As the FT has noted:
The UK statistics agency defines properties costing more than five years of income as “unaffordable”.
The affordability ratio in England hit a record 8.8 in the year to March 2021, before dipping to 8.4 in 2022. These moves and the latest increase reflect swings in house prices after interest rates rose rapidly from historical lows in 2020 and 2021.
The ratio rose to 8.6 in March 2023.
Prices are now higher.
As the FT added:
For the poorest households, the average house price in England was 18.2 times above average income in 2022-23, with the affordability threshold being met only by the richest 10 per cent of households, at a ratio of 4.3, the ONS said.
The consequences are already apparent. In a separate article the FT notes:
Poorer students are being priced out of going to university in London because spiralling rent costs are outstripping the value of maintenance loans.
An analysis of student housing costs in the UK capital found that average student rent of £13,595 in 2024-25 exceeded the maximum loan for students in London of £13,348 for the first time.
The knock on consequences for many London universities are enormous.
But, so too are they for the economy as a whole. The value of people's labour is being sucked into paying either rents or interest to financial markets, denying them the chance to live well, whilst also sucking the life out of markets for the goods and services that actually create the prospect of employment and added value within the UK economy which cannot be created because so much income is being diverted into wealth extraction.
The consequence of the extreme financialisation of almost everything that exists within the economy is that the economy is no longer functioning as it should. Not only is it denying people the chance to live well, it is denying the opportunity for anything but further financialisation to flourish.
Nor are there signs of the dangers inherent in this madness is being understood. Far from identifying financialisation, rent extraction and excessive interest rates as the problems we face in our society, Rachel Reeves is instead describing the City of London, which is the architect of this madness, as the ‘jewel in the crown' of the British economy and is in Brussels proselytising for it.
Where does this end? Ultimately, it can only create economic collapse if not addressed. The signs are all now present that this is unsustainable. The economy is in the doldrums. Poverty is rising. Real economic activity that seems to meet need is failing. Government services are becoming undeliverable because basic obligations, like housing people, are becoming unaffordable. Something has to give.
The City assumes people can bear the yoke of these financial burdens indefinitely. I think they are wrong. People's anger at the exploitation they are suffering cannot be contained for that long, I suspect. Mainstream government's either seek to manage the causes of that anger or extremists will sweep them aside - although they might well make matters worse.
Financialisation, rentierism, exploitation and greed can co-exist for a while. And then they can't. There is always a tipping point. The next financial, crisis might be much bigger than the last two because of this, though. Asset price collapses - which seem likely - create banking collapses. I hope the Treasury has a plan for that happening. The likelihood is it is gong to need it.
NB: I am aware that the situation is not as grim in Scotland, Wales and Northern Ireland.
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George Monbiot pointed out quite rightly some years ago that excessive property and rent prices are in effect a privately levied tax on existence.
https://www.monbiot.com/2019/07/19/private-taxation/
While Danny Dorling has demonstrated that since the end of WW2 building costs have risen in line with the RPI which house prices haven’t.
My own home was built in the mid 60’s when average house prices were about 3 times earnings, these days I suggest my own home is worth nearer 15x earnings so who on earth can afford it and who is benefitting.
As Bob Colenutt points out in The Property Lobby we are caught in a crisis of low supply, high prices and poor quality thanks to the housebuilding industry and landowners.
https://www.cambridge.org/core/books/property-lobby/B6B66A731E7784CE7B4F59D8E806288E#fndtn-information
Thanks
Exactly right. It is all insane.
We are in the death grip of finance for sure.
The UK has suffered many economic tragedies since Thatcher – but the latest might well turn out to be electing an ineffectual Labour government on the cusp of crisis. Since the average a-political person still thinks Labour is ‘left-wing’, the left/green will get the blame for financial/social breakdown, and the UK will lurge right, into even worse trouble.
It will finish Labour. To be in power in both 2008 and 2025 (if the crash happens) will be unacceptable for the voters.
Is that not the plan? I can’t see how else Starmer would be tolerated by the Labour Party given he is such an ineffective leader.
We can never have another Corbyn moment. The proletariat must be convinced socialism and left wing politics is worse than anything the right can offer.
Thank you, Richard.
I agree and have long wondered when the unfinished business from 2008 would come back to haunt us. I thought covid might be the trigger, but QE kept the sinking ship afloat for a bit longer.
In addition to the personal financial distress, which means individuals have little or no buffer to absorb such distress, the failure to reform the financial system (breaking up banks to keep commercial banking separate from trading and avoiding the too big to fail moral hazard, more capital, stricter leverage ratios, a hard limit on balance sheet size, and jail for white collar crime) and policies that favour the masses, not the wealthy, means that the next crisis is going to be worse.
Something else, and something that gives me something in common with some, but not all neocons: Another crisis, which will hit the west, not just the UK, will further cement the decline and coming fall of the west and finance capitalism. Readers may be surprised to read that some neocons oppose financialisation and see the danger to westeen dominance of such a system.
