Friday, 2 May 2014


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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  1. Hi there thanks for the quality article, i had a good read.
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  2. "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."

    Can 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? :-)