Sunday, 17 May 2015

The true cost of high house prices.

It is plainly obvious that Aberdeen has a housing crisis.  House prices are too high for many of Aberdeen's residents and rental costs are also sky high.  A January 2015 Aberdeen council study looked at  Skill Needs and from that study it is clear that public employers and certain lower pay employers are really struggling to get staff ( Skills Audit )

High house prices make it difficult for people to come to Aberdeen when a city like Glasgow has cheaper house prices but a teacher will get paid the same in either city.

This video talks about  The UK's idiotic house prices .
This presentation tackles land prices: Land Value

This article, rising house prices, has this to say on the negative effects of high house prices:
  1. Wealth/ income inequality. Rising house prices are good for those who own a house (often the older generation) It is bad news for those trying to get on the property ladder.
  2. Rising house prices increase inter-generational wealth inequality. Homeowners see a rise in wealth. Those unable to buy experience higher costs of renting.
  3. Social change. One problem with high house prices is that it is contributing to social changes. Many people are struggling to buy houses in areas where they were brought up; therefore, they need to move to more affordable areas.
  4. In the UK, the rise in house prices doesn’t reflect strong, sustainable demand, it reflects a shortage of supply in the market, therefore it is misleading as a sign of the underlying strength of the housing market and economy.
  5. Rising house prices mean first time buyers have to take increasing risks to buy a house. The size of the housing debt means that homeowners are vulnerable to future rising interest rates.
  6. Evidence shows that the housing market is particularly vulnerable to booms and bust in house prices.
  7. Geographical immobility. Expensive house prices makes it more difficult for people to move around the country.

This article  Unaffordable house prices points out that high house prices:
  • force families to become increasingly reliant upon two salaries to service newly acquired mortgage debts thus increasing the financial risks should one parent become ill or unemployed.

  • makes it difficult to attract key workers to areas where prices have risen highest.

  • The rises inevitably lead to an over-concentration of investment into housing rather than in more productive areas such as investment in companies or the local economy.

Saturday, 9 May 2015

Why do people buy houses ?

In my last post I examined the true cost of houses.  Now I want to explore why people buy houses.

I was employed as an apprentice in the fine chemical industry straight from school.  At age 20 I bought my first house.  It was a new, 2 up 2 down one bathroom linked house (terraced) in a Lincolnshire village.  It cost about 6000 pounds and was 2.5 times my earnings plus a one times my wife's earnings.  We had a 5% deposit.

I tried getting a mortgage from the building society that I had saved with from age 16 but they refused (Halifax).  I used a mortgage broker.  Anyhow I managed to get a mortgage with an endowment .  The house was garbage but it was our garbage.  After a few years my wife gave up work to raise our first child.  That was possible then.  I have never rented because I saw it as dead money.

Now living in Aberdeen that would be an impossible dream.  Even with two professional salaries from non oil related companies couples really struggle to buy a house.  Here is why:

Cheapest 2 bedroomed new house 250,000 pounds.
Joint salaries say 58,000  pounds.
3.5 times salary =203,000 pounds so need at least 50,000 pounds deposit...not easy but let's say they go for it.  So a 203,000 pounds mortgage costs 1,000pounds a month for 25 years. 

Take home pay for each person at 29,000 pounds salary is about 1500 pounds.  So both definitely have to work.  Obviously getting a 50,000 pound deposit is never going to happen.  It would take  a decade.

So let's go with the  a 5% deposit and a mortgage of 237,000 pounds that puts repayments up to nearly 1200 pounds a month making two salaries vital.

What if the same couple built a house for 50,000 pounds.  What if they were able to buy the land for a further 50,000 pounds for a 500m2 plot. So a total debt of 95,000 pounds over 25 years for 475 pounds a month.  One person could take a year off work and the couple could live on one salary and then continue to (if they wanted to).

So what Aberdeen really needs is building plots that young couples can buy and then self build houses either alone or as a group.

Average rents in Aberdeen for a 2 bedroomed house are at least 800 pounds pcm and as such are unsustainable.  Over a 60 year life that would cost 576,000 pounds. 

Tuesday, 5 May 2015

How much does it actually cost to build a house in Aberdeen?

In Aberdeen an ex council 3 bedroomed house costs about 160,000 pounds.  These houses tend to be about 90m2.  So that is a cost of 1777 pounds per m2.

As I understand it Aberdeen city council has a great deal of land that could be used for building houses.

So what is the cost breakdown in a house build:

The build cost is 82,000 pounds for a 100m2 house if you project manage it yourself.  Obviously there is a land cost.  Of the build cost quoted at least half of that is labour so essentially if you do the building you would pay about 50,000 pounds for the materials.  After that you decide what labour you need.  If you have a main contractor  to do the build, it will cost you a further 20,000 pounds.

This 3 bedroomed house costs 41,000 pounds (without land):

The Grand Designs house for first time buyers: How you can get on the property ladder with a £41,000 three-bedroom home

  • Low cost design is based on modern steel farmyard hay barns
  • The Barnhaus steel frame is lined internally with lots of insulation
  • Home is 100 square metre home; much bigger than most starter homes
  • House came top in a competition judged by Grand Designs' Kevin McCloud
Why then do new houses cost so much in Aberdeen....
Land costs ?
Labour costs ?
Shortage of supply ?

All of the above.  I know for a fact that experienced builders get just 10 pounds an hour as an employee in Aberdeen so someone is making a lot of money...

Saturday, 2 May 2015

Book Review AFTERBURN: Society Beyond Fossil Fuels, Richard Heinberg

Here is my brief summary of this book:
Man made climate change is real and happening now. We have to drastically cut usage of carbon based fuels and fast.
Fossil fuels are very energy dense and any other energy sources we use are likely to be less dense so we need to reduce our energy usage drastically.
We have lost our sense of community and in order to weather the challenges posed to us by climate change we need to have a strong and adaptive co operative community structure.
It is very likely that western economies will not be able to grow because current carbon based energy sources will be increasingly expensive to refine having a major effect on developed economies.
It is unlikely that business as usual corporations and governments will be able to change anything. Only grass roots movements can change the status quo.
We need to pursue localism, sustainability, community, co-operatives and aim for happiness not consumerism.
This is a tough gig for Aberdeen……
Below are some of the references from the book:
Unlike conventional fossil fuels, where nature provided energy over millions of years to convert biomass into energy-dense solids, liquids, and gases–requiring only extraction and transportation technolgy for us to mobilize them–alternative energy depends heavily on specially engineered equipment and infrastructure for capture or conversion, essentially making it a high-tech manufacturing process. However, the full supply chain for alternative energy, from raw material to manufacturing, is still very dependent on fossil-fuel energy for mining, transport, and materials production. Alternative energy faces the challenge of how to supplant a fossil-fuel-based supply chain with one driven by alternative energy forms themselves in order to break their reliance on a fossil-fuel foundation.

 Need Jobs? US Solar Industry Provides Employment for More People than Coal and Oil Combined
 Consumption Makes Us Sad? Science Says We Can Be Happy With Less
We are all part of a community in one way or another. Often it is our commitment to improving the community we live in that leads to us starting up a Transition group.

 Living for the Moment while Devaluing the Future

 David Graeber: anthropologist, anarchist, financial analyst

 A Plan to Power 100 Percent of the Planet with Renewables

Powering a Green Planet: Sustainable Energy, Made Interactive