Tuesday, 21 June 2011

How Much Would You Pay For A House Like This?

In the last few months, I've given the numerous statistics from the OECD, various Banks and so on showing the extent to which house prices are in a massive bubble in the UK. Have a look at the house below, which has:


The house is in Orlando, Florida. And the full details can be found at the Rightmove Overseas website. To save you looking, this house is for sale for just $114,500, or £70,895. Its not a freak. My researcher i.e. my wife, who has a keen interest in houses, has found many such properties in the US. There's another one here, which is even cheaper at just $99,900.

For those who think that house prices here could not fall by the amounts I have been talking about, read the estate Agents blurb on this second house. A year or so ago it was valued at $300,000. And yet, having stabilised as a result of Obama's TARP, and other schemes to bail-out the Banks and homebuyers, and Bernanke's QE1 & QE2 programmes to flood the economy with liquidity, the housing market in the US is entering a double dip, so that even these prices are likely to seem high in a few months time.

Last year the house next door but one to me, which is a 7 bedroom semi, sold for £500,000 (which was actually 10% less than its asking price). God knows how much a simialr house in London would have been, probably £2-3 million. It is an indication of just how huge a bubble UK house prices are in. In the US, the much greater availability of building land, means that it tends to be cheaper than in the UK. But then part of the reason for that is also that in the UK all residential property is squeezed on to just 10% of the available land, leaving huge swathes of the country in the hands of the landed estates such as that of Prince Charles and the Duke of Westminster. In the 19th Century, Capitalists proposed the nationalisation of land, so that all Rents went to the State - it was, of course a piece of class war on their part against the Landlord Class, and would have meant the State needed to take less in taxes from Capital. Although, as a Marxist I don't advocate measures of State Capitalism, such as Nationalisation, in respect of Land, nationalisation would still be a progressive measure.

But, whilst land prices may be cheaper in the US, that is offset by the much higher wages that construction workers and other building crafts workers are paid in the US compared to here. So, in terms of the price of production, there should be little difference between houses in the US, and here. Another part of the problem lies in the fact that the nature of the housing market in the UK provides little incentive for innovation. With house prices assumed to go up year after year, and with demand usually oustripping supply, there is no incentive for builders to develop innovative ways of building more efficiently. While I was out with my wife walking this morning, we thought of a number of ways that you could build houses more efficiently.

But, reality always catches up with appearances, and its inevitable that the house price bubble will pop, sending prices down to perhaps just a tenth of where they are today. That will give builders a definite incentive to find ways of building more efficiently, in order to be able to produce houses at prices, and the quality needed to sell them.

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