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Immigration Drives Down UK House Prices Says Clueless Financial Times

Housing-Market / UK Housing Jan 10, 2014 - 05:49 AM GMT

By: Nadeem_Walayat

Housing-Market

Having scoured the mainstream press for their views on immigration and house prices for a comparison against my recent series of UK housing market articles led me to the venerable FT that not so long ago ran with an academic study that goes against decade long facts of upward pressure on house prices due to immigrant demand, which instead concludes that mass immigration tends to drive down house prices in a study by Dr Nils Braakmann from Newcastle University.


FT - Immigration drives down house prices, says study

Preliminary findings from Dr Nils Braakmann from Newcastle University run counter to received political wisdom that the substantial influx of eastern European migrants over the past decade is one of the main causes of the sharp increase in British house prices.

A look at the actual study rather than which was regurgitated by the pseudo economist FT journalist reveals that the study is based on what happened in parts of the United States, and even then picked Miami which if one looks at the historical record was subject to literally boat loads of criminals totaling more than 100,000 set free from Cuban prisons by Fidel Castro during the 1980's that did as the study concludes result in many parts of Miami experiencing a fall in house prices, as such an outcome would also take place in any UK city if the government were to release tens of thousands of prisoners into them, resulting in many hard working families moving out of rapidly crime infested city where no decent hard working person would want to live in.

But for some reason that I don't entirely understand, the Newcastle University academic took this and applied it to immigration into the UK to imply that immigration drives down house prices when despite being a complex picture the overall reality is for the exact OPPOSITE to take place as I have covered in depth in several articles during the past 12 months as excerpted below. The big elephant in the room that has experienced the greatest immigration and consequently greatest price rise i.e. LONDON has apparently been ignored.

Even a 10 year old could have done a better job than the FT has. It's very simple! If immigrants displace the indigenous population then where do you think those people go? DOH! They go and buy houses elsewhere! The concluding logic is CRAZY for what the FT is implying is that if you want house prices to fall by 50% then let in 30 million immigrants! This must be one of the dumbest articles the FT has ever published!

So the main point of this article is the way the clueless mainstream media tends to take obscure academic research and runs with it as though it was something important / so significant that it needs to be urgently shared with its readership, after all this is from the FT and not from some obscure internet blog.

This explains WHY the mainstream press repeatedly gets virtually EVEYRHITNG wrong because they are addicted to regurgitating academic research without the requisite skills to have any real clue as to the value of the research and what actually drives markets and economies, they have no concept of the fact that the only mechanism that works where market analysis is concerned is for the writer to have been conditioned via the powerful mechanism of profits and losses over hundreds if not thousands of transactions that skews ones perception in favour of that which is the most probable rather than playing pin the tail on the donkey which is what clearly the mainstream media right from the FT downwards appears to do. How can journalists understand markets that they have little or no experience of successfully trading. Instead of asking an academic they would have a greater probability of arriving at a correct conclusion by flipping a coin! Though what they should have done is to survey what has taken in place in cities such as London which has witnessed soaring house prices as a consequence of IMMIGRANT DEMAND! What mindless drivel will they publish next?

My extensive analysis of the impact of immigration on house prices excerpted below:

03 Jun 2013 - UK Housing Bull Market Opportunities In Britain's Multiculturalism Immigration Crisis

UK Housing Market - Limited Supply and Ever Increasing Demand

The influx of upto 500,000 migrants over the next 3-4 years will be housed in large part by the state either in private landlords or in social housing. Therefore this will continue to put immense pressure on social housing which will effectively put the final nail in the coffin of council and housing association waiting lists where it will be virtually impossible for those in existing social housing to move to another social housing in major urban areas, the only option available will be to move out of social housing into private rented accommodation as the focus will be further intensified towards only housing homeless British and migrant families.

However as I earlier noted in the article (13 Mar 2013 - SMI Labour Benefit's Culture Catastrophe - Come to Britain and We Will Pay Your Mortgage!) that the benefits system does allow claimants to engineer the purchase if properties where the interest on upto £200,000 of a mortgage is paid for by the tax payers in perpetuity. This currently results in the state paying for over 250,000 mortgages, where approx 50% of claimants are pensioners, despite the fact it was meant to be a temporary support for workers losing their jobs.

