{"id":857,"date":"2019-07-25T13:58:17","date_gmt":"2019-07-25T10:58:17","guid":{"rendered":"http:\/\/www.liberalglobe.com\/?p=857"},"modified":"2019-09-05T15:22:27","modified_gmt":"2019-09-05T12:22:27","slug":"bubbles-in-market-prices-and-rentals-for-homes-in-western-countries","status":"publish","type":"post","link":"https:\/\/www.liberalglobe.com\/?p=857","title":{"rendered":"Bubbles in Market Prices and Rentals for Homes in Western Countries"},"content":{"rendered":"\n

The drastic increase in real-value prices for residential use in relation\nto the reduced growth of disposable household income in the Western countries\nalways creates imbalances in these real estate markets. Such imbalances are called ‘bubbles’ and are very\ndangerous if no corrective action is taken not only for the markets in which\nthey are developed but for the entire economy concerned.<\/p>\n\n\n\n

This type of “bubbles” has been seen to be formed in the last\nfour years (2015-2019) in the property markets for residences both in the UK\n(London) and in the EU member countries i.e. the Netherlands (Amsterdam),\nFrance (Paris), Germany (Berlin), Sweden (in the whole country), Spain\n(Barcelona), but also in other countries of the West such as Canada, New\nZealand, Australia, USA (New York, San Francisco).<\/p>\n\n\n\n

by Thanos S. Chonthrogiannis-https:\/\/www.liberalglobe.com<\/em><\/strong><\/p>\n\n\n\n

\"\"
View of downtown Calgary, Canad<\/strong>a
Photo by Author: Calgary_panorama.jpg: Calgarypano
Source: Calgary_panorama.jpg
licensed Public domain, https:\/\/creativecommons.org\/publicdomain\/zero\/1.0\/deed.en
<\/figcaption><\/figure><\/div>\n\n\n\n

Why the real estate market for residential use is extremely important<\/strong><\/strong><\/p>\n\n\n\n

When demand in housing is strengthened in relation to supply it is because\nborrowing rates are kept long-term at low levels allowing consumers to borrow\ncheaply for home purchase and always for specific level of disposable income.\nWhile at the same time the consumers are increasing other expenditures since\nthey feel richer because of their easy access to money.<\/p>\n\n\n\n

However, the drastic increase in expenditures increases the prices of all products and assets. This furnished\nwell-being can be seen when we compare annually the increase in the prices of\nproducts and real assets equally, in this case the annual increase in the\npurchase prices of the real estate market for residential use with the annual\nincrease of the annual disposable income of households and borrowers-mortgagers\nwho have acquired a home.<\/p>\n\n\n\n

The most effective measurement is the relative value that exists between\nthe annual increase in the purchase prices of residential properties in\nrelation to the annual increase of the daily wage of the unskilled worker. This\nmeasurement shows us the real picture of what is happening with the prices in\nthe real estate market for residential use in an economy.<\/p>\n\n\n\n

At the same time entrepreneurs who are activating in the property market\nfor residences due to the long-term low lending rates borrow capital either to\ninvest it in the construction of new homes or to repair existing old residences\nfor exploitation. Consumers because of low interest rates are reluctant to save\nenough so the banks are not able to finance new investment plans.<\/p>\n\n\n\n

In the fact, the problem lies when the prospects of the\neconomy or the prospects of the global economy are bleak. In the current era\nwhere the global economy is slowing while the trade war between China and the\nUS can become more severe, at the same time increasing the likelihood of\ndisruption of the smooth flow of oil and liquefied natural gas to global\nmarkets causing prices to increase, the chances of many citizens’ disposable\nincomes being reduced drastically (due to cuts in business profits, job losses,\netc.) are increased. <\/p>\n\n\n\n

In such an undesirable situation, many people will not be able to serve\ntheir mortgages, so they will force to sell their homes at much lower prices\nwith aim to repay their loans or to lose their homes due to non-service of\ntheir mortgage.<\/p>\n\n\n\n

Entrepreneurs will be trapped in a situation of reduced demand and increased borrowing costs. New investments will lose their value and real resources will be lost. <\/p>\n\n\n\n

Fictional prosperity will have led to a painful recession. In this case, the fall in housing prices will be high and fast, causing a severe financial crisis in the economy under consideration. In this case the biggest problem will have both borrowers and banks.<\/p>\n\n\n\n

Around the housing market for residential use in addition to the construction sector, other seventy professions are involved. <\/p>\n\n\n\n

