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Two comments:

1) most people don't care about the return over a three decade period. They are wondering whether to buy a house this year or next year. Or the year after. If you buy a house at the top of the market, and the market then crashes for the next 10 years, it's cold comfort to say that it'll all pan out over the next three decades....

2) for investors, the extent of the borrowing you can employ in the housing market means the numbers you mention are meaningless. For example, buying a £200k house with a 10% deposit, you get exposure to £200k of property for £20k. If the price goes up 10% to £220k, your return on equity is a huge 100% on the £20k you put in.

Are you still talking about wine?

The Daily Mail and Daily Express certainly feel there's a demand for this 'news' every week or two, even if you (and I) don't!

What use is Economics in an imperfect market?

And what happens if you add in irrational behaviour?

By irrational behaviour I mean:

1. the "need" to get on the property ladder vs choosing not to take on more debt than you can afford, and

2. agents increasing the prices of properties that have not sold in a buoyant market simply because they are the only ones left in a tight market.

I suspect the housing market in the UK is no longer driven by economics as demand (appears to) outstrip supply... and yet the supply has not been created to meet the demand.

According to the laws of economics, supernormal profits are not meant to exist in the long-term. And it doesn't take more than a matter of months to put up new houses.

I'd rather read about house prices than celebrities, though it's a close call, as I'd prefer to read about neither. But at least house prices is real news, whereas celebrity news is just dredged up by the media to feed the media and has no meaning for real people.

But I think most people do care about the return on houses over the long-term; OK, some traders would like to think they can turn a short-term profit, but the majority are not traders but house buyers and, in any event, neither can correctly call the timing of a price surge or crash.

Regards the wine economics maybe
you should knock a £1 or so off if
its been shipped from the southern hemisphere or the states[cost, not necessarily quality] otherwise I beleive the system is spot on and certainly has worked for me for many years.
Mac

As a fiftysomething, until I intend moving, the value of my home doesn't bother me, even then it's only relative. Will my present home provide me with sufficient capital to buy what I want to buy?

However, for my son, who has yet to put a foot on the property ladder, prices are important. How much will he have to pay in rent? Will it ever be possible for him to finance a mortgage from just his own pay packet & thus be able to afford to start a family?

Time for innovative solutions. A bigger mortgage is OK only so long as interest rates remain low. Or how about buying with friends in order to afford high prices? But these measures only maintain high prices & don't really resolve the problem. Cheaper mortgages from continental lenders look attractive, but the nett result is the same. The real problem is one of demand outstripping supply. So where can he invest in property at all? Probably not in the UK. No use to my son perhaps, he could do with our house, but at the price of a continental equivalent. Idea - we aim to retire to the continent, buying on a mortgage & selling our large UK family home. We purchase one rental property and the rest goes to help our son & his future wife realise their dream and ours of a new generation in the family.

Suddenly, UK house prices aren't an issue anymore, only the price of airfares. Now that really could become an issue.

There is no good reason why prices should rise in line with earnings. The price of cars do not rise in line with earnings, nor the price of ketchup. If supply is allowed to expand then there is no reason to expect house prices to grow more quickly than the cost of the bricks (etc) and the cost of the labour to build them. More generally, if we allow houses to be built at a lower rate than household formation house prices will rise relative to earnings, if we let the be built at the same rate of household formation, they will rise at the same rate as earnings, and if we let more houses be built than households are formed, they will rise at less than the rate of earnings.

Dr Tim Leunig
London School of Economics.

The real beauty about house prizes is that it's treated as a divine right to have a chance to own your dig. Britain used to be different of course until the very recent past, but this sort of history is not taught at school. If people adopted a longer-term view, it would become obvious that we are getting back to where we were before - large parts of the country unable to buy. That's not wrong, in fact one could easily point out why home ownership is not necessarily conducive to innovative economic action at all. Rather than spend money on questionable key-worker schemes, Gordon might perhaps want to look at re-regulating the letting market. One seems to have more legal protection buying a fridge than renting a house!

At the time of writing: Comments on the Price of Wine blog; 138. Comments on the Price of Houses blog; 2 (one of which was really about the Price of Wine). Does this mean your readers are at least 138 times as interested in what they pay for wine as they are in what their houses are worth? Whilst we're making up words, could this be Blogenomics? Great stuff!

I was told by an estate agent friend of mine that the way he typically priced houses was to look at a similar house that had sold recently and throw another 5% on top of the price for good measure.

