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| A young couple look in horror through an estate agent's window at the ridiculous cost of buying or renting a home in Britain today. |
It's Friday. It's financial. It's Friday Financial with JULIAN SAYER.
Millions
are working themselves into the ground just to pay the the rent
IN
EVERY facet of society the working population are finding it harder and harder
to get on in life. I have looked at employment, pensions, tax, and inflation,
and everything is going against a hard working person. This week I want to look
at how difficult it is to get on the housing ladder, and who is benefiting from
this artificial market.
Since
Margaret Thatcher sold off the council houses and promised everybody should
have the chance to own their own house, the UK has fallen in love with home
ownership. We have seen over the years just how important the housing sector is
to the economy. A booming housing market often means a booming economy. The
solicitors, Estate Agents, removal men,
DIY stores, carpet shops to name but a few all benefit enormously when house
sales are high. It's been an important part of this Government’s economic
policy to try to help get the housing market moving again after the financial
meltdown back in 2007.
After
the 2007 financial crisis, lending changed overnight. The leveraged
institutions simply could not get hold of funds in order to lend for mortgages.
Employment became harder and salaries reduced and house prices fell. Demand
dried up and they simply stopped building houses.
The
wealthy were eager to buy every asset that the Quantitative Easing driven, low
interest rate environment demanded. Housing is back in demand. With
demographics, immigration and a reduction in supply, there is a huge shortage of
houses.
The
Government even realised there is a problem;
The
problem is that with supply failing to keep up with demand, rents are rising
faster than incomes in some parts of the country, meaning that a higher
proportion of people's wages are spent just keeping a roof over their heads.
Salaries
fell year-on-year in many regions of the UK in March, with the exception of Wales
(+14%) and the North West (+1.0%). The greatest fall was in London, where
advertised salaries dropped 6.8% to £39,112 – equivalent to a drop of £2,854
year-on-year.
Demand
for extra homes in England is now estimated at around 210,000 properties a year,
compared with average output from housebuilders and social housing providers of
154,000 extra homes a year over the past five years. The accumulating gap
between demand and output points to a shortfall of 1.1 million homes in 20
years’ time.
One
of the effects of rising house prices is the increasing difficulty that many
people have in trying to purchase their own property. With average UK house
prices approaching £200,000, and with average earnings around £25,000, new
buyers find it almost impossible to get on the property ladder. Lenders will
typically lend up to 3.5 times earnings, so an individual on average earnings
of £25,000 is only able to borrow £87,500, effectively ruling them out of the
housing market. High prices mean you need a larger deposit, higher salary, no
debts and an excellent credit rating. Not easy in this financial climate.
The
new rules recently introduced by mortgage lenders are supposed to protect the
financial system from giving out excessive loans to people who can't afford the
repayments. These rules are given here in detail:
Unable
to scrape together enough of a deposit to meet the loan to value criteria set
by this industry consultation, more people will opt to rent, pushing up already
historically high rental costs and making it harder to save for a deposit in
the first place. Renters are caught in an impossible position, paying higher
rents, on reduced salaries to save up for an ever increasing deposit.
Since
2001 the number of households renting in the UK has broadly doubled to 4.8m,
with a predicted further one million people will join them in the next five
years in light of the more stringent regulatory mortgage environment.
Here’s
the problem:
Nine
million people in England are stuck renting - and more and more of them are
families. These homes are often in bad condition. Worse still, many renters
won't complain to their landlord out of fear they'll face eviction - something
that's happened to over 200,000 renters in the past year alone. Landlords have
their tenants over a barrel.
The
average private rent paid by renters has increased by 67 per cent between
2002–03 and 2011–12, according to the English Housing Survey. Over the
equivalent time period (2003–2012), average full-time wages in England rose by
25 per cent (ONS Annual Survey of Hours and Earnings 2003– 13). This means that
it is 2.5 times more expensive just to put a roof over your head over the last
ten years.
The
past seven years has seen the banking industry destroy the global economy.
Every aspect has been effected, from higher taxation in order to pay back the
debt, taken on by tax payers to fund the bail out of the banks, to lower
salaries, poorer job prospects and poorer more expensive housing. You are
seeing that this Government's policies have reduced supply, causing prices to
go up and who pays the highest price? The poor and most vulnerable who can't
afford to even rent, the young who if they are lucky enough to find a job,
can't muster a deposit on a zero hour minimum wage contract.
Then
again who has benefited from all this? Namely, the wealthy who could afford to
buy the housing stock, the private landlords, who can charge above market rents
do to the lack of supply.
Mr
Osbourne's response to this was to inflate prices in the housing sector with
his help to buy scheme, instead of actually building more houses, which would
have created proper employment.
His
next step is to suggest making welfare savings by cutting housing benefit for
under-25s and restricting council housing for those earning over £65,000 a
year.
These
policies only inflame the problems. The report below suggests one million
houses will be needed at below market rents to cope with the young and most
vulnerable in society who simply can't afford to put a roof over their heads.
These
policies are splitting society, creating divisions and increasing inequality.
As
you know, here in the UK we follow the American model only a few years behind
in the cycle. Look at the economy, look at zero hour contracts in employment,
look at the privatising of the NHS! This is what has happened in the US housing
market, 1 in 3 of all US housing is unaffordable to its citizens.
Where
is the housing market heading? I wonder?......
Good luck house hunting this bank
holiday, you voted for it!
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Hi there thanks for the quality article, i had a good read.
ReplyDeleteDissertation Methodology
Assignment Writing
"The average private rent paid by renters has increased by 67 per cent between 2002–03 and 2011–12, according to the English Housing Survey. Over the equivalent time period (2003–2012), average full-time wages in England rose by 25 per cent (ONS Annual Survey of Hours and Earnings 2003– 13). This means that it is 2.5 times more expensive just to put a roof over your head over the last ten years."
ReplyDeleteCan you explain this to me? I think you meant to say that rent has increased at 2.5 times more than the rate of increase in salaries. That is not the same as saying that rent is 2.5 more expensive now than it was 10 years ago? Do I need to get an abacus? :-)