Will house prices fall if the next generation prefer to rent?

Will house prices fall if the next generation prefer to rent?

9:29 AM, 5th January 2011, About 14 years ago 5

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I recently picked up on an interesting debate on this subject between two investors, to protect their identities I will refer to them as The Bull and The Bear.

The Bear was arguing “Younger peoples desire to spend money on consumption, travel and lifestyle and rent rather than home purchase should theoretically lead to lower prices”. 

The Bear also went on to say, I cannot see house price growth over salary inflation. All the factors that simulate higher prices such as interest rates falling from 10% + in the 1970’s to 5% or less today , strict planning conditions , high immigration , high desirability of ownership , high LTV (loan to value) mortgages are reversing to some degree. Thus, a far lower rate of increase would be expected as affordability will be reduced.”

The Bull’s argument was “the fact that the same folks who might have purchased will turn into renters is going to create a floor in house prices. The demand to live will not go down just because the demand to be an owner occupant falls.  Home ownership was below 50% back about 50 years ago. The country still ticked over and for many it was doing just fine. If less than 50% were owners, someone else (government or private) owned the housing stock. As the government can not afford to own the housing stock at this point, the private market will largely step in if rental income is there.”

 What’s your view?

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22:00 PM, 6th January 2011, About 14 years ago

Our house prices are maintained by the laws of supply and demand. There is a chronic shortage of affordable homes in this country due to our restrictive planning laws and much understandable NIMBYism. This will keep house prices where they are - roughly. If rental demand goes up, then rents will rise and more investors will enter the market keeping prices where they are. Annual rents are these days much lower as a percentage of the value of the property than they were in 1999. House prices shot up in the early part of the following decade, but rents didn't follow due to market forces. As we are now seeing some inflation, rents, and thus my retirement income is increasing. It is nice to think that I have a sort of pension that is somewhat inflation proof!
With the pensions industry in the muddle that it is - mainly due to Gordon Brown's meddling when he was chancellor, property portfolios have this ability which they are never likely to loose. Unless the Government bring out some totally landlord unfriendly legislation (like the old rent acts of Harold Wilson) plenty of people will realise what a good investment it is long term and this will keep prices up.
When I was much younger I always wanted to invest in property but was prevented as I could not borrow money at a rate that made renting residential property viable. I had a friend who was making money from his business and invested the lot in property in the old Rent Act days. He was never short of a bob or two and now, in retirement he is a very wealthy man!

9:01 AM, 7th January 2011, About 14 years ago

I can't guarantee what house prices are going to do over the long term (I hope they go up and expect them to), unless interest rates breach 10% I do not need to SELL. I think many will be in trouble before it reaches me, by which time I hope the government step in to save the economy, this is my mindset when investing....

Richard Greenland Richard

23:49 PM, 11th January 2011, About 13 years ago

Less home ownership = more mobile workforce = flexibility = good for the economy.

12:25 PM, 18th January 2011, About 13 years ago

I have a number of friends in good jobs that have sold their properties and moved out of London in order to afford a decent sized family house. The current pattern appears to be young graduates and others move to London to make their careers and enjoy life in the capital. Renting is the first option and some go onto buy later on but this has now become increasly difficult and will get worst so more people will rent in the short to medium term until LTV requirements ease off. With the advent of faster trains that will significantly decrease journey times to the capital, improved technology that will allow home work to be equivalent to working in the office and the cultural acceptance for home working to = working in the office will at some stage lead to a more balanced and convergence of house prices across parts of the country. So in essence the London bubble house price economy for your average London residentail house is not going to last forever, this will be true for renting as well as buying. I believe this will one day lead to another drop in London house prices but we may be ten years away from this forecast. This future drop unlike others will not bounce back as before as the house price playing field will permamently become more equal.

12:28 PM, 18th January 2011, About 13 years ago

Interesting logic Ian, thanks for sharing it.

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