Do other estate agents do it this way?

If so, how much of the housing market is controlled by estate agents and this rather slap-dash method?

Dr Leunig seems not to have noticed that there is a very good reason why house prices should rise with earnings, which is that earnings determine how affordable housing is. Whilst I'm sure that most people could afford cars or ketchup if they doubled in price, the same is not true of housing. Moreover, the continued existence of high house prices is, unlike cars or ketchup, dependent on the ability of the individual consumer to sell their product (the house) on to another individual. If the price of housing outstrips earnings, houses become less affordable and market forces should cause house prices to drop.

The reason why the link between earnings and house prices has been broken is that we're currently in a speculative bubble at present. The market value that people assign to houses is not simply based on the house's value as an artefact (which is probably what should happen) but on the house's value as an asset, in a market which continues to rise, despite the slower growth of earnings. And, as the market rises, the house as asset becomes more desirable, reinforcing the buoyant market.

Mostly this is fed by the ease of borrowing and low interest rates, which make housing at least superficially affordable. It is this which, in turn, fuels the growth in households. Britain, after all, has a relatively stable population, and has considerable numbers of new properties being constructed. But if housing is superficially more affordable, those indidividuals who would previously inhabit a shared household (such as a flatshare) are more tempted to purchase their own property as a seperate household, particularly if this property is seen as an asset, because of rising house prices, which are outstripping earnings, and making property seem a particularly desirable way of investing one's money...

It might just be me but getting on the housing market as a first time buyer is almost not worth it anymore. We're just about to move into our dream cottage paying £900 pcm which would cost us £350,000 to buy. I'm not willing to reduce my consumption of nights out, holidays and other "luxury" goods just for the sake of "because you own it".

I've argued with my colleagues (also professional 20 somethings) that stumping up a large deposit, paying lawyers and stamp duty to just get on the ladder THEN paying for the maintenance of a property over the long run, surely you would be better off and less tied down if you invested the difference between rent and a mortgage. In our case I'd imagine this would be well over £500 a month.

Also, aren't other first time buyers concerned that if they take a 90% mortgages, they're pretty highly leveraged. I think I would panic after every house price survey that I would be stuck with a 1 bedroom flat, even after I've started a family, just because I ended up in the red.

I've seen the light... when are other first time buyers???

Jacob,

I think you are correct to assume that real housing costs should rise with in line with real earnings, even in a rational market. The supply of land is relatively constrained through regulation. This means that, as earnings go up, and people spend the same proportion of their earnings on housing, there are more pounds chasing more or less the same land and the same properties.

The irrational factor that seems to have set off the current bubble is the "affordability factor" and historically low inflation over the last ten years. Low inflation leads to low nominal (but not real) interest rates, this reduces the monthly spend on mortgages (but not the real life time cost of it). So when people believe they can afford bigger mortgages and houses, this is only true from a monthly payment perspective at the outset of the loan. Further down the line they will notice that the loan wasn't so cheap after all, without the help of 80s style inflation to eat it away. Without knowing it, they have decided to spend more of their future earnings on housing than previous generations. Of course, as always, the supply is constrained, all the extra mortgage dosh is still chasing the same properties. You get the same house, you only pay more for it.

Evan seems suddenly (?) keen on the 30 year average house price inflation as an indicator of future rises. It's interesting (and arbitrary) choice of interval, implicitly making the assumption that we are in the same point of the cycle today as we were 30 years ago.

I wonder what result he gets if we instead assume that on average, all counted, we will have the same growth rate from 1998 to 2008? Equally valid perhaps, that would require a massiv drop to get back on trend for next year. Ouch...

No wonder the industry feeds these kind of numbers to economics editors.

Fred said that you had more legal protection buying a fridge than renting a house. WRONG when made redundant I rented out my flat and went to work abroad for a year. It took me 5 years to evict the tenant which I eventually did despite the best efforts of local government, DSS, several charities and Legal Aid. I couldn't even return home with my bride as she couldn't get a settlement visa unless we had a place of our own to live. Tenants in the UK have rights which astonish people the world over. I'll certainly never rent out again.

Dr Tim Leunig; you start off by saying ''there is no good reason why house prices should rise'' - then you go on to give the EXACT good reason! Supply/Demand.

The facts are, the supply will not and ir not forecast to reach demand for decades at the earliest. Roll on! I love it.

