Housing Market: Difference between revisions

{{Legend Box|House price inflation}}

[[File:House to Wage Fig1.png|thumbnail]]

'''Figure 1''' shows house price inflation by area 2010-18. The average for the UK is 27%, but this varies widely across the UK regions. Greater London has seen the highest house price inflation (61.53), as would be expected, while Scotland has seen the smallest increases at just 2.82%. The graph also includes where wages should have been by 2018<ref>Wages growth https://www.bbc.co.uk/news/business-45487695</ref><ref>Institute for Fiscal Studies - 10 years on, had we recovered from the crash - https://www.ifs.org.uk/publications/13302</ref>, or rather how far they are behind where they would be if the economy had carried on growing. Residents of London are the hardest hit in terms of getting on the housing ladder as their wages have not kept up with general inflation while house prices have soared. Areas around Greater London have also seen fairly high house price inflation, which could be partly explained by increasing house prices in Greater London pushing more buyers further out from London.

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In theory, under normal circumstances, there should be a natural house price correction. Once house prices reach an unattainable level there should be a slowing down in growth. This has not be seen due to a number of factors. Firstly the government through [[Economy - Quantitative Easing|Quantatitive Easing]] has made vast sums of money available to the financial markets. It is in the interest of the financial sector to make mortgage loans with this money. While the money is made available to them at zero interest rates, they can loan the money out at much higher interest rates. This tends to lead to banks and building societies offering far higher multiples of salary to lenders to keep the money rolling. These loans then end up in the money markets where they multiple, based on the logic that prices will keep rising. Higher multiples, rather than helping lenders onto the housing market, tends to push up prices beyond what can be afforded. As the multiples increase the percentage of a lenders salary spent on mortgage repayments increases (see figure 3 for more details). Under the section [[#Government purposely Inflating prices|Government purposely Inflating prices]] you can see how, when the government have detected a slowing of housing market, they have introduced measures to ensure continued inflation.

The other factor that has played a large part in house inflation has been a national shortage of housing stock. As demand has outstripped supply this had led to an increase in prices. This has been exacerbated by the buy to rent market where the wealthier can afford to buy up properties and there is a need to rent by the younger generation as houses prices have gone beyond their means. The buy to rent market has a place, but the investment by rich landlords and the lack of controls regarding the quality of that housing has led to an unbalancing of the market.

[[File:House to Wage Fig2.png|thumbnail]]

'''Figure 2''' shows the actual real drop in wages if inflation is taken into account. <ref>Wage growth in real terms - https://www.theguardian.com/business/2018/sep/12/uk-wages-have-not-yet-recovered-to-pre-crisis-levels-says-ifs</ref> This shows a more realistic view of where wages are compared with 2010. The figure represents an average across all age groups and the figure is skewed by the older population seeing small drops in income. The loss in real income amongst the 30 to 49 year olds is much higher at over 7%. This amounts to £2100 reduction in salary. So in this respect the figure 2 graph understates the growing gap between wages and house prices. In the 30 to 49 age group though it may well be that they have managed to put savings aside to pay for a deposit. Also those in the 30 to 39 age group are more likely to be on or above the national average wage. Historically somebody buying a house at 30 would have expected wage growth over the following 10 years. This often meant that a couple would buy house prior to having a family and as their family grew so would their wage to ensure that the mortgage payments formed a smaller and smaller percentage of their income. With wage contraction this is no longer the case. A couple buying a house will find their income reducing as their costs rise. If there is any upward movement in interest rates, the markets are now heavily exposed to mortgage defaults. It is difficult to envisage that the UK housing market could weather a [[Brexit - Hard Brexit the Reality| hard brexit]]. Any downturn in the UK economy where families are mortgaged up to the hilt could create a cliff edge collapse in housing prices.

Amongst the 22 - 29 age group wages have fallen by an average of 4.6%. In the past this would have been the age group that were first time buyers. However with falling wages and increasing house prices, it is much more difficult for this age group to purchase their first property. This age group tends to be about 25% below the national average wage at £21,408 per year. With rising student fees, this group would also be saddled with a very large debt. For a typical property, somebody in the 22-29 age group would require a loan of 10 times their salary and to find a deposit of £10,000. For an individual to purchase a property this would amount to 80% of their salary in mortgage repayments. This would obviously be reduced for a couple, but would still form a significant percentage of their combined salary, particularly if they have student debts.

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|'''Percentage of Wage''' || The percentage of wage that is consumed in mortgage repayments. This is calculated on a single mortgage payer, whereas in many cases a property will be bought by a couple. However it is based on gross income before stoppages and is over 80% if tax, NI etc is taken into account. Even with two people buying a property a very large percentage of their income would be spent on the mortgage. The level of mortgage repayment leaves no leeway for change of circumstances such as one party of a couple losing employment or their hours being reduced. Our work place environment is highly unstable at the moment, imposing a large risk on lenders.

{{Legend Box|Government purposely Inflating prices}}

{{Legend Box Off}}

Much of the impact on first time buyers has been covered in sections [[#House price inflation|House price inflation]] and [[#Government purposely Inflating prices|Government purposely Inflating prices]]. However the trend we will see with the present model of house price inflation is ''First Time Buyers'' becoming ''Last Time Buyers''. All properties across the spectrum have seen similar inflation except for flats which have seen a lower level of growth. A 5% inflation rate on a house valued at £200,000 will see the house price rise to £210,000 in a year, while the same percentage increase on a house valued at £300,000 will increase the price to £315,000. This creates an equity gap of £5,000 between the two properties. This has always been the case, but the difference now is that those in the buying window are not seeing the wage increases that allow this gap to be filled. You can see in '''figure 5''' how house prices are running away from first time buyers and those who get on the housing ladder are chasing a larger gap to exchange their house and purchase something larger when they start a family.

