The flaw in property prices no one talks about.

In the last few years the media has been going on about the meteoric rise in property prices.  In London, depending on how you judge it, prices have risen by around 20 percent over two years.  This results in:

  • glee from homeowners
  • greater glee from those moving to the sticks
  • warnings of a bubble
  • lots of talk from politicians that ‘something must be done’ (although they rarely ever do anything about it),
  • people blaming other people for pricing other people out of the market
  • commentaries and comparisons on the British obsession with home ownership as opposed to our continental neighbours where renting is more commonplace
  • living on boats becoming more popular
  • buyers being encouraged because prices are going up, so its a good time to buy
  • buyers being discouraged because prices are too high

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And a whole host of other things.  What ever your opinion, however you look at it, everyone would agree there are massive repercussions linked to the housing market, at the very least, dinner party conversation and heart rates.  Yet considering the intense scrutiny it comes under, there is one factor never (as far as I can see) mentioned which has a significant effect on the reality of the figures quoted.

When we bought our house it was in a state; it was permeated by a stench of dog piss, stale sweat and cigarettes.  Yummy.  The only solution was to strip the place down to its bones, replaster, recarpet and repaint.  on top of that it needed rewiring, replumbing, a hazardous half-removed chimney stack had to be pinned and loads of other little jobs.

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On the bright side it meant we bought the house for a really good price, whilst we had to spend a lot of money sorting it out, you imagine that every pound you spend adds more than a pound in value.  After we bought, house prices were doing well depending on whether you own or not (I have to admit that when i didn’t own property, I thought the rate at which they rose was evil and wrong, but the second I did,  I almost willed the market to rise and would religiously check prices on zoopla with a Gollum-esque, depraved hunger) and 18 months later we had the property revalued.  The ‘value’ of our house had gone up which was expected due to the market, but of course the extensive work that had been carried out would have been a large factor.

Some people do far more significant changes, adding bedrooms, kitchens and basements.  Some properties have work done on them that adds hundreds of thousands of pounds to their value.  In 2013, 346,800 planning applications were approved, if each one added on average 10k to the value of the house that adds up to 3.5 BILLION pounds.  Unless my calculator is broken.  And that doesn’t include all the work that doesn’t need planning permission (new kitchen, bathroom etc).  Call it 5 billion.

The increase in property values are basically calculated by sale price to sale price, added up, averaged out, and that is how much the cost of housing has gone up.  Its portrayed as inflation, so if the market has gone up 20% in two years your house is now automatically worth 20% more.  But if home improvements and extensions aren’t included, then the figures are out by around 5 billion (according to my incredibly hastily researched back of an envelope calculation).

I could have missed something very obvious, or this could already be factored in to the rise in house prices, but it really doesn’t seem to be, if this is already a ‘thing’ please let me know, if not why isn’t it?

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