Why younger people can’t afford a house
theguardian.com
theguardian.com
None of this stops me from living the family life. On the contrary, the shorter commute time arguably allows me to be a better father and husband than many of my coworkers, who travel such long distances to work that they can't afford to be home in time for dinner or their kids' bedtime.
Yes, they may have the big backyards and huge houses, but my family enjoys a Manhattan penthouse with a rooftop, located equidistantly from Central and Riverside parks, with easy access to everything the city has to offer.
The "American Dream" of owning a house at all costs - which also appears to be the British dream - would be just another distraction. It's unnecessary and, in my opinion, a waste of mindshare and money.
> The "American Dream" of owning a house [...], in my opinion, a waste of mindshare and money.
If we want to discuss city apartments vs suburban houses with "intellectual honesty", I would hope those in favor of downtown urban living acknowledge that some of us really do prefer living in houses.
I lived for 2 years in Chicago's downtown loop in a "nice" apartment. Yes, everything was "walking distance". I could walk to Grant Park, the lake, the museum, the restaurants. But I don't care about any of that. Even though I was on the 6th floor, I heard police sirens and taxi horns every day and never got used to it. I also spent a year consulting in downtown Manhattan and visited Tokyo,London,Paris. I can see how the vibrancy and immediacy of those cities appeal to others but they don't appeal to me.
I now live 35 miles away from downtown and the tranquility is wonderful. I can look out the window and watch squirrels and birds around the trees. Also, I can putz around my garage with noisy woodworking tools for weekend projects. I don't like the implication that my brain is somehow "broken" for not preferring city living. Many of us are not ignorant of the urban lifestyle. We tried it and we'd prefer to raise a family away from it. We will spend a big chunk of income to make that happen. It doesn't mean we're irrational or brainwashed.
While true on paper here's what really happens to most people:
1) They spend the extra time working instead of what they would otherwise consider family/fun/relax time.
2) If buying a place costs X and renting costs Y, they end up spending (Y-X) frivolously and getting accustomed to that level of spending.
If nothing else, owning a home tricks/forces/cajoles people into saving money. Sure you can argue, "I'll save the difference and invest it at Z% ... Win!" but that's not what the VAST majority of people will do.
If you spend 2 hours in transit... or 20 minutes. If you "invest" or "spend on frivolities"... If you use your time more productively instead of sitting on a bus/in a car...
While the trade off might not make sense to you, it obviously does make sense to the GP.
I live on family property... and it would actually cost more (no rent/mortgage... vs something new) to live close to work, but I would get ~2 hours of driving (~1 each way) if I moved closer. Due to a variety of reasons, I stay where I'm at.
Due to a variety of reasons, other people choose to move closer.
Just because they aren't super efficient (wasting money/time, as you seem to suggest), doesn't mean they aren't better off with that decision.
Having done both (short and long commutes), I'd say yes, but only in the short term. There's a distinct joy in not taking any form of powered transit to work. You feel it with every step you take walking in the mornings.
Eventually that joy wears off though as you realize that you haven't saved squat over the past N years and if that trend continues, you'll eventually get priced out of renting too!
Growing up, I lived closer to where I worked... I'd walk or bike to work. Getting older, I moved around and anything I've done in the longest time requires "long" commutes (30-60 minutes each way). I've been on both sides and am fine with either.
Given a slightly modified set of circumstances, I would probably pay a bit more to shave an hour or two off my commute... the added time and lessened stress (so many bad drivers on the roads... more time to play CoD...) would be worth it.
I am lucky enough to live on Family Property - so the economic benefits of having zero rent/mortgage can't be understated (and is a major reason I commute) but it does come at an expense in time commuting.
Homes as a trick to saving or not spending seems vacuous, it's like the enforced marriage wedding debt hyped up about a certain tribe in the phillipines. If you need to be deeply in debt to spend money wisely, something is wrong.
The GGP highlighted both the commute and the city amenities. He specifically contrasted the house with "big backyards" vs apartment access to "Central/Riverside parks, etc"
I was countering the notion that those city amenities are so wonderful that supposedly clueless suburbanites "don't know what they're missing out on". Well, we do know what those city benefits are. We enjoyed them at one phase in our lives. We just don't prioritize them.
