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The UK's lack of a proper percentage based tax on housing has systematically inflated property values during the last decade
People often mention that UK property is severely overpriced relative to the US (actually the whole developed world) in what you get for your dollar. The same house which in the US might go for $500,000 in a medium sized city would be around £1,000,000 here in a similar location. Indeed this discrepancy has only increased with the low interest rate environment of (most of) the last 15 years.
People attribute this to the British's affinity for bricks and mortar over investing in companies and while I agree that plays a part (see the reverse in the US where the exact same Ryanair share trades at a 30% premium in the US over its European counterpart) I think the discrepancy in pricing can be in large part explained by a lack of a proper property tax.
Unlike the US where middle class people living in average houses in NYC pay $10,000+ a year in property tax, in the UK we have a highly regressive "council tax" system which means a £20M+ mansion in London pays just 3x what a one bed hovel in Blackpool does. This means that the costs of holding UK residential property are effectively nil compared to their US counterparts. Indeed (assuming a 1% yearly property tax rate in the US) we can model a UK property (which pays effectively no tax) as being a US property (which pays 1% tax yearly) plus an asset that generates revenue equal to 1% of the property price.
The 50 year yield of UK gilts at the moment is 3.5%. This means for a £1,000,000 property which would pay £10,000 yearly tax at a 1% rate, we would need to invest £285,000 in gilts to raise this money on a yearly basis. Hence the value of the corresponding US property with a 1% tax would be £1,000,000-£285,000 = £715,000 which doesn't explain the full discrepancy in pricing compared to US property values but does halve the difference.
This model of (UK property) = (US property)+(gilt/treasury generating tax on property) also explains why UK properties went up so much more during the low interest rate environments and are struggling more now given that rates have gone up. When interest rates were low the value of the gilt which generated revenue equal to a 1% tax on the property went up through the roof. Hence UK property prices shot up even though there was little difference in the fundamentals of the brick/mortar or even location (UK performed significantly worse as an economy from 2008-now compared to the US).
Equally now that interest rates are going up, the value of the additional gilt is being significantly reduced. With yields at 2% the value of the gilt itself would be £500,000 while at 3.5% the gilt is £285,000 so the gilt loses 40% of its value, which would correspond to a 20% fall in the value of the whole UK property itself. Just this simple financial model would seem to suggest UK properties prices have yet to fall a fair bit back to their new true value.
On the policy front this is an argument for having a property tax. Low interest rate environments allow growth by making money cheap for businesses to open new ventures etc., however one negative side effect of them is that they lead to rising residential property prices (due to more money floating around which raises asset prices) which can make buying a home difficult for ordinary people. Writing (US property) = (UK property)-(gilt generating tax on property) we see that in an environment with property taxes lowering rates doesn't raise prices anywhere near as much: yes people are willing to pay more for the bricks and mortar/location, but the value of the gilt you are subtracting has also gone up substantially. This helps keep home prices cheap for buyers and allows them to achieve economic prosperity more easily.
There is no way this is true.
Yep, ADR premiums (and discounts too, sometimes!) do exist for a wide variety of reasons. AFAIK though Ryanair in the US is still pretty liquid (roughly similar volume by value of shares traded, 5x in number of actual shares but that's because the American ADR is more than 1 share per ADR). But perhaps making that point in my post just detracted from my housing argument which was the main thing.
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Oh it's true (%age may be off but a difference very much exists). The shares aren't fungible so you can't turn one into the other (or else this would have been arbitraged away). People are just willing to pay more for shares in the US compared to Europe.
If they aren't fungible then they aren't the same shares.
They literally are the same thing, pay the same dividends, have same voting rights etc., the US version is just a depository receipt of the European share. The reason they aren't fungible is because of regulations, not because they are different. One just trades in the US and the other in Europe.
(Yes, we treat them as separate but highly related things at work due to the lack of interconversion but fundamentally they are the same thing).
The fact that the applicable regulations are different is what makes them different shares. Would you rather have one MSFT share in your IRA, or one MSFT share in your brokerage account? Both have the same nominal value on E*Trade, but they do not convey the same privileges. When Microsoft pays a dividend, I can use the proceeds from my brokerage MSFT share to buy a pack of gum at the convenience store. I can’t do that with my IRA MSFT share. On the other hand, I can sell my IRA MSFT share for a profit without paying capital gains tax. I also cannot trivially convert a brokerage MSFT share to an IRA MSFT share at no cost.
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The European stock RYA shows a market capitalization of 17.04 billion euros = 18.51 billion dollars, while the US stock RYAAY shows a market capitalization of 21.54 billion dollars, which is bigger by 16 percent. I'm not saying that's the whole story, but there is a discrepancy.
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