Home ownership in the UK will fall back to 1980s levels, forcing both rents and house prices to rise by around 20% in the next five years.
The National Housing Federation is predicting a continuing drop in the number of people who will be able to afford their own home. It forecasts that only 63.8% of adults will be home owners by 2021 – compared with 67.3% at the moment, and 72.5% in 2001.
In London, the majority of people living in the capital will rent by 2021, with the number of owner occupiers falling from 51.6% in 2010 to 44% by 2021, the Federation predicts.
Chief executive David Orr said: “With home ownership in decline, rents rising rapidly and social housing waiting lists at a record high, it’s time to face up to the fact that we have a totally dysfunctional housing market.
“Home ownership is increasingly becoming the preserve of the wealthy and, in parts of the country like London, the very wealthy.”
In a radio interview, housing minister Shapps said the reason houses became so unaffordable was a tripling of prices between 1997 and 2007, which put them out of reach for many people.
He said of the study’s forecast for future levels of home ownership that predictions were “hellishly difficult” to make and “nearly always wrong”.
But he told BBC Radio 4’s Today programme that the Government is taking action: “We are releasing enough government land to build Leicester twice over across the country – it is a massive programme.”
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Comments
rant:
"Bob buys a two-bed terrace house for 100K... ultimately hopes to live in a three bed-semi, but they cost £200K. He would need to find an extra £100K
Two years later, house prices have fallen 20%... only get 80K for his house. The 3 bed semi he's after now costs £160K. Now he would need to find an extra £80K.
House prices fall 20% and the result is £20K in Bob's favour. He's also wont have to pay the interest had he borrowed that £20K. So, overall, £40K ish in Bob's favour."
Erm... no. Bob paid £100k so he now cannot 'afford' to take the loss on the property or redeem his existing mortgage in order to buy his dream home. He has no equity; no deposit (as it was 'lost' when his existing property value fell), so therefore he cannot move.
That means that Bob's 'affordable' £80k property does NOT come onto the market, denying a FTB (or more likely a BTL investor...) a purchase. Bugger! Cunning Plan backfired...
(Also robs the Government of the associated incomes from two transactions, by the way. They'll have you in The Tower for that kind of talk... ;o) )
"Many people in this country think that if they are on the housing ladder, then they benefit from rising prices. In most cases, they are wrong."
Erm... nope - they are right, actually. Do it the other way. Buy at £80k, property value goes up to £100. 'Profit' of £20k. Then buy at £200k. Nett cost £180k. Miss out bottom rung - WAIT and then buy at £200k - nett cost £200k. Bugger! Cunning Plan #2 backfired...
Really depends which way you view the contents of the glass, rant - dunnit?
PeeBee's Law of Physics - a glass is ALWAYS FULL ;o)
Why would anyone want to build Leicester twice over across the country?
Wouldn't it be nicer to build Stratford on Avon six times over, or Edinburgh once more, or if desperate half of Manchester (though you'd have to be careful which half)?
Bob buys a two-bed terrace house for 100K. With a growing family, he ultimately hopes to live in a three bed-semi, but they cost £200K. He would need to find an extra £100K
Two years later, house prices have fallen 20%. Bob will only get 80K for his house. The 3 bed semi he's after now costs £160K. Now he would need to find an extra £80K.
House prices fall 20% and the result is £20K in Bob's favour. He's also wont have to pay the interest had he borrowed that £20K. So, overall, £40K ish in Bob's favour.
A second point here is that the terms homeowner and mortgage payer are often used to mean the same thing. They shouldn't be though in my opinion.
Those looking to downsize would lose out in this scenario, but they are a much smaller share of the market than those looking to upsize or get on the ladder in the first place.
Even then, if the potential downsizer stays put to maximise the inheritance they pass on to their kids - if house prices have fallen, then the kids will need less inheritance from them anyway.
Many people in this country think that if they are on the housing ladder, then they benefit from rising prices. In most cases, they are wrong.
@Rant
"Which is exactly why house prices in this country need to fall Chris. UK companies are experiencing wage pressure just so their staff can afford to put a roof over their heads. Workers in countries where housing is cheaper don't need the same increases in their salaries."
