always materialise. Encouraging buyers to delay. Feedback mechanism. Further prices fall, greater incentive to delay purchase.
    Enormous fun!
    For those wise enough not to have a stake in the UK property market.

  12. Dongguan John: ’What’s the suppossed mechanism behind Brexit causing a house price crash?’

    No point buying a house if the water coming out of the taps in it will be undrinkable after Brexit…

  13. Dongguan John,

    It’s not related. It’s coincidence.

    What’s going on is the remote work thing. Companies hiring people like me in the sticks instead of people in Hammersmith. We do 1 day a week. We don’t mind it’s 90 minutes because it’s only 1 day a week. Or, outsourcing stuff to small companies in the sticks.

    The data on season tickets supports this. 9% drop last year. Now, a lot of those people will still live in commuter land as that’s where they are and aren’t going to move out overnight, but some will already have sussed they can live in Chippenham rather than Camden.

    I’m travelling to Reading most days at the moment and it’s noticeable. It used to be that after Didcot, there were lots of people standing. But it’s maybe 2 or 3 at the end of the carriage now.

    It’s going to spectacularly mess with HS2. All that demand is based on commuter growth at peak time, not a granny going to see Cats on Saturday.

    Mark my words: couple of years from now, rail will be in crisis.

  14. ” If builders are short of work because of less developers then the housing association, if they were astute, could get the builders cheap.”

    Housing associations only have the land when the builders give it to then, and thats usually tied in to the completions of the private parts of the development. Not least because a new development requires a huge investment in roads and infrastructure, which the housing association houses will piggy back on for free.

    So in a large development, the developer will have to provide maybe 25% ‘affordable housing’ overall or more accurately provide serviced land ready to build affordable houses on it. But he won’t have to provide it all up front, it will be staged, when he’s completed a % of the private bit he will have to transfer a proportion of the affordable area to a housing association, and so on and so forth.

    Any development that hasn’t been started, ie is a greenfield site with no roads etc yet might have an affordable allocation of hundreds of houses, but until the infrastructure goes in (at the developers expense) the affordable ones aren’t getting built, whoever is paying. So any site that gets mothballed because of a housing crash isn’t going to have any affordable houses built on it either, unless the housing association can afford millions to put the infrastructure in for the entire development.

  15. An alternative mechanism exists whereby the rate of new builds increases in the face of falling selling prices; it depends on the anticipated spread between future and current margins, and the land stock held by builders. As BoM4 points out, there’s a similar process for the owners of current stock.

    I suspect that the Savills definition of affordable is restricted only to those renting/buying/HA plan thingamybobs, as Jim says.

  16. “Are these the “affordable” homes get tagged onto developments as part of the development permission? ”

    Yes. Any development above 10 houses (or 1000m2 of floor space) will either have to make provision on site for affordable housing or pay a ‘tax’ to allow it to happen elsewhere.

    https://puretownplanning.co.uk/governments-planning-practice-guidance-updated-with-10-unit-affordable-housing-threshold/

    This is one of the hidden State imposed costs on development that I keep banging on about when our host has another of his ‘issue more planning chitties’ posts, as just issuing more planning chitties does not necessarily reduce the cost of building houses.

  17. When prices fall people who think their house is worth £1000000 are not going to take £700000 unless they really have to

    They might take £900,000 if they think it will go down to £800,000. People see the possibility of their gains being wiped out so get out while they still have some.

  18. Aren’t the numbers of houses being built low because developers are sitting on land, hoping the value continues to rise? That’s what we are told by the Left. Why would developers hang on to land whose value is falling?

  19. “Why would developers hang on to land whose value is falling?”

    You have to remember that the average person (and I include the average journalist and politician in that) have no idea how the development process works.

    Developers own very little land. They only own the very small amount they need at any given point to build houses on, ie the bits that are actual building sites. All the rest will still be owned by the original landowner (often a farmer like me for a greenfield site) and controlled by the developer via option agreements. They NEVER buy large amounts of land in advance of literally sending the bulldozers in, as getting planning permission can take years and is fraught with risks. They don’t want to buy a site, then fail to get planning – they would have lost all their money.

    What they do is sign an option with the landowner, promote the site through the planning process and hopefully at the end of it get a planning permission. At this point they still own not one acre. Then eventually when all the sums add up, the costs of the development are less than the profit from selling the houses, and when the diggers are ready to roll they will finally trigger the option and buy the land. And if its a large site, they won’t buy it all at once, the option will usually allow them to buy it in tranches, as they need it.

