Why have house prices increased so much over the last twenty years?

matthewpoll13

For example, is it a consequence of low-interest rates, high immigration, relaxed borrowing or planning laws.

Eric_the_half_a_bee

Interest rates were kept abnormally low following the 2001 stock market crash to keep the economy moving, and nobody had the guts to correct it before 2008. After 2008, it was too late to correct it without crashing the economy.

Lord George, who was governor of the Bank from 1993 to 2003, said the interest rate environment across much of the Western world early this decade caused a "rapid rise in household debt and rapidly escalating house prices in many countries".

He added: "In the face of the economic slowdown in the industrial world in the early years of the decade - when inflation was generally in pretty good control - official interest rates, generally, were reduced to abnormally low levels."

The former central bank chief said that although inflation was running below target, "we were very conscious of the internal imbalance in the United Kingdom and we tried not to do more than we had to do to keep the economy moving."

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/2791914/Eddie-George-Bank-did-not-see-risk-of-low-interest-rates.html

HAMISH_MCTAVISH

matthewpoll13 wrote: »

Why have house prices increased so much over the last twenty years?

All prices are set via the mechanism of supply and demand.

There is nothing else.

is it a consequence of low-interest rates, high immigration, relaxed borrowing or planning laws.

All of the above, and many others too, are merely component factors of supply and demand.

GreatApe

Hamish is obviously correct its simply down to supply and demand. The real question is how has supply and demand changed. Let me have a go explaining it. Here are two 25 year periods

1971-1994
2.3 million population growth
4.9 million homes built

1996-2018
8.4 million population growth
4.3 million homes built

So the first thing to note is house building fell about 10%
But more dramatically population growth was 3.6x more

Secondly people just want more housing now than in the past. As the cost of necessities like food cloths shoes etc fell people had more money to buy housing with. Even though housing is more expensive people consume more housing now than in the past. That is to say average floorspace per capita has gone up. This is also true for many other countries and true for comparisons against other countries. For example homes in Germany cost less but Germans consume more housing a lot more 40% more. Likewise if you look at a developing country like Turkey homes are a lot more expensive now vs 20 years ago but the country is much better housed.

It's almost the opposite of what people imagine.
Where hosuign is very cheap eg third world or shanty towns or Stoke etc life is hard and crap
Where housing is expensive eg London Switzerland California Paris Australia Canada life is good.

I think the reason for this is that housing standards and permits get better and harder the richer a country is. A bit like environmental standards. Third world countries allow shanty towns because that's all people can afford. London wants highly regulated and designed homes and also wants homes to contribute to the poor and crossrail and other infrastructure prpjects so when you buy a new house in London you are paying for a lot more than just the house.

BobQ

Great Ape is correct. Two related issues are that

(a) the 1970s and 1980s saw home ownership rise sharply, to the point that people mostly grew up in homes their parents owned. Those children had similar expectations but it became progressively obvious that many people will never be able to afford home ownership. They then feel deprived while in other countries like Germany, people are more accustomed to renting their homes and accept it as normal

(b) In some areas of the UK, the density of population and the local amenities drives up prices, as the price of land is a key driver. London is particularly affected by that. A hectare of residential land in Bolsover, Derbyshire might be £350K, but in Enfield it £15m and in Kensington about £90m

Cakeguts

Add to that people living longer and higher divorce rate and you get where we are.

zagubov

The unit of society in Germany is the family and in the UK it is the individual. That may lead to a disparity in the number of homes.

But there's more to it. In Germany/France people live in large spacious homes until they die. Then their children live in large spacious homes until they die, ad infinitum.

In the UK, the distribution between generations is less favourable, as house tenure systems don't match needs. Growing families over-occupy their homes while separated/widowed older people under-occupy their homes. Still the average number of rooms/area of floorspace per person probably averages out not so bad , so who cares?

triathlon

Quite simply there has been a deliberate shortage of land allocated to build more homes. So quite simply houses have become and will remain desirable, even the worst homes, and long may it continue, because what would be the alternative be if too many homes were built now that so much money is involved, banks and affluent people going under. My only fear is a home building Corbyn government, but there is a close to zero chance of that happening

GreatApe

triathlon wrote: »

Quite simply there has been a deliberate shortage of land allocated to build more homes. So quite simply houses have become and will remain desirable, even the worst homes, and long may it continue, because what would be the alternative be if too many homes were built now that so much money is involved, banks and affluent people going under. My only fear is a home building Corbyn government, but there is a close to zero chance of that happening

In most regions of the UK houses are cheap
It doesn't matter if you allocated a million plots with Planning granted in say the north east. The limit is not land with planning the limit is the local economy and local demand.

The only area with a notable shortage is inner London which spills out to outer London
But there is no empty land to build on in inner London so price will have to ration demand in inner London.

Also things really aren't that bad. Most UK born Brits will inherit free housing

wymondham

High multiples of borrowing permitted allows sellers to increase the price...

Emergency interest rates don't help either..

triathlon

And of course the surge in the competition in BTL and the thankless task of theirs in housing millions of people once the responsibility of the government.
They do not have many perks so a little capital gains is only fair. I am frankly shocked that there is not one BTL related business not in the new year honours list, but it is only a matter of time. Why are they honouring self serving 5000 Mtrs runners over highly principled people hosing millions of the UK,s losers