After the inaugural G20 in 2009, I was part of initiatives to train Chinese and Russian officials, public and private sector, seconded to London to learn about financial services regulation. These youngsters learnt what not to do and were planning for a multipolar world.
I doubt the Treasury, which has few wise old heads, and the Bank of England have a plan.
Let me sound like a broken record: If you are able to leave this benighted country, please do so. If you need convincing other than from Richard’s blog, please read what opposition leader Neil Kinnock had to say in 1987 and add all the calamities since.
Thank you, Colonel, wise words indeed.
I just want to add that in spite of his words of warning in 1987, we serious students of the history of the Labour party have no hesitation in ascribing to Neil Kinnock his full due with respect to his role in incubating the ongoing disaster that was New Labour, and is now New New Labour and their roles in consolidating the neoliberal settlement.
Thank you, Karl. I agree.
A Welsh friend, another City socialist, tells me about the property empire the family built in the past generation.
Mum’s former volunteer colleagues call the former PM daughter in law Gucci Helle and Grace Mugabe.
I agree largely with what I understand of your response (I’m not educated in economics or finance), but it seems to me that most people have no choice but to stay on this scepter’d but benighted isle. Fond dreams of better things during furlough have dissolved, I’m more aware, first via Gary Stevenson, then through Richard Murphy, of how thoroughly enmeshed we are in the largely unchecked world of finance. Please don’t say the only way is to run away. Stand with Mr M and talk steady sense to counteract the confusion.
Thank you, Anne.
Unfortunately, I don’t see things getting better.
I agree with what you say, Mr. Murphy. Whilst no-one can see the future, everything seems terribly “over valued” today. Mostly, you can only sell your house to someone who has already got one!
More worrying is the big problem with “Baby Boomers” decumulating their Defined Contribution (DC) pension pots. Oftentimes, they simply don’t hold enough in the pension to make good use of the “Safety First” annuitisation of the fund and, instead, are trying their luck in the “Probabilities Based” drawdown approach. Here they remain invested and hope for the best (and pay ongoing fees and bear all of the risk).
There is no surer way of getting an individual’s attention than by telling them that tomorrow equity prices will fall by 50% – as they did in 2000-2003, and then again in 2008-09 and have done many times before, and will that temporary loss of their savings lead to sleepless nights?
I’m not sure that hope is a very good investment strategy.
Much to agree with
I am currently reading the recent (2020) biography of J M Keynes. It is a superbly written book, long, but riveting.
What is getting to me is that nearly 100 years ago Keynes was right about Reparations, right about the Depression, right about the accumulation of wealth by the rich and the consequential growth of populism & fascism, right about how to revitalise an economy (Roosevelt’s New Deal), right about nearly everything to do with political economy as far as I can see (just the odd blip or two, like ‘loanable funds’).
And we have that idiot Reeves woman doing all the things that drove him to despair..
That one is excellent
I read it during lockdown
And in his day there were still loanable funds, to some degree
I did a little basic maths on rent, taking into account my own lifelong experiences.
I found that rents effectively doubled every fifteen years (approximately), so, I tried to project what that would mean for me, if I’m still a renter as a pensioner thirty years from now.
My calculations see the rent at around £1500 a month, £18 grand a year in fifteen years. Thirty years, £3000 a month, £36 grand a year. I live in a cheaper area of the Midlands.
However, I recently watched a London vlogger searching for a flat, one bed. In the areas she was looking at, the rents were already more than £1500 a month, they were, £1800 – £2200 per month. Most of them were basic, not luxury.
Lets take the average as £2000
15 years doubling, £4000 a month, £48 grand a year.
30 years doubling, £8000 a month, £96 grand a year.
Imaging being a pensioner faced with these level of rents. Or anyone who is not an owner? Many have missed out because of the madness of the British obsession with property, which has been fostered by the political elite, mainly Tories, but also Labour.
The figures are going up for over 50s who are non-owners.
Some scary figures here.
https://www.housing.org.uk/resources/older-people-in-the-private-rented-sector/
https://ageing-better.org.uk/housing-state-ageing-2022
For those who might say, this won’t happen. I’m saying, this is my experience, rents double every fifteen years or so, on average. I have the old rent books and tenancy agreements to prove it!
The system is mad. Someone needs to get to grips with the inflation we have in things we need. Housing (+ extra housing costs like council tax), water, energy, gas, electricity, food, the greedflationists are screwing the life out of us.
Meanwhile, CPI is 2%, or so and running to target, according to the BofE and Government.
Deeply troubling, as you note.
[…] By Richard Murphy, part-time Professor of Accounting Practice at Sheffield University Management School, director of the Corporate Accountability Network, member of Finance for the Future LLP, and director of Tax Research LLP. Originally published at Fund the Future […]
I have just finished listening to Rachel Reeves on R5. If we are relying on her to navigate us through, out of, or round any future crash we are, to not put too fine a point on it, f**ked.
