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I have been idly looking to move out of the city. One thing that is really striking is how much variation there is in property market values which seem to bear little resemblance to the intrinsic value. ( I am meaning intrinsic value as what it would cost to build - land plus labour plus materials)
My flat - a nice 2 bed flat in leith edinburgh could be sold for enough money to buy a 5 bed new build in west lothian with money left over. Or ten terraced houses in Hull. Or 3 garages in Morningside. Its just crazy. The sale price has seems to have little to do with how much it would cost to build.
is there any other commodity where this occurs? Antiques obviously but many of them really have very little to no intrinsic values as their function could be done by something costing pennies so they will always be valued on market value.
I just cannot get my head around this. Somewhere to live is something we all need - but this huge variation just seems weird and the idea that my nice wee flat is "worth" more than a five bed house 15 miles away is just absurd ( good for me tho)
When I bought the flat 25 years ago I could not have bought a 5 bed new build for that money.
Thoughts?
All about this init
The selling price is always much higher than the land + build/rebuild price.
It's simple really, as a society we put value on scarce resources. Land in London is expensive, the perception is weird but people who live there subscribe to this by settling there.
It's "worth" as much as someone is willing to pay for it.
The selling price is always much higher than the land + build/rebuild price.
The cost of the building in terms of labour and materials is an irrelevance really. I own a house that would cost more to rebuild than it could subsequently sell for so the location effectively has a negative value.
costs in housing are a sort of tragedy of the commons- everyone who owns a house bought it by being prepared to pay more for it than absolutely anyone else. Everyone has over paid, for fear that someone else would have paid more.
anywhere there are more dogs than bones the bones are overpriced
So yacht moorings in Monaco, parking spaces in Edinburgh, tickets for concerts by someone popular, tickets for the same concert with a better view, tickets to watch the same orchestra from the same seats while they play music that’s more popular, peak time travel, last minute bookings for peak time travel, holidays during the school holidays. The time or the place has more value than the product or service.
there are some cases where that doesn’t seem to be in effect. A MacDonalds or a Starbucks seems to cost the same anywhere. In the same weekend I bought a coffee from Starbucks in Mayfair and one from Starbucks in Govan and they were the same price - I’d imagine the rent and rates was a bit higher in one location than the other.
is there any other commodity where this occurs?
This is the fallacy of your thinking. Houses are not a commodity, as each has intrinsic value beyond the land + building. Even two houses next door to each other may have wildly differing values. Architectural design vs built to scheme. Materials used. Maintenance. Etc. Then add in scarcity of land, local economic factors, school districts, etc.
Agree with sentiment tho - house prices are crazy.
Shares in companies that do not make a profit?
Normally you buy shares to receive an income in the form of dividends and maybe some sort of capital growth.
There was a time when Amazon was not making a profit, so if you held one or more of their shares you would not be receiving any dividends, but the share price was really high.
I guess that it was the expectation of what they were going to become that increased their share price.
there still seem to be plenty of examples of men being valued more than women in the workplace
The selling price is always much higher than the land + build/rebuild price.
Is it tho? the terraced house in Hull at £30 000? the new builds I saw in Newton Stewart for £70 000?
The sale price has seems to have little to do with how much it would cost to build.
is there any other commodity where this occurs?
..............and you're asking this on STW?
What about the obvious?
Shares in companies that do not make a profit?
Only if you never expect the company to make one though. An an investor I'd be quite happy for a company to invest all its profits in growth if the expectation was that future profits would be larger....
The selling price is always much higher than the land + build/rebuild price.
Lol.
as each has intrinsic value beyond the land + building.
No - thats its market value. the intrinsic value is surely what it actually cost?
Rentals of course are even crazier and again costs around the country vary so much. I could rent the two flats we have at below market rent, borrow 80% of the value and after the loan repayments still be making a suplus of £7000 pa
The selling price is always much higher than the land + build/rebuild price.
Our insurance rebuild price is more than the value of our house, and that presumably doesn't include any value attached to the land itself.
The selling price is always much higher than the land + build/rebuild price.
hmm. You generally calculate the value of a plot of land by looking at the sale value of the house it's got planning permission for and deducting the construction costs (plus a small profit). I think you're just undervaluing the land.
If you want to see some real mismatches look at the USA - there are some amazing mid-century houses out there worth peanuts (come up on WowHaus blog fairly often). Changing economy has meant that some previously wealthy industrial towns now have no work
+ oversupply of housing so values are rock bottom. (but then contrast with San Fanscisco)
The sale price has seems to have little to do with how much it would cost to build.
is there any other commodity where this occurs?
26" bike parts
I have been idly looking to move out of the city.
Where have you been considering?
I/we have an urge to get away from Edinburgh - it’s just getting too built up and busy. But, I’d miss our house. I fancy a second home, but that’s not going to happen for several reasons.
