Great Britain fact of the day

Britain has changed since 1998.

Back then, it only took workers about three years to save enough money for a down-payment on a house. Now it takes 20 years, on average, according to the Resolution Foundation, which published a landmark report on income, housing, and inequality in Britain last week.

Here is further information, via the excellent Samir Varma.

Comments

This is why England need to embrace the shipping container house revolution. Also and I'm just spitballing here favelas.

Why not just sell your house and move out of London? Or move into a cargo ship like some people and travel the world? (assuming you don't need to work--that would be me, not you Sam).

We've been over this Ray. I have no money than you but I work anyways. It's why I'm not reliant on the whims of my (in your case disappointed) parents.

No Money. Sounds like you Sam.

As a matter of fact, many Brazilian states adopted comtainers as a way to contain prisoner either putting them inside the containers or using them to separate warring groups at jail.

Horses sleep standing up. Why shouldn't Englishmen have to?

For me I think we have two effects on the housing side.
In London it's demand vs supply in the rest of the country it could be zoning laws, house regulations and such.
Also low interest credits have led to an unhealthy boom that has increased housing prices. So also loose money is to blame.

On the worker wage side my impression has been:
There is less money per worker than a few decades ago. Maybe because the workforce has doubled since then. I am not saying that women should stop working but it is still a significant impact that should be considered.

The rest can be explained by stagnant growth and high inflation ( though state measured inflation was low).

"There is less money per worker than a few decades ago. Maybe because the workforce has doubled since then. I am not saying that women should stop working but it is still a significant impact that should be considered."

Which rises the question: since men's wages weren't halved, are man+woman couples in a better situation the ones with non-working women in the past when it is time to buy a house? Also: have other First World workers been hit as hard for women's participation at the work market?

"Also low interest credits have led to an unhealthy boom that has increased housing prices"

How does a boom in supply of a good increase prices of that good?

If it's easier to get credit, then more people are competing for the same limited pool of housing. It takes a while for the housing supply to catch up, and when it does, the new housing tends to be on the high end.

The mortgage tax credit has the same effect in the US.

Also low interest credits have led to an unhealthy boom that has increased housing prices”

How does a boom in supply of a good increase prices of that good?

Are you joking? Low interest rates create a huge incentive to buy and at the same time allows buyers to afford a higher priced house for the same monthly payment, leading to higher sale prices. Arguing otherwise is beyond asinine.

You should ask the economists who claim that increasing the number of low-skilled job seekers doesn't affect the wages of low-skilled workers.

Boom in the supply of credit is not the same as a boom in the supply of houses.

It's all supply side restrictions, which create a slew of bad downstream behaviours. Google "Green Belt" if you live outside the UK.

it only took workers about three years to save enough money for a down-payment on a house. Now it takes 20 years,

Well, this is something the Brexit will surely fix, specially if traders move out of the City of London.

Because Britain is just London surrounded by a barren moonscape where only trolls and hobbits live.

For the average American leftist (and the leftist here are very average) this might as well be true. Except for the ones that are cosplay fans of Everton.

Or Torchwood groupies.

You're from Bradford--I knew it!

Replace the generous welfare supports the hobbits currently receive with something more targeted. If you want to layabout and hit the pipeweed, you are going to have to be gainfully employed, Took. Earned Pipeweed Tax Credit is what the hobbits of Britannia need. It's what they deserve.

This is a man made problem. Welfare in all it's nefarious forms creates a reason to not work and a necessity to not save or acquire assets. If you want to destroy people put them on a welfare system. Additionally the accumulating heap of regulations that lawmakers and bureaucrats love to pass add costs to everything especially to "real" property like houses. While simultaneously excessive regulations and taxes create a toxic environment for businesses which in turn reduces the number of jobs. This deadly combination creates the situation we see today in Britain and other Western countries.

The solution is to reduce and eliminate excessive regulations, end welfare and replace it with workfare. And bring back jobs so that anyone who wants to work could and they could also save money without being penalized. A solution so simple and elegant that the elite and bureaucrats will reject it out of hand.

Bring back the jobs! Also multiply the bread and fish! Walk over the waters! Part the sea's waters. And make the Mexicans pay for the damn wall!

