The younger generation and the future cost of housing?

Chris_Hinds

I think every generation will face challenges but those challenges change from generation to generation. People have mentioned the amount spent on gadgets etc today but not the relative fall in the amount of time people spend in pubs (must be down... there are less pubs to prove it).

In 1979 my father bought his first house for £19k at around 3x his salary at the time. In 1980 a Ford Escort cost £3374 (http://www.classicandperformancecar.com/front_website/octane_interact/carspecs.php/?see=4033) or around 53% of the same annual salary. For balance with the argument he was 30 at the time of buying his first home.

In 2012 a new Focus can be found (using your internet connection at £15 a month) for £12225 on Drivethedeal.com. So for a person earning "the national average" it's about 50% of their annual income (hence more or less the same amount of take home pay). The same house in 2010 sold for £195k (having originally gone on the market at £250k) so that makes it 8.1x the same average salary.

As a result of this shift where relatively most other things have either gotten cheaper or stayed around the same as a percentage of annual salary, like electronics, holidays, food, music etc, the house has become much more expensive. Young people logically think that they have little chance of affording a house and the annual return on £180 a year saved not having an internet connection is hardly worth the effort so they might as well have some pleasures/luxuries.

Earning £18k per year means taking home about £1200 a month. On that salary owning a £195k house is not going to be realistic as you couldn't raise the deposit or achieve an acceptable LTV - the furthest you would be likely to be able to go is around £100k or half the necessary value, assuming a reasonable deposit of 10%.

So quick SOA:

Income: £1200

Rent: £600 (lowest priced non-studio flat in same area)
Food: £150 (I know you could go cheaper for a month but lets assume not)
Car Costs: £200 (Insurance, Tax, Fuel, Servicing averaged for a year - assumes car is owned already and a younger driver hence expensive insurance)
Gadgets: £80 (From above = Phone, Internet etc)
Clothing: £70 (From thread = probably about right)

Balance: £100 to save.

Even at best rate of return, saving £10k+costs is going to take 8 years 4 months. Cutting out a phone, internet and all but basic clothing would mean this would be cut in half to say just over 4 years. With the exception of current times when house prices are thankfully stagnating the same person can expect to see prices increase so their deposit needs to be bigger.

If all you can see is the goal being moved away from you then why worry about the time it takes to reach it if it's being pulled back all the time?

ukcarper

Chris_Hinds wrote: »

I think every generation will face challenges but those challenges change from generation to generation. People have mentioned the amount spent on gadgets etc today but not the relative fall in the amount of time people spend in pubs (must be down... there are less pubs to prove it).

In 1979 my father bought his first house for £19k at around 3x his salary at the time. In 1980 a Ford Escort cost £3374 (http://www.classicandperformancecar.com/front_website/octane_interact/carspecs.php/?see=4033) or around 53% of the same annual salary. For balance with the argument he was 30 at the time of buying his first home.

In 2012 a new Focus can be found (using your internet connection at £15 a month) for £12225 on Drivethedeal.com. So for a person earning "the national average" it's about 50% of their annual income (hence more or less the same amount of take home pay). The same house in 2010 sold for £195k (having originally gone on the market at £250k) so that makes it 8.1x the same average salary.

As a result of this shift where relatively most other things have either gotten cheaper or stayed around the same as a percentage of annual salary, like electronics, holidays, food, music etc, the house has become much more expensive. Young people logically think that they have little chance of affording a house and the annual return on £180 a year saved not having an internet connection is hardly worth the effort so they might as well have some pleasures/luxuries.

Earning £18k per year means taking home about £1200 a month. On that salary owning a £195k house is not going to be realistic as you couldn't raise the deposit or achieve an acceptable LTV - the furthest you would be likely to be able to go is around £100k or half the necessary value, assuming a reasonable deposit of 10%.

So quick SOA:

Income: £1200

Rent: £600 (lowest priced non-studio flat in same area)
Food: £150 (I know you could go cheaper for a month but lets assume not)
Car Costs: £200 (Insurance, Tax, Fuel, Servicing averaged for a year - assumes car is owned already and a younger driver hence expensive insurance)
Gadgets: £80 (From above = Phone, Internet etc)
Clothing: £70 (From thread = probably about right)

Balance: £100 to save.