People can't afford houses? Only because the media tell them they can't (The vast majority of those that think they can't - CAN!). In any case, they can continue renting from me!

I agree it would be a public service to cover fewer house price announcements, if only to starve the conversation of that growing band of smug and tedious people rabbiting on about how much their property (not home or house) is now worth. But, sadly, I fear there is a hunger for such news. I suspect the desire for such information is loosely related to the level of fear or greed. And there is no shortage of either at the moment when it comes to the housing market.

PS: I am aware of the long-term relationship between house prices and GDP growth (i.e if you pick a year, with the exception of the immediate post WW2 period, the Barber boom and now, and multiply the average house price by 10 million you will not be far off GDP for that year), but where did that 2.6 per cent figure come from within the latest Nationwide press release. Am I missing something?

Who says "demand exceeds supply"? It never does - Economics 101 - the market price is set where supply = demand. Unless you want to talk about "demand exceeding supply" say, for a Rolls Royce - only the price sets appart the "haves" from the "have nots".
However, history is replete of examples of bubbles where invariably the line is "things are different this time" - the market can always supply a rational right up to the day before the correction

Robert, are you saying that if I can't afford a property, I can still afford to rent from you? Sounds like the yield on your property lies somewhere below the mortgage rate...

The banks price in the risk of price falls through demanding a deposit, have you priced this into your rental calculations?

Like others have said here, renting is cheap at the moment.. Enjoy!

I can't remember the name of the economist who wrote (in the mid-eighties) the most sage piece of advice I've ever read on house buying but it was roughly thus: Buy a house to live in. Do not view it as an investment or an asset because it can't be reaised without drastically changing your lifestyle ie, you have to live somewhere so unless you want to downsize you're stuck.

And of course in the very long run the market will find its equilibrium position as supply restrictions currently in place are removed (most likely by government intervention as the housing situation/crisis becomes more untenable from a political perspective).

As always there are those, such as Robert who are quick enough to take advantage of the disequilibrium and make money, it's called capitalism. As someone else said above, the correction and equilibrium are inevitable. But I'd bet Robert and his ilk will have moved out of housing and into the next unbalanced market well before it happens!

[To the editor: I've tried to submit this response twice already over several days, is there something wrong with it, or has it simply disappeared somewhere? Thx]

Robert, I correctly suspected that you are not very interested in yield. The market's collective disregard for what assets actually earn (yield) in favour of a preoccupation with capital gains, is classic bubble behaviour. Higher prices causing higher prices. You are the bubble-man, my friend!

Many first time buyers display the same bias, and disregard the fact that renting is relatively cheap (low yields) and stretch themselves financially in the belief that they will make capital gains if only they can get "a foot on the ladder" (or that they will never be able to afford it if they don't buy now).

I believe what politicians and others fret most about is a shortage of *affordable* housing. You could interpret this as a signal that there are too few houses to go around, but it may equally be a signal that houses are too expensive, because they are priced at bubble levels.

If there are too few houses and too many people, why is rent not going up at the same pace as values? Mine's going down!

I am interested to know, since you believe it's money for nothing, are you buying further properties at the moment? And what would you do if there was a 10% year on year drop in values?

[To the editor: Apologies for comments in the last entry, the previous attempt accidentally ended up on Peston's picks, entry 21 on the PE fund debt discussion]

[Further to post 23, to save you all having to switch forums, I'm resubmitting my response to Robert here!].

Robert, I correctly guessed that you that you (probably) don't actually know or care what yield your investment is making, as long as the value goes up. The market's collective lack of interest in what the assets actually earn (yield), in favour of preoccupation with capital gains, is classic bubble behaviour. Higher prices caused by higher prices. You are the bubble-man, my friend!

A similar decision is made by first time buyers, when they disregard the fact that renting is cheap (the opposite side of the yield equation), and that real interests are not as low as you might think, because they expect to make capital gains if they can only "get on the ladder".

I believe what politicians and others are fretting most about, is a shortage of *affordable* accommodation. You could view this as a sign that we don't have enough houses in this country for everyone to own one, but it can equally be a sign that the houses we have are priced too highly (ie. at bubble levels). The first would require more houses, and this takes a long time. The second requires that the market come to its senses, and this can happen fast.

I'd be interested to know, if your 10% gain per year turns into 5% loss, do you think you might want to check those yield numbers?