So let me get this right, 69% of the UK population are currently home owners, so all these people should sell their houses for less money and will be better off somehow????? Right!!!! How can they buy on again with little or no equity left for a deposit on their next house?
This brain wave of yours only serves to help the other 31% of the population, assuming of course they all want to buy a house!!! It does nothing to help people already in their own homes, which is the largest sector of our population anyway. Lets face it Rant, you just have a vested interest in lower prices because you keep on banging on about this, thread after thread. Once you or your family are on the housing ladder, you will fall silent about the idea or even begin talking prices up again.
The real mill stone around this countries neck is tax. We are one of the most highly taxed nations on the planet. Get rid of some of this tax and house prices will actually look cheap!
My thoughts on raising interest rates when inflation rises is that this is an outdated idea that is no longer effective in this global economy. Inflation is rising because of QE (Printing money) as this has devalued the pound and the cost of imports are rising. As we don't produce decent quantities of oil & gas anymore, we have to import it and this is costing more. Everything we do produce must therefore also rise because we need fuel for everything, even the tractors in the fields. We need to accept that we are an over leveraged nation that needs to pay down our debts for a while and put our house in order with a more efficient public sector & eventually lower taxes.
We have a 42 trillion pound debt in this country, so QE (Printing money) will only serve to devalue the pound and make it harder to start paying this debt off. We need to soldier on, stop wanting a quick fix to this mess, think smart, reduce our dependancy on fuel, tighten our belts and we will come out of this mess a few years from now.
Asking people to sell their homes for less money will not help anyone other than people like you trying to get onto the property ladder.
I just don't understand it. I checked the Daily Express headline several times this am and I couldnt find reference to the big drop in prices in August reported by Nationwide anywhere. Why is this? Desmond's reporting of the property market is normally so balanced ...
Anyone bothered to comment on todays LAT yet?
The irony is that if oil becomes too expensive, then importing stuff from the other side of the planet makes no sense. It might actually lead to a rebound in UK manufacturing...
Unhappy Chappy - I am painfully aware of that fact, Sir!
I am also aware of the damage it does to our own economy - not to mention to the planets resources and environment (if what you are told is true...) by way of increased fuel usage and carbon emissions for transportation of these manufactured goods.
But - I am sure company CEOs plant a tree every now and then, and convince themselves that they can sleep soundly knowing they have done their bit...
rant: "House prices are an opinion after all."
Not really. They are fact. ASKING prices are opinion, which are then proven or disproven by what money actually changes hands between buyer and seller at the point of sale.
Now - you could argue that the paid sale figure still an opinion - but then it becomes a CONCENSUS of opinions, does it not - buyer; seller; and lender all concurring - and all apparently basing this concurrence from previous records of opinions!
Blimey - a whole global market based on opinion!
Thank gawd then it ain't HPCs 'opinion', rant, matey!! ;o)
Peebee we (uk) outsource a lot to India and China and not only call centre and low skilled manufacturing work a significant % of design and engineering work goes that way too
Why does affordable mean lower quality? House prices are an opinion after all.
I believe my post also made reference to the developed world. Having lived in Germany for two years, I can tell you that their housing is generally of a better quality than the stock in this country. It is also significantly cheaper. Germans earn about the same as us Brits, but have much more disposable income due to their housing costing less.
They have sensible policies re planning applications and NIMBY groups are not allowed anything near the level of influence they are given in this country. Yes, it's a slightly bigger place, but when I take the train around the UK, I mostly see countryside out the window not endless suburban sprawl.
I could go on here. With cheaper housing, there are less double income households in Germany. Their kids are generally much better behaved as a result. When I lived there and I saw a bunch of 15 year-old boys walking down the road, I felt no urgent sense to cross to the other side to avoid them.
Oh, and their media report house price rises as being a bad thing for the country, like rising petrol prices.
"One reason why countries can make things cheaper is that their workers live in more affordable accommodation so need lower salaries."
OH, COME ON, rant! So we move everybody into tin shacks with communal toilet and bathing facilities and tell them to accept less wages cos they don't need as much to live on?
