[rhubarbtree]

I’ve posted this before, but I think the reason house prices are expensive in the UK is that they are an asset. If the rich can buy that asset and make a return, they will buy it. So price equilibrium is where rents are at an absolute maximum that can be born by tenants. As the price is determined the potential yield, the price then rises as high as possible.

Building more houses won’t change this situation until the number of houses is greater than the number of tenants. At the point where the number of tenants equals the housing supply, the returns can still be made and prices will be bid up.

The problem is that is a competition between the rich buying as an asset vs the rest of us buying as a home. The only solutions are to reduce or eliminate the possible returns for the rich.

And as posted if the prices are then allowed to fall, the whole economy is in danger, because it is based on the creation of illusory wealth via asset inflation. Remortgaging a house that has risen in price feeds money into the economy, despite no wealth actually being created. And the entire economy is based on this, because the rest of the economy has been destroyed by neoliberalism.

[matt-p]

Yes, it's seriously unhealthy to have most of peoples individual wealth tied up in the fact that there's constrained property supply. If we just built a bunch more housing (or removed net immigration) such that house prices dropped say 25% (which would still be too little, actually), people would be in negative equity, the banks would collapse, government voted out, riots in the street. Yet it's whats needed. If a late 20's professional in London is earning £40,000 after tax they're doing fairly well, yet a one bed flat in zone 2 would still be 10X their annual income.

[automatic6131]

>Building more houses won’t change this situation until the number of houses is greater than the number of tenants.

That's wrong though. Building more houses eases this situation as it approaches the number of tenants. It gets better! Better is good!

And the (perceived) appreciation of houses is also part of the asset price, not just the rental income.

[rhubarbtree]

> Building more houses eases this situation as it approaches the number of tenants. It gets better! Better is good!

Why? I don't see any reason this should be true.

[matt-p]

arguably asset price is built on scarcity vs demand everything else is all second order really.

[rhubarbtree]

No, asset price is built on yield, not on scarcity. That is exactly my point.

It's a bit brain-melting, but once you realise it, the talk of NIMBY-ism etc. is just irrelevant.

If you add more assets with a good yield, assuming that yield is better than bonds etc., then those assets will get bought.

The only other brake on that is diversity of portfolios, but it doesn't strike me as particularly important, especially if many landlords only own a few properties.

[matt-p]

Yes, but isn't yield due to scarcity?

For example right now there's more demand than supply for a 2 bed house for £2000pcm, but if we doubled the supply then there'd be competition and we'd end up at a much lower price?

[jamil7]

This assumes the population of a city is fixed.

[dukeyukey]

> but I think the reason house prices are expensive in the UK is that they are an asset

Houses are also assets in other countries. It's not uniquely a British thing.