I'm only idly looking. Peebles / Gala / innerleithan maybe? But i want a house with garden and no stairs! anywhere south of the city but has to be cycling distance of shops, pub and train station
I’m only idly looking. Peebles / Gala / innerleithan maybe? But i want a house with garden and no stairs! anywhere south of the city but has to be cycling distance of shops, pub and train station
I have had similar thoughts. Since we don’t drive, access to the train is a big bonus - the cycle from Galashiels to Peebles is straightforward and pleasant. A touch East of Innerleithen would suit me methinks.
East Lothian maybe - though obviously that's not south (!) - easy access to lots of nice quiet roads though, and gentle off-road tracks.
In reverse, we've been pondering buying a flat in Edinburgh. Not long ago, my first flat came up for sale (obviously many years after I/we'd sold it). Crikey I couldn't have afforded to buy it now as a younger me (as it were).
26″ bike parts
hardly just 26" ... it doesn't cost anything to just change the label/logo or put in a safety screw to disable functionality.
In some cases the cheaper near identical product is more expensive... I have some 685 and some 785 cranks that are identical other than logo's and the SLX set have steel inserts (and are exactly the weight of steel pedal inserts heavier)
A rubber bleed nipple cap doesn't cost more than pennies to make... etc.
and I can get a car tyre for the price of a bike tyre...
26" bike parts do not have a value of 10X in some parts of the country compared to others - thats the point I was trying to make
kcal - unfortunatly I have elderly parents in Glasgow so have to have half a mind on being able to get to them. ~Also I have a load of friends in the bit south of the city. I did look at some stuff in east lothian tho.
My flat is also the same - when I bought it 25 years ago it was less than 2.5 times my salary. I have improved it a lot including extending it to create 1.5 more rooms ( in unused eaves space) but if I was in the same job now its worth about 10x what my salary would be
How anyone can be a first time buyer now I just do not know!
How anyone can be a first time buyer now I just do not know!
It doesn’t help when so many people have second properties they rent out. As you said, it’s far easier to buy a second or third property than the first.
My bro has been trying to buy a house in kirkcudbright for the past few years but on his pay its impossible despite also being a retained firefighter in the town so he's been renting at £450/month, the max mortgage he can get is £115k and every house he goes after is bought up at inflated prices by dicks buying holiday homes or homes to rent out or turn into air b&b. Zero affordable houses being built in this area but there is plenty of £300k+ houses under construction. Dunno what the solution is?
I bet if you actually worked out the value of the land your gaff is built on + rebuild cost for the block + 50% (profit plus other costs) you would probably be pretty close to market value per house. Land value just increases to swallow up the difference. The cost to build a 3 bed house here in the south east is much the same as anywhere else (ok, labour might be a bit more), the rest of the cost is just land. If the land was cheaper, everyone would build on it and make massive profit, until demand drops (as theres enough houses) dropping land values, or buildable land runs out
The price is set by what people will pay.
This will be a combination of location, land, buildings and faff, all filtered through a mass of sociology and human psychology to end up at a price.
The price people will pay.
I'd expect houses with gardens just went up in value.
And the flats and houses with no garden will be on the way down.
I've been looking at a 0.67acre plot of scrub with a collapsing house on it in a non popular and hard to get to part of the borders. It's on for £85k local estate will probably go to £125k. Also sold with a 2acre plot that the estate agents has said "planning permission may be possible" but as it has the water supply for two houses slap in theidfle of it and has no road access or power and no share of the water source within it. Daft money.
The price people will pay.
Prices are linked to affordability, currently money is cheap, interest rates are next to zero, so banks will lend a lot of money - hence prices are high.
The price people will pay.
With a lot of commodities the price is set by what ‘people will pay’ - sufficient numbers of people need to pay its for it to be viable to offer that product or service
but with houses It’s the price one person will pay. One person opts to pay more than anyone is is prepared to pay for that house. Notionally you’re in negative equity the moment you buy a house as you’ve paid more than the market value for it- nobody else was prepared to pay as much as you so it’s only actually worth what the second highest bidder would have paid . With most things people tend to pay the least they can for something but with a house they pay as much as they can.
but with houses It’s the price one person will pay. One person opts to pay more than anyone is is prepared to pay for that house
Now you said it ... its obvious. Never actually thought of it like that before though
Prices are linked to affordability, currently money is cheap, interest rates are next to zero, so banks will lend a lot of money – hence prices are high.
Not all prices are high tho
But to me it makes no sense that the value of a nice but not huge city flat is more than a new build suburban 5 bed detached 10 miles away and that I could buy 10 houses in hull for the same cost. Or two 3 bed "executive" homes in a new build estate in west lothian
the actual selling price seems to have little relation to the ( as I called it) intrinsic value
Surely that 5 bed house in an edinburgh sattelite town has a higher intrinsic value that the two bed city flat?
Location location location.
Few people actually want to commute from that satellite town.