    Ergo if the housing market crashes they may build out the small section that they own, but stop triggering any more purchases from landowners. Entire development projects with full planning can be sat ready to go for years, but the developer owns none of it. Similarly in a half developed site the unused bit will probably still belong to the original landowner. The developer just sits there waiting for the selling price to rise enough to make the project viable to start up again. It doesn’t cost them a dime, because they have no money tied up in the land, just the sunk costs of the original planning permission.

  20. The point is that all the “affordable” houses are *not* affordable – they are subsidised by the private sector buyers of the other houses in the development. When the suckers are no longer willing to pay up to 90% more than building cost the developer cannot turn an adequate (i.e. enough to cover his cost of capital including the risk premium) profit on the site so he doesn’t build.

  21. “Including the cost of the option (to buy).”

    Slight potential for confusion here; the option isn’t necessarily a straight call in the financial/investment sense, with the whole premium paid up front. The ones I know of are profit sharing agreements, with the cashflows having different timings. Works out to be the same thing though.

  22. “When the suckers are no longer willing to pay up to 90% more than building cost the developer cannot turn an adequate (i.e. enough to cover his cost of capital including the risk premium) profit on the site so he doesn’t build.”

    Hmm. It’s almost as if this requirement to build “affordable” houses is reducing the supply of housing.

    Wouldn’t it be better to just build more houses, “affordable” or not, and have they extra supply drive down the price of the cheapest houses?

  23. Rob

    “Aren’t the numbers of houses being built low because developers are sitting on land, hoping the value continues to rise? That’s what we are told by the Left. Why would developers hang on to land whose value is falling?”

    I got in to an argument with a lefty who kept banging on about developers sitting on land so I went and had a look at one of the major house builder’s annual report. The chairman’s report was quite clear about the data and when I looked at their houses under construction, time to build, land in planning permission, time to obtain planning, right to buy options etc they had a pipeline that stretched about 10 years. I set it all out and then said that it looked quite prudent.

    My lefty interlocutor didn’t respond so I presume he was unhappy that his assertions had fallen apart.

  24. “Including the cost of the option (to buy).”

    Which in the scheme of things is peanuts. A few legal costs and they usually bung the landowner a bit of cash up front as an option fee, maybe £100k, a bit more if the land is a very good prospect for development. And they get the option fee back (in the form of a reduction in the sale price) if they buy the land. They only lose it if the option runs out, then the landowners keep the fee.

    Basically development companies use the landowner as their bank – the landowner has signed away his asset (in that he can’t sell it to anyone else) but hasn’t actually received the sale price yet. Indeed the sale price is not normally known when the option is signed – as these things can run for decades sometimes, its all done via a formula comprising valuations and costings. The landowner doesn’t know what he’s going to get at the start, he will be fed a line by the developer about the untold riches he’s in line for if he signs, but strangely enough when the time comes to buy any land the valuations are never as rosy as predicted and the costs have risen exponentially, and the poor old landowner gets the shaft, unless he’s had some very good advice at the outset, and has some way of controlling the developers antics. Developers are utter sharks, they would sell their own grandmothers twice over for an extra £ or two.

  25. @Jim; thank you for that. I’m interested in a site near us: heavy equipment has been earth-moving for more than a year now, but the only actual buildings going up seem to be at the furthest end of the site from us. Does this imply that the developers now own the whole site – because the earth-moving seems to have occurred over much of the site – or perhaps only the part where they are actually building?

    Story I liked: when the developer’s surveyors first took an auger onto the site and withdrew a soil sample, the chap in charge said “Good God, it’s clay”. Clay? Near Cambridge? Clutch your pearls! Unheard of!

    Second story: a different large development was planned on the edge of Cambridge – a University-owned site. There was a public meeting so I went along. After the chatter and the boasting, questions were invited. Says I “What are you doing to ensure that the ground where the former Virus Research Lab stood is safe?” Consternation! Neither the university people nor the builders nor the planners had known that there had been such a lab on what later became a field of the University Farm.

    “How did you know?” one wailed. “Research”, I said sarcastically, “I looked at an old OS map”.

  26. But don’t the Remainers tell us that millions of hard-working Europeans will leave on Brexit (because they don’t feel welcome, even if they don’t have to)?

    So there should be millions of empty homes, combined with the price crash, leaving lots of available, affordable property.

  27. Found it:

    I was intrigued by this idea of land banks so had a look at Persimmon’s half year results.

    The Group owned and controlled 98,712 plots in its consented land bank at 30 June 2017 (December 2016: 97,187 plots) with c. 49% previously held by the Group as strategic land. Within this total, the Group owned 53,180 plots with detailed planning consent. The Group is developing all sites where it has secured a detailed consent.

    My emphasis, which implies they don’t like sitting on land.

    Looking at their numbers they have 97,187 – 53,180 = 44,007 plots with consent that they haven’t started. Legal completions are about 15,000 a year so they have about 3 years supply in the pipeline. That doesn’t look unreasonable to my untrained eye.

