In the seventies the average house cost about 3 times the average income. Today it's closer to 6 times. Why is this, and is this progress? In my opinion there are two main problems, a restricted supply and continued wealth accumulation.
Firstly, a free market should enable the supply of competitively priced units that should not increase in relative price over time. For housing there is a finite supply of land, and one could argue this restriction has driven prices up, but the population has only increased by around ten percent in forty years so it can actually only be a small part of the overall picture.
Secondly, each generation inherits more wealth, particularly that stored up in their parent's housing. This has a one-way ratchet effect, constantly pushing demand and driving up prices. Houses come to represent layers of fossilised wealth valued for their rarity rather than intrinsic utility.
Other questions remain:
- How much has the rise of dual incomes caused the current cost/income ratio?
- Are there secret suppliers cartels in operation and how can we ensure none exist?
- Are politicians doing enough to see that land is reused and enough social housing is built?
- Are enough voters in favour of a stabilisation, even reduction, over time, of relative house prices?
- What about the impact of Buy-to-Let? Does this help or hinder supply? via Twitter.
But what do you think? Feel free to leave a few thoughts below. The image is from an Economist article that's worth reading too.
From Chris on Facebook: Good blog Adrian- this is one of my hobby horses. I used to work as a land manager for a few developers so have some insight into the industry. In my view the main issue driving price is the restricted supply of development land. Incidentally one of the reasons that the supply is stifled is the NIMBY attitude which is often dresses up as environmental concern but is in fact driven by a middle class desire to protect house prices. Related to that is the way that development land is taxed. The value of agricultural land can go from 10K to over 1M an acre with the benefit of planning consent- the tax system should allow the state to capture more if this uplift. That's only from the supply side- double incomes and lack of banking regulation are the factors on demand side. Is there a desire to change this? Not at all.
ReplyDeleteFrom Twitter: Live in a scheme. Housing Association haemorrhaging property due former Scottish Homes properties being sold to BTL. Gave up my last chance of ever buying property due to BTL artificially inflating prices and running down neighbourhoods.
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