As for the longer commute time of suburbia... to me, it was already an underlying premise. In any case, there are also several factors affecting it. In two-income families, if one spouse works in the city, it's common for the other spouse to work outside of it. So, depending on the type of jobs the husband & wife have, they really don't reduce total commute time for the entire family unit by choosing to live in downtown. Another interesting data point is that many wealthy earners (e.g. hedge fund mgrs, etc) in NYC deliberately purchase their family homes out in the suburbs instead of a high rise apartment next to Central Park. They have the high income to live anywhere and yet they also made the "irrational" decision to commute 2 hours every day to live away from downtown.
>Is a house worth that much time? Well, it probably depends on the people.
Exactly. People prioritize different things.
I had a balcony with my nice Chicago apartment but I never used it. My ears didn't like the constant noise of traffic. On the other hand, my house has a covered outdoor area with a grill that I use all the time. It seems like people spend their "commute" time as a calculated tradeoff to enjoy a certain lifestyle away from the office.
Hey, you prefer the suburbs and long commutes. Great. But neighborhoods do actually exist in a city of 3 million+. Commutes are minimal, with few taxis and sirens to rattle one prone to rattling. Let's not for a second indulge the idea that you made a fair comparison.
Chicago is large enough there are a lot of communities [1] not a central one. Depending on what you're interested there are different neighborhoods for whatever kind of lifestyle you're wanting to find yourself in and always new developing ones if you want to make your own.
[1] https://en.wikipedia.org/wiki/Community_areas_in_Chicago
Fine. Then I'll try to make one. I used to live in a beautiful part of Minneapolis. A tree-lined, peaceful street near the edge of town that was so bucolic I had a friend who came to my house for over a year before she realized that I lived within the city limits, not an inner-ring suburb. I knew my neighbors, could walk to the grocery store, restaurants, movie theater and the big museums, theaters, etc were a 10 minute drive away in downtown. We went to art galleries and performances fairly regularly.
Now I live on a small farm about 40 miles outside the city. The two closest non-agricultural businesses to my home are a bar and a McDonald's. Yet I will never move back to the city; I simply prefer it here.
The problem with so many of these articles, and the resulting comments, is that everyone comes out of the woodwork claiming that their way is best and anyone who disagrees doesn't know what the other side looks like. Not so: as the GP stated, we know the pros and cons of either choice. We also know better than you what we prefer!
Not sure where you think I've claimed to know better than you or anybody on that matter.
You like long commutes and exurbs and aren't so hot on having close neighbors. Great. Call it what it is.
Probably because your replies have an undercurrent of condescension in them. Take your following comment for example:
>and whose comfort level is forever pegged to those enclaves.
This type of psychological profiling of my background to make it look like my living preferences are "defective" smacks of smug superiority.
My mother didn't buy a suburban house until I was 19 so I grew up living in apartments. And yes, I had friends in Chicago's Gold Coast and other "community" neighborhoods where you see people riding bicycles, etc. Those benefits don't tip the scales for me. It's still sharing walls and ceilings with neighbors. Yes, townhomes are less dense than apartments but it's still sharing walls. Besides, the Chicago loop was a quick 10 minute walk from the office. The Gold Coast means a 20+ minute subway ride -- and more walking after the substation. That kind of negates the convenience aspects. In any case, none of those urban environments make may say, "gosh, this apartment and community is my dream."
Here's another unproductive comment from you:
>You like long commutes
Nobody here said he "likes/enjoys/favors long commutes". Please don't put words in people's mouths to try to win an argument. The commute is a tradeoff (aka a necessary evil). It is not something we "like".
And another one:
>Again: you like suburbs
You just ignore the fact that he stated, "apartments suck and city living is overrated."
Your style of replies to everyone has that fingers-in-the-ears-I-can't-hear-you vibe to it.
I think I know better than you do what I mean with I've written, thanks.
You DO like long commutes and you DON'T like being near neighbors. Why not own it?
No, it's actually ridiculous.
Again: you like suburbs and necessarily the long commutes that go with them.
