As the Guardian reports this morning:
The cost of renting a one-bedroom property in the UK has risen to swallow almost half of the average young worker's take-home pay, according to figures, while those living in London are typically handing over 57% of their monthly wages.
The average cost of a new tenancy on a one-bedroom home hit £746 a month in May, taking up 48% of the take-home pay of a worker aged under 30, data from property firm Countrywide showed.
I have defended the right for there to be buy-to-let landlords on this blog recently, and I will not change that opinion. But, and I cannot stress this enough, it is very obvious now that the housing market is failing.
I am aware that there are those who will try to say that this is because of migration: I do not agree.
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I can see no better solution
Bluntly, there is no other solution in sight, good or bad.
I can foresee a future of graduates living in student accommodation – there’s a surplus and we’re still building – on one year leases with a compulsory vacation every year, well into their thirties; ever-more squalid over-occupancy in shared housing for the medium-to-low paid in unregulated slums with a family to a room – parts of Bethnal Green already have it – and ‘Workers hostels’ with long lines of triple-decker bunks beneath the railway arches for unskillef labourers on starvation wages.
‘it is very obvious now that the housing market is failing.’
Richard that must count as the understatement of the new millennium!
Where we are now is the result of 40 year bubble that has ruined lives, communities, enriched the banks like nobodies business and is now largely irreversible due to it having been allowed to continue for so long without let or hindrance.
Even with Green QE, housing will still be unaffordable allowing the rentier a substantial to thrive still. So your beloved buy to let scroungers ( I mean socially useful landlords, of course!) will have another incarnation after Green QE-the prices need to at least halve, and this will not happen so wages will still be too low. The buy-to-let-freeloader will still benefit from the 40 year bubbling.
perhaps we need a crashing of values by credit controls and massive social building including a bail out for the worst hit, tapered to help more recent purchasers against those that have been pocketing bubbled money for years. Someone has to take the hit for this -and at present it is the young, without family inheritance/the vulnerable/ill/ low paid. It’s time for the famed ‘broad shouldered brigade’ to swallow some of the faecal matter they have pooped all over us themselves.
As I’ve observed before there are plenty of ‘socialists’ out there who are happy to finance their kids education on the back of a buy-to-let without a qualm about what they are contributing to. I live in a small village, many of the houses there were bought from housing associations and are now let out-buy-to-let has wrecked the economy and the roaring madness of 2002-3 when people scurried to grab the tit-bits of the totally screwed housing market was beyond disgusting, like buzzards feeding off a corpse.
I once confronted Liam Byrne at a bedroom Tax rally in Birmingham about this issue-he told me “we got it wrong.”-at least he was honest and I thanked him for that but did her really appreciate what this has done to the fabric of society.
The housing issue is documented by Jamie Galbraith in his book ‘The End of Normal’ where he traces the banks decision to use housing as a major source of profit due to diminishing returns in real investment. This was possible due to loosening of credit controls and the inception of the age of private debt soon after. He dates that back to about 1975. 40 years later the situation is so dire that it’s effects will last decades, blighting the lives of millions. Even the introduction of UBI and Green QE, though they will ease things considerable will not leave housing affordable. The whole situation is a massive political taboo partly because there are many M.P’s who benefit from this ‘unearned increment’ and many comfortably off who don’t want their kids’ inheritances tampered with.
This is a mess beyond a mess and an Augean stable that need a very high-powered water hose to clean out-there is NO political will to do so.
Why Richard defends the but-to-let scrounger is beyond me – but it’s a good advertisement for the Landlords Association.
Remove the private financial capitalists from the housing market altogether, it’s the only real long term solution or the bubbles which just keep continuing and affordability will never be achieved.
Long term, fixed rate, low interest financial mortgages provided by mutual associations of building societies, to finance new private housing stock based on their own local communities needs.
Social housing to be provided by the state as required and funded by PQE, not private financial borrowing.
Remove private banks from the equation altogether, no bank funded/owned estate agency chains, so called independent (but in reality bank funded) mortgage advisors.
Yes the bubble will have to be burst, but the full cost should be borne by the private financial speculators (banks) that caused and fueled the boom in the first place.
And when this bankrupts them all, nationalise them and then convert them into mutual/community/social financial institutions to support local communities.
I can see no better solution
Bluntly, there is no other solution in sight, good or bad.
I can foresee a future of graduates living in student accommodation, well into their thirties until they emigrate, on one year leases with a compulsory vacation every year; ever-more squalid over-occupancy in shared housing for the medium-to-low paid in unregulated slums with a family to a room – parts of Bethnal Green already have it – and ‘Workers hostels’ with long lines of triple-decker bunks beneath the railway arches for unskilled labourers on starvation wages.
