Young adults face housing squeeze

HAMISH_MCTAVISH

ukcarper wrote: »

But the majority of boomers were not first time buyers in the 90s when I first bought in the 70s earnings to price ratio was almost 5x compared to almost 6x now.

Indeed.

The price to earnings ratio in the 90's was the all time record low, it was just as historically unusual as the price to earnings ratio at the various peaks.

michaels

princeofpounds wrote: »

It's also important to understand that higher interest rates and inflation (the two are linked) made the stress period for mortgages pass much quicker. After 5 years of 5% inflation, the inflation-adjusted value of your mortgage drops by 28%. 5 years of 2.5% inflation and it drops by just 13%.

So previous generations found it much easier to make payments after just a couple of years, allowing them to build more savings to trade further up, even if you put aside the increasing house prices boosting equity. You scrimp and save for 5 years and you are sorted, whereas now that period can last a decade. That 'struggle' to buy a house drags on for years longer than the boomers faced.

Funnily enough the same people who complain houses are unaffordable also complain every time inflation goes above 2% even though it is fairly obvious that maintaining 2% inflation exactly is impossible hence the 1% either way bands....

Graham_Devon

michaels wrote: »

Funnily enough the same people who complain houses are unaffordable also complain every time inflation goes above "% even though it is fairly obvious that maintaining 2% inflation exactly is impossible hence the 1% either way bands....

Noy you making stuff up aswell. Seems to be a trend at the moment.....

When "those people" were complaining, inflation was at 4-5%.

Not 2.1% or something like that.

michaels

Funny - I thought we were talking about the impact on mortgage capital in real terms comparing an inflation rate of 5% to one of 2.5%?

After 5 years of 5% inflation, the inflation-adjusted value of your mortgage drops by 28%. 5 years of 2.5% inflation and it drops by just 13%.

princeofpounds

Funny - I thought we were talking about the impact on mortgage capital in real terms comparing an inflation rate of 5% to one of 2.5%?

Not quite sure what you are trying to make but I don't think it has much to do with the point I was illustrating...

princeofpounds

But the majority of boomers were not first time buyers in the 90s when I first bought in the 70s earnings to price ratio was almost 5x compared to almost 6x now.

Bit selective...

The 70s was a rough and unusual decade, due to the oil crisis and inflation scare.

House price to income ratio did spike, as people rushed into real assets to prevent their wealth being inflated away. Wage inflation was a bit stickier but soon raged on and within just 4 years the ratio was back down to 1999 levels (see link below). Young today have had to deal with those levels for 15 years now (many not so young any more!). That's almost a generation of priced out, not a rough patch.

Agree 1990s level was abnormally low however, although actually boomers would likely have been buying their largest homes and investing their peak amount of capital in real estate at that time, so I'm not sure it changes much.

Having said that, the problem is not the boomers purchases. The problem is the elevated prices the young are having to deal with. The insane level of nimby restrictions on people building homes is the obstacle to the right market solution.


http://blog.shelter.org.uk/wp-content/uploads/2014/02/AR-by-decade.png

HAMISH_MCTAVISH

princeofpounds wrote: »

Young today have had to deal with those levels for 15 years now (many not so young any more!). That's almost a generation of priced out, not a rough patch.

And for those 15 years, they've still had to pay a similar or even smaller percentage of their after tax income for a house than the generation before them did.



Most people today are not priced out....

They are mortgage excluded.

ukcarper

princeofpounds wrote: »

Bit selective...

The 70s was a rough and unusual decade, due to the oil crisis and inflation scare.

House price to income ratio did spike, as people rushed into real assets to prevent their wealth being inflated away. Wage inflation was a bit stickier but soon raged on and within just 4 years the ratio was back down to 1999 levels (see link below). Young today have had to deal with those levels for 15 years now (many not so young any more!). That's almost a generation of priced out, not a rough patch.

Agree 1990s level was abnormally low however, although actually boomers would likely have been buying their largest homes and investing their peak amount of capital in real estate at that time, so I'm not sure it changes much.

Having said that, the problem is not the boomers purchases. The problem is the elevated prices the young are having to deal with. The insane level of nimby restrictions on people building homes is the obstacle to the right market solution.


http://blog.shelter.org.uk/wp-content/uploads/2014/02/AR-by-decade.png

I wouldn't disagree with a lot of the points you raised but I would say early generation X have benefit more from HPI that early boomers. Yes prices did rise and fall but for the majority of the 70s and 80s they were higher than nearly all of the 90s. I would also dispute that boomers would be buying their largest house in the 90s I bought mine in the mid 80s and the vast majority of my Friends are still in the same house they were in in the 80s.

I agree it would be better if prices hadn't increased as much they have but the only thing that will help that is to build more houses. I also think that high house prices is not the major problem facing young people that is the lack of good employment opportunities especially for those less qualified and that is where I think we did benefit.

danothy

As comprehensive a summary of how the economics of the UK housing market may have been, your comments still don't enlighten me as to why BTL landlords are 'escape-goated' in the way they appear to be in the OP. If anything, it just highlights that BTL landlords may also be people who have benefited, but aren't specifically the cause of the problem being alleged.

princeofpounds wrote: »

... easier for this entire generation of BTL landlords who have been gifted large amounts of capital by market movements ... they happened to be born at the beginning of an economic wave

princeofpounds wrote: »

the baby boomers had no problem competing with the wartime generation ... it was genuinely easier to raise a deposit in past ... houses were cheaper in the past ... boomers ... building up that first deposit from earned income was much easier ... previous generations found it much easier to make payments after just a couple of years ... longer than the boomers faced.

princeofpounds wrote: »

... BTL landlords are allowed to offset the interest portion of their mortgages in their business and charge it as a taxable expense ... with proper tax planning, it's possible to pay very little tax on BTL at any point.

princeofpounds

your comments still don't enlighten me as to why BTL landlords are 'escape-goated' in the way they appear to be in the OP. If anything, it just highlights that BTL landlords may also be people who have benefited, but aren't specifically the cause of the problem being alleged

It's a good question... I think there are a few simple points though:

- Of course the biggest group of winners will be the owner-occupiers from the two preceding generations. But I think most young people accept that it's totally fair to own their own homes and so this draws little attention. When BTL are owning other people's homes, it's obviously going to draw more outside scrutiny.

- Younger people have had plenty of experience at the customer end of BTL, much of it miserable.

- When considering what were traditionally FTB properties, it would typically be BTL landlords who are competing in this space, so they are frequently-encountered competition.

So it's pretty understandable why they are a scapegoat for the whole phenomenon, even though it is bigger than BTL alone.