Friday, 15 March 2013

Why has housing become 'unaffordable' in the UK?

People are constantly complaining that the cost of housing in the UK has become unaffordable...

The relative cost of labour and materials has not had much of an influence they have been quite stable - although arbitrary building regulations are always being piled on, causing some distortions. But the main cause of price increases is demand increasing more than supply.

Demand rose because:-

  • Good Investment: Property has been one of the few investments open to the general public that the government have not completely debased and stolen from. This is most likely because politicians and their friends also have such big investments in property.
  • Population Growth: More people both born here and from immigration.
  • Property Preference: The properties available have become less of a match to what people are looking for. More, small/individual, accommodation is apparently being demanded.

Supply has been limited because:-

  • Planning requirements on land has blocked development.
  • Planning requirements for redevelopment has blocked redevelopment.
  • Investors in land have been content to watch the asset appreciate rather than actually build on it.
  • Developers build the most profitable type of property, not the most wanted/needed.
  • The costs of moving discourages owner/occupiers from doing so, so many people stay in properties that have become 'inappropriate' for their needs.

So prices rose.

Prices cannot fall safely because people cannot afford to sell for below their purchase price (or re-mortgage value!) - unless they are desperate/bankrupt they have to stick it out.

Inflation will eventually make current prices look more reasonable - so unless the bubble is to 'burst', it is a matter of waiting for inflation to 'bring prices down'.

The bubble bursting may help prices come down, but at the expense of the current home 'owners' being impoverished and made homeless. This would add to the problem, rather than helping to fix it.

So as you can see if you look at each cause... its the government wot done it.

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