Someone, somewhere, relishes the profits to be made in such a future.
Supplementary comment: let’s stop using the crass euphemism ‘affordable housing’ -it CANNOT be made affordable without a radical shift in banking control and a partial crashing of the market and let’s not pretend otherwise. UBI will not do it nor will Green QE-so let’s be clear that these proposals will help but will NOT make housing affordable unless the projections of the effects of these policies is to reduce housing by at least 50%.
There is no shortage of houses being built in the south west – thousands and thousands of them with resulting traffic jams, congestion, air pollution etc. The housing issues are far more complex than “we need to build more”. In my village we now have numerous second homes, and living accommodation let out via airbnb. There is also the issue that capital gains + rental income is far more lucrative than working for a living. etc etc. Plus the ever increasing imbalance of jobs / migrants in the south versus houses + u/e in the north.
I do not dispute any of that
But that is a local issue – and a real one
In many areas the issue is shortage. It’s not everywhere but let’s not say the country needs no new housing because some areas have a different issue
This is exactly why I mentioned above:
1) You buy ONE house to live in
2) No bank loans for buy to scrounge (which is what it is, period!)
3) Force prices down (gradually) buy building social houses
4) LVT to stop Land banking (plenty of that going on where I live by Landowning families -South West!)
Median income in some small villages near me is around £14,000-yes-that’e £14,000 (part time jobs in pubs and part -time care work). Affordable housing-what! We’d need a fivefold increase in average wages!
Completely agree. In a high-wealth country, everyone should be guaranteed an affordable home, a stable platform from where they can contribute what they can.
Look at Singapore, a favourite of some free market ideologues, but they fail to tell you that 80% of people live in state funded housing.
https://en.wikipedia.org/wiki/Public_housing_in_Singapore
The scale of the problem can be seen when you compare rents in Germany. There, most people spend less than 30% of their income on housing http://www.expatica.com/de/housing/Renting-a-German-property_103803.html. Renters can get secure, good quality accommodation for this much smaller outlay, too
Also, there has been no residential property boom in Germany. But Germany is much better organised and run than the UK (federal structure, proportional representation etc.). (They are also better at football!).
I agree that the real solution is to build more houses, but there are many powerful interests who want to maintain the current shortages and ever higher prices:
– the banks who take an ever-increasing share of house-buyers’ income in interest payments
– the builders
– the government (housing booms are the lazy chancellor’s way to promote a feel-good factor)
– the 64% of the electorate who own their own homes
No politician ever got elected on the promise to “halve the value of your home”!
Society also protects the rights of those who are well-off and lucky enough to live in the countryside or green belt areas. Planning law assigns a higher value to the rights of these people to gaze out of their window onto a ploughed field, than to the rights of those wanting somewhere to live. (Que howls of protest from the NIMBYs at CPRE!)
I have for many years been totally dismayed at the unwillingness of governments of all stripes to get to grips with this problem. A place to live is a basic necessity of life, like food and water. It’s not an investment. No-one should be able to get rich merely by owning property.
But given these apparently immovable political objects in the way of a people’s QE, I cannot conceive of any likely sequence of events that will lead to a real solution.
I note all that – especially re football
But I will keep at it
You’ve summed it up well- there is no clearer illustration of irrationality and the inability of individuals to ‘connect the dots’ that housing which represents the ne plus ultra of ‘I’m-alright-Jackism’ even if it wrecks the economy and ruins the futures of the young. This illustrates the lie of Utilitarianistic claptrap that each folowing their own interest results in the ‘general well-being.’
The housing issue represents the human at their most infantile.
I totally agree with this – great post.
Government is also set to get rid of the grants to pay for the remediation of brown field sites by 2017 as well. A further incentive to look for more green field sites instead and play to the up-market buyer who wants a new mansion in the middle of nowhere.
I work in social housing development and their will be no more Affordable Housing Grant for socially rented homes from March 2018 via the Homes & Community Agency.
Instead that money will go to Help to Buy schemes for new buyers in the housing market. Although this will help people to buy, it does not really produce much value for money for the Government because of the over-pricing of new housing for the reasons set out above – except perhaps amongst those who will benefit and will more likely to vote for the Tories in 2020.
The Tories want HA’s dstroyed-they are the biggest thorns in the rentier-shysters’ sides.
The oleaginous merchant of vacuity, Gove, is obsessed with selling off social housing in the most expensive areas.
I, too, agree that Britain’s housing market is one that is failing its population. Yet another market failure.
It also means that there will be both increasing homelessness and at the same time continual upward pressure on UK wages if more than 50% of those wages are spent on housing. Neither is good for competing in the ‘world market’ when those competing workers have productive employment and a roof over their heads for no more than 30% of their wages. The UK housing market as it now is always puts Britain at a disadvantage.
