Speculatively Overbuilding The ‘Ghetto Of The Future’: UK
More housing bubble reports from the UK. “House prices jumped 1.1 percent in March, taking the annual increase to its highest in almost a year. Nationwide said house prices were unlikely to keep growing at such a strong rate, as rising fuel bills and tax increases weighed on incomes and dampened demand.”
“‘Affordability continues to be squeezed as house prices rise further,’ Nationwide said in a statement. Official data on Wednesday suggested the housing market may cool in the coming months; approvals for home purchases, a leading indicator of house prices six months out, fell in February for the first time in over a year, while mortgage lending rose by much less than expected.”
“‘Even in a market with historically low interest rates..there is a limit to the proportion of income that borrowers will feel comfortable spending on their housing,’ Nationwide said.”
“Ireland’s rapid pace of house price growth has become a problem, the head of the country’s biggest mortgage lender said. ‘There’s a general acceptance now that house price growth is a problem,’ Denis Casey, CEO of a banking division told Reuters.”
“The Fitch Ratings Agency also said on Thursday that it expected house price growth to decelerate, pointing out that a continuing increase in supply would eventually outpace demand. Currently about 80,000 housing units a year are being built in Ireland, equal to 20 units per 1,000 inhabitants. That compares with an average of about five units per 1,000 in other European countries. Inward migration stands at about 30,000 people a year.”
“Nevertheless, having spoken with developers, permanent Casey said he expected builders to complete even more houses this year than the record 80,957 achieved in 2005: ‘I think we will top that this year.’”
“According to Fitch’s Atanasios Mitropoulos, the Irish market is vulnerable to interest rate gains because the majority of people have variable or short-term fixed rate mortgage products. ‘Vulnerability is high given the fact that interest rates are expected to increase,’ he said.”
And from the Scotsman. “Buildings expert Peter Wilson casts a critical eye over the scene laid out before him, a series of high-rise buildings on what has been trumpeted as a world-class waterfront. Wilson and others are warning promises of a waterfront to rival the best in the world may well instead deliver the ghetto of the future.”
“‘I get depressed by the quality of so much of what has been built,’ sighs the director of Napier University’s School of the Built Environment with a shake of his head. ‘Some looks as if it’s been made out of chewing gum and string. There are some good buildings around, but there are also many that are diabolically poor.’”
“This is not quite what we had been led to expect from the regeneration of a massive industrial landscape, optimistically dubbed the Forth Riviera and claimed to be the beginnings of a waterfront to rival the best in the world.”
“Wilson sighs again. ‘The developers talk a big show but they don’t understand what they are doing here. This area is being driven by property speculation, there just doesn’t seem to have been a coherent analysis of what is the biggest remaining site in Edinburgh.’”
“High-rise flats dominating the waterfront have been built first by developers keen to meet the demand for two-bedroom homes, he adds. However, there are now fears that the sheer number of properties, and prices starting at around £140,000 for a one-bedroom flat, may have saturated the market. ‘The developers may have overstretched themselves,’ Councillor Trevor Davies adds. ‘Some of the buildings are far too big.’”
“‘There’s lots of rhetoric comparison with Copenhagen and Barcelona, but no-one from abroad is making those comparisons, it’s only Waterfront Edinburgh who are saying that. What is happening to the waterfront is light years from Copenhagen, Hamburg and Barcelona,’ Wilson said.”
“Newhaven councillor Steve Cardownie warns failing to get it right at the waterfront will haunt us all for years to come. ‘What we do here has to be better than good because it has to last for generations. The responsibility to make the right decisions here is huge, future generations won’t forgive us if we make the wrong choices.’”
‘having spoken with developers, permanent Casey said he expected builders to complete even more houses this year than the record 80,957 achieved in 2005′
It’s been said here that the builders will just keep going until something forces them to stop. And the worry of the Edinburgh officials for future generations should be voiced in cities like Miami.
and this proves again that the high prices are not the result of a lack of supply; it’s all about easy money.
This erosion of construction quality seems to go hand-in-hand with the abandonment of traditional underwriting standards — we keep hearing about it in the USA as well. It really calls into question whether, once the dust settles on this bubble, any of these overpriced monster homes would be worth buying, even at a 50% discount to the mania price. If they are poorly constructed, then they will be expensive to maintain.
P.S. CA building is booming on, too — never mind the growing inventory pile behind the curtain…
http://www.latimes.com/business/la-fi-permits28mar28,1,7841366.story?coll=la-mininav-business
I haven’t read much about the LA condos lately. Last I heard developers are planning more than 20,000 in some questionable areas.
Poor building quality is bubble driven but also inherent in the Anglo-Saxon countries. Tyler Brule of the FT Weekend back page had an excellent criticism of English builders and it is worse in the US. If you want quality go to Germany or Switzerland, e.g. two non-bubble countries.
What is the building quality in Oz? I am guessing that they have the same slopiness as their Anglo kinfolk.
