ONS, middle fifth income households, 1977-2012

Loughton_Monkey

Graham_Devon wrote: »

..... However, I don't think it's a massive assumption to suggest most middle earners will still be middle earners. Those moving out to a higher band will be trivial compared to those who have stayed within the same band. A lot of these middle earners will be in the public sector, nurses, teachers and the like and there simply isn't the availiablity of higher paying places for the majority to have moved to.

Well I beg to differ and would suggest that those moving up would not be "trivial".

Four years must be in the region of 10% of people at the top end retiring, and an equivalent number at the bottom moving in. Except employment has gone significantly up in that period, the vast bulk of new jobs being lower paid. The first fact gives exactly 20% 'room' to shuffle resources as 10% long serving employees leave and 10% of 'yoof' coming in with their spotty faces - most unlikely to replace the longer server directly.

There is also another 'telling' statistic in Figure 1. From the "good old days" of 2007, GDP has dropped by 12%. Average Income [and median income] has dropped by only 7%.

Some would argue, therefore, that employed people, as a group, are paying themselves far too much, and need to drop by about another 5% to become 'correct'.

It is for each of us to judge what, say, a 5% further fall in wages, at the time of, say, a 10% rise in house prices, might do to 'affordability'. You might consider this scenario as a perfect subject for your next enlightening thread....

Or you may wish to use these statistics to discuss the 2 million people [guess] who retired during this 4 year period. For four years, they have been downtrodden, underpaid, exploited employees with meagre or no payrises. But now they have joined the pensioner group who have never had it so good. These people must be rolling on the floor with glee....

.... large gin & tonics all round...:rotfl:

HAMISH_MCTAVISH

Graham_Devon wrote: »

Few key findings and a lengthy document. It's often asked on here why, if people could afford mortgages in 2008, they may have trouble now.

Well the answer appears to have been covered by the ONS.

The middle fifth of non retired households saw their income drop from £37,900 in 2007/8 to £32,600 in 2011/12.

That's an average drop in income of over £400 per month for households.

It's inflation adjusted income.

Debt of pre-crash borrowers remains in nominal terms and has been significantly reduced in inflation adjusted terms as well.

But putting that aside for a moment.....

That inflation adjusted fall in income is 14%.

The inflation adjusted fall in house prices is around 16%.

The inflation adjusted fall in average new FTB mortgage payments is around 40%.

So....

House prices have fallen by more in real terms than income, and mortgage payments have fallen dramatically more in real terms than income.

Which is why most people aren't struggling now, and are unlikely to struggle under any realistic scenario for the foreseeable future.

Graham_Devon

Sometimes, it's nice to sit back and simply watch the spinning happen in front of you.

michaels

Graham_Devon wrote: »

Sometimes, it's nice to sit back and simply watch the spinning happen in front of you.

Graham - you were right on the median 20% bit, don't go and spoil it by dismissing Hamish out of hand.

As I mentioned, there may be an issue with how tax credits are handled in the data but Hamish's arguement can be challenged because where incomes have fallen in real terms the proportion of income available to pay for housing may also have fallen. Very simply, the more income you have, the smaller the proportion of that income is neded to pay for food and energy thus leaving a bigger proportion to pay for housing (the inverse of this is that with incomes historically increasing in real terms over time the proporton spent on housing and thus the house price to income ratio does not need to remain constant at some mythological 3.5 times figure). Thus it may be true that if real incomes have fallen, that housing, even if it requires no larger a proportion of income, is less affordable because other 'essentials' require a greater proportion of income.

ukcarper

michaels wrote: »

Graham - you were right on the median 20% bit, don't go and spoil it by dismissing Hamish out of hand.

As I mentioned, there may be an issue with how tax credits are handled in the data but Hamish's arguement can be challenged because where incomes have fallen in real terms the proportion of income available to pay for housing may also have fallen. Very simply, the more income you have, the smaller the proportion of that income is neded to pay for food and energy thus leavign a bigger proportion to pay for housing (the inverse of this is that with incomes historically increasing in real terms over tiem the proporton spent on housing and thus the house price to incoem ratio does not need to remain constant at soem mythological 3.5 times figure). Thus it may be true that if real incomes have fallen, that housing, even if it requires no larger a proportion of income, is less affordable because other 'essentials' require a greater proportion of income.