"Welfare in all it’s nefarious forms creates a reason to not work and a necessity to not save or acquire assets."

Welfare should be replaced with some kind of Earned Income Tax credit. Boost the income without the direct tax on employers that a minimum wage induces.

The EITC IS welfare, pure and simple. It is the worst form of welfare in that you give $5000-$12,000 to people who by their actions prove that they do not know how to budget or make good decisions. What is the worst time of the year to buy a used car? February when all the welfare queens get a big check from the taxpayers and go buy a car (interestingly they don't usually get insurance though). Ditto for big screen TV's and Apple iphones and other big ticket items. If you actually wanted to help them don't give them helicopter money. But the primary reasons I oppose it is that it taxes the productive to reward the unproductive. This is contrary to good sense and human nature.

The welfare state in Britain hasn't grown significantly over the last two decades. Increases in pension and health care costs have crowded out other forms of social spending.

I'm an economic conservative with a healthy skepticism of the welfare state but I'm also an empiricist. The data just don't support your conclusion.

Land use restrictions might have increased the cost of new construction but I don't see the connection between changes in welfare/workfare policy in Britain and the soaring real cost of housing. In inflation-adjusted terms, the sale price of houses in Britain has doubled over the last two decades. Even with the fall in interest rates, that's a huge change in such a short period of time.

Even though welfare has not changed the consumption of welfare has increased because of immigration. It's also immigration that puts pressure on housing, among other things.

Land use / regulatory cost is about 1/3rd of the house ticket price.

For amusement, google "Land for sale" in the UK. Spot the difference in price for with and without planning permission?

Yes, UK people should produce their own food instead of importing 50+% of what they eat. Agricultural jobs for the UK!!!!

Interesting and this dovetails with my observations about America. Possibly Sweden and some other developed nations as well. Lots of good questions. But why being chief.

"this dovetails with my observations about America"

Any data to back up your observations?

The same two factors sited in the link above are in play in America, declining pay and increasing cost of a house. For pay see here:
https://www.google.com/amp/www.forbes.com/sites/jmaureenhenderson/2013/11/30/millennials-earn-less-than-their-parents-and-the-recession-isnt-to-blame/?client=safari
Especially younger cohorts since they are most likely to purchase their first home.

Home prices in most major metros are sky high
https://www.google.com/amp/www.cnbc.com/amp/2016/01/13/the-new-housing-crisis-that-will-sink-american-middle-class.html?client=safari

Sorry about the long urls. You are welcome.

Pay is not declining

Citations?

So then the answer is no.

Why would you compare costs in major metros to cash income nationwide?

House prices as a whole are not any higher and houses are bigger. Total compensation continues to climb.

Because America is a big country. And in a big country dreams stay with you. And job growth is concentrated in big metros which are increasing in population while small cities and rural areas lose population.

You aren't very smart are you?

so the rich and powerful zoned themselves in and imported cheap labour

Said another way... they built local walls and tore down national walls.

To be fair, often they use Housing Association rules & Historic Preservation committees instead of anything as crass as a wall.

There is a chart showing that incomes have grown faster than house prices in Scotland, Wales, Northern Ireland, the North, and Yorkshire. No significant difference in the Midlands, and the Southwest is only a small gap. That's a pretty large share of the country for which "time to save for a down payment" has remained the same or declined. All the work seems to be being done by assuming those people are saving for a down payment on the average British home, allowing the advocacy organization to roll in the higher prices and high price growth of greater London.

+1

This is also what happened in the US in the 2000s, and the same statistical error was accepted, so we killed the housing market in Topeka and Chattanooga because homes in San Francisco were selling for 6x income or more.

Your correct to some point, but you miss how large the London area is with respect to the entire country. Indeed, even if you look at all of England, it's still negative.

Yeah. London is 17% of the country and the South East (London's commuter belt) is the same again.

Two-thirds of the country mostly doesn't have this problem.* But a third - which is nearly half the GDP - is still a very large chunk.

* There are some other cities with smaller house-price bubbles, notably Manchester and Leeds at the moment, and maybe Birmingham is starting one too. But they're much smaller than London even if you combine those cities, and the bubbles aren't big enough yet to inflate prices right across their (large) commuter belts. Only really Edinburgh is comparable to London, and it's very small.