In the south-east of England the supply of houses is pretty much fixed due to planning constraints etc. As some of the other posters have observed this means prices will continue to rise until enough people are priced out of the market for supply to meet demand.

The current period of sustained low interest rates has meant that banks are willing to lend more, and consequently borrowers can afford to pay more for a property. I would suggest that this, rather than any speculative motives, offers a reasonable explanation for the continuing growth in house prices.

Given the limited scope for increasing the housing stock in the South East, the price equation looks like being dominated by (loan ratio x salary) for the forseeable future.

Therefore, it is only changes which affect these two factors that will have a significant effect on house pricing in the South East. Attempts by government to assist 'key workers' onto the property ladder only serve to push prices higher by increasing demand in a supply constrained market.

Keith, I agree that government should not further boost demand by assisting people onto "the ladder". However, I would suggest that in the long term, earnings and not affordability dictates the prices, and price growth has outstripped earnings massively over the last decade, as the two have quietly diverged due to historically low inflation.

Low interest rates make loans more affordable on a monthly basis, but that does not necessarily make them cheaper, looking at the lifetime of the loan. To find out if they are cheaper, you need to look at the real interest. As we have had a period of sustained low inflation, we have also had a period of more affordable, but not to the same extent cheaper, loans. What seems cheaper at the outset of the mortgage is actually more expensive at the end. Although not immediately apparent, anyone taking on the biggest mortgage they can afford in the current inflation environment is going to pay a much larger portion of their life-time earnings in interest than someone who did the same 15 years ago. However, for the time being, people hold their mortgage up to house price inflation, not wage inflation, even though higher house prices don't help to pay the mortgage, until you sell it.

For me the question is, how will it get back on trend with earnings, will it be fast or gradual? The market has overshot even on the (partly illusionary) affordability measure, which could well indicate speculative demand. People like Robert are buying or holding assets despite possibly not earning an economic return, because they expect the value to keep rising regardless, ie. speculation. FTBs are stretching themselves to get on the ladder despite cheap rents, for the same reason.

The longer it goes on, the sharper the fall, regardless of what the trigger turns out to be. But there always is one.

One day we will realise the upside-down nature of the popular view on house price inflation. It is constantly cited in the media as being a good thing, when there is absolutely no sense in this point of view. Inflation in essential goods is never a good thing, and housing is a basic right, not an investment instrument.

High house prices mean less wealth, rather than more - it costs more to trade up, it costs more to get 'on' the 'property ladder', leaving less disposable income, and fiscal drag puts more duties in the pockets of the chancellor. The primary 'wealth' that is generated is by withdrawing equity, a process by which the 'owner' makes a call option on the futures for house prices and a put on interest rates; and ends up owning proportionally less of their house than they did before they released the equity.

Downsizers win too, although in the process there is a net transferral of real wealth from younger generations to old. It will be interesting to see if future expectations are realised, in light of the demographic at play over the next several years. The words 'baby boomers' are a very useful clue.

Meanwhile today there is:
- an explosion in broad money supply
- an explosion in real inflation
- an explosion in bad debts
- an explosion in bankrupcies

Is anyone capable of joining the dots? Seemingly not. Essentially as a nation we have left the future of our entire economy in the hands of estate agents. This bubble is so big now, the consequences for the future solvency of 'our' country will be disastrous, and the bigger the bubble gets, the worse the fallout.

People go mad in crowds and return to sanity one by one. The penny is falling slowly. By then that penny could well, however, be a pound.

Chris: nah I dont really bother about ''yields'' as you rightly say.

I do care about the total investment profit though, and in my earlier example of capital growth over time AND rising rents too boot! - then I dont see why I should give a monkeys about SHORT TERM ''rental yields''.

I know my return is not just my 1st year ''yield'' from rents, but also capital growth. Since I buy all of my investments 'wholesale' thats added profit too.

Add rising rents AND capital growth and its a powerful (unbeatable) combination.

All I know is: I never made £1m faster in such a short time compared to any other way, than in property;

I have have/had Shares, Pensions ISA's the whole lot! I look at their values over the last 5 years and I compare their value with my property portfolio. Sheesh - nice! Thats what I know!

Add the entire profits from the rest together (£ for £) multiply by 10 and still my property assets/profits trounce the rest, by miles!

I always say to people ''Halve property profit, quadruple the next best (shares) over 1996-2006 (or any other 10 year period); you will see the return on property is still 2/3 times more than the next best.''

