Dear Reader,
In Part 1 we established that there has developed a substantial disconnect between the average price of housing and the average intrinsic value. Now, we will look at how large this bubble is across the entire market.
As of last year, there were 27.6 million homes in the UK. This means that it would cost you £6.38 trillion (yes, trillion, with a ‘t’) to buy all the in-use housing stock in the UK. You would then be collecting all of the residential rent, but the intrinsic value (average intrinsic value, calculated above, multiplied by the number of houses) of your new portfolio, held forever, would be a meagre £2.56 trillion. This suggests that there is a £3.82 trillion housing bubble in the UK alone.
If you do this same analysis for the 108 largest economies in the world and aggregate it, you find that the housing bubble is worth a whopping £83.04 trillion.
I hypothesise that there are three main factors that have inflated and continue to feed the inflation of this bubble. Al…