Thank you. One more example of the ecological fallacy. A statistic derived from measuring the members of the group is not true of every member of the group.

My gut tells me this is fake news. Prices have gone up, but was it really by 6.6 times?

Not in the UK, but Canada, interior BC. A house selling for $100k in 1998 is now $300k. And that is one that requires major work to get house insurance. A move in livable good condition is $400k. Larger interior city is probably another $100k and at the coast you are looking at $750k or more.

Wages haven't risen to that extent. The only difference is lower interest rates and longer terms.

This is a very perverse result of globalization; the jobs to make things have gone elsewhere and the money comes back driving up the costs of housing. At least here we've had reasonable quality government which controls costs and taxes. Other provinces have borrowed against the inflow of cash and spent like drunk sailors.

"A move in livable good condition is $400k."

Ouch. That's a large house with large yard in a good neighborhood in my area.

Remember that is CAD, which is .76 USD. So more like $300k USD.

A decent house (1500 sq ft with a yard) in my neighborhood in San Diego is more like 700-800k. It would be hard to find a 2 bedroom apartment for 400k around here.

This isn't what most would consider a wealthy neighborhood, either -- just a middle class neighborhood where no one can afford to buy a house.

People pay a lot for good weather

How much of that do locals attribute to out of country buyers snatching up good real estate? I've heard there are lots of Chinese investment/escape purchases in BC, but not sure if it's been blown out of proportion.

People show up with cash and bid the prices up. They aren't chinese, but they sold their houses at the coast for a very high price and buy here with enough left over for a nice retirement.

Vancouver and Toronto were the prime targets, but the BC government put a 15% tax on out of country house buyers, and Vancouver has seen a dramatic decrease in sales. Toronto continues on a tear.

We see either second or third effects here; the Okanagan sellers are showing up here in great shape when someone from Vancouver bought their place for a very high price.

We could see serious banking problems when it ends. The house renovation market was very hot with people cashing out with equity loans. There has been a gradual tightening of lending requirements as someone somewhere realizes what would happen if there was a 40% decrease in prices in these markets.

Prices don't have to go up by 6.6X

They are factoring in falling savings rates.

The median income earner in the UK has a lower savings rate today than he did in the 1990s.

Yes, lower saving rates and stagnated salaries may be enough.

That adds another dimension to the picture. Savings rate may be affected by the price of living but that's certainly not the only driver and ti is largely a matter of choice

Cliff, what do you think about my model?

Britain was a stable economy in which everyone invested 10% of their income in their pension fund and spent 30% of their income on housing. The pension fund invested in global equities that didn't impact the local economy much.

Now everyone drops their savings rate to 5% and uses the newly liberated cashflow to bid up the price of real estate, increasing the share of income spent on housing to 35%.

The price of existing homes goes up. British families who already own homes become comparatively richer.

But this was a one-off transfer of wealth from one group of people to another. New generations don't get much benefit from cheaper equities as the drop in equity prices as a result of the savings shift was minimal. New generations do suffer from the rise in home prices.

Iain Mulheirn of Oxford Economics reckons the pace of housing supply in the UK has actually kept up with household formation.

The reason for the massive house price rises in the south is due to the minimal interest rates in place since the 2008 crash.

https://medium.com/@ian.mulheirn/part-1-is-there-really-a-housing-shortage-89fdc6bac4d2#.u1kiaw4t5

That article uses numbers for the entire UK, when it's clear this is primary a Southern England problem.

It's self-reinforcing: fewer home owners means more renters, and more renters means higher rents, and higher rents means greater difficulty saving the "deposit" (down payment). https://www.theguardian.com/society/2016/aug/02/home-ownership-in-england-at-lowest-level-in-30-years-as-housing-crisis-grows We experienced something even more dramatic in my low country community when the financial crisis hit: home owners couldn't sell their homes, so in an effort to avoid mortgage default, they offered their homes for rent, so many homes offered for rent that rents plummeted, aggravating an already desperate situation for home owners who couldn't sell. When the housing market started to recover, home owners chose to sell, dramatically reducing the supply of rentals, causing rents to skyrocket. One need only understand a few basics to understand economics.

