Houses more affordable than 1970s

Herzlos

Surely the big mac index is the way to go here?


In 1974 a big mac was 45p, average house price was £11,340. So 25,200 big macs per house.


Now a big mac is £3.19, and a house is £211,625. So a house is now 66,340 big macs. Or about 2.6x more expensive in real world terms.




I earn more than my parents, yet I'm in a house half the size of theirs. Partially because they got lucky over 3 purchases (getting more than they expected and paying less) and I only bought once, partially because I'm bad with money. But I'm not convinced my parents could afford that same house if they were buying now.

westernpromise

You're complaining about cheap food?

How about TVs? In 1970 a colour TV was about £400 (10 houses) and today it's still £400, so clearly houses should still be £4,000.

Pfffffft.

Herzlos

Your math is off. A house in 1970's would be about 28 TV's.


Not everything is consistent as technology changes. The big mac has remained pretty stable which is why people use it as a comparator.

spadoosh

I think im a good example for this.

Family 1 (1970).

2 parents, 2 children.

Average household income: £1204 - 1664 (varies a bit, guessing theres some confusion between household and per person.)

Average house price: £4690.

Lets replicate that to 2018.

2 parents 2 children.

Average household income: £32247.

Average house price: £234,000.


In 1970 you required 3.9 times your annual household income to buy the average house. In 2018 you need 7.2 times your annual household income to buy the average house

Lets look a little closer at the household income. If you remove inflation and go back our wages have increase by more than inflation thats really good so current wages are the equivalent to nearly two times what someone in 1970 was earning. Shows more productivity. You do the same with house prices and they wouldve cost £15k back in 1970, so 3 times, not really fitting your argument.

Lets look a little further as to why we're (household) are more productive, i think i know this one too from personal experience. Fair to say the average household in 1970 only had one worker? Probably towards the end of the man of the house era and of course there is always exceptions.

Im not the man of the house. Me and the OH are. In fact shes more of the man being the larger earner. Our joint income is ~£40k (more than double the average 1970s household income) but then we are doing double the work. Our house is worth less than double the equivalent house price in the 1970s.

It doesnt add up. E for effort.

westernpromise

spadoosh wrote: »

I think im a good example for this.

Family 1 (1970).

2 parents, 2 children.

Average household income: £1204 - 1664 (varies a bit, guessing theres some confusion between household and per person.)

Average house price: £4690.

Lets replicate that to 2018.

2 parents 2 children.

Average household income: £32247.

Average house price: £234,000.


In 1970 you required 3.9 times your annual household income to buy the average house. In 2018 you need 7.2 times your annual household income to buy the average house

Lets look a little closer at the household income. If you remove inflation and go back our wages have increase by more than inflation thats really good so current wages are the equivalent to nearly two times what someone in 1970 was earning. Shows more productivity. You do the same with house prices and they wouldve cost £15k back in 1970, so 3 times, not really fitting your argument.

Lets look a little further as to why we're (household) are more productive, i think i know this one too from personal experience. Fair to say the average household in 1970 only had one worker? Probably towards the end of the man of the house era and of course there is always exceptions.

Im not the man of the house. Me and the OH are. In fact shes more of the man being the larger earner. Our joint income is ~£40k (more than double the average 1970s household income) but then we are doing double the work. Our house is worth less than double the equivalent house price in the 1970s.

It doesnt add up. E for effort.

Interest rates.

Malthusian

Let's compare house prices with Bitcoin as that's what all the HPinCels are going to buy their houses with.

2018 1 house = 36.5 Bitcoins

2008 1 house = 36 kajillion Bitcoins

1978 1 house = infinity Bitcoins

Conclusion: house prices have already crashed to virtually nothing.

spadoosh

westernpromise wrote: »

Interest rates.

So how much it costs to borrow is more (edit: sorry wasnt thinking typing less).

OK lets do it your way.

Average house price in 1970 = 4690.

Ill take the higher end interest rates that where seen in the mid 70s as the average for the whole mortgage (vastly over estimating the actual costs). Im using 12% interest rates.

Total cost over the full term (25 years) is £14,815. Or 11.78 times the average household wage in 1970.

And today... Ill err on the side of caution and use the worst case scenario from the 70's and close to the best case scenario from 2018.

Average house price in 2018 = £234,000

Ill use an average of a 3% interest rate. Although i started my mortgage at 5.49% and its currently on 4.49%. Hoping it might drop to about 3% and BofE repeatedly keep saying that they should rise soon. Total cost of mortgage is £332,839. Or 10.3 times.

Damn you where right, houses are more affordable to the household now.
Ill go and tell my OH to quit her job doing 50 hours per week as our house is more affordable than it was in 1970 so clearly no need for her to go to work.

Graham_Devon

Malthusian wrote: »

Yes, quite obviously. If I can borrow more money to purchase an asset that is likely to deliver lifetime imputed rent and capital gains in excess of the amount I pay in interest, then it is more affordable as I need less money to buy it.

No, not obviously. Affordability is not based on debt levels, and never has been.

Doing what the OP has done (and you) is just a way of ignoring the elephant in the room.

If we had 150% mortgages (100% mortgage and 50% personal loan) would you suggest houses were now even more affordable? Well you might.

But most people would step back and ask why is there a need for a 50% personal loan. The reason? Because people can't afford it without forever increasing the debt multiples.

As I say, debt availability and affordability of the product should not be confused.

What the OP has done here is look at the affordability of the debt (and linked it to affordability of the product)....but has still come up with a very awkward, wrong, calculation based on comparing multiple incomes to one.

Trouble is with these argument, you don't convince everyone else....only those with the same mindsets who were already convinced anyway.

spadoosh

Sense.

Lets do it this way.

I can afford an iphone, theyre only £40 per month for 2 years (£960). < this is 2018

I cant afford an iphone theyre £700. this is 1970

AG47

Property is relatively stable in value over the long term, Big Macs computers or any tech like TVs are not stable to measure value over the long term. Fiat currency or any other digital or paper illusions of wealth are not a good measuring stick either.

You would have to use other stable real things, and not just a few. A basket a goods would be the best, for example, commodities and things like oil, gold, silver copper, wheat, soy, lumber, sand ect ect.


When you do this you see property is way way over valued compared to everything else since the 1970s.

Silver is a classic example, the ratio was hundreds of ounces of silver valued the same as an average house in the 1970s, and today it takes between 40k and 50,000 ounces of silver to buy an average house, compared the same way in the 1970s


Property in general in the developed world has gone up far far more than most real things like commodities ect.

Everything goes from undervalued to overvalued and back again, everying returns to normal eventually.