House prices and apple prices?


We often come across references to house prices and why they go up (or down):

There is a direct relationship between housing supply and price…this is proven by the decline in house building and the reciprocal rise in house prices. Anybody can see this by looking at official housing figures for the last 30 years!

Therefore the guaranteed way to ensure that the free market has less of a grasp on the price of a house is to build enough houses to meet need. This will allow the market to find its own price level (which would inevitably be lower than it is now) because those searching for houses will have ample choice at the price point they are able to afford…

http://illoganblogger.blogspot.co.uk/2013/04/labour-for-penzance-or-tim-dwelly-for.html?showComment=1367534648341#c6007652273890785222

Comment  Apples, lets look at how the market operates with respect to apples.   In  year when lots of apples are produced prices tend to go gown, when there is a shortage they go up!  So there we very easy to understand but what you might ask has this to do with house prices?

Well with apples we have a very simple market situation – there is  a supply of apples and there is demand for apples.  Supply goes up and prices go down.   The trouble is the housing market and the apple market are a lot different in how they operate.

Apples – people buy them to eat, they don’t use them for investment purposes; they don’t have a second apple store, – they just eat them!  We don’t find apple prices going up because rich people think apples are a good investment!  We don’t get apple bubbles (well ok in cider perhaps!).

And demand is limited if apple prices fall by half due to over production, we don’t eat twice as many!     So supply does have an impact on price.

Now as we know house prices are different :

Demand

  • There is demand for second homes;
  • Some people regard houses as investments;
  • Rich people consume more housing than poor people, they can bid up prices.

House prices are affected by interest rates, mortgage availability and income.

Developers both create and cater for specific markets – if they think they can sell luxury housing they will build luxury housing (you don’t see apples in Tescos aimed a the luxury end of the market do you?).

There are changes in demand due to changing household size, an aging population – but these particularly in a Cornish context have a minimal impact on demand.

To conclude – house prices in Cornwall reflect ‘demand’ for second homes, investment and people moving to Cornwall from more prosperous areas – they do not reflect a lack of supply.

Developers will quite happily up the number of houses they can build ( they are certainly working hard to get permission for as many as possible – see It’s Our Cornwall blog), but if anyone thinks that will bring house prices down they don’t understand the difference between apples and houses!

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