That rickshaws become the appropriate and most affordable mode of transport for city workers?
WHY, if the accommodation is "more affordable"; if the workers "need lower salaries", do the same workers live two and three families to a property?
I don't see ANYONE from HPC - or ANYWHERE ELSE for that matter - migrating to Mumbai to 'benefit' from cheaper housing and copious employment opportunities they apparently offer workers there...
rant: "That didn't exactly happen in the 90s..."
1. From a 2000 CLG paper entitled "Housing Transactions in England and Wales: Current Trends and Future Prospects":
"With the decline of house prices in the early 1990s, the
number of transactions dropped below its early 1980s
level. The bottom of the downturn was reached in 1992 with 1.1 million transactions, about half the peak value of 1988. Since 1993, the number of transactions has recovered to numbers close to pre-boom levels. The price recovery of the past two to three years has again been accompanied by an increase in transactions, but of a much more moderate amplitude than during the boom of the 1980s."
2. Nationwide house price figures 1990 - 2000 (I have picked Q3 for each year purely as it is mid-year - NO OTHER MOTIVE...)
1990 £57245
1991 £54903
1992 £52243
1993 £51746
1994 £51731
1995 £51334
1996 £54008
1997 £60754
1998 £66366
1999 £72362
2000 £80935
So - according to the above, transaction numbers plummeted; stabilised... then rose again. Prices dropped; stabilised - then rose again.
Isn't that what I said?
Mate - I was there. Selling all the way through it. Yes - 'sold' prices adjusted. It was tough - but properties still sold.
Today - it's tough. Yes - 'sold' prices are adjusting now. Properties are still selling.
Spot the similarities...?
And all that dole money and those public sector non-jobs are why the govt's finances are in such a mess...
"We, however, are still here despite this change. Those that worked in these industries found other employment."
They didn't. They signed on and went on the sick or got hoovered up into public sector non-jobs. Take a look around the north east, wales etc etc
I agree with the point, but how many companies hire and fire workers on the basis of the picture you are describing? Close to zilch. They do what keeps the shareholders happy - making more profit. If getting more profits means outsourcing, how many of today's CEOs would hesitiate?
Britain lost those industries because other countries could make those products for cheaper. One reason why countries can make things cheaper is that their workers live in more affordable accommodation so need lower salaries.
Many of the jobs being created today are low-paying service sector roles. Those who are young and skilled are increasingly looking to emigrate to places where their salary will bring them a much better quality of life than the UK offers to young people today. Who can blame them? Look at what £160K will buy in the UK and then see what you can get for that money in many other developed countries.
rant: "IT is one of the sectors this country needs to lead us out of this economic mess. Ditto for manufacturing."
Mate - this country INVENTED modern engineering. Mining, engineering and shipbuilding kept a huge part of the working population in jobs. We sold ships, machinery, coal, steel, etc around the globe.
These are pretty much forgotten industries.
We, however, are still here despite this change. Those that worked in these industries found other employment.
I stand by my point. In order for goods to be bought, people need to be earning to purchase them. The 'saving' involved in outsourcing the work is lost in the reduction in product sales - and companies are becoming wise to this.
Moving the business simply cuts off the nose to spite the face. Don't you agree?
That didn't exactly happen in the 90s...
Unhappy Chappy: "Significant int rate raises will signal more distressed sales resulting in further downward pressure on prices" Yes - and no. Yes, potentially, for more distressed sales - which MAY then end up being sold at below market price.
That does not mean, however, that the whole of the market takes a hit. Non-distressed vendors will hold out - and as the distressed sales tend to go quickly, they are soon history - and the resultant rises in numbers generates confidence, historically lead to increases for the next properties sold, thereby closing the gap once more...
It's great...erm... FUN , this housing market malarkey! ;o)
Which is exactly why house prices in this country need to fall Chris. UK companies are experiencing wage pressure just so their staff can afford to put a roof over their heads. Workers in countries where housing is cheaper don't need the same increases in their salaries.
If house prices fell, over time people would have more disposable income even if their salaries remained the same. This would of course then lead to higher spending in the economy and create more jobs.
