Tim Harford, my favourite skeptical and eminently readable economist, asks the question: Is London experiencing a housing bubble? He is hesitant to be definitive on this, but makes a very good case for the idea that London housing prices are inflated and heading for a crash.
But have prices outpaced rents, suggesting a bubble? It seems so. US house prices are at historical norms relative to rents, and German and Japanese prices are unusually cheap to buy rather than rent. Yet in the UK, house prices are one-third above their long-term value relative to rents. And in London, gross rental yields are lower than in other UK regions at a slim 5-ish per cent. Such returns look low, given the costs of being a landlord. Logically, either rents should soar or prices should fall.
Yet London prices have lost touch with London earnings and with the price of houses in London’s commuter belt, and they continue to rise quickly. All this seems unsustainable, and when interest rates finally rise, surely the distressed sales will begin?
But there are three counter-arguments. The first is that housing is different. The second is that London itself is different. The third is that this time around is different.
Let’s dispense with the argument that housing is somehow bubble-proof. Bricks and mortar seem reassuring but there is no law of economics that says money is safe in housing. Real Japanese house prices have almost halved since 1992. Real house prices in the US have soared and slumped and are now cheaper than they were in the late 1970s.
When a man is tired of London house prices
(Image: anger...and bubbles, Lena Vasiljeva, CC-BY)
James Cawley is a 50 year old Elvis impersonator from Ticonderoga, NY; his friend William Ware Theiss was costume-designer for the original Star Trek series, and left Cawley the blueprints for the original Star Trek Enterprise sets in his will — so Cawley rented out a 13,000 sqft shuttered supermarket and built an exquisite replica […]
For the past week, Naked Capitalism has run a series of articles by transportation industry expert Hubert Horan on the economic shenanigans of Uber, which cooks the numbers it shows investors, drivers and the press to make it seem like something other than a black box that uses arrogance and lawlessness to make a bet […]
If you’re one of the 60% of Pebble employees who didn’t get a job offer from Fitbit, the company’s new owner, you’re probably not having a great Christmas season — but that trepedation is shared by 100% of Pebble customers, who’ve just learned (via the fine print on an update on the Pebble Kickstarter page) […]
The Boing Boing Store’s Gift Guide is full of ideas for pretty much anyone in your life like hipster ice cub trays, Xbox controllers, Halo Boards, and even diamond necklaces. As always, all products in the Boing Boing Store come at great discounts, too. Shop by price bucket starting at under $20. Under $20:Bloxx Jumbo Ice Trays […]
Unlike traditional lighters, the SaberLight features an electronic plasma beam that’s both rechargeable and butane-free. This sleek lighter is even approved by TSA, so you’ll never be stuck buying lighters you’ll just have to throw away partially used. For some people, like me, this is a pretty big game-changer. The SaberLight’s beam is actually both hotter and cleaner […]
Holiday shopping is in full swing, and the Striiv Touch is one of the best gift ideas I’ve landed on. Its simple design works for females and males, and its wide range of features makes it suitable for even the non-fitness enthusiasts in your life.Unlike traditional fitness trackers, the Striiv Touch also acts as a smartwatch. It […]