    And it also look like they’ve just had a major project get planning consent so those figures may be misleading but I haven’t got the inclination to go back over the years.

    It also goes on to say:

    In addition to its consented land bank the Group owns and
    controls c. 16,340 acres of strategic land. The Group’s planning teams continue to work hard in partnership with local communities and planning authorities to bring this land through the planning system so we can make a start on our development plans as swiftly as possible.

    A quick Google has a couple of claims of 10 houses per acre. I’ve no idea of the provenance of that figure and it will depend a lot on where the land is, but if that’s roughly right they have about 160,000 plots in various parts of the planning process. Which is about 10 years worth of land. Given the capricious nature of planning that doesn’t seem too bad and sort of gives lie to the idea that capitalists are short termists.

    I know a recent development that has just completed near me started the planning process before we moved in just over 7 years ago, but that might be abnormally slow given we’re in the countryside.

    Overall I don’t think there’s the problem that people keep complaining about. Planning consent for and building large developments takes a long time so its prudent to have a long pipeline.

    PS If I worked for that company I’d be quite pleased that I worked for such a far sighted management team.

  28. “Does this imply that the developers now own the whole site – because the earth-moving seems to have occurred over much of the site – or perhaps only the part where they are actually building?”

    Depends how big the site is. If less than 25 acres they probably own the lot. But on large urban extensions of hundreds or acres there will definitely be clauses in the option for the developer to take land in tranches, usually of about 20 acres per time. Plus they might buy a specific area (for a storm water lagoon, or access road for example) at the beginning, but not buy the areas around it for housebuilding until much later. They may even have clauses that allow them to put in roads and do general earthworks before they even buy the land.

    Each option between developer and landowner will be different, based on the relative knowledge/negotiating power of the parties. Bodies like Oxbridge colleges will undoubtedly be no pushovers for developers, and drive a hard bargain. Little old pensioner farmers who just happened to have bought a farm somewhere that decades later is in the expansion zone of a fast growing town or city can often get completely raped by developers, because they trust what they are told at the beginning, and sign some option that allows the developer to steal the development value of their land, legally.

  29. “If I worked for that company I’d be quite pleased that I worked for such a far sighted management team.”

    Persimmon are well known in the industry for being the Ratners of the housing world. Build the most cheap shoddy development possible, and sell the houses for the highest prices they can get and screw everyone they can sideways – landowners (who get less for their land because of legal wrangling), local councils (who get run roughshod over on design requirements and quality control) and house buyers (who are buying shoddy product but at the same price as a better built house down the road. I’d be prepared to bet that some Persimmon houses won’t last the 25 years of the mortgage, or will be completely shagged and worthless at the end of it, they are that badly built.

    There’s a reason their former CEO got that massive share price bonus payout the other year, £75m I think…….they didn’t make all that money by being nice.

  30. @Gamecock, November 30, 2018 at 12:46 pm

    The Left exploits ‘the poor’ against the Right. The Left doesn’t actually care about the poor; the last thing they want is no more poor.

    and
    @Jim, November 30, 2018 at 12:59 pm

    +1

    I wish more people would realise this.

  31. If anything, listening to the British discuss building houses reminds me of the old “Gas Cooker” sketch by Monty Python.

    How in the fuck does anything actually get done in Britain? And by “anything” I mean “anything useful”, because with the British it seems you must be very precise on that point.

  32. Hey Dennis, has that wall been built yet? Has Obamacare been fixed? How is it in Detroit and Baltimore ?

  33. I can’t help but notice that you didn’t answer my question. Which is about what I was expecting.

  34. @DtP

    In my bit of industry (heavy engineering) everything gets done by the following procedure.

    1)Company needs something doing

    2)Company gets contactor in to do it

    3)Contractor produces file of paperwork explaining how everything will be done

    4)Company reads said paperwork, then turns a blind eye to:

    5)Contractors ignore all the paperwork, and do what actually needs to be done to do the job in a sensible time.

    Thus everything gets done just fine (and just like it always did), and if it all goes wrong the contractor gets hung out to dry (and most of them are only small outfits with half a dozen lads and gear to match).

    Sometimes there are several additional layers of contractors before one actually arrives at the lot who do the work.

  35. @DtP

    Were you molested by a Brit when a child? You seem obsessed with running the Brits down, as if somehow it makes you feel better, vindicated.

    Which even if the US were perfect, would be rather sad. Given that many of your views are broadly similar to many of those expressed on here, your seeming determination to have a go at the greatest nation that ever existed, puts you firmly in the Murphy camp of “how to lose friends and piss people off”.