Even at best rate of return, saving £10k+costs is going to take 8 years 4 months. Cutting out a phone, internet and all but basic clothing would mean this would be cut in half to say just over 4 years. With the exception of current times when house prices are thankfully stagnating the same person can expect to see prices increase so their deposit needs to be bigger.

If all you can see is the goal being moved away from you then why worry about the time it takes to reach it if it's being pulled back all the time?

Someone earning £6k in 1979 would be earning £37k now if there earnings had risen in line with wage inflation.

£19k was about the average price in 1979 it is now about £160k so although houses are relatively more expensive not as much as you imply.

The bank rate was 14% in 1979.

As you say every generation faces different problems but one thing for sure is that if I was renting a flat I would not be able to save enough for a house and that is also true for the 70s.

　

Graham_Devon

ukcarper wrote: »

Someone earning £6k in 1979 would be earning £37k now if there earnings had risen in line with wage inflation.

£19k was about the average price in 1979 it is now about £160k so although houses are relatively more expensive not as much as you imply.

The bank rate was 14% in 1979.

As you say every generation faces different problems but one thing for sure is that if I was renting a flat I would not be able to save enough for a house and that is also true for the 70s.

　

1979 is a VERY nice year to pick to make your point here.

In 1978, the average house price was £15,500.

House prices increased near over 25% between 1978 and 1979. Hence you've picked the very best year to make your point stand out and make it look as if the difference isn't that much. Just moving back 4 years will make your point all but mute.

1970 4,975
1971 5,632
1972 7,374
1973 9,942
1974 10,990
1975 11,787
1976 12,704
1977 13,650
1978 15,594
1979 19,925

No surprise either that the reason for the 25% reise was that lending had been made so much easier, as high street banks were given the go ahead to hand out mortgages.

Also, if you are going to use such figures, it's unfair to use one set of figures against another. You've shaved 90k off the average house price today by comparing two different statistics to make your case.

The figures for today, if we use the same series, are actually:
2007 223,405
2008 227,765
2009 226,064
2010 251,634

So completely unfair comparison to make a point.

BobQ

Graham_Devon wrote: »

1979 is a VERY nice year to pick to make your point here.

.

To be fair ukcarper did not pick the date, Chris Hinds did!

Zero_Sum

seven-day-weekend wrote: »

Parents might not want their kids living with them for the next ten years whilst they save sufficient deposit to get the mortgage to manageable levels on a small wage!

When I started working about 11 years back, I was on £12k plus did a few hours a week at the local pub for NMW. I was saving about £500 p/m. You'd have saved £6k after 12 months which is more than enough deposit for a £40k flat

ukcarper

Graham_Devon wrote: »

1979 is a VERY nice year to pick to make your point here.

In 1978, the average house price was £15,500.

House prices increased near over 25% between 1978 and 1979. Hence you've picked the very best year to make your point stand out and make it look as if the difference isn't that much. Just moving back 4 years will make your point all but mute.

1970 4,975
1971 5,632
1972 7,374
1973 9,942
1974 10,990
1975 11,787
1976 12,704
1977 13,650
1978 15,594
1979 19,925

No surprise either that the reason for the 25% reise was that lending had been made so much easier, as high street banks were given the go ahead to hand out mortgages.

Also, if you are going to use such figures, it's unfair to use one set of figures against another. You've shaved 90k off the average house price today by comparing two different statistics to make your case.

The figures for today, if we use the same series, are actually:
2007 223,405
2008 227,765
2009 226,064
2010 251,634

So completely unfair comparison to make a point.

As it has already pointed out I didn’tpick the year house prices are now above the long term average buthave been higher in the past. I'm not disputing that prices are highbut to say they are 8x now and were 3 x in 1979 is a gross exaggeration.

i used Nationwide figures for both years.

According to Halifax house prices are4.33 x average earning about 8.25% above the long term average of 4x. Evenallowing for long term average being increased by the latest boomprices are only about 20% above long term average not double.

Zero_Sum

Chris_Hinds wrote: »

I think every generation will face challenges but those challenges change from generation to generation. People have mentioned the amount spent on gadgets etc today but not the relative fall in the amount of time people spend in pubs (must be down... there are less pubs to prove it).

In 1979 my father bought his first house for £19k at around 3x his salary at the time. In 1980 a Ford Escort cost £3374 (http://www.classicandperformancecar.com/front_website/octane_interact/carspecs.php/?see=4033) or around 53% of the same annual salary. For balance with the argument he was 30 at the time of buying his first home.