Rachel ‘Catchphrase’ Reeves repeated the same phrases and sentences several times, laser focus, deliver, and so on. Using outside consultants to find ways of saving money in government departments didn’t seem to clash with the pledge of reducing spending on consultants. Other questions were simply responded to with the same sentence. Perhaps Rachel ‘Michael Howard’ Reeves would be more appropriate.
It makes me really cross when ministers refuse to answer questions. I am really cross most of the time.
The ONS inflation indices for October 2024 were 2.3% for CPI, 3.2% for CPIH, and 3.4% for RPI. Whilst likely to be abolished at some point, RPI measures the gross world of goods and services in my book and is still published as RPI remains the benchmark for many pensions calculations (and, uniquely, one can still buy a “Real Annuity” linked to the RPI with monies arising from a DC pension scheme).
CPIH reflects the costs of home owning, but goodness knows what the ‘rate’ would be if the usurious rents charged by the usual suspects were calculated.
Much to agree with
Has anyone factored in the impact on the cohort of students who are trapped with spiralling student loans to repay? All while the fundamental costs of living continue to extract whatever spare cash they (we) might have.
What pressure will they be under over the next decade as the high-earning jobs on which they based their decision to go to uni aren’t there for them?
Their debts will last most of their lives
Added to this is the lack of social housing and a cap on housing benefit meaning those in benefits are getting nowhere near enough to cover their rents. So many are paying astronomical rents and living in poor quality housing on insecure tenancies.
I had hoped at least Angela Raynor would build social housing for those in real need, but instead we are getting more private housing that will be beyond the means of such people.
It does feel that whilst this government is no worse than the previous Tory governments, people are running out of hope and protest will become inevitable. I feel for our younger adult population who without parental help are saddled with massive debt and poor quality insecure housing.
This government is worse than the Tories in one important respect, that you touch on: they have done their best to eliminate hope for a better future. With the Tories you knew they were only there for themselves and their mates – we didn’t have high expectations. The only surprise was exactly how greedy and self-serving they became. Like Obama, LINO proclaimed that ‘change has come’, and then just carried on in the same neoliberal vein, destroying the reasonable hope of the vast majority that at least some things would change for the better after 14 years of the Tories. Even real Labour Party supporters (are there any left?) must be having a difficult time keeping their pecker up (for example, how does Clive Lewis manage the cognitive dissonance?). Labour’s uselessness at even acknowledging, let alone addressing, issues like climate change and inequality creates an immense psychological impact on the population at large. Britain is depressed and suffering. Hope-austerity is just as damaging as money-austerity.
I couldn’t vote for them and got a lot of stick from friends as a truly useless candidate very nearly best our Tory MP. But he would have done no more for us locally. It is sad that a lot of well meaning people thought they were voting for a left wing government with a vision to improve our public services. Instead we have fiscal responsibility and more austerity and cuts on already decimated services. It will not end well.
An excellent blogpost and imho one one the biggest problems the country is facing!
This form of “Capitalism” appears to me to be an oroborous doomed to eat itself and we are watching the slow collapse of western economies. I pray someone in power sees the light to turn this wayward tanker around…
And the government has spent over 17Bn on right to buy further inflating house prices and redistributing wealth from the north to the south.
Your data sources are?
Why has this redistributed wealth geographically?
I struggle to work through the implications of the fact that there are a lot of boomers entering their 80s.
Will be a proportional large number of large houses becoming empty, with also an increased need for social care and what will happen to the inherited wealth that follows on
This seems rarely discussed other than a fear of tackling social care and inheritance tax
That collapse is coming is undeniable as is the intent of the wealthiest people in the US in UK to create it. It’s integral to rightwing libertarianism. The elite of an economy, intent on destroying the nation, generally get away with it because they are in a position of power to do so. Because they desire a collapse, the stability of the economy is not important to them. Their plan to is rule on the ashes.
The PayPal mafia all the folks like Peter Thiel, Elon Musk, David Sacks, anlong with the rest of Silicon Valley DOGE piling into positions in the WH, are all ardent right wing libertarians. There are views are a matter of public record in the money they put into supporting their views is also a matter of public record.
History is Rhyming in so many ways.
Mark well that the Weimar Republic deliberately courted hyperinflation in order to dissolve away their nationally denominated debt obligations from World War I. That’s a matter of chancellor record. And the nonsense that the reparations forced hyper inflation on the economy is rubbish. In 1924 the currency was stabilized in part by going back on the gold standard, but it proves that the will to stabilize the currency was well within their capacity. Germany paid reparations after stabilization.
“ a claim supported by Reich Chancellery records showing that delaying the currency and budgetary reform that could have addressed hyperinflation was seen as advantageous. Whilst ruinous to the economy and politically destabilising, hyperinflation had advantageous aspects for the German government as, although the war reparations were not listed in paper currency, domestic debts owed from the war were listed, meaning that inflation greatly reduced this debt relative to revenues.“
https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic#Inflation_immediately_after_the_First_World_War
I am not convinced by those arguments, or the merits of the gold standard.