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Urgent Stock Market Message

UK Election 2015 - Cameron Housing Bribe - 200,000 Discounted Homes for 400,000 Voters

ElectionOracle / UK General Election Mar 06, 2015 - 05:06 AM GMT

By: Nadeem_Walayat

ElectionOracle

The latest Conservative party election bribe is for 200,000 starter homes to be built and sold at a deep 20% discount of market value which translates into an potential bribe of as much as £90,000 per home buying couple! Therefore targeting a potential of 400,000 voters, enough to tip a handful of marginal seats in the Tories favour.


The specifics of the pre-election bribe are that a Conservative government on re-election would build 200,000 starter homes on brown field sites by 2020, that would only be available for under 40 years of age first time buyers. The discount would be capped to 20% of £250,000, and for London at 20% of £450,000, where the cost for construction would be subsided by local authorities and home buyers would be locked into holding for at least 5 years.

This huge bribe of as much as £90,000 per home buyer ultimately translates into an tax payer funded bribe of at least £12 billion. However the truth as illustrated in my UK Housing Market 2014-2018 ebook (FREE DOWNLOAD) is that Britain faces a housing catastrophe as a consequence of a soaring population as a consequence of out of control immigration, that demands at least 250,000 homes to be built each year against which less than 120,000 are actually being built, where an extra 200,000 new builds over 5 years would amount to just a mere drop in the ocean as by 2020 the gap between what the nation demands and what is actually being built will have further expanded by an additional house building deficit of 450,000 homes.

Whilst Labour not to be out bribed also upped the anti by promising to magic 200,000 homes PER YEAR into existence, a promise that does not stack up to scrutiny of where and how Labour will achieve what it was never able to achieve whilst in government and during an easy money credit boom. Of course neither promise is credible and both will likely be brushed under the carpet post election.

UK Housing Market Ebook (FREE DOWNLOAD)

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.

UK House Prices 5 Year Forecast

It is now 14 months since excerpted analysis and the concluding 5 year trend forecast from the then forthcoming UK Housing Market ebook was published as excerpted below-

UK House Prices Forecast 2014 to 2018 - Conclusion

This forecast is based on the non seasonally adjusted Halifax House prices index that I have been tracking for over 25 years. The current house prices index for November 2013 is 174,671, with the starting point for the house prices forecast being my interim forecast as of July 2013 and its existing trend forecast into Mid 2014 of 187,000. Therefore this house prices forecast seeks to extend the existing forecast from Mid 2014 into the end of 2018 i.e. for 5 full years forward.

My concluding UK house prices forecast is for the Halifax NSA house prices index to target a trend to an average price of £270,600 by the end of 2018 which represents a 55% price rise on the most recent Halifax house prices data £174,671, that will make the the great bear market of 2008-2009 appear as a mere blip on the charts as the following forecast trend trajectory chart illustrates:

Current State of the UK House Prices Forecast

The updated Halifax average house prices (NSA) graph to Jan 2015 of £190,113 basically shows that the UK housing bull market paused from August to December 2014 before resuming its bull run in January. House prices are currently showing a deviation of 3.3% against the forecast trend trajectory. In terms of the long-term trend forecast for a 55% rise in in average UK house prices by the end of 2018, if the current deviation continued to persist then this would result in an 15% reduction in the forecast outcome to approx a 40% rise by the end of 2018.

For implications for the outcome of the May General Election including a detailed seats per party forecast see my most recent video:

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2015 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.

Housing Markets Forecast 2014-2018The 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 1000 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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© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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