Last month the UK’s ONS (Office for national statistics) reported yet more robust growth in UK house prices 6.1% for the year to September to be precise, with regional variations of course, with London, the South East and Ulster registering the highest increases. Those lucky enough to own property will momentarily congratulate themselves on another healthy return, while those on the other side of the divide will heave another sigh and resign themselves to the ever reducing chance of them joining the obsessive, peculiarly British dream of owning your own bricks and mortar.
There have always been haves and have-nots, and always will be, but the current problems with affordability of homeownership, and knock-on effects of skyrocketing private sector rents and under supply are exposing a huge problem that threatens to hobble the national economy and the capital’s rapid financial growth.
The last 30 years have seen rapid UK population growth, a neglect in the stock of publicly owned council houses, inadequate new supply, and a tendency to live in smaller family units. In 1981 Britons had 1.5 rooms per person, compared to 2.5 today. Problems with volatile stock markets and poor returns on pension investments, coupled with the lowest interest rates in history have made it cheaper and more attractive than ever for those who can raise the capital to sink it into property. Most industry experts agree that the UK needs to build 240,000 new homes every year. On a good year they build half of that. London needs a staggering 500 new properties per week to meet demand. The result is obvious. Prices of a property purchase, and private sector rents are not just high, but becoming literally unaffordable for many. Home ownership in the capital is now not even an aspiration even for those in well paid jobs. An annual salary of £100,000 is unlikely to be enough for even the most modest of homes, while rental is expected to be classed as unaffordable in London in a few years, even with a household income of £60,000. It has become the unfairest of taxes, the youngest and the poorest pay ever increasing proportions of their incomes to the older and poor prosperous, and it looks unlikely to change by itself. By 2025 it is predicted that only around a quarter of 20-39 year olds in England may be owner occupiers, compared to around three quarters of over-55 year olds. The knock on effect is obvious. Already companies are considering relocating out of the capital, or not going there in the first place. If you have to pay the secretaries, tea ladies and mail room boys £40,000 just to afford a flat share you push your costs to uncompetitive levels. For society to function it needs more than hedge fund managers, company CEOs and advertising executives. It needs teachers and nurses, waiters and shop workers, street cleaners and bus drivers. These are the very people who are being forced out in droves. Oxford is officially the least affordable town in the UK, where affordability is measured as the difference between average wage and average property prices, with the council talking in terms of a catastrophe in the economy as they lose key workers. Research by Savills, the estate agent, said that a total of 350,000 households in England will not be able to afford to buy or rent houses at market rate by 2020.
So what do you do? Private house builders are not the answer. They sit on large land banks, waiting for prices rises before building on them. They are commercial enterprises that benefit from price inflation. They are hardly likely to increase supply enough to kill inflation, and reduce their bottom line. The answer must come from the government, reverse 30 years of government policy and build, build a lot. The key must be increase supply sufficiently to reduce house price inflation to 0%. Wages will gradually rise to allow more people a foot on the ladder, without heaping crippling negative equity onto those who have already made it. This is a problem that the market alone, so trusted by the Conservatives, will not fix. One of the headline Conservative policies of the Thatcher administration was the selling off of council houses to those who could previously never dream of owning their own home. This Cameron’s conservatives are going to have to fix the consequences with some good old fashioned socialism.