Some are forced by their housing needs but large numbers want to live near their work*.......
* See what I did there ?
I've had this chat at work when I was told I could have got a 5 bed en suite house in insch for what I paid where I am in my 3 bed ex council house..... Yes but then I'd live in insch...... Have to drive to work daily and basically drive everywhere I wanted to go......
Surely that 5 bed house in an edinburgh sattelite town has a higher intrinsic value that the two bed city flat?
Not if you want to be able to walk to work down the road and live pretty central in a world-class city!
There's a good reason the other houses are cheaper.
You did well buying in '95 for a start tj!
Oh indeed I did. Lots of complicated circumstances that meant I ended up buying what was then one of the most expensive ( I had to pay over the odds for it) flat in what was then a run down junkie and prostitute infested area. My building is actually one of the scenes in trainspotting ( the book)
Then lots more complicated circumstances meant my partner bought the one next door for her to live in. We lived next door to each other for years until I finished the extension to my flat - again lucky as to buy it knowing there was enough space in the eaves to extend
Is it tho? the terraced house in Hull at £30 000? the new builds I saw in Newton Stewart for £70 000?
I am not sure how complete houses with land costs are being sold for £70K. Have had a few quotes for a single story extension with kitchen getting close to that it doesn't really add up.
am not sure how complete houses with land costs are being sold for £70K. Have had a few quotes for a single story extension with kitchen getting close to that it doesn’t really add up
Building in bulk and taking advantage of. Cheap labour.
When your doing 200 houses exactly the same or slight variants...... Your sparkies price comes down , your plumbers price comes down , your digger hire is shared over 200houses and is has minimal dead time etc etc.
Your extension has alot of dead time for the trades and alot of travel + faff factor + more billing and hassle for the trades so the price is higher.
Spark for example does 1st fix. .. then is out the picture till the plumbers been in , everything's been made good by the taper , the tiler , the painter and then comes back for final fix.
On a site he's in the house next door. On your extension he could be in another town.
Then as I've seen locally. Some builders build rooms that are undersized and gardens that to put. A shed up needs planning as there's no where in it that meets PD
East Lothian is stupid expensive for what you get.
I've been here 52 yrs, home owner for 32 of them. Retiring soon and will be heading for the borders where it seems like bargains abound.
You could buy a large cottage with ground and outbuildings in Kelso for the price of a 3 bedroom newbuild lego box in Wallyford.
At the risk of stating the obvious the big thing is that they aren't portable.
If gold cost less in Hull then some one would buy it in Hull and move to some where it was worth more. Demand in Hull goes up so the price rises. With gold the price is universal. With cars the regional variations are small or people just move them
I am not sure how complete houses with land costs are being sold for £70K. Have had a few quotes for a single story extension with kitchen getting close to that it doesn’t really add up.
As trail_rat says, bulk operations. The strap broke on my Casio watch; £10 for a few inches of plastic strap or £20 for a new watch.
the new builds I saw in Newton Stewart for £70 000?
But you'd have to live in Newton Stuart, only ever stayed there for Kirroughtree but got the impression every night was fight night just to kill the boredom.
but with houses It’s the price one person will pay. One person opts to pay more than anyone is is prepared to pay for that house
Not even that's true, chains, mortgage offers, cash, sob stories, sellers impression of you probably all affected the price (and the other way around; repossessions, the seller in a hurry, probate, divorces, etc all affect the price).
Also plenty of houses probably never get multiple bids on them. I live in Reading where stuff sells in days if it ever makes it to market at all, the agent knows what a house is worth and probably knows someone that will buy it. Conversely, we keep looking at North Yorkshire as her job has the potential to work from home and I'm jobless yet again. Not uncommon to see the same houses still for sale 6+months. I suppose you could argue that Reading prices are a [properly functioning] "market" price. Whereas the North Yorkshire prices are "intrinsic values".
It'll be interesting to see what Covid does to house prices. Fewer people needing to be in city centre offices has to affect demand. I can see the availability of a decent broadband connection being more important than location to the office or commuting options (e.g. distance to station).
My suspicion on covid affecting values is that if yo want or need to sell quickly it will be a buyers market but if you can afford to wait then you will still get a good price from someone who wants that particular house / flat.
My flat will only ever have a limited market. Too expensive for first time buyers and more expensive than a better flat half a mile away - and the 104 stairs will put people off. But someone who likes it will pay for it as there isn't another flat like it - location and odd shapes
My suspicion on covid affecting values is that if yo want or need to sell quickly it will be a buyers market but if you can afford to wait then you will still get a good price from someone who wants that particular house / flat.
Short term... Like the next 4 weeks your probably right.
Medium term the music is certainly sounding like it's going to faulter due to job losses and redundancies affecting affordability .
I have a soft spot for The Shore. The first flat I rented when I moved to Scotland was on Sandport St. The area around the foot of the walk, Great Junction Street and Duke Street is still a shit hole though.