The impact on the housing market will be two fold, firstly it will encourage the indigenous population on Benefits into temporary employment as that will be the only route for many to move to a better located property and it will lead to further demand for private rented properties, both of these will have the effect of creating demand at the bottom end of the housing market that will ripple out across the housing market due to increase in housing market transactions which is the real life-blood of the housing market.

This article illustrates just one aspect of the many factors that are exerting upward pressures on UK house prices that I have been flagging since the start of the 2012, as the embryonic bull market of 2012 increasingly morphs into a full fledged bull market of 2013 and beyond, which off course is already well underway in London courtesy of the top down ripple effect of the annual influx of billions of dodgy funds not just from Russia but from across the whole globe which sees London's properties as one of the ultimate safe havens that has already had the effect of wiping out the preceding 25% London house price crash and which I expect to be replicated near nationwide over coming years.

HOUSING MARKET OPPERTUNITIES

Ghetto's and House Prices

Whilst the immediate reaction to an new influx of migrants into existing indigenous area's will be to push down house prices, as the existing population tends sell up and move out. However over time as the Ghettos become more established then there will be a tendency for the epicentres of most Ghettos to see an above average increase in house prices as the 150,000+ annual net immigration results in a continuing extra demand for housing in these areas whilst at the same time there will be a tendency for the outskirts of the ghetto's to lose house price value in a ripple out effect as the indigenous population seeks to relocate and move out of the changing ethnic environment and thus increasing supply of properties on the outskirts of ghettos. As is always the case many additional factors need to be taken into account such as the the unemployment rate, crime rate, risk of flooding, quality of schools etc, especially as migrants will tend to push down school performance tables due to the extra demands such as poor language skills and cultural differences.

The investment opportunity here would be to accumulate properties on the periphery of ghettos with a view to rental income as it is expected an expanding Ghetto will push up house prices in the future.

Inner City Mansions Up for Grabs

Apart from traditional buy to lets in expanding Ghettos, there is also an ongoing opportunity to literally pick up mansion size properties right smack in the middle of many urban areas of most of Britain's major cities.

Without knowing it you will likely pass by many of these boarded up large properties on a daily basis without ever giving them a second thought as to the opportunities they represent. Furthermore the supply is not diminishing instead another 20 such large properties join their ranks every week! What can I be referring to ?

Pubs!

Literally thousands of pubs have closed over the past 10 years as a consequence of the super markets taking much of their traditional business away whilst local demographic changes courtesy of the immigration crisis virtually wiping out most of their remaining customer base as traditional British pubs do not tend to be frequented by immigrant populations, this has resulted in a huge opportunity for property developers that I have personally witnessed, where those with time on their hands can make as much as X4 the cost of purchase and development by turning boarded up pubs bought at auction into flats and commercial premises or if they so desire a large residency for their own use.

In the local auctions that I track at least 2 or 3 pubs crop up each time, many require much work in terms of planning and building works and thus can be picked up for far less than much smaller residential properties within the same area, and thus huge rewards are possible for those with the ability to capitalise upon them.

Opportunities in Closed Down High Street Shops

Whilst thousands of shops are closing down across Britains high streets each year due to competition from the internet, shopping malls and ridiculous local council policies in terms of high parking charges. However this presents an ongoing opportunity to pick up retail properties in a similar manner to pubs on the cheap on the outskirts of the expanding Ghettos as immigrant populations will tend to seek out stocks of goods and services that are not provided for by the super markets or chain shops but rather available from local community shops.

My recent demographics analysis explained why continuing out of control immigration looks set to drive house prices higher not just for 2014 but for the next two decades!

09 Jan 2014 - U.K. House Prices vs Supply, Immigration, Population Growth and Demographics Crisis

UK House Building and Population Growth

The below graph shows the UK annual population change against annual new housing build completions.