And of course if the UK now really does have the highest minimum wage in Europe housing is the reason it needs it. Whilst the banks, builders and buy to let landlords want their wealth to increase that minimum wage gives them essential support.
My soncame out of teaching, because he could not stand it anymore, very few teaching posts in quiet Miss Marple villages, anyhow that is no ones fault, he made his choice, his job now pays little, his rent goes up regularly, a good chunk of his income is lost. He is not alone with such a dilemma. I am so glad you highlight such things. We have failed our young miserably and it does not have to be so, it is deliberate damn them. Had to smile, his recent visit to us,I noted he was reading The dying days of the Russian aristocracy.
He is voting to stay in. Having taught abroad a few years, Russia included, his outlook is beyond these shores. Thank you Mr Murphy.
Former people. The final days of the Russian aristocracy, is the name of the book. Douglas Smith. Nearly 100 years ago, the overthrow of the Russian nobility. I will borrow it when he finishes reading it. Such cruelty, but such inequality and now what of their society!
Considering such wonderful literature and music from them, yet the stranglehold on free speech, it is a strange world indeed.
This problem did not exist until Domestic Rates were abolished and the Poll Tax came in. Riots on the streets led to a new very regressive property tax, designed to keep homeowners happy. You may have forgotten that when there were rumbles of discontent about Council Tax bills going up the tory Chancellor added 2.5% to VAT to keep the CT down.
When the owner of a £200m mansion in Westminster pays less property tax than the tenant of a £599 per month flat in Weymouth, I cannot understand why few can see that our grossly regressive residential property tax is the reason for unaffordable housing. You cannot solve this problem by any other means than scrapping Council Tax and replacing it with something fit for purpose.
As several people have already explained, we cannot build our way out of the housing crisis.
I agree Carol, though we surely need more social housing but even social housing rents are a stretch for average pay in many areas. House prices will have to tale an engineered hit-and the ‘scroungers’ making money in their sleep will have to find something else to do.
Even you proposal for ‘phased’ LVT will not ‘solve’ the issue quickly, it’s too far gone and the ball and chain will continue ti hobble genuine economic development.
As a developer myself the problem remains that the generation 20-30 want to live in or around London on the whole. There is a scarcity of land and everything has basically been snapped up by the large house builders who, as Richard rightly alludes to, have no interest in releasing stock when they know that they can sit on the land and create a supply and demand problem.
Add into this mix all governments resistance to building tall buildings (which by their very nature allows for more homes) and it is a bloody nightmare.
Apply all of the above to land in or around London and the south east and this is why land values are so high.
The solution, it is so very difficult. I do not share the same views of stopping people being able to own second homes for buy to let purposes of house builders snapping up land. But there has to be a change in culture with the government as to how our towns and cities will look. Why build a 4 storey block of apartments when you can build a 10 storey? Why don’t the planning authorities take back control and say to those seeking permission “you can have increased height/density but 50% of the homes built have to be provided to first time buyers at a means tested discount which is real and figured out by location rather than standard formulas.” The UK is still full of nimbys who don’t want change. The “not in my back garden” mentality still runs truer than ever. With a rising population this attitude cannot survive and it is for a brave, forward thinking government to realise this. Which won’t happen.
Thanks
But I question how many want to live above four or so floors up
“As a developer myself the problem remains that the generation 20-30 want to live in or around London on the whole.”
I’m not sure they all “want” to live in and around London, but I do believe far too many people “need” to in order to find a reasonably well paid job (and then find almost half of it lost on housing costs).
There are three options, increase supply or reduce demand or do both. Doing nothing is no longer a sustainable option.
So re-balance the economy away from London/South East, reduce net migration into the country as a whole, remove the perverse financial incentives to build housing for overseas or domestic non resident investment, take the private financial sector out of the housing market.
Great thread!
Excellent replies especially Simon.
But no one has mentioned interest rates.
If and when interest rates do rise, this will cause a much needed reduction in property prices and unfortunately the spectre of negative equity to those late entrants.