To complete the story, during the crisis developers couldn't get loans to build houses, not that there were very many buyers. As housing recovered and home owners finally had an opportunity to sell, they flooded the market with homes for sale, depressing prices. It took four or five years to sell the inventory. But once the inventory was sold, developers started building, building everywhere, on every square foot of land, creating an enormous building boom even greater than in the aughts. Builders who returned to the market early have profited handsomely, as potential buyers flooded the market too, many anxious to buy after sitting on the sidelines for years waiting to buy and with mortgage rates at historic lows. Builders returning to the market late, I suspect, are in for a rude awakening, as supply outpaces demand, prices drop, and potential buyers come to realize that home prices go down as well as up. That residential real estate constitutes such a large part of the nation's economy is all the proof one needs that people are irrational.

Are you talking about the Netherlands??

I think he is in South Carolina.

I am trying and failing at framing this story against a backdrop of low house availability and low home ownership.

For a time, Cowen would frequently refer in his blog posts to evidence of multiple equilibria. Now, not so much.

Apparently wage growth has stagnated/slowed since 2000-2002 while housing costs have sky rocketed. I blame George Bush!

Apparently it was caused by the EU, so they urged their government to leave it

Let people subdivide and build.

http://www.parkbugle.org/garage-homes-were-once-a-como-phenomenon/#comment-369651

I actually emailed my MP about this, suggesting that people be allowed to build and rent accessory dwelling units as permitted development. He passed my email on to the Housing Minister, but I haven't received anything back since.

We've got plenty of space to build small ADUs, given the number of semi-detached houses we have (a relic of when the government built houses). If small studio and 1-bed flats rent for £200-250, it becomes much easier to save for a deposit, whilst also benefiting homeowners with the extra income. Most households are 1-2 people anyway (~2/3).

Housing crisis are always man-made : regulations create them.

Maybe it's now time for a bit of ultraliberalism ?

Data from Brexit is similar to that for US presidential election.

http://www.bbc.com/news/uk-politics-38762034

"""The data confirms previous indications that local results were strongly associated with the educational attainment of voters - populations with lower qualifications were significantly more likely to vote Leave. (The data for this analysis comes from one in nine wards)

The level of education had a higher correlation with the voting pattern than any other major demographic measure from the census"""

Sounds like the opposite then? If you take out people without college doesn't Trump win by significantly more?

Actually the reverse is true: http://fivethirtyeight.com/features/education-not-income-predicted-who-would-vote-for-trump/

Higher educational attainment is correlated with voting Clinton and voting Remain. Now, a society is made up of everyone, not just the educated, so I don't think this means voters with lower educational attainment should be discounted, but it does suggest a generally pro-globalist narrative among the educated and a pro-nationalist narrative otherwise.

Solution: more immigration.

I call bullshit on this. The Resolution Foundation has a distinctly left-wing bias, and they're cherry-picking figures to make things look far worse than they are.

From your "further information" link, I note the following:

The share of national income going to the top 1% has been stable, at around 9%, since the year 2000.

"Median equivalised disposable income (adjusted using CPI variants)" - i.e. they've waterboarded the data until they get the result they want - shows that working-age adults have the same income after housing costs that they did in 2003.

"Self-employment is getting worse"; and yet it is increasingly popular. Perhaps people are actively choosing the flexibility of self-employment, and are happy to trade lower pay for greater flexibility.

Finally, on the headline "20 years to save for a down payment" headline: here's the small print:

"Calculated by applying median first time buyer loan-to-value to average first time buyer house price in each year. Level of low to middle income household savings based on putting aside 5 percent disposable income a year at five-year average interest rates. Appropriate stamp duty charges are added to the cost of the required deposit."

Why should people only save 5% of their disposable income each year?

I agree that it's tough to save for a house if you live in London and its hinterland; but the rest of the country remains affordable.

Also, 5-year average interest rates? Are they talking about cash savings? That doesn't help. If its taking you 20 years put it in bonds at least.

You only get high house prices where the economy is good. Plenty of cheap houses in depressed areas of the UK if cheap house prices are what you want (instead of a strong economy). So this is a mix up of cause and effect.

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