I lived in England (Northamptonshire) from 2002-2004. We lived in a “new-build” estate, which is a British impersonation of American-style tract brick tract housing. The house we lived in was a cramped, three bedroom with one bathroom and two tiny half-bathrooms. British design and workmanship have fallen far and fast since about WWI, and for shoddiness of construction and charmlessness of design, our house trumped any of the tract-house developments I’ve seen in the US. We went through lightbulbs like popcorn due to the faulty wiring and 3rd-world UK energy grid, and I discovered the builder had buried a lot of scrap materials in the back yard, about two feet down, rather than pay the cost of hauling it to the “tip” (dump).
As of today, that house would fetch about 320,000 GB Pounds, which at a rate of about 1.76 dollars to the pound would make it “worth” about half a million US dollars. The rent, on the other hand, was 800 Pounds a month.
Considering the exorbidant British tax rates (they coddle their parasistes and tax to death the few remaining productive breadwinners) and generally low wages, I cannot for the life of me understand how the bubble there ever reached such insane heights, or how prices are STILL rising.
if they left behind metals, go dig them up and cash them in!
same in Netherlands; although prices for new homes went up about 5x in the last 15 years (that’s less than existing homes) workmanship dropped of a cliff.
If you purchased a new home 15 years ago you were pretty sure that you wouldn’t have any problems in the next years. When you buy the seriously current overprices homes, many of them are unfinished and have hundreds of problems right away (most of them minor problems, but still …).
The builders are simply too much in a hurry to go on to the next project, they know that people will buy anything even if the quality is poor.
I am surprised that people say there is no bubble in Switzerland. Yes, maybe if you look at the whole country but in cities like Zurich and Geneva there have been massive increases over the last 4 years. Of course, percentage-wise the numbers might not look so massive. But, you have to remember in Zurich a row very modest row house before the bubble could easily costs you 500K dollars to begin with. I wouldn’t say Switzerland is a non-bubble country. I would say there are definitely bubble areas in Switzerland like most countries in the rest of the world.
it depends on what you call a bubble; a good start is to look at price-to-rent ratio or price-to-income ratio. From what I have read in publications like The Economist etc. there is no serious housing bubble in Switzerland (compared to many other EU countries).
Housing in Geneva is expensive, but incomes and rents there are high as well (even a teacher there makes more money than most professionals in my country …).
And as financial capitals Zurich and Geneva will always be expensive I guess. These are the springs where the easy money is flowing from, part of it will end up in the surrounding area and drive up prices of all assets.
Thanks for your comment. I just know that houses that sold here 4 years ago for 700K CHF are now on the market for 1.3M CHF and that rent has not changed very much in the same period (although still high). I have not seen this kind of increase in other parts of Switzerland. Have seen the prices of housing stay relatively flat, but that is not the case in Geneva and Zurich. I know people say that incomes are high in Geneva/Zurich but I know most people would like to buy a house but can not afford it (compared to the costs). That’s why Swiss are 70% renters. It’s all relative, I guess. The salaries are relatively high, but the cost of living is astronomically high.
well, maybe Geneva/Zurich is part of the EU housing bubble then - wouldn’t surprise me with their financial status.
If prices are up a factor 2, maybe that is because interest rates went down significantly in the last 4 years? In that case the ‘monthly cost of homeownership’ hasn’t changed that much and price/rent ratio hasn’t changed much either.
Actually, to be honest, the numbers I heard from my friend in ZRH is that price appreciation has been hefty in his area but I defer to the statistics…… I wonder if Geneve has been affected by the French environs where prices have increased a lot in line with the French bubble. A lot of people who work in GE live in France due to the lower cost of living and I vaguely understand that there are some provisions to avoid the high French taxes if you work in CH.
Ok, this confirms regional differences:
http://emagazine.credit-suisse.com/app/article/index.cfm?fuseaction=OpenArticle&aoid=131620&coid=157&lang=EN
Geneve is the hotbed of price inflation where condos are up 50% in 5 years. Note that CH had a slump from 1991 to 2000. Some cantons like Neuchatel and Valais have nearly had 10% price drop since 2000, so this balances price inflation in other regions. In ZH condos are up 30% since 2000. So basically prices are going up in the high demand regions (fueled by 3% mortage rates) but are still dropping in some rural areas.
Note that a high quality, prime location condo 135 m2 in ZH or GE can cost CHF 1.5 million!
UK has an inverted yield curve, much more pronounced than the US has had recently. I wish I had saved it, but a few years ago there was a front page (IIRC) article in the WSJ about the UK bubble. It showed an expensive “home” which you entered through a trapdoor… Strikingly bizarre.
I was in London earlier in the month. Prices there make San Francisco look like a bargain.