I am not going to get bogged down with some 'yield' angle on a single year that I dont even care about. (I hold my investments - so why should I care about immediate yield/returns - the CLASSIC error)

Short Terms Yields? Nah! I dont care. I look at the BIG PICTURE. Hmmmmmm yeah :-)

Oh Chris, you say people such as me hold onto assets in the hope they rise, thus being a speculator.

May I ask; do you have shares, Pensions, Isas's, Bonds and such like? If so - do you buy and sell them quickly? or do you hang on to them?

If you hang on to them - are you also, therefore, a speculator?

Am I a speculator in Pensions too? As I started investing in my first one 25 years ago and held it since then. (Wish I had not bothered frankly)

I have not looked over last 2 years (as they are too pathetic in relation to what they once were) - but I guess I have as much cash in them now as 6/7 years ago. Not even taking into account of inflation - then I look at my property holdings. If you have had your home over that same period, you ought to know what I mean - now; imagine if you had bought just 2 or 3 more.......do the sums!

Chris: nah I dont really bother about ''yields'' as you rightly say.

I do care about the total investment profit though, and in my earlier example of capital growth over time AND rising rents too boot! - then I dont see why I should care about SHORT TERM ''rental yields''.

I know my return is not just my 1st year ''yield'' from rents, but also capital growth. Since I buy all of my investments 'wholesale' thats added profit too.

Add rising rents AND capital growth and its a powerful (unbeatable) combination.

All I know is: I never made £1m faster in such a short time compared to any other way, than in property;

I have have/had Shares, Pensions ISA's the whole lot! I look at their values over the last 5 years and I compare their value with my property portfolio. Sheesh - nice! Thats what I know!

Add the entire profits from the rest together (£ for £) multiply by 10 and still my property assets/profits trounce the rest, by miles!

I always say to people ''Halve property profit, quadruple the next best (shares) over 1996-2006 (or any other 10 year period); you will see the return on property is still 2/3 times more than the next best.''

I am not going to get bogged down with some 'yield' angle on a single year that I dont even care about. (I hold my investments - so why should I care about immediate yield/returns - the CLASSIC error)

Short Terms Yields? Nah! I dont care. I look at the BIG PICTURE. Hmmmmmm yeah :-)

ps: some posts go right away - others ''stick'' for some odd reason. Sorry if order of posts is squiffy.

Many people here make some good points, and it's kind of hard to say whether this is a bubble or not. Some prominent observers whom I respect a lot say it's not, i.e. they say it's just a demand explosion thing, caused by population dynamics, low interest rates, and a buoyant economy, combined with archaic planning laws. I'd say there is definitely a shortage in most areas of the country, but perhaps more of a bubble-like, copy-cat price inflation in other areas up north.
As for yields (for robert c. etc), the typical rent on a basic house is these days considerably lower than the interest you'd pay to borrow the entire amount to buy the house, so chris & co are certainly right in what they say. If robert talks about the long run, he believes we're going to see further capital growth. He may well be right; who knows. I'd say good luck - I personally believe the real risk is on the downside, but again, maybe robert will laugh again in 5 years' time (though I hope he will bite the dust). He certainly was right in the past. (by the way robert, if you'd invested 100K in apple computer in 2003, you'd have made your million even quicker - I'm sure you agree that that's not quite an intelligent statement...)
But what I really wanted to say is this: houses are not like IBM or Apple shares. You can speculate with shares; nobody needs them, so you just don't buy them if they're too expensive. Everybody needs a house, though. Now tell me how a basic manual worker is ever going to be able to get his/her own place, with things going the way they're going. The idiots in government don't understand that the standard of living has dropped tremendously in the past decade. They say national wealth has increased: the value of UK housing assets has gone up a lot, making some think the country has become rich, but it's still the same miserable old houses!!
So my opinion is that it's simply disgusting, the way nobody cares about increasing supply to help people on low incomes. Shared ownership is no solution. Key worker bs is no solution. They all just inflate prices.
So what do you do to solve the problem? You tax housing capital gains to stop speculation (if you believe it's a bubble), and you increase supply, all the way, until a basic house/flat in an average place costs about 140K/100K) You build higher in ugly areas, you develop land in relatively ugly parts in and outside towns. You don't destroy the pretty part of the greenbelt. The counterargument that there is no space is preposterous. I was born in a country where population density is far higher than in SE england, and everybody can have a decent place, and hence a decent life. So cut the crap. Yes, this country has many beautiful spots, but it has even more ugly ones.
(ps: In spite of what this rant may make you believe, I personally don't care that much; I just feel sorry for the hardworking people who have to slave their entire life to afford a flat which consists of HALF a 1860s working class terrace. In the 21st century. Myself, I'll just take the money and leave if things don't improve. I won't be the only one.)

