The cure for the malady across all British housing markets is to use a combination of two cures, in a similar way to a doctor using two specific antibiotics to cure a bacterial infection.
The expertise required to achieve that would involve first acquiring an accurate knowledge of the causes of such infections and following this, the ability to diagnose the correct medicinal cure for the specific infection involved.
It is of course imperative to be able to understand precisely how and why a specific illness or malaise will have occurred. Only then can the correct medicinal cure be prescribed.
Peter Hendry says, “I can explain in simple terms why house prices are continuing to rise despite the increasing lack of affordability affecting ever more prospective buyers.”
In a nutshell, the housing market should find the values of houses in a quite specific way.
The true value (or the correct buy price), of any house being offered for sale should be arrived at by adding THREE separately-assessed components together:
1 The land value – which depends in part upon location.
2: The construction cost (including a profit element to the builder or developer).
3: A further amount of equity or profit produced as a result of having combined these two.
These are the things that a sensible buyer should theoretically be considering, even if only subliminally.
All too often however, anxious buyers will base their offers on a combination of how much they could possibly afford and borrow, together with knowing the asking price being quoted.
“What makes this task particularly difficult to quantify is that house prices in today’s housing marketplaces are not derived in perfect market conditions at all. The reason for this is because in a perfect marketplace, the whole amount of homes on the market would be sold and the demand for them would also be fully satisfied at all times.”
IF, housing markets around the whole country were near perfect, economically speaking, it wouldn’t take a year or more for each house-move to happen. Houses and flats going onto the market would take much less than a year to attract a buyer ready to complete on their purchase.
There would then be fewer unsold and empty properties waiting to find buyers. Supply and demand would be in balance. House prices would enable this to happen and would facilitate sales to take place more swiftly than upwards of a year.
On the rental side of things, here markets are in a very different situation. There are far more people wanting to rent than there are rental properties available. Also, the supply of flats and houses is shrinking currently, which is forcing rent-levels to inflate. Demand for these properties seriously outstrips supply, economically speaking. Here, the obvious solution clearly has to be to provide more properties available for rent.
It should be noted however, if there were to be less unsold properties at any one time, there would be a lessening of demand for properties to rent, because more tenants would’ve become buyers! Therefore, improving buyers’ markets would clearly help with lessening the rental-demand side of things as well. That would be an important added bonus for both marketplaces, which is why ‘The House Price Solution’ is the final answer.
Instead, the present day housing markets have large overruns where, either there is too much property being offered at any one time or alternatively, there are too few properties being offered to purchasers.
Both extremes are most unsatisfactory for prospective purchasers of houses in the regional marketplaces and especially in tourist and second-home prevalent communities.
Unfortunately, current day estate agency does not assess house prices in the way described just now. Instead they peg asking prices at the level they might simply guess they could sell a house for but also they may well often include what their client (the seller) might hope to achieve when determining an asking price!
Worse, they base their asking prices on what other asking prices are, including what the other recent sales will have achieved, albeit these would have used skewed marketing comparisons themselves for the reasons just set out.
To justify what is being explained here, a year ago for example a typical estate agent had 37 properties available and 379 applicants on their register (according to statistics published by the NAEA). Today, after a spirited first half of the year and after COVID has started to reduce, a typical estate agent apparently has just 23 live listings and over 400 applicants on their register.
If knowledge such as this were to be broadcast, it would skew prices-levels downwards whilst the market is flush with houses for sale and it would skew prices-levels upwards when there were not enough houses coming onto the market – as now.
In the former case, sadly there is inherent pressure within estate agency to want to hide the true facts of an excess of properties being listed for sale compared with buyers so as not to spook the market and to keep things going as smoothly as possible, rather than face the reality of a downwards-changing market, with prices dipping.
In the latter case however, with too few properties on their books and too many buyers wanting them, broadcasting the lack of supply actually helps agents to justify trying for rising prices even against general economic trends! This has been what’s going on recently of course.
Selling agents may try to argue that it is the desperation of buyers which is forcing the prices up but that does not explain why the housing markets are operating at such low efficiency in terms of completed sales. This shows serious imperfections, resulting in their lack of stability which means these markets are in need of a completely new approach to buying and selling houses.
In my analysis and resultant diagnosis following understanding the true causes of these problems, two specific ways to deal with them emerge.
A: Firstly there should be restrictions on the right to occupy a proportion of houses in each locality as being permanent “Primary Residence” restricted. This would mean these houses would be for use only by local people, such as key workers for example.
Most people seem to agree that each locality absolutely needs housing to be affordable to those fulfilling the essential roles in their community. This should therefore be enshrined in each area’s local planning rules.
In peacetime (i.e. whilst our country is not at war with another), residential planning consents should be delegated to all local town or parish councils for them to determine, depending upon local housing need.
This way, genuinely democratic decisions may be arrived at using local decision-makers whom are best able to understand what the current needs of the community are at any particular time.
The different local housing markets could be brought to balance and price levels better able to reflect local demand for housing, more appropriately.
Secondly and very importantly:
B: The emphasis on all prices should be changed so that these are set by ‘buyer offers’ rather than seller price-rigging, which is of course not an open market practice in any way if this is carefully scrutinised.
This is where The House Price Solution (formerly described as The Hendry Solution) could come in. It allows for both of the essential changes cited above.
It would do this by re-shaping house sales methods entirely and by including the use of “Primary Residence” restrictions on certain properties.
AND
It would enable all buyers to be free to participate and establish the price levels themselves, (subject to declared “Primary Residence” restrictions, which would be locally established using the local planning rules).
For the full details of how to address all these issues simultaneously, please follow the link:
The House Price Solution
How to Improve all local housing markets in England and Wales
Posted by: Peter Hendry, Housing Valuation Consultant
Author of:– The House Price Solution otherwise known as The Hendry Solution.
What do you think about this idea for drastically improving the operation of all housing markets potentially across the whole of Britain?
Constructive comments are very much welcomed.