UK house prices rise twice as fast as earnings over Queen's lifetime

On average, house prices are nine times incomes across the UK and 20 times incomes in London and the South East

Hazel Sheffield
Thursday 21 April 2016 10:48
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Why you can't afford a home in the UK

House prices have risen twice as fast as earnings in the Queen's lifetime, according to analysis from the New Economics Foundation.

NEF has charted the relationship between earnings and house prices since the Queen was born in 1926 and discovered that the two were closely correlated until the mid-1980s, when the financial deregulation of the 1970s saw the relationship break down.

This deregulation of the credit market kick-started a shift towards mortgage lending over other bank types of bank lending, with domestic mortgage credit expanding from 40 per cent of GDP to 60 per cent since the 1990s.

The growth of mortgage lending, increasingly including people who can only afford loans with the help of Government schemes, has inflated house prices creating a self-fulfilling cycle of larger loans relative to income and further price rises, NEF said.

Houseprices have risen twice as fast as earnings in the last 90 years

Source: ONS/NEF

"Let’s bring living costs back in line with what most people actually earn," Alice Martin, researcher in economy and finance at NEF, said.

“It’s not unreasonable that we should all be able to put down roots in the areas we live, without the risk of eviction or a lifetime of mortgage debts. But with house prices rising way beyond incomes, finding a place to call home is becoming more and more difficult."

The data shows that the housing crisis can not be fixed by simply building more houses. Between 1991 and 2011, the extra four million home built disproportionately benefitted those with bigger houses. Those with the least rooms per person in the UK gained no extra space, while 36 per cent of rooms built went to the 10 per cent of the home-owning popultion with the most rooms.

Meanwhile house prices continue to soar. On average, house prices are nine times incomes across the UK and 20 times incomes in London and the South East. If the UK minimum wage had risen at the same pace, it would now be £10 an hour rising to £14 an hour in London.

If building houses isn't enough, what can be done? NEF advised action in four areas:

1. Tax land speculation

This is process where landowners keep hold of land to make a profit from its value rather than sell it to house builders.

2. Revive public housing

NEF called for the end of Government subsidies to help people buy houses, to be replaced with a committment to provide public housing and social rents. It pushed for low-debt ownership models, like co-op housing schemes and community land trusts.

3. Stop banks from inflating bubbles

By limiting the percentage of mortgage debt they can hold or making them hold more capital against these loans.

4. Cap rents

To make renting more affordable and attractive

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