The bubble has been created by Banks and the self governed multiple rules that allow outrageous amounts to be borrowed, often without proof of income. If Banks are unable to lend 5,6, 7 x salary, end of bubble and back to reality, simple as that.

I don't like reading about housing prices as it's depressing!

I currently rent and am paying £1,300 per month. Everyone tells me I should be buying rather than wasting my money renting.

Nice idea; however, the banks say that my girlfriend and I can only borrow £97,500 on a 100% mortgage. I live in London where there are some car parking spaces that cost more than that!!

If I put up 25% of the purchase price, I would be able to get a mortgage of £118,000. Still way short of even the most basic hovel in London and the surronding areas.

i am fed up with the Â鶹ԼÅÄ agreeing that the house price will rise and rise
by saying the nationwide and other mortgage banks are production there own data on house prices
when the only thing promoting house prices is the Â鶹ԼÅÄ and other media!!
its all the spin the media has led us into buy now and reap the interest every 2 years to keep working our way up the property ladder
if this where a pyramid scheme the media would be screaming at the roof tops telling us it will come tumbling down on us
and you know it will!!

I'm somehwat bemused by Roberts investment strategy.

Unless I've read the posts wrongly, it seems that he's bought/buying rental properties on the assumption that their value will continue to increase at a similar rate to past years. He's fairly highly leveraged, since none of his own money is used as deposits. And that the rental income (which he's not too concerned about) is used to finance the loans on these properties?

And unless he's sold his portfolio to realise the £1M profit, then the actual return is a projected one based on the Halifax house price index.

Obviously the 10year period he's choosen (96-06) has seen magnificent returns for the UK property market. The same cannot be said of the previous period (85-95). And it is this basic fact of asset prices (that they move in cycles) which many BTLers foget.

So, I guess Robert is hoping for continued double digit growth in house prices. No void tenancy periods, no further interest rate rises and of course no fall in house prices.

In any investment literature, you'll always see those words 'the value of your investment could go down and well as up. Past performance is no indication of future performance'
Sadly this advise is not given by Estate Agents or Lenders.

btw Robert, I sincerely hope your investment proves successful - maybe you should think about reducing your leverage though?

David: Thank you for your comments, you have not understood my 'leverage' as I have not discussed it - but as a guideline, I hit the market with mortgages about 62% of the property value.

How do I know what the properties value is? Easy! My lender tells me what it is and they send their cheque accordingly. I also get a return on the money they have invested in my business - brilliant!

Nope! I have not assumed double digit growth at all - in fact I advise people that is unrealistic going forward. I always work on a guideline for my own calculations of 6%. Doubtless I will soon enough be told I should not do that either; but since ''pensions'' assume a similar growth (but hardly achieve it) I am happy with that I do.

Finally, as I said previously you can take ANY 10 year period and I specifically said I happened to use the last 10 years, but if you want 1985 - 1995 - here they are (Average house prices):-

1985 = £31,103
1995 = £65,644

Slightly more than 100%

Just for good measure, here are the prior 10 years

1975 = £11,787
1985 = £31,103

So! As I say; pick any 10 year period you like.

If anyone wants to talk to me about ''yields'', then I will only take you seriously if you talk to me about my total yield (ie: rental income and capital growth) - just as doubtless people will speak to me about their total yield in pensions, shares and so on. Fair is fair.

Many thanks guys!

Hey David - I dont know where my past post has gone (in reply); but I thought (Maybe I am wrong) ALL investors bought assets on the basis their best guess is those assets will increase.

Perhaps our leader is fed up of this debate - hopefully he will allow me this post.

I am going to make a big assumption here that you also have assets, and those assets you are/have hoped will increase over time.

Why is it such a sin for me to assume my assets will increase (an indeed they have done for years & years).

Doubtless many people here will take great delight, where property prices do ''fall'' for a month or two, in telling me ''we told you so'' but they will regain that and deliver more on top. Additionally you have to look at the cumlitave gain (say £50k), the minor ''loss'' (say £10k, then the next years gain (say £16k average as reported today by the Nationwide). All in all, sounds very positive to me.

