Not Building The Future

One of the UK's biggest social problems is housing its burgeoning population. The full scale of immigration (both from within and outside of the European Union), has been at least partly buried by successive governments.

This was for different reasons, with Labour trying to hide the massive impacts on white British communities, and the Tories trying to hide the fact that they had not regained control of our borders as promised .... these deceptions will all be uncovered before the EU referendum, when the current government publishes details of why the Office of National Statistics consistently shows a level of immigration, which is only one third of the annual issue of National Insurance Numbers (a number without which you can't legally work in the UK).

However even without the undoubted large scale fraud surrounding these numbers (as we have no national ID scheme), its fairly obvious that there is a problem with the large size of the discrepancy. But more of that in a future post ...... But whatever the reason, the fact is that house prices and availability of housing has not kept pace with the numbers of those seeking to buy their own home.

There are of course a number of factors involved with this:

• The recession since 2008, which has kept income inflation far lower than house price inflation.
• The reluctance of many to buy houses in certain areas (a colleague of mine in his late 20's wants his first home in an expensive area of a major city, so is still saving 'a deposit' even though he gets a lot more than the local average salary).
• The affordability of new or existing houses for new buyers.

Recent figures produced by Lloyds Bank Research suggest that this last issue affordability, rather than actual supply, is the biggest driver of the inability to get on the housing ladder, and the reversal of the trend for home ownership. These figures suggest that the average city property, is 6.6 times higher than the average local salary and this gap is rising (it was 6.2 last year) ... a rise of 8% in property prices .... and therein lies the problem.

The First Step On The Housing Ladder
Was Easier A Few Decades Ago .....

When I, and probably most of the current home owners got on the home ownership ladder, we were able to do so on one salary (and easily on two salaries). The reason for this was that back then house prices were tied to incomes far more sharply than now, because in the main mortgage lenders were restricted to offering 2.5 times the main borrowers salary (and 1.5 times the secondary borrowers salary). So for example, in today's market, where outside London the average salary is around £24k, a single borrower on the average would be able to get a mortgage offer of £60k and a couple (both on the average income), would be offered around £96k.

Seems ridiculously low now, but back in the day, house owners would have to sell at around those prices, or never be able to sell their property. So if memory serves me correctly, I bought my very first two-bedroom terraced home for about £27k .... which was probably about 2 or 2.5 times my then income.

All house prices in those days seemed to be tied in to this formula in some manner, with three or four bedrooms, semi or detached houses, priced somewhere upwards on this scale (dependent upon location etc). But at least I could get a start on the housing ladder.

Then someone, sometime, released the mortgage companies from this fixed formula, and then house prices could rise in line with what mortgage companies were prepared to offer .... 4 times primary, and 2 times secondary income became normal for a mortgage offer, and house prices rose to that level (and then beyond).

Now, its too late to put the genie back in the bottle (without risking a property value collapse), so it seems that unless something changes, we are facing the reversal of the home ownership 'revolution' of the last 50 years, and a return to housing conditions closer to those in late Edwardian times.

Whether this is a good thing or not is a moot point. I suggest that a long term plan, might be to gradually ratchet up the mortgage lending rules to slowly bring house prices back into line with local salaries .... but whatever they plan they come up with, it needs to be soon if we are to retain home ownership as a reasonable aspiration for us all, and not just the middle-classes.

Oh and just for the record:

• In 1918, the proportion of people renting their home was 77% of occupants.
• In 1953, home ownership figures started to rise, to become 50% of home occupants by 1971.
• By 2001, 69% of occupants owned their home (as the Thatcher privatising revolution petered out). But by 2013, this figure had dropped to 64% and is expected to fall for another decade. This means that in London, 50.4% of occupants are currently renting.