So, please, live where you want. It's great that you can afford it. But the assumption in the media and government policy that your particular dream of an isolated home is right for everyone is what the GP was griping about.
Maybe they want to sell, and maybe they want to renovate first. Maybe they want to bank the gain in price, or convert a house they own 50% of into two houses they own 25% of.
Either way, a lot of my friends who rent in London have been politely evicted every year or two for the past few years. Once evicted, they usually find they can no longer afford rent in that area and need to move.
Getting your kid into a good school is difficult and based on where you live here, so moving is going to compromise your childs schooling unless it is planned in advance. Ideally, parents don't want to have to move at short notice every few years.
It depends where you live. It is only in London that house prices have risen to silly heights compared to income, so I assume that is what the article is referring to:
http://moneystepper.com/property/rental-income-vs-house-pric...
If you look at rental yields in the above graph, they have been sharply dropping in London in recent years. This makes sense if people are buying houses as investments: unless they're going to be sitting empty, they will be rented out and that will increase supply and reduce demand.
Essentially these London real-estate investors are subsidising cheap rents. So it's really a great way to save money by renting instead of buying, and investing your money in the stock market instead.
>If I had a family, lost my job, and was renting instead of owning/paying a mortgage, I would be on the street much, much quicker
Nope. If you were sensible you would put the money you saved by renting into investments, and you would have at least a year of runway before being on the streets. With a mortgage (assuming your mortgage is higher than rent, and you can't save much) you will have about 90 days before being kicked out.
>At least when I lived in Northern Ireland I didn't know anyone who commuted more than 60 mins to work and these people also owned houses in the suburbs.
Belfast is completely different to London in terms of commuting. Also, house prices haven't gone up the same way they have in London.
That's assuming your rent would be cheaper than your mortgage. My impression is that it's the other way around and that's what my assumption was based on. Also, if you lose your job you can probably re-negotiate mortgage payments. That's not going to be possible when renting and if you have a family finding somewhere suitable (still close to schools/doctors etc.) and less expensive is going to be difficult - especially considering you'll need to come up with another deposit.
>> "Belfast is completely different to London in terms of commuting. Also, house prices haven't gone up the same way they have in London."
You must have missed the sentence before what you quoted: "Also, outside of London I don't think commuting is as big of a thing here."
There is no need to pay off a mortgage before retirement. You can sell up (likely for a huge profit) and use the proceeds to buy a smaller property, rent, or retire to somewhere with significantly lower living costs.
Lots of people not buying means it can be difficult to sell your house for what you think it's worth.
Until then, there is always a greater fool.
Are those mortgages more than rent in the city would be? At least in my area, there are literally zero apartments of any size for a rent that is less than my mortgage payment in a ~1700 square foot house.
I mean, it's not like you get to stop paying rent when you retire, either, and you don't have any equity renting.
> my family enjoys a Manhattan penthouse with a rooftop
If anything, the intelectual dishonesty is pretending that it matters whether it's a proper house or an apartment; if you were to sell your NY penthouse, you'd be able to afford a good house almost anywhere on Earth, unlike many "lazy millenials" who will never own any property.
You're just bragging..this article isn't about choosing to live in the city or the burbs - it's about those of modest means who in the recent past have been able to afford homes and now can't.
For comparison I like to use Texas versus California because the demographics are often nearly equally comparable given comparison of various metros and distributions. The biggest differences between the two states are that in California the cost of living is about 8x more (or 12x more in more extreme comparisons) even though both locations have near equal employment capabilities, same currency, and often many similar laws. To be clear earning $100,000 per year in Texas is a far greater indicator of wealth than earning $300,000 per year in California.
Owning an apartment in California is the reality in a major metro with a booming economy. Housing prices cost so much that owning a house often becomes completely unrealistic for many people. Not that it matters since past a certain point an apartment becomes a better value per square foot than a house anyways.
In Texas the opposite is true. After the housing crash of 2008 many people who could not pay their mortgage were forced out of their homes. The costs of apartments dramatically increased and the cost of homes dramatically decreased. It has always been a better value to own a home than live in an apartment, but that value gap increased noticeably. I can remember spending about $1200 per month for a 1200 sq ft apartment at that time and moving to a 3000 sq ft house and paying less per month. This gap is less noticeable in my geography now with Facebook and various other companies setting up shop minutes away.
