Why is housing so expensive nowadays?
Many first-time buyers struggle to get on the housing ladder. High deposits are needed, high incomes and rent is also high. Mind you, gone are the days of first-time buyers wanting studio flats. Many want to start with a three-bedroom house and garden!
Years ago, homes were much cheaper to buy or rent. Why are they so expensive now?
While I may not be an economist, I offer these reflections on housing costs.
One critical factor influencing house prices is the average UK take-home pay and overall expenditures. Our monthly or yearly income is allocated to various expenses such as housing (mortgage or rent), bills, food, clothing, holidays, and entertainment.
When general outgoings are reduced, individuals can allocate more funds to housing, leading to an increase in prices. Consider food costs—historically, we spent a significant portion of our income on it. However, advancements in mass farming, increased cheap imports, and competition among supermarkets have lowered this percentage.
Similarly, clothing costs have decreased over the years due to similar factors like mass production, cheap imports and increased competition. With reduced spending on various items, there is a surplus for housing costs, contributing to the continuous rise in house prices and rents.
In a scenario where essentials like food and clothing consume a larger portion of our budget, housing prices would need to adjust accordingly. While a gradual increase in general prices in line with wages is acceptable, recent disruptions, such as the world's shutdown during Covid, led to a rapid rise in prices. To curb this trend, the Bank of England had to intervene by increasing interest rates, affecting family budgets and impacting the supply and demand dynamics that govern the prices of goods.
Rents have risen due to more demand and less supply. More demand from potential buyers taking years to save a deposit and less supply due to the UK Government stopping tax breaks on landlords.
Property prices do go up and down but on average double every nine years. Prices would calm if there were more built, but people don't want new builds near them, even though the house they are living in once was a new build and people also complained about that property and the lack of infrastructure. Infrastructure is forced to improve after the houses are built.
For rents to reduce there needs to be more choice - ie more landlords and for this to happen landlords need to pay less tax on their investments to want to grow their portfolio.