Interesting Links for 04-11-2015

[andrewducker]

• Entire editorial staff of Elsevier journal Lingua resigns over high price, lack of open access
  • (tags: OpenAccess publishing academia viaJaneCarnall )
• How reducing inequality boosts economic growth
  • (tags: inequality growth economics )
• BBC Greenlights Series Based on Philip Pullman’s ‘His Dark Materials’
  • (tags: PhilipPullman tv bbc )
• Universal Basic

Comments

[drdoug]

Interesting - I've not run those sums before (I was lucky enough to be able to buy young) to see how it works out.

My thinking was that one more-or-less can't get a mortgage that isn't paid off by retirement age, and that one might reasonably expect to live 20 years or so after that. Which admittedly is shorter than most mortgage terms. My intuition was that it wouldn't be so by a factor big enough to account for the difference between monthly rent-v-mortgage and rent-v-free.

(Also, my instincts are funny and my discount rate is low to slightly negative: on the margin, I would prefer to have £100 (inflation adjusted) when I'm too old to work than to have it now.)

Selling the house later is surely worth exploring as an option if you don't think you'd live long enough in it to make it worth while? Unless, of course, you know you will probably spend money more-or-less as it comes in and so a sudden cash influx is a very different thing to a steady monthly amount. Which we've just vigorously agreed is the case for most people, come to think of it.

Property markets where renting is persistently more expensive than buying on a month-to-month basis melt my brain. And when it happens across almost an entire nation I get very nervous. That surely can't be sustainable.

[naath]

Shockingly landlords would like to both pay their mortgage and make a profit. In an economy where many people have no hope of ever getting together the money to buy (houses in Cambridge are now getting more expensive *faster than I am earning money*; I will never be able to buy here baring lottery wins or surprise inheritances), and in which landlords are much more willing than mortgage lenders to believe you when you say "of course I can give you 60% of my income every month" I am not even slightly surprised that renting is so expensive.

[steer]

The mean proportion of income spent on rental has actually been "more or less" static for the UK since around about 1995.

This link here:
http://www.ifs.org.uk/uploads/publications/bns/BN161.pdf
is just awesome.

Take a look at figure 2.4b which shows the long term trend from 1969 -- though the figures stop in 2012. It's interesting to note that this is against a background of smaller average occupancy -- that is more people living on their own or in smaller groups. So the actual picture is that in recent years rent has not really increased as a proportion of income and there are more houses available per head of population. This is entirely counter to what I expected to read.

The real big changes were from 1979 (coinciding with the sell off of council housing stock and from 1989 - 1995 corresponding to a boom in buy-to-let mortgages). Piketty describes the situation as being the rise of the rentier society -- that a non-trivial proportion of the population derives income from owning property and renting it out to another section (by contrast to the 17th/18th century where that class derived income from owning land and having the lower classes work that land).

This seems counter intuitive and, of course, there are individuals for whom it is completely untrue like yourself where rent has gone up faster than income. For me the opposite is happening.

[naath]

This does seem rather unintuitive. Doesn't explain why the housing benefit bill is quite as large as it is for one thing.

[steer]

The housing benefits bill is a complex function of the number of people claiming it, the proportion of housing costs paid, the housing which those people being paid housing benefit will tolerate (typically you would have to share accommodation) and so on. The housing benefits bill is currently large because more people are claiming housing benefit. The number of claimants has literally doubled post the crash of 2008. (Actually, I didn't know it was so severe until I looked up to answer this question -- that is quite a startling statistic.)

http://www.independent.co.uk/news/uk/politics/number-of-people-in-work-claiming-housing-benefit-soars-9647752.html

Because we have wage stagnation and a slowly growing economy more and more people are finding themselves eligible to claim either because their income has shrunk, their savings have been spent or they have defaulted on their mortgage.

[naath]

If

So the actual picture is that in recent years rent has not really increased as a proportion of income and there are more houses available per head of population.

then how does wage stagnation mean that more people are unable to afford to pay their rent? Surely if "rent has not really increased as a proportion of income" then wage stagnation would imply rent stagnation too because if wages are flat and rent increasing then rent would be increasing as a proportion of income.

[steer]

Surely if "rent has not really increased as a proportion of income" then wage stagnation would imply rent stagnation too because if wages are flat and rent increasing then rent would be increasing as a proportion of income.

The mechanism to qualify for housing benefit isn't that you can't afford to pay your rent. You qualify for housing benefit if your income is below a certain level, you're renting (not paying a mortgage, though I think you can get some help if you are unemployed and paying a mortgage, I'm not sure of the details) and you don't have savings. Wage stagnation means that many people have effectively had a pay cut as inflation is low but still exists. An increasing number of people either default on their mortgage, eat into their savings until they qualify or have their income fall below a certain level. (Stagnant wages is a combination of people some of whom have wages rising, some of whom have wages falling and some of whom have wages staying the same.)

[steer]

The housing benefits bill is a complex function of the number of people claiming it, the proportion of housing costs paid, the housing which those people being paid housing benefit will tolerate (typically you would have to share accommodation) and so on. The housing benefits bill is currently large because more people are claiming housing benefit. The number of claimants has literally doubled post the crash of 2008. (Actually, I didn't know it was so severe until I looked up to answer this question -- that is quite a startling statistic.)

http://www.independent.co.uk/news/uk/politics/number-of-people-in-work-claiming-housing-benefit-soars-9647752.html

Because we have wage stagnation and a slowly growing economy more and more people are finding themselves eligible to claim either because their income has shrunk, their savings have been spent or they have defaulted on their mortgage.

[steer]

My mortgage won't be paid off by retirement age. I was asked how I intended to pay it off. I said I had a pension with a lump sum. No proof of this was required.

Those figures on property and renting versus buying aren't what I expected actually. The London figures are much closer than I expected and in general there seems to be little country-wide difference.
Weirdly the telegraph shows the opposite figure for the period:
http://www.telegraph.co.uk/finance/economics/11101904/Renting-v-buying-damned-if-you-do-damned-if-you-dont.html

I'm not sure why you'd expect renting to be cheaper than buying though. It depends on the state of the market no? I mean obviously landlords want to make as much as possible