Essentially, the construction and housing construction industry is the locomotive of the internal economy and development, giving an outlet for unskilled workers, keeping unemployment in these poorest income workers at low levels. The mortgage loans that banks allocate are the most important part of their balance sheets.<\/p>\n\n\n\n

How the situation in the real estate market is evaluated<\/strong><\/strong><\/p>\n\n\n\n

When the demand for housing is strengthened, the rents are reinforced\nrespectively. The main reasons for boosting demand are, long-term maintenance\nat low levels of borrowing rates, increased employment rate and population\ngrowth due to internal or external migration.<\/p>\n\n\n\n

The housing market for the purpose of its exploitation through rental is a\npopular investment activity that pays off when bank lending rates are low and\nthe returns from the financial markets are uncertain.<\/p>\n\n\n\n

When the housing market is depressed and it is difficult to sell, it is\nquite difficult to rent. When the housing market is on growing market prices\nand it is easy to sell, it is easier to rent. The yield of the property-house\nthrough its rental is determined by the following type:<\/p>\n\n\n\n

Yield of the property=((Income from rental\u2013housing expenditures\u2013taxes) \/ Value of property) x 100%<\/p>\n\n\n\n

This yield of property is used to compare with the returns (yields) of other types of investments. This yield of property which comes from rental activity looks very much like the interest rates that Banks and Building Societies used to quote in savings and performance accounts equally and other type of investments etc. and gives a useful insight into the return on investment.  <\/p>\n\n\n\n

Other indexes which are used to assess the situation in the real estate market are the relative value between: <\/p>\n\n\n\n

  1. Purchase prices (rent) of real estate \/ Property rentals<\/li>
  2. Purchase prices (rent) of real estate \/ Disposable household income<\/li>
  3. The corresponding changes in the above indices on an annual basis.<\/li>
  4. Annual change of actual prices \/ Annual change in the daily wage of\nunskilled worker<\/li>
  5. Total number of mortgages in the economy \/ GDP of the economy under\nconsideration.<\/li><\/ol>\n\n\n\n

    The “bubbles” in the housing markets in Western countries<\/strong><\/p>\n\n\n\n

    A.<\/strong> From 2015 to date, rents for homes are growing at a much higher rate than the corresponding time increase in the average disposable income of households. More specifically:<\/p>\n\n\n\n

    EU<\/strong> <\/p>\n\n\n\n

    Spain (Barcelona), rents increased more than 50% due to increased tourism.<\/p>\n\n\n\n

    Netherlands (Amsterdam), rents increased more than 64,6% in relation to the increase of the average disposable income for the same time period.<\/p>\n\n\n\n

    Germany (Berlin), rents increased more than 64% in relation to the increase of the average disposable income for the same time period.<\/p>\n\n\n\n

    France (Paris), rents increased more than 32% in relation to the increase of the average disposable income for the same time period.<\/p>\n\n\n\n

    UK<\/strong> (London), rents rose by 30% more than the corresponding increase of the average disposable income for the same time period.<\/p>\n\n\n\n

    Canada<\/strong> rents increased more than 24% compared to the increase of the average disposable income for the same time period.<\/p>\n\n\n\n

    New Zealand<\/strong> rents increased more than 22% in relation to the increase of the average disposable income for the same period.<\/p>\n\n\n\n

    B.<\/strong> From 2015 to date, housing market prices are increasing at a much higher rate than the corresponding time increase in the average disposable income of households. More specifically:<\/p>\n\n\n\n

    EU<\/strong><\/p>\n\n\n\n

    Germany, housing market prices increased 20% more than the corresponding average disposable income for the same time period.<\/p>\n\n\n\n

    Belgium, the housing market prices increased 38% more in relation to the corresponding average disposable income for the same time period.<\/p>\n\n\n\n

    France, the housing market prices increased 20% more than the corresponding average disposable income for the same time period.<\/p>\n\n\n\n

    Sweden, the housing market prices increased 46% more in relation to the corresponding average disposable income for the same time period.<\/p>\n\n\n\n

    UK<\/strong> (London), housing purchase prices increased by 25% compared to the corresponding average disposable income for the same time period.<\/p>\n\n\n\n

    Canada<\/strong> the purchase prices of residences increased 55% more than the corresponding average disposable income for the same period.<\/p>\n\n\n\n

    New Zealand <\/strong>the purchase prices of homes increased 22% more than the corresponding average disposable income for the same time period.<\/p>\n\n\n\n