UK house building and population growth

The graph illustrates a major long-term shift took place in the UK housing market dynamics by 2000 when the annual increase in population started to far exceed the number of new builds that ended the preceding trend for construction to exceed population growth in terms of addressing the UK's chronic long standing housing shortage, especially considering that the average size of households has continued to shrink falling from 3.1 in 1960 to just 2.25 in 2013 (one of the lowest in the world) as a consequence of the increase in single person households and single parent families. Therefore instead of increasing house building during the immigration catastrophe the exact opposite has taken place as far fewer houses were built each year than during the preceding decade This ratio is only trending in one direction i.e. lower which means that even if the UK population suddenly stopped increasing then the falling ratio towards 2.15 by 2030 would imply demand for an EXTRA 1.25 million properties.

The below graph further illustrates the ratio between the accumulative change in population since 1970 against the accumulative number of new housing builds also since 1970 as a ratio that shows the level of UK over crowding.

This better illustrates the change in trend that started to take place during the mid 1980's that coincided with the Thatcher governments reversal of the policy for the construction of social housing and implementation of the right to buy programme that resulted in the sale of millions of socially owned local council housing that ignited the property boom of the nineties AND noughties, the trend that was set in motion was for the inability of supply to keep pace with population growth which ensured continuously persistent upward pressure on house prices that despite the great recession still showed an accelerating trend as new build supply that currently stands at an estimated 140k per year is set against government estimates for a requirement of at least 250k per year, with 300k a more realistic estimate when the trend for a falling household size is taken into account, which thus ensures that the UK's over crowding situation is expected to continue to worsen year on year going forward, especially if the size of average households continues to shrink which would require 70,000 new builds per year even if the population stopped increasing.

And this analysis does not even consider the fact that each year the total number of properties remaining empty continues to rise either as a consequence of being for sale, let, legal issues or falling derelict. This totals now more than 1 million empty properties at any one time, a number which despite demand looks set to continue to rise as many of the derelict buildings will only come back on the market when they have been demolished and rebuilt, so erroneously counted as new builds when they should be classed as rebuilds.

Implications for House Prices

New build supply plays an important role in the housing market as it tends to average at approx 10% of the total number of annual transactions, which is more than enough to have a significant effect on the UK housing market especially as supply over recent decades has been consistently below that which is deemed necessary to meet the demands of a growing population which meant that the UK housing market was never destined to replicate the housing busts of countries such as the United States or even closer to home of countries such as Spain, where that housing bust has prompted many hundreds of thousands of British ex-pats to cut their losses and return to the UK, closely followed by unemployed Spanish and other PIIGS citizens seeking employment in a far more liberal and robust UK jobs market and thus introduce new demand into the UK housing market.

This suggests that the often put forward academic standards in terms of valuing the housing market affordability ratios such as X3.5 salary towards the likely path for the UK house prices does not take into account that of new demand against new supply trend that implies affordability ratios look set to be pushed ever higher to new trend extremes, and therefore supporting long-term rising price trends for UK house prices in real terms, i.e. expensive UK house prices look set to be here to stay for as long as the lack of new supply exists, especially as the UK population is expected to grow by at least another 5 million over the next 10 years and probably nearer 6 million which demands at least an extra 2.5 million homes to be built which is set against an realistic estimated construction of just 1.4 million new homes, which means UK over crowding is going to continue to get much worse and thus drive house prices ever higher.

The bottom line is Britain's over crowding ratio insures that no matter what the arguments are put forward by academics that many people just cannot afford to buy so house price rises must be unsustainable, instead the population growth fundamentals are such that their argument just does not matter, the only thing that can effect this fundamental trend is if the UK literally doubled the number of houses built per year, and even then it would not result in a fall in house prices but tend to index house prices to inflation. But off course that is not going to happen, the UK is not going to build anywhere near 300,000 homes per year, as the reality is that for most years UK house building will be short by as much as 150,000 completed new builds each year which will just compound the housing market demand vs supply pressures and thus exert further upward pressure on house prices.

Source and Comments: http://www.marketoracle.co.uk/Article43901.html

Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2014 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series.that can be downloaded for Free.

The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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