Why exactly are houses so expensive?

ukcarper

chewmylegoff wrote: »

wages may have increased by an average of 2% per annum per year, but it might be more sensible to look at household income (which as you rightly point out should be disposible income, i.e. after tax).

the main reason for me saying this is that i should think that in 1953:

(a) the number of women in employment (even part time employment) was probably much lower than it is today; and

(b) the benefits paid by the government were much lower then.

so saying that the average salary was £20 then and is £20,000 now (making the figures up) would be a bit pointless when infact the average household income was £21 then, and is £30,000 now (again just making the figures up to make a point).

wages have increased a lot more than 2% per annum otherwise that person earning £500 a year (above most figures for average earnings) would be earning £1640 a year now. I think Graham means above RPI.

chewmylegoff

ukcarper wrote: »

wages have increased a lot more than 2% per annum otherwise that person earning £500 a year (above most figures for average earnings) would be earning £1640 a year now. I think Graham means above RPI.

that makes sense - but the point is the same, i think disposible household income is the relevant comparator.

System

chewmylegoff wrote: »

that makes sense - but the point is the same, i think disposible household income is the relevant comparator.

Which has been pointed out more times than I can possibly remember.

Graham_Devon

ukcarper wrote: »

Well I suppose that is what the 8000% increase for property compared to the 7000% for earnings tells you. But as you know the housing market is cyclical and if you look at the earnings to average house price graph it is like a roller coaster so those figures are just a snapshot in time.

The point I am trying to make here, was related to you looking at food bills.

What you didn't look at is how lifestyles have changed over the same timeframe.

First off, I'd like to point out I have no figures.

However, in the 50's, you were likely to walk to work. Therefore you wouldn't need a car, wouldn't need to spend on fuel, wouldn't need to pay parking charges, wouldn't need car insurance, road tax etc, wouldn't need the car loan. Wouldn't need to spend 10% of wages on a train season ticket etc. You wouldn't need childcare, and if you did, it certainly wouldn't be at the cost that it is today thanks to childcare requirements today.

All these are costs today that are pretty much required today to earn the wage.

I'm sure there were costs then that don't exist now, but I would imagine the demand on the same wages today in order to live and earn the wage is much higher than it was then. It would be useful if there was some sort of summary of living expenses in the 50's compared to the SOA's littered over these forums now.

So looking at only the comparable costs doesn't really work. I think we'd all accept that demand on the wage, in order to live and earn that wage is much higher today. That needs to be considered when comparing items of expense.

I reckon I could easily cut out 15-20% of my expenses if the car went and I could walk to work, and whilein the 50's my town WAS a bustling town full of these jobs, it isn't now.

Therefore the costs of the house can't simply be compared to the increase in wages. You have to look at the increased demand on those wages too.

CLAPTON

it is self evident that as we get richer we spend less on basic essentials and more on luxuries

whilst a roof over one's head may well be an essential, living in a five bed house with half an area in a nice area is a a bit of a luxury


so we spend proportionately less of our income on essentials and proportionally more on 'luxuries'

thus the mystery of house prices rising faster than incomes is solved.

paddyrg

"A problem with debt is a problem with savings"

Well, you could say that a problem with BRITISH debt is CHINESE savings. Good luck getting them to buy everyone a tv. A zero-sum analogy only applies if the system is sealed - it is anything but. We leak money in interest payments to bondholders, and print money to do so. Thinking otherwise could be considered naive to dangerous.

Maybe in the 1940's you'd have had a point of some sort, but the issue is that people took on all the cheap debt the could (governments included) and spent it on trinkets and fizzy pop. When the cheap debt supply stopped, they started whining that they couldn't get free sweeties any more and might have to cut back/pay their bills/grow up/face the fact they spent money they didn't have in the name of greed.

ukcarper

Graham_Devon wrote: »

The point I am trying to make here, was related to you looking at food bills.

What you didn't look at is how lifestyles have changed over the same timeframe.

First off, I'd like to point out I have no figures.

However, in the 50's, you were likely to walk to work. Therefore you wouldn't need a car, wouldn't need to spend on fuel, wouldn't need to pay parking charges, wouldn't need car insurance, road tax etc, wouldn't need the car loan. Wouldn't need to spend 10% of wages on a train season ticket etc. You wouldn't need childcare, and if you did, it certainly wouldn't be at the cost that it is today thanks to childcare requirements today.

All these are costs today that are pretty much required today to earn the wage.

I'm sure there were costs then that don't exist now, but I would imagine the demand on the same wages today in order to live and earn the wage is much higher than it was then. It would be useful if there was some sort of summary of living expenses in the 50's compared to the SOA's littered over these forums now.

So looking at only the comparable costs doesn't really work. I think we'd all accept that demand on the wage, in order to live and earn that wage is much higher today. That needs to be considered when comparing items of expense.

I reckon I could easily cut out 15-20% of my expenses if the car went and I could walk to work, and whilein the 50's my town WAS a bustling town full of these jobs, it isn't now.

Therefore the costs of the house can't simply be compared to the increase in wages. You have to look at the increased demand on those wages too.

Things have change a lot so I don’t see what blogger was trying to do by comparing 1952 when there was still rationing to now. As chewmylegoff said the important thing is household disposable income and as wages have outstripped rpi by a considerable amount people obviously have more money to live on than before although that trend has been reversed over the last few years.

If you £60 weekly shop cost the equivalent of what it was in 1952 it would be around about £200 that £140 a week would pay for quite a lot.

Graham_Devon

ukcarper wrote: »

Things have change a lot so I don’t see what blogger was trying to do by comparing 1952 when there was still rationing to now. As chewmylegoff said the important thing is household disposable income and as wages have outstripped rpi by a considerable amount people obviously have more money to live on than before although that trend has been reversed over the last few years.

If you £60 weekly shop cost the equivalent of what it was in 1952 it would be around about £200 that £140 a week would pay for quite a lot.

The most important thing, as stated clearly in the article is the amount of debt that was available.

The price of the weekly shop is irrelevant in comparison to the explosion of lending and the pace it ramped up.

A 630% increase in lending over 15 years holds a lot more weight behind it than the cost of a loaf of bread and apint of milk does. Theres really no argument here in all honesty. We're witnessing how the lack of credit is now strangling the market.

System

I think lending is a symptom, not a cause.

Where do we expect banks to draw the line on how much they lend? If they lent nothing for house purchases then house prices would probably be around 20k.

It's not up to them to decide what the market price is and lend around it.

ukcarper

Graham_Devon wrote: »

The most important thing, as stated clearly in the article is the amount of debt that was available.

The price of the weekly shop is irrelevant in comparison to the explosion of lending and the pace it ramped up.

A 630% increase in lending over 15 years holds a lot more weight behind it than the cost of a loaf of bread and apint of milk does. Theres really no argument here in all honesty. We're witnessing how the lack of credit is now strangling the market.

To be honest I don't know what you are trying to say.

Shall I sum up things for you houses prices are higher may be 20% higher than they were in 1952 while food is almost 4x as expensive. What has the amount of debt got to do with that.