There is a problem in developed countries such as UK of house prices.
House prices being strong is good for the economy in the short term. It boosts GDP – it makes home-owners feel wealthy, and when people feel wealthy they are more likely to be happy with the government and vote them in.
Rising house prices are bad for the economy in the long run House Prices have risen and it is pricing potential families out of the market.
This means that young people are less likely to start families. Falling birth rates mean that there are going to be fewer young working people to pay taxes and contribute for the ageing economy.
The rapid increase in house prices has become a pressing concern globally, and understanding the underlying factors is crucial for addressing this issue. Recent data from Halifax and Nationwide indicates a 9% to 13% rise in house prices over the last year alone, exacerbating the intergenerational wealth divide. Those born after 1985 now face a significantly steeper climb to homeownership.
The Real Cost of Building a Home
Contrary to popular belief, constructing a house is not inherently expensive. Modern technology allows for a 1,500 square foot, timber-framed house to be built for around $57,000, and in China, a basic home can be 3D printed for under $5,000. The costs associated with existing homes, like Victorian houses, have long been recuperated. This stark contrast raises the question: Why are prices so high?
The Role of Government Policies and Money Supply
The surge in house prices can largely be attributed to governmental policies and an unchecked increase in the money supply. From 1997 to 2007, the UK’s housing stock increased by 10%, while the population grew by only 5%. Despite this, house prices rose by over 300%, fueled by a 370% increase in mortgage lending. This phenomenon was not driven by traditional supply and demand dynamics but by an influx of newly created debt.
Financialization of Housing
Over the decades, houses transformed from being just homes to becoming significant financial assets. This shift has resulted in immense wealth for property owners who’ve done little more than benefit from market conditions. This “unearned wealth” has contributed to the rise of a new class of rentier landlords, altering the socio-economic landscape.
Regulatory Response and Inflation Measurement
The Bank of England and other regulatory bodies have traditionally not included house prices in inflation measures. This oversight allowed for the continuation of low interest rates, despite rampant house price inflation. The government and financial institutions have found this arrangement beneficial as it preserves the wealth of homeowners—a significant voting block.
The Planning Law Conundrum
The UK’s stringent planning laws further exacerbate the housing crisis. Despite abundant land—only 1.1% of land in England and Wales is developed for domestic use—the regulatory environment makes it challenging to build new homes. These laws have preserved the interests of a few at the expense of many, particularly the younger generation.
The Political Quagmire
No political party has shown the willingness to advocate for the necessary drop in house prices that would make homes affordable for everyone. This is largely due to the potential political fallout, as seen in the early 90s when a drop in property prices significantly hurt the electoral prospects of the Conservative Party.
Future Directions
For genuine change, both the financial system and planning policies need an overhaul. Interest rates should reflect real inflation rates, including those from house prices. Planning laws need to be simplified to allow more people to build homes, which would help in diversifying the architectural landscape away from the monopoly of large corporations.
Conclusion
The housing crisis is a complex issue embedded in governmental and financial systems that favor existing wealth structures. Real solutions require bold political will and a rethinking of fundamental economic policies. Until these changes are implemented, the advice for the younger generation might sadly be to look for opportunities elsewhere, where their efforts and earnings align more closely with their housing aspirations.
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