Pensions, shares, Isa's and everything else behaves in the same way, the difference is there are no monthly running comentaries on those investments (shares excluded) and therefore people have no idea their pension funds are all over the place, but ''generally'' increase in value.

I live outside of England. Why is it, whenever I go back there, it is a matter of minutes before I find myself in a conversation about house prices? The English are OBSESSED with property prices. This is sick.

Property ladder? No such thing. Why not invest in shares? Higher return, less risk. Obvious, English people will disagree.

The post Jon made was quite the most hilarious thing I have read on Evans entire Blog.

''Why not invest in shares?'' he says - haha!! Soooo funny!

‘’the English are obsessed’’ for a REASON - why don’t you ask A N Y O N E (translation: anyone at all) in England, that bought a property 5 years ago (average price £100,000) and N O W (£207,000 - ignoring the useless Halifax/Nationwide ''average'' - I am talking about the ACTUAL) and you will see a difference of £107,000 - for an AVERAGE investment originally of £10k (90% mortgage - 10% deposit) - that is a T E N - T I M E S return.

Now! When you have DONE that - look at your shares - they are not even AT the level of 5 years ago! Let alone an A V E R A G E profit of £100,000 in the AVERAGE property.

Game set and match my friend!

For your own sake; I am really sorry you don’t live in England to realise what is actually going on; and has been going on for 1,000 years – it is N O T going to stop.

I and others like it ''get it'' the others? Haha! They will always find ''a reason'' - a euphemism for F E A R. They talk themselves out of it - looks like you have too!

Jon, I think it may be because most of the country believe they have made tens, if not hundreds, of thousands of pounds on the rising value of their property of the last decade, and are hoping it will continue. A five percent increase in the value of the average property is equivalent to a 25-30% bonus on the average salary (if you can sell it, of course). I think the rest are equally interested in it going down, so they can afford to buy somewhere.

Surely the only houseprice information worth it's salt is that from the Land Registry?

The reason people LOVE reading about house prices is fairly simple and it's this :

Gratification.

They think "I work every hour that God sends. I don't go to the boozer with my mates during the week any more, I get home later from work and start earlier than I ever have, I have to contort myself into all sorts of shapes to get onto the tube in the morning AND pay a small fortune for the "privilege" of doing so despite the threat of Islamic fundamentalists detonating home-made ordnance on my line, I have to put up with rude and inconsiderate people shoving when I stand over the sandwich trough at M&S at lunchtime, I've got to listen to the secretaries babbling on about Big Brother despite the office rule against two or more females gathering within 2 feet of the water cooler, I have to put up with the sheer incompetence of the call centre staff at virtually any bank or utility company I come into contact with and to top it all, my bank is inventing increasingly devious and underhand ways of separating me from my hard earned but IT'S ALL WORTH IT BECAUSE MY PROPERTY HAS GONE UP IN VALUE . . . THE DAILY MAIL SAYS SO . . .

Hullo Evan, listened with interest to your programme this morning on the Price of Property. I am doing some research for my local Community Council in Edinburgh, of which I am a member. Here in Edinburgh we have seen rocketing house prices, and as I live in a flat, I have noted, anecdotaly, the number of formerly owner-occupied flats that are being bought up by private landlords, leading to a shrinking pool of owner-occupiers. This is a very clear perception, and it worries me.

Anyway, I hope you or one of your team will contact me. The thing that I am concerned about is how under-recorded the whole private rented sector seems to be. I am convinced there are massive cover-ups. For instance, I note you say there appear to be 26 million households in the UK. The UK Housing Review (ed. by Steve Wilcox) tells me that
there are were 701,900 buy-to-let mortgages still outstanding by the last half of 2005... there must certainly be landlord acquisitions where there are no mortgages, so I figure that, conservatively, there must be at least 1 million dwellings owned by the private rented sector which has boomed since Thatcher de-regulated it in 1989. I am convinced that well over 10% of property has been acquired by landlords since then. In the mean streets of Edinburgh, there are places where landlords own 80% of the housing stock.

High house prices mean nothing to anyone except the mortgage lenders (interest repayments grow) and estate agents (commissions are generally a % of the sale price). No one actually gains from increases in property prices unless they cash in their chips at the top of the market and buys the same stock again cheaper at a later date.

