As the Guardian notes this morning:
House prices in England will soar by 42% by 2020 and rents will rise by even more, according to a report from the National Housing Federationwhich warns of the "colossal strain" facing the generation born in the 1990s.
Many will remain trapped in their parents' homes as property prices continue to outstrip earnings, warns the NHF. It forecasts that 3.7 million young people will be living with their parents by 2020, as the rate of housebuilding fails to keep up with the rising population.
"By 2020 the price of a first-time buyer's home will increase by 42% to £245,165. Although wages for 22- to 29-year-olds will increase by 36% by 2020, this poses a huge challenge for those wishing to be homeowners. Low-earning young people would have to spend 16 times their average wage just to buy a home," said the NHF report.
Now there are an awful lot of implicit assumptions in there. The first is that wage settlements are on average between now and 2020 going to be 4% per annum. Which seems massively unlikely to me.
The second is that house price inflation average 4.6% pa over this period, which again seems unlikely, but not if George Osborne continues to turn the tap on for a house price boom, mainly in the south east, which is the likely explanation for expected growth figures to be published later this week by the ONS.
Then there is the obvious point that this seems to assume young people will earn £15,300 on average in 2020. I have to say that seems on the low side for a home buyer.
So let's be clear, some of the stats in this seem decidedly dodgy. But, that said the sentiment that this report - written by an estate agent, of course - wants to create is that house prices will increase by more than wage inflation. And I fear that is true. The risk that we're about to enter another credit led mini-growth era is very high. And we all know what follows them.
Have we learned nothing yet?
And the young will, of course, be those who suffer, yet again.
My question is a straightforward one in that case, which is how long can we survive this imbalance, and when will we introduce the wealth taxes needed to address it?
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As I’ve said before, the housing ladder has lost its rungs and the sides have been removed – but people are still offering sacrifices to the mortgage god and doing pujas before the mortgage idol as if salvation still lies there. The neo-libs are reliant on the ‘mortgage religion’ as it keeps people enslaved. Until housing is removed from the investment portfolio this will persist. As a housing association tenant I’m concerned that the Government is steering the ire of the rent/mortgage slaves towards people like me and expect my house to be privatised sometime soon as housing associations are staved of funds which will force me into slavery to the rentier class. I’m sure this will happen, it’s already in the tea leaves and lurking around the backrooms of the Tory?LINO policy formulators. So far, the public seem to want this slavery and it would take the work of psychopathology to explain this. Maybe slavery offers its own from of security and freedom is too scary and open-ended?
I just red a supposed report of “Build to Rent” “initiative” which at first I thought must be a spoof .
Whilst building new accommodation is welcome , I’d rather it was owned by a partially funded national state pension .
The point I’d like to make is the stupidity of trying to encourage people to buy and trying to encourage funds to “invest” at the current unsustainable levels .
All this will do is make a correction more difficult to achieve and funds will be under pressure to keep rents high in order to provide anything approaching a positive return .
Given that people can expect to spend a third of their adult life in retirement , should they really be spending more on accommodation than they save towards old age ?
(Again my preference is for saving this money into state operator partially funded pensions plans . I don’t think I’m a socialist , I just want a proper plan that works and works for everyone instead of an endless stream of kludges ) .
oops “Read” even .
The young are themselves divided between those who can inherit/borrow (deposit) from grandparents, those who may do from parents eventually and those who will have to permanently be denied one of the basic human needs.
This is a feature of wealth inequality, which is much more insidious than income inequality.
Increases in land value (which is the only thing which is increasing here) represent a wealth increase for home owners and a rent increase for the rest.
The speculative land element needs to be removed from house prices via taxation.
That 16 times earnings multiple is just what will stop this coming to pass. Nobody can either save or borrow so much, and if the demand side collapses, so does the market as a whole. We have another 1989 coming soon, I think.
We must be experiencing a higher flight of human capital with young people outside the FIRE sector voting with their feet than we would otherwise .
The transition from reporting migration to reporting net migration is almost a tacit admission of this .
Many of the people leaving will be the go getter we really need to retain such as people who will start new businesses and now they will start them elsewhere .
As I’ve said before, we have too many people and not enough houses. Taxing the rich won’t help (unless the money is used to build more houses) and rent controls do not solve the basic mismatch between demand and supply. You can build a house for £60,000 but the shortage means that the prices are way above that.
In this situation of course lower paid workers suffer. But if you control rents you only help those who manage to find a house to rent in the first place.
We need more houses – built either by the state, by private enterprise, or a partnership of the two. But as long as the shortage persists, some people will miss out.
Can you not see that the difference between the cost of the building and the house price is the land/location value? You need to extract that because location values are created by the whole community.
Hi Richard and readers
it might be worth pointing out to those preferring to rent that if they depend on benefits after finishing work, then in retirement (if it lasts 20 years 65 to 85) that is a cost to the state of the same sort of magnitude as it was to buy a house or flat in the first place, (say at age 25 if they saved up very hard). But the way i see it houses and flats are all very nice, but quite inefficient as often are partly empty. We are developing spectacular shared space with private areas off which one can rent/purchase or buy to live and make things (can any of your readers make things that will sell)? – first in gets the choice spaces.. they also get time-share of growing land both nearby and for weekends away and a holiday every few years in a sunny part of the world as part of the deal! Unbeatable, from £10 k down if you can make things, but better with £100k. very convenient location. we have to innovate with space getting more expensive in Britain!
FOR THE BANK OF ENGLAND – I see little incentive to save the deposits needed (whether for real estate or for retro-eco loans THAT could IMPROVE THE REAL VALUE OF HOUSING (so i expect a flood of applicants for BULLET-POINT Surveys).
That is – little point with interest rates as they are – a point for central bank action? special savings rates ARE NEEDED for Green retro-eco super-insulation. (or green QE, as you say) would you like to meet Mr Osborne with me? its simple proper bank loan system, floor on savings rates, ceiling on interest rates where “free” (commercially-created money) involved, real competition?
Best regards (surely now is the time?)
IAN.GREENWOOD [AT] PHONECOOP.COOP 0121 449 0278