The impact of higher and higher demand for starter homes at affordable prices with buyers who cannot move up the housing ladder should be a drop in the price of more expensive homes as demand falls away. As the [[Housing - Rental Market|rental market]] grows this has taken up the slack, with many larger homes being purchased by investors and converted into rental units. This of course raises the spectre of returning to the early 20th century where families lived in cramped conditions.

The other factor that has a serious negative impact on first time buyers is the level of foreign investors in the UK housing market. Not only does this push up the price of new builds (particularly in the South), it also forces longer commutes which again is a drain on incomes.

One of the ways the first time buyers could previously move up the ladder was by family assets becoming available as the older generation died. This wealth staying in the family was very important to those who were not wealthy as it provided a large boost to their financial prospects. One of the biggest assets has always been property. This has been particularly important when a generation could move up the housing ladder and accordingly create a more valuable asset to pass on to family members.

The government has began to target this asset as:

* The structure of care homes means that families are having to fund the elderly family members care

* Services like care in the home being cash strapped causing families to cover the gap

See the section [[Healthcare - Care Homes]] for more detail on the structure and subsequent financial failure of care homes.

The Conservative party also intended to make the families of those requiring care to pay from the value of their house. The plan being that the family could retain £100,000 of the value of the property. This would have meant once costs of sale were taken into account, it was likely that families would see the asset stripped. They backed down on this policy due to a negative public reaction. This is a completely unnecessary measure as the pension pot has sufficient funds to set up a decent and caring system. Cynically you could say it was a method of moving houses into the financial investment market to provide properties for their portfolio which would be broken down into smaller units. See the section [[Pensions - Conservative Impact|Pensions]] to see why elderly needs can be fully funded.

* Poorer people with houses worth over £150,000 but no cash in the bank would be able to defer the charge until after their deaths

The Social Market is just one example amongst a number of think-tanks lobbying the government to change policy to the benefit of the private corporations. They describe themselves as... [http://www.smf.co.uk/ ''"The Social Market Foundation] (SMF) is a non-partisan think tank. We believe that fair markets, complemented by open public services, increase prosperity and help people to live well. We conduct research and run events looking at a wide range of economic and social policy areas, focusing on economic prosperity, public services and consumer markets. The SMF is resolutely independent, and the range of backgrounds and opinions among our staff, trustees and advisory board reflects this."''

And let's look at what their Director, James Kirkup, said:

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:'''"British politics is in flux. The ideas of the radical centre need a champion. People – of all parties and none – who reject the strident extremes that too often dominate political debate today need a home. SMF will be that champion and offer that home."'''</div>

So not only are they a think tank, of which we unfortunately already have many who are undemocratically influencing government, they clearly state that they are opposed to the policies of the Labour party of removing private companies from the provision of public services. They are described as experts in the media, but describe themselves as "radical centre", which sounds strikingly like an oxymoron. Rather like saying you are a radically wedded to being a couch potato. Maybe the term should be radically anti-radical.

The SMF is not a think tank outside the bubble of Westminster. Its [http://www.smf.co.uk/about-us/#people Executive body] has a proportion of serving MPs. The very ones that are making the decision to take these policies to parliament sit on their Executive and influence government decision making. Many members are journalists that have access to the Westminster lobby. Most if not all appear to have been involved in denigrating the policies of the Labour party.

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| [[John Woodcock]] MP|| Ex-Labour MP! Independent now ||

It is fair to say that social care comes at a price. The government has for some time stated that it is a price too high not to require additional input from the public. The problem is that the financial sector has long been stripping the money out of the social care sector.

In December 2017 Four Seasons Health Care, the country’s largest care homes operator, was in financial difficulty. The Care Quality Commission had to request creditors to agree to a standstill on debt repayments to prevent the business falling into administration. This happened only six years after the failure of Southern Cross, which at the time was the biggest company in the industry.

One of the causes is the pressure fees are under due to local authorities social care budgets having been cut. Possibly it has been more difficult to recruit due to fears over Brexit. But, in reality, the biggest cause of social care failure is due to the part the private sector plays in the provision. The involvement of private equity has created the situation where many care homes cannot balance their books. In the case of Four Seasons the private equity firm "Terra Firma" bought the care homes operator at such a high price that the interest payments consumed the company finances. It was always seen as a high risk and this exacerbated the situation with Terra Firma borrowing at high interest rates to make the purchase. Nils Pratley stated in the Guardian "The UK is awash with long-term pension fund money that would happily build and own care homes for modest real returns. Instead, we have a high-stakes financial game in which players aim for fatter rewards."<ref>A shocking way to fund UK care homes, Nils Pratley in the Guardian 12 December 2017 - https://www.theguardian.com/business/nils-pratley-on-finance/2017/dec/12/a-shocking-way-to-fund-uk-care-homes</ref>

It is easy to see that a cash strapped local authority is giving funds to a dysfunctional service. Funds that are already squeezed. This is the environment in which SMF is suggesting that more funds for social care comes from recipients. An environment where more money into the system would go to boost private company profits and not neccesarily improve care. It is stripping personal assets to build corporate assets. See the section [[Welfare - Social Care|Social Care]] for more details.

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