Thursday, June 23, 2011
We Can't All Own a House at These Prices
I don't know a Labour supporter who did not want to own they own home, to avoid paying rent to parasitic landlords and to acquire an asset to be traded up, maybe cashed in though downsizing, when the kids leave home and, finally, passed on to them in the will. And for a while it worked well. I was able to buy houses in the seventies, initially for £4K, then £9K(about twice my then academic salary) and finally £28.5K in the 1980s; this was a stretch but just about doable. It was even tougher when the mortgage rate swung up to 15% and we had to take in student lodgers for a while. Left of centre folk saw property as the big dividing line in society:
The haves do; the have-nots don't. Once the mortgage is paid off, the haves possess a store of wealth and an inheritance for their offspring. The have-nots have nothing to show for a lifetime of paying rent and zip to leave to their children. By the end of New Labour's time in office, it had not only embraced the property-owning democracy, it had even set a target for it. Property was not theft – it was aspiration.
The consolation for paying high interest rates was that a nest-egg was accumulating, and faster than any pension fund. But at least high interest rates kept prices reasonably low for first tie buyers. Given supply and demand, falling rates at first boosted sales to young buyers but easy capital pushed up prices into a boom on more than one occasion. Rawnsley notes that:
A ghastly feature of each boom was the sound of middle-class home-owners smugly congratulating themselves on how much their houses were soaring in value as if this was testimony to their brilliant judgment rather than the simple good luck of surfing an asset bubble.
The backlash, of course, was that once prices rose high enough, 125% mortgages at six times salary were required to buy even an average priced house. Not such a problem when the banks were awash with credit but after the crunch, banks swung to the other extreme and home loans dried up. First time buyers now need a deposit of (usually) a quarter of the asking price and few youngsters can afford that. The average age of first time buyers has risen from 25 in the 1980s to 37 in 2011. It is still climbing.
The heart of the problem is that while 250 000 new households come on stream every year, only 100,000 houses are being built. Increase the number of new-builds, whether council or private sale, and prices will come down. In 1953 Harold Macmillan, as Housing minister established his reputation for rapid promotion by building 300,000 houses in one year. The present incumbent, Grant Schapps, seems an especially plausibly smooth young Tory but, I wonder, why doesn't some ambitious young tyro set about achieving a similar target and do everyone a favour?