“Konrad Adenauer, the first post-war West German chancellor, reportedly once said that people who own a detached house rarely become revolutionaries. Whether he actually said that or not, his government certainly acted upon it, facilitating large-scale housebuilding as a means to promote political and social stability (as well as, presumably, for the more self-interested motive of winning votes). The dictum also holds in reverse: if you deliberately wanted to alienate an entire generation and turn them against the market economy, creating a severely supply-constrained housing market like the British one is exactly the way you would do it.”
In case anyone brings this up, central bank money printing is a factor behind the inflation in residential prices (rents, mortgages) relative to post-tax income, but probably not the only factor. There’s also a rising population as birthrates are a touch above replacement level, immigration (although that might have changed a bit since the Brexit vote of 2016) and changed household composition (divorce, more people living in single-person units, etc).
‘There’s also a rising population as birthrates are a touch above replacement level’
What? UK fertility rate is currently 1.8 (https://www.worldometers.info/demographics/uk-demographics/#tf), well below the replacement rate.
Related, but it seems HMG’s ecolunacy plans will make it impossible to rent out or sell a house with a poor energy efficiency rating (see https://www.dailymail.co.uk/debate/article-9438933/ROSS-CLARK-absurd-banned-selling-home-dont-meet-eco-rules.html), further eroding the property-owning democracy.
Fixed it for you.
I absolutely agree with the original post: deliberately making houses expensive will ultimately prompt the young to vote for those who promise to take those houses off the old and give them to the young.
But in the meantime, there is the dire British political reality to be contended with, that rising house prices are generally perceived as A Good Thing, because they make people feel rich. As a result, a house is now considered a financial asset – and is expected to perform like one.
I still remember a conversation I had with my late mother, who was an intelligent woman, over twenty years ago.
“Your flat in London is now worth so much more than what you paid for it.”
“Great,” I replied. “So what am I supposed to do? Sell it and go and live on a park bench somewhere?”
“But your flat is worth so much more than what you paid for it.”
And it does have to be said that the last time British house prices fell, in the early 1990s, no-one was particularly happy.
Internal migration plus layers and layers of regulations will make housing prices explode. Here in Arizona, USA, housing costs have doubled in the last 5 years. Literally. I’ve been house hunting, and the tax records show that homes going for $150K in 2015 are now going for $350K. Massive influx in the area due to people escaping California and New York.
birthrates are a touch above replacement level
You’re a week late. April the first was last Thursday.
And yet… Germany has a lower level of home ownership and more people renting than the UK. This is true of most Continental Countries,
Phil B
There’s also a rising immigrant population as their birthrates are well above replacement level. Fixed it for you.
When people try and debate and say “fixed it for you”, I find it rude. Argue your point, provide evidence, that sort of thing.
Actually, immigrant birthrates, particularly after a generation or two, aren’t “well above” replacement level, and if the existing pop. birthrates are below, it evens out, to some degree.
Check out this link.
Key paragraph: ONS figures show that in 2018, births to non-UK born mothers accounted for 28.2% of the total (ONS, 2019). This is higher than the share of non-UK born people in the UK population, primarily because non-UK born women are more likely to be of childbearing age. The estimated total fertility rate of foreign-born women living in the UK has declined over the past 10 years to below ‘replacement rate’, and stood at 1.99 in 2018; this compared to 1.63 for UK-born women. Note that these figures include non-UK born women regardless of how long they have lived in the UK.
I “fixed” your assertion with some hard data.
Schrodinger’s Dog: “a house is now considered a financial asset – and is expected to perform like one”.
Therein lies the source of much folly. A house, unless built explicitly to be let to tenants to earn a rental income, is a consumption good, like a fridge or clock. Houses for the buyer’s use are consumption items, not capital. Borrowing ever-rising amounts to finance consumption instead of to build capital depletes the real capital stock of a country. And once the house gets sold, the beneficiaries of the sale have to buy somewhere else (or, if they are in their dotage, finance a residential care home, etc). The cycle cannot go on forever. Central bank fairy dust and the anti-building impact of planning rules and the rest are creating an unsustainable situation, rather like the inflation of tuition fees in higher ed. And both are linked: shafting the young and building up resentments that will play into the hands of demagogues.
Qualifier: with a mortgage, a person borrows to pay for something he is going to use, with the provisos that he pays a deposit and that he, or whoever takes over the property on sale, will eventually own a higher chunk of the equity to the point when he owns it outright. Mortgages were based around the idea that people start adult life relatively poor, get richer, and then draw down on their savings in retirement. Modelled in a predictable way, such a parabola of income/asset behaviour is something that a bank or other institution will be happy to lend against. But the idea that you can enjoy an ever-rising situation without limit is clearly insane.
It might have been true when written but times have changed and another factor is in play.
The professional classes are where you find armchair revolutionaries and virtue signallers. The people rioting in Bristol are largely the children of people who do own detached houses and more to the point have the best chance of any in society of getting their own house if they don’t own one already. Meanwhile the class of people that own their own houses by virtue of Margaret Thatcher, have children who are largely absent from the rioters even though their chances of getting on the property ladder are slim.
There are a lot of things driving up the price of residential housing:
* There is only so much land near where people want to go. The closer you are to central business districts, or nice places to be the more expensive it is.
* Houses (at least in the US) have significantly increased in size. In 1960 the average new home was 1289 square feet. In 2014 it was 2,657
* Safety and environmental regulations.
* Interest rates (which has some degree of coupling with “printing money”, but I don’t think it’s hard-linked).
* For a long time lot sizes were going up. This seems to have peaked in the early 2000s and is now decreasing as an average, but I’ll bet that it’s *decreasing dramatically* in the denser urban areas (where land is more expensive) and *increasing* in the far suburbs where land is cheaper.
JP : A house, unless built explicitly to be let to tenants to earn a rental income, is a consumption good, like a fridge or clock.
Up to a point, Lord Copper. A consumption good does not have to be ephemeral. They can be durable, and in some cases very durable indeed. A diamond necklace is likely to outlive its original owner – ditto a house. The sorts of consumer goods that last a long time and retain their value can be, and are, held as investments.
In the UK, those middle aged folk with a hundred thou or two of capital have typically made that capital from gains, realised or not, from their main residence.
And therein lies the problem with solving the political problem that Kristian Niemitz identifies. Just as there are lots of angry young wannabee homeowners, there are lots of existing homeowners who would become angry very quickly if house prices were to fall.
The air needs to be let out of the balloon – but slowly. Otherwise there’ll be a very big bang.
What is going on has been understood for 300 years.
The financier and economist Richard Cantillon worked this out – partly because of his experience with his business partner John Law in France, partly by reasoning from logical principles.
Credit Money expansion tends to push up asset prices – such as stocks and shares, and property (houses, apartments, offices…).
It also tends to make the richer more rich – at the expense of everyone else.
There is one big difference with the past – SCALE.
The size of the Credit Money bubble in countries such as Britain and the United States now is just vast – vastly bigger than it has ever been before.
It is not going end well – the bust is going to terrible.
Most likely the governments of the West will try and inflate their way out of trouble – calling the oldest trick in the book “Modern Monetary Theory” or some such.
The very rich will be fine – everyone else will not be fine.
Birth rates are below replacement levels in all Western nations.
Klaus Schwab (World Economic Forum) may be stuck in the 1960s (I think he was a “Club of Rome” type – although I do not know for sure) – but there is no reason for us to be.
Essentially people who warn of rising population in the Western world are shouting “fire” during Noah’s Flood.