The Irish market has gone doolally. I’m seeing inflation of 30% yoy. Prices slowed to about 10% pa for a couple of years following several years of relatively high double digit inflation. Ireland is soon to become the most indebted nation in the Euro area and consumer spending is at record levels. Ireland is one of the least densely populated countries in Europe and is heavily reliant on inward investment which has dried up over the past two years as the MNC’s now concentrate on India and China.
I’ve attached below details of a typical three bed semi detached (townhouse) in suburban south Dublin 1119 sq ft, on the market at €600,000. This property will probably sell for a figure around €625,000. Rental yields continue to fall as do rents average yields are probably 2% net.
We are entering the manic run up to a bubble burst that will rank with Florida in 1926 and Tokyo in 1990. The media, government and the ECB are getting worried, however, I’m afraid, its too late to close the stable door on this one, the horse is long gone.
I mentioned this on another thread:
I have a very good friend in Dublin who is a well-paid 30 year old professional. She has spent a year looking for a flat to buy, but has found nothing but overpriced garbage. All of the developments she went to had surly sales staff that were not interested in speaking to her unless she had at least a €25,000 check in hand for a good faith deposit.
Disgusted, she decided to hold off. Now, a few months later, several of the various development sales departments are telephoning her with pitches such as “you are in luck, we have a few units that have become available”. She tells me you can hear the desperation in their voices.
Meanwhile, the Irish newspapers say that the lines at development sales offices are growing once again. Shills…
so are lending standards in ireland as loose as in the UK and Netherlands? And is it just Dublin that’s gone crazy or other cities as well?
http://www4.myhome.ie/search/property.asp?id=264074&np=&rt=search&searchlist=
Sorry the link.
Wow. That looks like the apartment I lived in in 1993 in Blackrock. I think I paid about $150(US) a month for it with 4 roommates. It was pretty crappy, but I was a student and had no extra money.
I should add that even back then the south suburbs of Dublin were getting crazy on the new construction and conspicuous consumption, and this was at the beginning of the boom. I can only imagine what it is like now. I haven’t been back in 13 years.
“Newhaven councillor Steve Cardownie warns failing to get it right at the waterfront will haunt us all for years to come. ‘What we do here has to be better than good because it has to last for generations. The responsibility to make the right decisions here is huge, future generations won’t forgive us if we make the wrong choices.’”
This is exactly why unregulated building is a bad idea. Could you imagine any developer even uttering the words “responsibility” and “lasts for generations?”
And all this begs the question, will they even give a 30 yr mortgage on some of the new construction when they find it only has a 20 yr lifespan. They will definitely be rethinking the 40, 45, 50 yr mortgage unless loan standards are reduced. Smart home buyers will definitely have redlined and flagged those areas of substandard construction even if realtors, lending institutions,press, etc try to hide it. Gotta love the internet for get’in good info out where it’s needed.
Reminds me of a builder years ago in Bakersfield, Ca that was dubbed ‘One nail Gannon’…….
I think nobody cares what the lifespan of these new homes is.
If a big chunk of the buyers get away with 100% or more mortgages without any downpayment, based on falsified paperwork or simply at 10-20x their income it is quite clear what is happening. The banks and mortgage brokers don’t give a damn, they just want the sheeple to keep buying, pushing up prices for ever. They probably know that all their risk has been passed on to the taxpayers.
It’s striking that even in the most bubbly areas of Europe (UK, Ireland and Netherlands) where everyone can see that the market is heading for a disaster, prices simply keep rising.
And the ECB? Oh yes, they are ‘worried’ and doing absolutely nothing to stop it. These guys are worse than master charlatan Greenspan himself. The only thing they are worried about are their fat paychecks and golden parachutes for when this bubble blows.
http://www.housepricecrash.co.uk/
For those who haven’t had the pleasure, here is the UK equivilant of Ben’s fine site.
Can’t say I know much about the UK except that every eBay deal I’ve done with one of her “subjects” went sour; I’ve been burned on every single deal. It’s like dealing with people within the former Soviet Union in the sense that everyone is so god damned desperate. Good luck to ‘ye; the third world is waiting to share their misery with you. Oh well, you’re subjects, so bend the knee!
UK - where’s the crash
going sideways since 6/04
sure, there is no crash (yet).
There was some panic a few years ago in the London area, with 20-30% price drops in the more speculative segment (ask Tony Liar, he knows all about it). Same as in the Netherlands and probably some other EU locations.
But the averages keep increasing and the bubble keeps growing. I think we have to be very patient, could still take some years. When the crash finally arrives, it will be bigger in Europe because the appreciation is far bigger in the EU bubble areas compared to the US.
Australian houses are just as flimsy and poorly built as modern US houses. Paper thin walls, wood frame construction, and cheap fixtures are the norm, even in high end properties.
South African building standards are far more demanding–all brick, cast foundations, interior walls also brick, upper floors on concrete slabs. And they don’t even have severe weather to bother about. Pity the society is so crime ridden that all houses have to have fortress-like walls on the perimeter too.