Have listened to Evan Davis' Radio 4 programme 20 March 2007. There are many factors contributing to the 'housing problems' but those problems will not be solved without a fundamental reform. This very short lesson in economics will tell you what is required. No human made the land, it is a gift of God or Nature. It is therefore wrong to own it. All you need is secure occupation of the site where your house is and to pay to the community an annual fee for that right. That puts everyone on an equal footing. The annual fee is Land Value Tax (LVT) and it can replace ALMOST ALL other taxes. The market in 'house' prices is really a market in 'land' prices. A transfer from our present grotesque situation to one based upon LVT will solve almost all housing problems at the same time as relieving us of enormous tax burdens. If you think I am talking rubbish, visit www.HenryGeorgeFoundation.org and surprise yourself.

House prices (certainly in London) are being driven up by a shortage of supply. This much is beyond debate. It is reporetd that current availability in London is half of what it was a year ago. There may be many reasons for this, but one of them is surely the cost of stamp duty on moving home.

Consider my example.My family would like to move to a house with an additional bedroom. The stamp duty cost of purchase would be £850,000 x 4% = £34,000. Add agents fees for the sale and solicitors fees on sale and purchase, and we get to over £45,000. This is dead money. So what are we doing? We are spending £40,000 on a loft conversion. In my view a no-brainer. Stamp duty at the old level of 1% would have encouraged me to sell and buy another house.

I am sure that many people have carried out their own calculation and come to the same conclusion. If people do not sell and buy for these reasons there is less "churn" of properties and supply falls and prices rise. Simple.

My issue with Brown is that he introduced higher stamp duty levels to take the heat out of the market without understanding the law of unintended consequences. In my view he is at least partly responsible for the acceleration of house prices over the last few years.

Robert Cargill comes across as a rather painful, gloating individual, but he is of course quite right as regards returns on the various asset classes.

As I pointed out in my posting on this blog back on 5 Feb, when people compare shares and other investments with housing, what they generally overlook is that the bank is lending a good 90% of the total exposure gained, so it's the most leveraged (and probably largest) bet/investment you'll ever make. For eg £5k in 1995, you could get exposure to at least £100k of property, which is now presently worth, say, £250-300k. What sort of return on equity is that from £5k invested!!

The thing that does bemuse me about the UK's obsession with property prices is that everybody seems to be celebrating that they keep going up. But unlike Mr Cargill, most people only own one house, and often they don't own as big a house as they would ultimately like to. As such, they'd be much better off if the mkt dumped and houses became worth a 10th of their present value. They could then afford to buy the house they'd like, and have mortgage payments they could manage!!

It is a bubble, but unlike most financial mkt bubbles, eg the Nasdaq in the late 90s, it's a bubble in an asset which is consumed rather than just owned (you can't live in an equity....). And the mkt is much less "efficient" than a financial mkt.

Robert Cargill comes across as a rather painful, gloating individual, but he is of course quite right as regards returns on the various asset classes.

As I pointed out in my posting on this blog back on 5 Feb, when people compare shares and other investments with housing, what they generally overlook is that the bank is lending a good 90% of the total exposure gained, so it's the most leveraged (and probably largest) bet/investment you'll ever make. For eg £5k in 1995, you could get exposure to at least £100k of property, which is now presently worth, say, £250-300k. What sort of return on equity is that from £5k invested!!

The thing that does bemuse me about the UK's obsession with property prices is that everybody seems to be celebrating that they keep going up. But unlike Mr Cargill, most people only own one house, and often they don't own as big a house as they would ultimately like to. As such, they'd be much better off if the mkt dumped and houses became worth a 10th of their present value. They could then afford to buy the house they'd like, and have mortgage payments they could manage!!

It is a bubble, but unlike most financial mkt bubbles, eg the Nasdaq in the late 90s, it's a bubble in an asset which is consumed rather than just owned (you can't live in an equity....). And the mkt is much less "efficient" than a financial mkt.

What would be more useful, instead of just headline figures of house prices, would be to plot a trend comparing house prices to affordability.
Average House Price vs Average earnings * Interest rate. This would give a real indication of how expensive houses are compared to people's incomes, because interest rates determine how much people actually have to pay, and people generally mortgage as much as they can afford.
Also, since supply and demand is currently being seen as a major contributing factor to prices, what's the running trend for the ratios.