I have also noticed that working in Texas (at various employers) there is a huge demographic divide among home owners and apartment renters at the work place. Once you get past around 27-30 years of age generally everybody in the office who is an employee owns a house. For contractors (non-employees) the home ownership rate goes down slightly. For non-citizens the home ownership rate goes down dramatically. Generally, given the income rates associated with technology work price is not a primary discriminator from owning a home in Texas, but mobility is. Those who have a greater need for increased mobility are less likely to own a home.
The bottom line is that if you want to own a home with a yard close to solid jobs you absolutely can and it is absolutely within reach. You must be willing to sacrifice your geographic location to achieve it though.
I end up where I can afford to buy my own flat and rent it out to someone who is not myself at the rent I am paying and make a profit. But I would not be offered sufficient mortgage to simply own it myself despite the fact that the rent I pay is higher than the mortgage would be (and indeed even accounting for 2% rate rise I'd be fine).
If landlord A puts down 50% of the purchase price and landlord B puts down 20%, their mortgage amounts (and montly cashflows) will be different, but the inherent value proposition to the landlord will be about the same.
Likewise, if someone bought 10 years ago and their value doubled (but their mortgage stayed the same), that property will "appear" more profitable to that landlord than if they sold that rental to another landlord. That's why I think the "property holding costs" should be based on the full, mark-to-market, cost of the property today, and be based on a 100% financing mortgage rate.
There's also a strong argument that we shouldn't include the principal paydown part of the mortgage payment when doing this analysis, as that's a forced-savings (and cashflow) item, not an inherent profitability impact.
It's of course true, that even with a catastrophic collapse in the housing market, the money sunk into the principal are rarely truly lost. At some point the market is likely to recover to the point that it is worth something. If you can afford to wait.
The point is that rents are higher than mortgages which gives the case of having money means you can save money. And that's before you consider the massive asset you own then.
£275k property with £1700/pm rental yield is very, very good.
Average rental yield (before tax) is around 4-6% of property value per year.
Generally speaking though, your point is true of course. Having enough capital to buy a property in London instead of renting (especially if you bought a few years ago) will save you a lot of money in the long run, provided that property prices don't go down between your your buy/sell dates.
As far as I've been able to figure out in Norway, you'll generally end up paying more (total) per month if buy than if you rent. But like all things in life, if you can afford the monthly total of rent+downpayment, you'll be better off than renting due to the presumed price increase of the house. Worst case, you'll pay it down and live "for free" the rest of your life.
I think it's interesting to look at median yearly wage and house prices. How many years wages does it cost to buy a place to live outright? And as the article states, how can it be more expensive now, than it used to be?
I'm not talking about major, top ten city, I'm not familiar with the pricing there. I'm speaking from experience in 2 "B" tier cities.
Rents in our neighborhood are around 2-2.2x our payment of mortage+insurance+taxes, though we put 20% down so the payment is a little lower. In our previous location it was around 1.5x and rents are rising.
In my experience landlords tend to buy property and then use renters to pay for their mortgage. And then they add more on top of that so not only is their mortgage being paid but they're earning money too. I know some people for example who are buying a 2 bedroom apartment (they only need a 1 bed) and are renting the second room at a price high enough to cover their mortgage. So basically they're not paying a penny for their accommodation.
Not least because landlords incur overheads over and above those an owner-occupier does.
There is a large 'buy-to-let' industry in the UK, whereby millions have taken out mortgages to buy properties for the sole purpose of renting them out.
The rental income pays the mortgage, and usually provides some profit on top, all while the value of the property itself continues to appreciate.
Basically if buying a house and renting it out immediately turns a profit, that's a renter-saturated market, and it seems best to be on the non-saturated side of the market
But isn't there also an economy of scales argument to be made. If you own dozens of buildings and hundreds of flats, you should be able to keep your pr. flat cost lower than someone who just bought one flat.
I'm talking about things like:
* Admin costs (contracting, etc.)
* New tenant costs (marketing, agency fees, reference checks, credit checks, inventory, etc.)