But if the number of people in low paid jobs increase (which is happening) the people originally in the middle 20% will find themselves moving up the scale even though there income has not been effected.

Loughton_Monkey

Graham_Devon wrote: »

Sometimes, it's nice to sit back and simply watch the spinning happen in front of you.

It's not Hamish's fault that you have spiders on your monitor.

Kennyboy66

Graham_Devon wrote: »

Few key findings and a lengthy document. It's often asked on here why, if people could afford mortgages in 2008, they may have trouble now.

Well the answer appears to have been covered by the ONS.

The middle fifth of non retired households saw their income drop from £37,900 in 2007/8 to £32,600 in 2011/12.

That's an average drop in income of over £400 per month for households.

However, retired people appear to have found themselves £125 better off in the same timeframe.

Another little snippet....while the household income has dropped by 5.5k, cash benefits to the same group (i.e. benefits) have increased, with the average housing benefit payment for this group having risen from £240 a year in 2007/8 to £550 a year in 2011/12. Therefore the average housing benefit payment to the middle fifth of housholds have more than doubled in just 5 years alone. Scary stuff.

But, but, but we can now spend ever more on mortgages because more women work...............;)

Graham, this is a brilliant extract, thanks for posting.

michaels

ukcarper wrote: »

But if the number of people in low paid jobs increase (which is happening) the people originally in the middle 20% will find themselves moving up the scale even though there income has not been effected.

Except that for some of the people in the middle 20 percent band to move out upwards other people in the 4 deciles above must have moved down into the band hence, looking at this band is relevant, especially as we often talk about the 65% of people are owner occupiers figure when discussing whether 'average income' is a relevant metric when discussing housing affordability.

Loughton_Monkey

michaels wrote: »

Except that for some of the people in the middle 20 percent band to move out upwards other people in the 4 deciles above must have moved down into the band hence, .....

I really counsel some understanding of how wage scales generally work. Anyone can do their own calculations. Let me describe one I did.

I set up a mythical "Loughton Monkey UK Ltd" with exactly 100 staff, and I set up 5 quintiles. The top one was really the executive and senior managers. I paid the boss £80K, 4 other directors £45K, and 15 other senior managers £25K.

For the next quintile, I paid 20 good workers an average of about £22K.

The middle quintile was paid an average of about £18K.

The fourth quintile was another random bunch averaging £15K, and the fifth lot were my spotty 'yoof' and part timers, all paid either £12K or £13K.

I ended up with 100 staff on an average of £26,872. and the middle quintile averaged exactly £17,975.

Now I let this 'mature' for 4 years and during that period, I received a fully expected 10 retirements. I took 2 each from each of the 5 quintiles.

Importantly, I vowed that in these austere times, we will have a 4 year pay freeze. But I promoted 2 from the 2nd quintile to fill the 2 top quintile retirements. Being management, I chose to pay them the same salary as the retiree.

But going down all the other quintiles, I just kept everyone on the same salary, but moved them up the pecking order.

Finally, because I had lost 10 staff, I threw in another 10 spotty 'yoof' on £12K.

So all my middle quintile (the people in question here) could put their hands on their hearts and say they did not lose a single penny. And yet the average salary for my middle quintile reduced by 5% to £17,080.

I would have got the same result had I kept everyone's pay up by inflation, provided I adjusted the averages to 'real' increases.

The scenario I created was simplistic, agreed, but I believe totally representative of what goes on in real companies and the population at large. Yes, as an employer, I have saved a bit of money, but those employees in the middle quintile have not in any way 'lost out'. The 5% reduction is merely a mathematical result that effectively comes from intake at the lower levels 'shoving up' all the rest in the scale.

We get the same effect in housing. Because a lot of the homes demolished, these days, are larger wrecks [maybe converted into flats], and a lot of new homes are built on postage stamps, the average square footage per house is constantly reducing. The middle quintile would show this in trumps. It is useful social anectodal fact, but by and large the people in 'middle quintile' sized houses remain with exactly the same room as they have always had.

HAMISH_MCTAVISH

Loughton_Monkey wrote: »

The scenario I created was simplistic.

Yet probably still too complicated for the usual suspects to grasp....