    Australia<\/strong> the purchase prices of residences increased 36% more than the corresponding average disposable income for the same time period.<\/p>\n\n\n\n

    Remedies to implement measures to limit the rise in housing market prices<\/strong><\/p>\n\n\n\n

    1.<\/strong> Apartments should be purchased and wherever they are available from local governments in order to increase the existing supply of homes for disposal to the public.<\/p>\n\n\n\n

    2.<\/strong> In addition, central governments should release funds to continually build new dwellings that can be made available for sale and\/or rent to citizens.<\/p>\n\n\n\n

    3.<\/strong> To tax the purchase of housing by foreigners at a higher tax level compared to that applicable to domestic citizens.<\/p>\n\n\n\n

    4.<\/strong> Prohibition on foreign nationals (in extreme situations where the house supply is limited due to the size of the country and the growing population) to buy dwellings in order to limit the rapid rise in housing purchase prices.<\/p>\n\n\n\n

    Measures to limit the growth of rents<\/strong><\/strong><\/p>\n\n\n\n

    Most of the measures to be implemented to limit the increase in rents\nfavour tenants at the expense of homeowners-landlords. Measures such as, rent\nfreezes for specific periods, increase rent based on inflation, renter’s stay\nin the property until the expiration of the contract regardless of whether the\nproperty has been sold are measures favoring tenants (theoretically the weak\ngroup) against the homeowners-landlords.<\/p>\n\n\n\n

    The owners will not be able to profit from the exploitation of their property and sooner or later they will be forced to sell their properties due to a minimum profit or sustainable deficit. <\/p>\n\n\n\n

    I always refer to homeowners-landlords who are owning one or two residences and renting them in order to supplement their low disposable income.<\/p>\n\n\n\n

    On the other hand, measures restricting rents give the wrong signal to\nprofessional investors in the real estate sector, forcing them to turn in\nanother country their investment look, gradually withdrawing any investments\nthat they have already done in this country\/town. At the same time, there is a\nclimate of suspicion in the real estate market.<\/p>\n\n\n\n

    The only case for the rational application of these measures is for these measures to be applied based on individual tenant income criteria. In this case, however, we have a serious violation of individual & personal rights of tenants. <\/p>\n\n\n\n

    The balance in a free market comes through the price which each time balances the existing demand and supply for a particular asset. Any interference with it will cause imbalances and distortions in this real estate market.<\/p>\n\n\n\n

    The fact that local and central governments, respectively, are more interested in protecting tenants (theoretically the weaker group) has to do with the rates of homeownership in these countries. <\/p>\n\n\n\n

    The relatively low rates of homeownership reduce the political power of any homeowners-landlords in relation to the political power of tenants whose political forces translate into votes in elections.  <\/p>\n\n\n\n

    The demand for housing in all these\ncountries is not going to fall as most people on the planet want to live in\nthese countries. Not because they are wealthy countries but because they are\nStates of Law and they will always try to approach perfection as States of Law.\nIt is this fact that these countries are State of Law that makes these\ncountries to be magnets of wealth and opportunities.<\/p>\n\n\n\n

    If the rest countries of the world do not try to become states of Rule of\nLaw, they will increase constantly the migratory flows towards the West\ncountries by continuously fueling the demand side of housing markets in the\ncountries of the West.<\/p>\n\n\n\n

    Thanos S. Chonthrogiannis<\/strong><\/p>\n\n\n\n

    It is prohibited\nby intellectual property law or in any way illegal use of this article, with\nheavy civil and criminal penalties for the offender.<\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

    The drastic increase in real-value prices for residential use in relation to the reduced growth of disposable household income in the Western countries always…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[859,5],"tags":[873,875,868,876,872,877,871,874,869,870],"class_list":["post-857","post","type-post","status-publish","format-standard","hentry","category-economics","category-economic","tag-average-disposable-income","tag-banks","tag-bubbles-in-market-prices-and-rentals-for-homes-in-western-countries","tag-building-societies","tag-housing-market","tag-interest-rates","tag-measures-to-limit-the-growth-of-rents","tag-mortgages","tag-the-extremely-importance-of-housing-market","tag-the-way-to-evaluate-the-situation-in-real-estate-market"],"_links":{"self":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/857","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=857"}],"version-history":[{"count":2,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/857\/revisions"}],"predecessor-version":[{"id":1161,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/857\/revisions\/1161"}],"wp:attachment":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=857"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=857"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=857"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}