* Landlords' insurance
* Extra safety checks (e.g. annual gas safety checks)
* Cost of downtime between tenants
* Cost of rectifying wear and tear (cannot recover from tenants)
There's also a difference in terms of maintenance. If I'm an owner-occupier and something breaks, I can live with it for a while, shop around, get a few quotes, and get it fixed at my leisure.
As a landlord, if something goes wrong with one of my properties I have an obligation to repair it as soon as reasonably possible.
Then every now and then you get a tenant who completely trashes a property, causing damage far in excess of any deposit, and which you're unlikely to ever recover.
Also, the set of people who are renting and unable to get a mortgage I imagine is quite large.
In the UK the rent/mortgage price calculation is the other way round, especially in the hearts of big cities. Not only is the mortgage cheaper on a monthly basis, it's also not subject to arbitary increases.
UK renters are also subject to arbitary eviction due to shorthold tenancies. If you were told you had 1 month to find a new rental for your family, would you be able to? At the same cost? Including the cost of moving all your stuff? And moving the kids' schools in the middle of term?
What?! Maybe you're not including London, but AFAIK, mortgages to buy a flat in London are at least as expensive as rents, if not more; in addition, with interest rates being at historical lows, it's more than likely that they'll be a subject to arbitrary increases in the years to come.
London may be a bit strange due to overseas money putting up prices.
Let alone investments that you can live in.
I still think a house is a good investment for most poor, and middle class people.
I'm so dissalusioned, at this point in my life; I would just like to see areas where you can pitch a tent, without the fear of racking up tickets.
I hate to be that guy, but I forsee a lot more homeless in the near future. I'm just asking for a few fields, and some restrooms. A safe place where people could go after an deviating life event--like a nervous breakdown, or the loss of a key job. A place where you could save a few bucks, so you could get back into the system.
I am assuming you don't own your apartment. It would be ideal if you did and speaking as a landlord in a semi urban area it is not "It's unnecessary and, in my opinion, a waste of mindshare and money.".
It is funny how many people like to take the risk of creating or working for a startup often because of control factors but yet do not want to take the risk of owning property with a group of friends (or even strangers... yes people do this).
Did you know you don't need to buy a house? Like it's not legally required, even though everyone seems to think its the greatest thing you can possibly do with your money?
Some food for thought:
Why your house is a terrible investment - http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrib...
Crunching the numbers of renting vs owning - http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-op...
So everyone you've ever gone to for advice, all the people you look up to say 'buy a house'
And there's no houses to rent round here.
It's still not something that's a "sure thing" or you can do hastily. It also takes more of your time than renting, so if you're trying to optimize "free time" then it's likely a bad investment in that regard.
There's no simple answer one way or another, but if you're trying to justify your inability to buy as a "good decision" you'd still be wrong more often than right. An increased market of affordable housing to purchase is better on the whole for wealth equality than controlling rents.
You can still get around 4% dividends or 7% capital appreciation from some stock funds. Which give or take is no better or worse than property in general once you have considered taxes / repairs / upgrades.
You are right it can be a good hedge against inflation of city costs, but that is a bit of a gamble.
You mention cities that are booming. What about if you bought property in an area that got worse?
My main issue is that people just think "renting is throwing your money away" and then take on 300k in debt, without considering all the angles.
EDIT: I just wanted to add that I have since looked into renting out my house, and downsizing by renting an apartment, but I couldn't even get a two bedroom apartment in a decent neighborhood for the cost of my mortgage.
Helpful calculator: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calc...
“Rent vs. Buy: If You Have to Ask, You Should Probably Rent”
Yes taking on debt is risk, but so is everything else in life. Driving, charging a credit card, eating at chipotle, etc.
We are having a similar problem for a long time now, and it is obvious how the situation also creates a huge amount of wealth inequality:
In São Paulo, several times in the last 15 years, rent managed to be more expensive than several first world cities (like Stockholm).
Housing prices are ludicrous, and the mayor office estimated they have a shortage of 200.000 homes right now, with 200.000 families (not 200.000 people!) living on the streets.