Here is a graph of real European property price inflation since 1995. Surprise surprise guess who’s the winner.
https://www.google.co.uk/search?q=european+house+price+inflation&client=safari&channel=ipad_bm&prmd=nisv&source=lnms&tbm=isch&sa=X&ved=0ahUKEwjMpILMqafNAhWDDcAKHVtyAMQQ_AUICCgC&biw=1024&bih=671#imgrc=DwdApjhiY3QVtM%3A
Excellent post above regarding Germany
I so much wish we had property inflation like the Germans, ticking away at 1or 2% pa on average since 1945. I suppose getting old I value stability and I am envious of the German way, taking the long view. In reality we are a nation of short termist, fast buck making spivs, it’s in our DNA
During the world wars, rationing was introduced because otherwise the rich would have been able to feast while the rest of the population starved. It was accepted as necessary even though some with cash were still able to take advantage of the black market. Housing is one of three problems which need to be solved quickly – within a decade, say. None of the build-more-houses proposals in the article and the comments above will address the crisis nearly fast enough. The other problems are (2) financial inequality and, above all, (3) climate change and other environmental issues. Rationing in the form of Tradable Energy Quotas (www.teqs.net) would go a long way in dealing with both the latter problems. “Tradable” creates a ‘white’ market which meets criticism of the black market effect on the wartime measures.
Tradable Housing Quotas would address all three issues. It should not be difficult to devise a quota system in which everyone would be allocated an annual housing quota of a specific number of square metres. Those who wanted more would need to buy quotas from those who occupied less than the quota. Income would be redistributed downwards and there would be a strong incentive for those with excessive housing space to relinquish some of it — and soon — for those whose basic human need is urgent.
The much advocated policy of build-more-homes will result in the already well housed securing even more and larger homes. Further, at present there are about 600,000 empty homes. Some are kept empty simply as investments which the owners hope will increase in value whether anyone lives in them or not. Others are kept on the market by estate agents eager to squeeze higher prices or elevated rents from an often desperate clientele. In addition, there are about 750,000 second homes — many visited for just a few days each year. What is more, “The top 250,000 households have eight or more rooms per person, … while the median is 1.88” (http://www.guardian.co.uk/theobserver/2012/sep/16/letters-housing-crisis?).
Turning to the third issue: ice is melting from glaciers and Greenland. The Arctic looks very likely to be ice free in September within one or two decades – and what will that do to the weather? The Atlantic Conveyor (Gulf Stream) is weakening which might mean that the UK will get a big thermal shock and the Thames will freeze over again in winter. At the same time sea levels are rising inexorably because warm water expands slowly but unrelentingly and the sea is being continually warmed. In addition to land-based ice melting in the norther hemisphere, there are alarming indications that the Antarctic is less stable than had previously been thought and if that melts on any scale the sea will spread inland to an extent we don’t want to think about. Many major cities including London are at risk as well as islands. Bangladesh is already badly affected as are many other coastal communities and numerous islands. Terrible droughts have afflicted the Middle East (including Syria), Africa, India and more. The tropics are becoming increasingly inhospitable to humans so there is increased migration. Economic refugees! What would you do if you and your parents before you had grown enough food to feed your family and now there is not enough rain?
While some have argued that the effects global warming (heating) might be a little less severe than predicted decades ago, there is increasing evidence that the outcome is worse — almost certainly, much worse.
In addition to the climate, pollution is dreadful: of land (chemicals, etc.); fresh water (nitrates and phosphates, for example); the air (toxic gases from industry — some of which are far from vital for human wellbeing) and particulates (from transport including shipping and flying); the sea (plastics, and rubbish of all kinds and dissolved carbon dioxide — which makes the sea rather more acidic and threatens shellfish and corals for example). Overfishing is another serious danger to long-term human nutrition
Our generation is being utterly callous with regard to the use of minerals and other resources. Materials which ought to available for many thousands of years are being squandered on trivia and ephemeral tat.
Finally, and probably worst of all, we are destroying our biological heritage at terrifying rates.
What to do about it?
First, the aim must be zero carbon in the shortest possible time. We already have the scientific knowledge and practical techniques to do it — perhaps in five or ten years if and when we decide to get on with it. Is the most serious problem devising an acceptable economic system that ensures that every community in the human family has a decent chance? So, carbon dioxide production (and also methane and other greenhouse releases) from whatever sources need to be curtailed with emergency speed. Every gram of fuel matters! ‘Keep fossil fuels in the ground’ is a necessary policy but ‘minimise cement use’ is another (extra CO2 is created in cement production) — so housing and road building need to be minimised. Public transport schemes are preferable to private vehicles. Air transport needs to be massively restricted — the very idea of new runways is lunacy.
Economists then, need to work out how to create a massive reduction in GDP in advanced countries while food supplies and adequate income are maintained. ‘Growth’ in developing countries needs to be restricted to the real needs of the people.
‘Tradable quotas’ policies could play a part in all of this and achieve results in a much faster time-frame than any other housing policy that I have heard.
Second, as well as curbing greenhouse gases to the maximum extent in the shortest time, we need to fund and support the greatest collaboration of scientists and engineers that the world has ever known to research and implement geo-engineering to restrict temperature rise and reduce the carbon dioxide concentration in the atmosphere.
Civilisation – law abiding citizens and democracy – and the lives of many of our children will depend in it