Anyone who reads the economics section of the press can hardly have failed to notice the concern over house prices at the moment. While it can be easy to look at numbers and forget the humans behind them. I am just one of those humans and here I present a wholly individual anecdote, with some reflections on the wider economic scene. My circumstances won’t match everyone’s, but there may be echoes that are recognisable. And if the current housing market does not currently affect you adversely, then perhaps this may help you see things from another’s perspective. If anyone who is on the other side of the divide would like to respond, I would be very willing to host it as a guest post on this blog and give it equal publicity.
From the time I started my current career, shortly before I turned 23, I have aimed to save money. In so doing, I freely confess to having a selfish streak within me. I try to be generous where I can, so I save less than I can possibly could. The purpose of the saving has always been clear: it is for a deposit to buy my own home. Having abandoned any youthful hope of ever marrying, I know that I shall never have to spend money on a ring or two, a wedding or children of my own. Of course, that then precludes the possibility of marrying someone more wealthy who could contribute a lump sum towards the deposit. Though, given the average cost of weddings these days, if I were to contribute towards that I wouldn’t have a penny left towards a home.
So while I save, I wait. I acknowledge and am grateful that I am paid more than average salary for this country and that by virtue of having been born into the family and country that I was, I enjoy far more privilege than the vast majority of people in the world. That is just to put things in a little perspective.
If one cannot buy then the only viable alternative is to rent. Yet renting is inherently more expensive than buying. At the end of a rental period I own nothing more than at the start. With property ownership via a mortgage, when make a payment against the mortgage you have the expense of the interest but you also pay back some of the debt. When all the debt is paid, you owe nothing and you own a home outright. It takes decades to do, but incrementally, month by month, you will get there.
As someone who is forced to rent, there are several frustrations. There is what one might refer to as a ‘gap of years’. It’s not even a generational gap. Those who are 5 or 10 years older than me have owned their own homes since they were in their mid-20s, having had the opportunity to put a deposit on their homes when the prices were cheap and the deposit requirements much lower than they are now. As a consequence, it means that those who have mortgages, for an equivalent property, pay far less in mortgage repayments monthly than I do in rent.
As an indicative, rent alone constitutes about 35% of my monthly income after tax. This makes me fairly average for a renter, as a recent survey I read showed that the mode bracket for renters was 30-40% of their net income, while those with mortgages paid 20-30%.
The upshot of this is that those who need to save the most (in order to pay for the deposit) have inherently less disposable income than those who don’t need to save as much. But when this is coupled with the high rate of inflation on house prices, a wedge gets driven between those with property and those without. One of my personal irritations is the smugness I witness from some of those who were fortunate to be able to buy when they did. One person I know likes to boast that the increase in the value of his property on a month by month basis is greater than his net income. The same person then periodically ‘encourages’ me to buy, even though I have told him repeatedly that I cannot afford to do so. In his imagination, I must be able to save the tens of thousands of pounds needed in the space of a couple of months. I have tried making the point to him that now would be a good time to invest in buying a yacht and that it doesn’t matter whether or not he can afford it, he should just do it. Unfortunately, my sarcasm is rather wasted on him as he just doesn’t see the absurdity of his own (lack of) thinking.
To try to put some numbers on the matter, after some investigation, given my income, expenses and current amount of savings, I could probably afford a property up to the value of £200k. Unfortunately, the average price of a 1 bedroom flat where I live is around £330k. The answer is obvious, though, isn’t it? Move to somewhere less expensive!
If only it were that simple. Part of the reason I moved into London last year was because the overall fixed cost of living (rent + council tax + cost of commuting) was cheaper than when I lived in Sussex. Even though the rent is more expensive in the capital, the cost of train fares comes down by more than the rent goes up. So if I were to move back out of London again, then my cost of commuting goes up and therefore the amount I can afford to borrow goes down.
It could be argued that the M25 is a kind of vicious circle. Once you’re inside it, it becomes hard to leave again. A factor in this is the lack of reliability in the private train companies (Southern have been particularly bad this year). The fact that I now have 4 different routes home through London rather than the monopoly that Southern have on the Arun Valley line means that if one or two fail, I have backups I can take.
Another choice would be to move jobs entirely. I’m sure £200k would get me a decent home in my old stomping ground of County Durham. Yet an equivalent job would almost certainly not pay the same as I get in London and so again, the amount I could reasonably borrow would decrease. Then there would also be the problem of leaving a job where I have some level of job security (though is there really such a thing anymore?) and trying to secure a new one in a location where I don’t currently live.
That’s the essence of the problem. Those who got on the “housing ladder” don’t care that the bottom few rungs have come off; for them, it is up, up and away. I’m not arguing that this is inherently unfair, but it is indicative of a problem with our current economics. The low interest rates are partly what is driving this wedge between the propertied and those who aren’t. It means that those with mortgages pay little interest and those who are saving cannot keep their savings value up to speed with inflation. Ideally, the saving rate should be pegged to house price inflation, though I’m not sure any banks would be wanting to offer an 11.8% savings rate.
Another factor is the fashion for buy-to-let. Some buy-to-lets are necessary for the rental market to continue in existence, but I am yet to be convinced that the current number is right. In effect what a buy-to-let does is take a property off the market that could otherwise be bought by someone who needs to live there. Yet the person buying a buy-to-let property isn’t the one who lives there. So they are merely reducing the supply of housing which is exacerbating the problem of increasing prices.
It’s a big problem, which needs a coherent, holistic approach. Tinkering here and there is not, in my view, the best approach. So while we may come up with ideas to tax more heavily the buy-to-let landlords as a disincentive or plan the building of more homes, we need to look at the picture as a whole. Looking to the future, what we may end up with if the market direction continues as it is, is we end up with a generation who will not be able to save enough to ever afford a deposit and must wait until they bury their parents before a home of their own becomes a realistic prospect.
That’s my perspective. What’s yours?