When I lived there, I spent 80% of my income in rent, I ended getting in debt after some hiccups with a contract, and got kicked out, I am still in debt to pay the rent, and I still have rents to pay too! (ie: defaulted rents).
The interesting thing is: THE BUILDING where I lived, not just the apartment, the ENTIRE BUILDING was owned by a single guy. I found out that guy owns SEVERAL buildings, and that he is NOT one of the city top10 richest, it is "normal" for the city "onepercenters" to own 50+ housing units, many of them own hundreds, or even thousands of housing units, many that are empty, because noone can afford the crazy rent, neither the crazy price to buy something.
One of the investors of my startup is a foreigner, and bought a apartment and a house in Brazil, he later told me he was surprised, by how much lucrative it was, the apartment value DOUBLED in 1 year.
The solution is not cheaper homes or higher interest rates, but higher wages and less student debt. The easiest way to do that (in the US) is to raise taxes (particularly capital gains, but also upper-bracket income and corporate taxes) to subsidize low-price higher education, fund infrastructure projects (national power grid, offshore wind and tide power generation, a real high-speed rail network, local transit, local utility upgrades (water and sewer systems are dangerously decrepit throughout the country, and we ought to be laying fiber to every home in the US), research into battery technology, diabetes and cancer prevention and treatment advances) that will pay decades of massive benefits to rich and poor alike, and to raise the minimum wage, which will generate inflationary pressure on other wages and prices in general.
Further the Fed needs to let inflation rates balance out by running at 4-8% for a few years. We've had a sustained period of outrageously low inflation, which means that mortgages and student debt are far heavier burdens today than they were for previous generations, because inflation reduces the effective principal.
We have plenty of tools to address this problem, but no political will to even try.
Younger people can't afford a house because empathy is dead, and property in the UK is no longer a thing in which you live, it's an investment instrument - and unfortunately as it's a rather profitable investment instrument large and wealthy entities engage with said investments, pushing smaller investors (i.e. human beings who wish to own the roof over their head) out of the market.
We've successfully gone back to landed aristocracy.
Incredibly, buy-to-let landlords have enjoyed better tax advantages than first-time buyers. Some of those tax advantages have only recently been curtailed by the current government, but it's too little, too late.
I wrote a blog post about the damaging effects of buy-to-let in 2009. That's six years ago, and hardly anything has changed. It's immensely depressing:
http://designofhomes.co.uk/016-damaging-effects-of-buy-to-le...
I have to agree that 'emergency' low interest rates are propping the market up since it was ready to crash in 2007. BTL landlords benefit from low interest rates, so again that is a factor.
This 30-minute video [1] describes the factors in the economy in simple terms. I understand fractional reserve 'n all that but the interesting part I learned was about the long/short term debt cycles. If we're entering a transition on the long term debt cycle, it would be marked by unrest/wars.
What has happened in the last 8 years is that central banks have attempted to stimulate asset prices at all costs. Real deleveraging is painful and there is no way around it. It has to happen.
Central banks have short circuited the natural process and cut the deleveraging cycle early. In doing so, it has caused the economy to limp on in a heavily burdened, leveraged state without real growth. This is why we still have near zero interest rates, and why Europe and Japan are still on negative rates -- LOWER than the GFC!
Take a look at this chart of mortgage debt: https://research.stlouisfed.org/fred2/series/MDOAH
You can see that the natural deleveraging cycle has been short circuited by insane injections of money. There is still too much debt to income, and deleveraging is going to happen again.
I find this hard to believe, the town I live in has not grown by 10% in a decade.
"The Bank of England says inflation is 0.3%. Really? With house prices up by 10% last year?"
I think that inflation rate specifically excludes housing costs and always has done.
IMO it is supply and demand, the millions of new East Europeans moving to the UK and caused a spike in the population and they have to live some where, thus pushing prices up, this combined with buy-to-let means there are fewer places up for sale as money can be made on renting especially with interest rates low and mortgages available.
rent prices are set to screw the maximum out of tenants, and have nothing to do with the landlord's costs, this means that tenants find it harder to save deposits.
I'm glad I bought in 2008.
Over the mid\long term this bodes badly for the people benefitting.
