The cure for malaise across 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 pernicious illness or disease.
The expertise required to achieve such a thing involves first acquiring a deep and accurate knowledge of the causes and then following this, the ability to diagnose the correct treatment to cure the specific illness.
It is of course imperative to be able understand precisely how and why a specific malaise has occurred. Only then can the correct cure be identified and 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 specific house being offered for sale in any (local) housing market 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 the 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 current 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 out and also, all demand for these would be fully and continually satisfied.
Instead, in the present day housing markets, there are large overruns where either there is too much property being offered at any one time or alternatively, there are too few properties being offered for purchase. Bothe extremes are most uncomfortable for all those trading houses in the regional marketplaces.
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 to achieve when selling!
Worse, they base their asking prices on what other asking prices are, including what other recent sales will have achieved albeit, for the reasons set out, these would have used skewed or imperfect marketing comparisons 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 buyers (according to statistics published by the NAEA). Today, after a spirited first half of the year after COVID has started to reduce, a typical estate agent apparently has just 23 live listings and over 400 applicants on their register, published from the same source.
If such knowledge was to be broadcast widely, it would skew prices-levels downwards whilst the market is flush with properties for sale, or alternatively, it would skew prices-levels upwards when there are 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 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 is more recently what’s been going on of course.
Selling agents may say that it is the desperation of buyers which is forcing the prices up but that does explain the suggestion that the housing markets are operating at low efficiency. They exhibit imperfections, resulting in a lack of stability and so these markets are in need of an introduction of completely new ways to buy and sell houses.
In my analysis and diagnosis, following understanding the true causes of these problems, two specific ways to deal with them have emerged.
A: Firstly a restriction on the right to occupy a proportion of houses in each locality such as permanent “Primary Residence” status should be placed on these. This would mean these 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.
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 if this is carefully scrutinised.
This is where The House Price Virtuoso 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 by better utilising “Primary Residence” restrictions on certain properties.
It would enable buyers to be free to participate by establishing the price levels themselves, still subject of course to “Primary Residence” restrictions, which would be separately and locally established using local planning rules.
To read more about how The House Price Virtuoso Solution (formerly The Hendry Solution) could improve the way in which houses are bought and sold across all local housing markets in the whole country, please click the following link.
The House Price Virtuoso Solution
How to Improve Housing Markets in England and Wales.
Posted by: Peter Hendry, Housing Valuation Consultant
Author:– The House Price Virtuoso Solution