    We’re doing fine here thanks. The average Brit grumbles a bit then gets on with things. Far better than the soon to be average American, who will be a Mexican.

  36. Jim,

    The term “working class” has shifted from people doing physical labour to the welfare recipients who treat their vagina like a clown car. What used to be called the underclass.

    You won’t get the actual working class voting for the likes of Corbyn. I’ve worked with enough of these people and they’re some of the most anti-left people you’ll meet. They support a moderate welfare state, hate scroungers more than anyone else. They don’t mind poshos and are far less about class war than the left think. If Jacob Rees-Mogg has good ideas theyll vote for him.

    Seriously, one of the greatest libels by the left is the idea that poor people won’t vote for people with posh accents, and that politicians have to show they love football and beer and know the price of a pint of milk.

  37. Oh the left accept that some poor people vote for the likes of JRM and usually call them forelock tugging retards or something.

  38. ” They don’t mind poshos and are far less about class war than the left think.”

    The working classes and the aristos have far more in common than the either have with the middle classes. Both enjoy having a good time, often involving shooting guns and killing things, while drinking. Or driving very fast cars at breakneck speed, or enjoying the company of the opposite sex. The first thing a working class winner of the lottery does is effectively attempt to recreate the lifestyle of a peer of the realm c. 1930. Its the kill joy middle class prodnoses who are in charge of everything nowadays that no one likes, and they live sad unfulfilled lives to boot…….

  39. @ Rob Fisher
    Be careful – if Corbyn gets in you will be sent for re-education.
    Thinking for yourself and deviating from the party line.

  40. @Dennis

    Monty Python – Cooker Sketch

    This was in Pre-Thatcher era where one could only buy a Gas Cooker from the Gas Board or an Electric Cooker from the Electricity Board or have (rent) a telephone from the GPO.

  41. @The real Donald, November 30, 2018 at 9:17 pm

    Hey Dennis, has that wall been built yet? Has Obamacare been fixed? How is it in Detroit and Baltimore ?

    and Portland

  42. @ Rob Fisher

    “Wouldn’t it be better to just build more houses, “affordable” or not, and have they extra supply drive down the price of the cheapest houses?”

    London has the most houses. How’s your model working out there?

  43. @The Thought Gang
    If there was suddenly less housing in London, with similar demand, do you think property prices would go down; stay the same; or go up?

  44. @PJF

    Assuming we’re not going to destroy so many homes that London becomes a less attractive place to live, they would rise.

    But building enough new ones to get prices down to the level of affordable homes requires a volume of building that seems a little ambitious given that building levels so far, cumulating in the ‘several millions’, hasn’t done the job.

    If you can’t see that cities comprehensively disprove that land values follow the supply-price dynamics of other markets then you’re a bit of a silly.

  45. “But building enough new ones to get prices down to the level of affordable homes…”

    That’s not what was suggested in the quote you picked up. What was suggested was that more houses will result in cheaper houses (than without more houses). Simples. Obviously, that still doesn’t make them affordable to all. Some people will have to rent. Some people will need assistance to get a roof – but that assistance will reduce the supply (and therefore increase the cost) of houses for everyone else generally.

    “If you can’t see that cities comprehensively disprove that land values follow the supply-price dynamics of other markets then you’re a bit of a silly.”

    ?
    I didn’t mention land values. Why change the subject, unless the objective is to win a silly straw man argument with yourself.

    As to city “home” prices, you’ve just said yourself that they do respond to supply.

  46. The suggestion was to get more ‘affordable homes’ by building more and letting the market do the job. Instead of interfering and mandating that some homes be built and provided at below market value. Yes?

    So whilst we can agree that more homes will, shall we say, mean homes are priced lower than they would be without those homes.. that does not mean that they (or any) homes will meet the criteria for affordability.

    And homes are built on land. Most of the value of the home lies in the land. I’m not trying to change the subject. Feel free to read ‘land’ as ‘homes’ because it changes nothing.

    Now if you’re sticking with the notion that more homes means lower prices, please explain why houses in London cost so much more than they do in everywhere that has fewer, how many more houses need to be built in London to change that, and where (in London) you would build them.

  47. @ TTG
    There is lots of empty space around the Tower blocks in many outer London boroughs because Attlee’s planning act didn’t differentiate between two storey houses and 16-storey blocks of flats when setting a limit on dwellings per acre.

  48. Net immigration into the UK is running at c.300k/yr. Assuming 2 people per housing unit, thats 150k extra housing units required per year, just to stand still. And strangely enough completions are running at c. 150k, give or take. So its no surprise that house prices aren’t falling especially in the places where all the new immigrants are arriving, as in those areas demand from new arrivals must far exceed supply.

Leave a Reply

Name and email are required. Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.