Cynically the push for more state control of peoples privacy looks a lot like they are planning for civil unrest.
If you want to see why secure comms are vital look up Operation Vula.
Put another way and I forget who said it "there is nothing more dangerous than a man who has nothing to lose", you can't dispossess an entire generation and not expect blow back.
[0] https://www.youtube.com/watch?v=zSOTVfNe54A
[1] https://youtu.be/Q4hIvL8vtCw?t=21s [Good fast overview, rest of the talk is interesting as well]
When it comes to UK housing most people tend to blame immigration / lack of building. Which certainly haven't made the situation any better. They both can distort the supply / demand equation.
The main thing though that effects the demand however tends to be looser monetary policy. This makes more people have more money chasing the same properties. It's an absurd situation and all we have done is essentially devalue money in terms of property. We are no richer.
An even more interesting point to the UK market is places like Scotland. Scotland's population actually dipped from the 80s into the 90s, and is only just above where it was in the 80s now... and yet in that time real property values have doubled and above in most places.
During this time they never stopped building...
We should all be angry at monetary policy of the last decade or so.
Loose monetary policy - many asset prices have risen - stock markets, property prices in major cities.
In the case of London, it's seen as a safe haven so foreign investors park their money in property here, banks willing to lend large mortgages, influx of people moving London.. And not enough new housing (aside from high end property development in Central London, which several hedge funds are now shorting incidentally).
Other factors will change but the population growth trend isn't going to slow down any time soon in London. I think remote work could be incentivised on a larger scale so people can choose where to work from.
This would certainly deter buy-to-let landlords. But, given that the world generally is doing quantitative-easing and 0% rates or lower, this would be a very contrary position for the UK to adopt.
What would be the implications of that policy? I can't believe it hasn't already be considered. So why has it been dismissed?
Low rates are supposed to affect the economy to increase inflation through (b): businesses buying inventory, building factories, developing new products, etc. This "transmission mechanism" is now broken because there is a shortage of suitable demand. Businesses do not want to borrow to expand because there is no good prospect of a return on the expansion. So we can't push on that rope.
Low rates caused a property boom which resulted in a temporary economic boost to several European countries (especially Spain and Ireland): the cheap money ended up in the pockets of construction workers, who spent it.
We need some means of diverting the cheap money from (a) to (b). Possibly a tax on leverage, if that's feasible.
In the short term, the UK should get a proper property tax and apply punitive rates to property owned by non-EU individuals or companies.
Wait...what?
Ignore the cost of land, ignore the cost of labor and houses sure are cheap to build!
I also question the quality of materials you're getting for that price, as well as the architecture of the house. In the same area, I've seen 4000 sq ft. houses sell for $150,000 and 4000 sq ft. houses sell for over a million in the same area. All materials and building plans are not equal, so it's still more than just land.
I also wonder how much house flipping (or people having to update their own house before selling) has pushed prices up.
In Spain it was money coming from France, UK, and Germany. In UK it is money coming from Chinese and central banks, and people worrying about the stock market.
The big problem in developed countries is that they are old democracies. For the first time, most of the population of a country is not young, but old.
In the past, with pyramids of population, the younger population decided for their country, now it it old people who is majority.
This means young people could be sacrificed without consequences: taxes are being raised on the young and working populations to support elderly pensions. House prices are artificially sustained so old people does not lose their investments. Working benefits are cut on newcomers to support veterans.
One thing that really put me off buying a new home in the UK is how small they are. The total floor area of this two bedroom house is 50m2 (540 sq. feet) for £188,000. It's in a new development on greenfield land, so it's not like space was limited.
http://www.zoopla.co.uk/new-homes/details/39983656#VvUd83HXP...
There are also really annoying regulations about having to give a certain percentage of the houses to the council (on the cheap), if the total build is more than about 12-13 houses. So when you're choosing between 200 or 300 houses on the plot, why would you want to give away some really nice houses at cost, when you could just build a ton of small terraces?
Lowering property prices by raising interest rates, makes it more difficult to afford houses and implies killing the economy and putting people out of work. Home prices usually end up going down only because people are made not to be able to afford them. This is incredibly destructive and it only allows more people to live in the same area when they are forced to move in with their parents.