In 2012 a new Focus can be found (using your internet connection at £15 a month) for £12225 on Drivethedeal.com. So for a person earning "the national average" it's about 50% of their annual income (hence more or less the same amount of take home pay). The same house in 2010 sold for £195k (having originally gone on the market at £250k) so that makes it 8.1x the same average salary.

As a result of this shift where relatively most other things have either gotten cheaper or stayed around the same as a percentage of annual salary, like electronics, holidays, food, music etc, the house has become much more expensive. Young people logically think that they have little chance of affording a house and the annual return on £180 a year saved not having an internet connection is hardly worth the effort so they might as well have some pleasures/luxuries.

Earning £18k per year means taking home about £1200 a month. On that salary owning a £195k house is not going to be realistic as you couldn't raise the deposit or achieve an acceptable LTV - the furthest you would be likely to be able to go is around £100k or half the necessary value, assuming a reasonable deposit of 10%.

So quick SOA:

Income: £1200

Rent: £600 (lowest priced non-studio flat in same area)
Food: £150 (I know you could go cheaper for a month but lets assume not)
Car Costs: £200 (Insurance, Tax, Fuel, Servicing averaged for a year - assumes car is owned already and a younger driver hence expensive insurance)
Gadgets: £80 (From above = Phone, Internet etc)
Clothing: £70 (From thread = probably about right)

Balance: £100 to save.

Even at best rate of return, saving £10k+costs is going to take 8 years 4 months. Cutting out a phone, internet and all but basic clothing would mean this would be cut in half to say just over 4 years. With the exception of current times when house prices are thankfully stagnating the same person can expect to see prices increase so their deposit needs to be bigger.

If all you can see is the goal being moved away from you then why worry about the time it takes to reach it if it's being pulled back all the time?

Then move somewhere cheaper. You can get 2 bed terraced houses where I live for half that.

Food - A single person can live healthly on £80-£90 a month, as I do.

Internet, if you know what you're doing, you can make more from it than it costs, I do.

£70 a month on clothing? c'mon!!!

BobQ

Its always difficult to understand social trends from the present.

My view is that history will judge the past 30 years as an era where the concept of the large majority of people owning their own homes was at best a failure and at worse a confidence trick. Fifty years ago the average person was content to rent their home, ownership was largely preserve of the the minority of professional classes (lawyers, doctors etc) and those even richer. The eighties saw novel political ideas (of mass house and share ownership). Unlike many other European nations where more people are content to rent homes, we became obsessed with getting on the property ladder (I was there too). Of course the combination of increased demand and managed availability drove property values up. Some have done very nicely from this: others have been casualties. Either way the avarice that drove this quest for property ownership has contributed significantly to past recesssions and has now partially caused an even bigger economic crisis. It has also led to much greater social division and disparities in wealth than we have had for decades.

The question posed in the first post about the long term affordability of housing is valid if you believe that we will eventually reach the point that only a small proportion of people will be able to afford to buy a house. I think a more likely correction is that significant numbers of people see benefit in not owning their homes and not having to bear the maintenance costs. Only then will prices fall.

A._Badger

[QUOTE=BobQ;53703167.Fifty_years_ago_the_average_person_was_content_to_rent_their_home,_ownership_was_largely_preserve_of_the_the_minority_of_professional_classes_(lawyers,_doctors_etc)_and_those_even_richer._.[/QUOTE]

Is that true? Fifty years takes us back to 1962.

Itismehonest

Not sure about 1962 but .......

....... When the Queen began her reign, there were 4.1 million owner-occupiers and another 2.2 million renting in the social sector. Around half of all UK households (6.5 million) were renting privately.

By 2010, the number of UK owner-occupying households had more than quadrupled to 17.8 million, with around 10 million buying their home with a mortgage (a further 1.4 million mortgages were held by buy-to-let purchasers). There were 4.9 million households renting in the social sector, a total that had been diminished since the 1980s by right-to-buy legislation.

Meanwhile, although the number of households renting privately declined to a low point of just over two million in the early 1990s, the growth of buy-to-let lending has contributed to a revival of private renting over the last 20 years or so. During this period, the number of households renting privately has more than doubled, to 4.5 million.

From http://www.cml.org.uk/cml/publications/newsandviews/114/429

Of course, the other big differences were that women couldn't get mortgages without a man signing for them & mortgages were repayment mortgages over, normally, 25 years.