I used to think rising house prices were a bad situation for us millennials but now I believe this to be a best case scenario.
It is impossible to keep adding people to the same space while giving everybody much room for their money. The problem is trying to cram a generation of millennials into the same area as a wealthy cohort of boomers and rich immigrants predictably makes home prices go up.
Increasing supply or nudging the new generation to go in areas with more potential for spacial growth not only allows the new community to be built to the image of its own people but building and growing the infrastructure of a new neighborhood or revitalizing a dying town creates jobs for the people that go there.
The best thing governments could do to help with this situation would be to encourage some of the institutions and jobs relevant to new generations to move out of overpriced, overcrowded centers. They could foster jobs creation in centers with more low cost space and less chance of spacial overload. They could maybe move some public jobs there to help jump start the migration. This would also put some downward pressure on the prices in overcrowded places until we reach some kind of equilibrium.
I say stop trying to cram everyone in the same volume. Let the older rich generation keep the expensive quarters they've spent their life building and allow new generations to create our own communities, in our own space, from choices guided guided our own tastes.
The prices on Toronto smells Bubble so much that feels dangerous to be near that when it does pop.
There may be a bubble, but you could also argue from basic supply and demand that until prices cause people to stay away from there and build new communities in less dense regions, they are still not high enough.
Doesn't that prove my point?
That didn't happen. Instead even lower demand areas everywhere in the UK have gone up in real money terms and relative to local earnings.
No where has fallen significantly, everywhere now your money doesn't go as far as it did. That is what loose money policy does.
Just places like London have had astronomical increases.
No only that they didn't go up as much. As wages and population increases, it is quite normal that house prices generally go up at least a little.
But that is not true for parts of the UK.
Wages in general in the UK in real terms have gone nowhere or down, yet pretty much everywhere in real terms property value has gone up.
That's not true right now for a number of reasons, but that's why large cities exist.
If rent is too high, it just means that there's not enough supply. And the city should fix that.
Aren't rents included in the CPI? I would be surprised if they weren't since it's a pretty huge part of most people's monthly expenses.
Then it would either mean that the rents rose along with the house prices (in which case this effect is included in the inflation figures) or that the actual housing costs didn't increase -- it's just less profitable to buy and more to rent.
Class: Weight
Food: 93
Alcoholic beverages: 20
Clothing: 59
Actual rentals for housing: 62
Electricity, gas and other fuels: 48
Purchase of vehicles: 38
Other recreational items, gardens and pets: 32
Education: 21
Restaurants and cafes: 88
These weights feel intuitively off to me, but I imagine costs like rent and education look low because only a subset of the population is paying for them, even if they are huge cost to members that cohort.
As for me for those who care: I'm 33 and bought my first home last year. I did so not to start a family, but because I was finally able to get myself out from under the thumb of crappy apartment corporations, their always-increasing rents, rules, and the general nature of living with people all around me.
If they were to do what you propose, that would lead to some uncomfortable circumstances: the only people who can afford a home are the people who come from the middle class and up, which might not represent minorities in an appropriate way. And in such a case this does not bode well for politicians who are looking for votes.
I have read that the average american moves every five years. Assuming they are on a 30 year loan of $100,000 at, say, 3%, they have paid $14,202.61 interest on $11,093.64 of principal, for an effective interest rate of 120%. 120%, and that's at 3%!
This is due to the fact that mortgages are structured as constant payments, which means early on they are mostly interest and only later is the principal being paid down. If someone moves and rolls right into another 30 year loan, they start the process all over again.
Our financial system appears to be an elaborate mechanism for moving people into debt slavery. If you read "n The Law of Civilization and Decay" you can see the same dynamics at work in the late Roman empire.
Also, if you move to another house, there's nothing to say you have to get another 30 year loan. You could get a 20 year loan instead. You could also refinance your house with a new 30-year loan after 10 years.
However, many people don't do this and end up spending a lifetime in the early parts of a fixed-payment amortization schedule, where the realized interest rates are very, very high.
It's very true that mortgages are expensive and it's unfortunate that we have priced our housing market to 30 years of payments.