Today's house prices are a millstone around this country's economic neck. They push up wage demands and make the UK less competitive. Money then sits in economically unproductive bricks and mortar that would be put to much better use if it was lent out to businesses etc.
I've said this before on this site, but I'll trot it out again - no net wealth is created by a boom in house prices. Instead, money is transferred up the generations from the younger to the older. Asset price bubbles are very damaging to a country's economy.
It's much more than call centres PeeBee. If demands for pay rises picks up, a lot of the UK's IT industry can outsource their jobs to a whole range of other countries. IT is one of the sectors this country needs to lead us out of this economic mess. Ditto for manufacturing.
East Europeans are still happy to come over here and work for wages that British people aren't. This suppresses wage growth too, but in reality those East Europeans are working their socks off here to give themselves a better quality of life back home later (some of course end up staying too though). They ultimately reap the rewards of that labour more than British workers do.
In short, today's UK worker is in a global competition for his (or her) job as never before. And should any wage inflation take off, the BoE has also made it clear that they are much more likely to raise interest rates. That'll be a slap in the face to today's house prices...
(they were Slovakian apple pickers by the way)
"Not sure if I agree that inflation will eventually feed through to salary rises. There are a billion people in India lining up to do UK workers' jobs for less money."
Rant, if salaries do not rise, eventually people can't afford to buy anything including food, so they must leave their employer in search of other methods of raising sufficient funds. If the employer can't recruit staff to do the work, they must either raise wages, outsource to India, automate the work or close down! If people can't find work in this country, they will leave and then demand on housing will fall. Currently however, we are not seeing this as more people arrive and less people leave.
As the pound loses it's strength, more and more of it is required to pay for things, so prices rise. In effect if house prices rise by 2% per year, they appear to be rising, when in effect they are falling by 2.5% as inflation is currently running at 4.5% each year.
rant: "There are a billion people in India lining up to do UK workers' jobs for less money."
Yes - but a) they aren't IN the UK, so there is only a finite amount of work (ie outsourcing for call-centres...) that they can capture; b) UK companies are slowly catching on to the fact that much of the UK population don't want to be diverted to Delhi as the language barrier is frustrating and time-consuming; and c) IF the whole working population is replaced, then no-one will have a job and therefore UK companies' revenues will collapse as they have no consumers able to afford their goods!
You last tried this argument using Lithuanian gooseberry-pickers, I seem to remember... ;o)
I agree that FTB are not the only people buying however the investors alone are not going to push the prices up over the next couple of years. As you say recent BTL investors particularly those approaching retirement stand to lose out.
Note I have not said there will be a crash.
The government is doing everything it can to avoid wage inflation and any indication of this will result in one thing an interest rate raise. Significant int rate raises will signal more distressed sales resulting in further downward pressure on prices
Enjoy your yield but don't expect significant asset appreciation in the short to mid term
Not sure if I agree that inflation will eventually feed through to salary rises. There are a billion people in India lining up to do UK workers' jobs for less money.
@Chappy
You said
"Therefore the increase in demand for rental property is higher than the increase in supply pushing up rents.
However in turn this results in a decrease in demand for FTB mortgages maintaining downward pressure on house prices.
Or i could be talking utter rubbish!"
One is assuming that FTB's are the only people buying, but they are not!!! Nearly 30% of last months sales through our office were from buy to let investors, which is high when you consider they only buy the bottom end of the market.
As property values haven't fallen much over the last couple of years, yet rents have risen significantly, yields of 7 to 8% or even more are possible and property has begun to look like a smart investment again. As for where the money is coming from to fund these investments, well equity in existing property stock of course. My small portfolio still has 41% of equity at today's much lower house values, but I am only required to have 25%, so I could take out a further 16% if I want to in order to buy more properties.
It is only the BTL investors that joined the party in the latter years of the boom that are struggling. Those like me that started back in the 90's can still buy and many of them are doing so.
If prices rise by 20% however, I do not believe that they are rising by 20% in real terms and much of this 20% is inflationary. QE (Printing money) is devaluing our currency and the cost of everything is rising to some extent. Eventually, this will feed through to salaries and if rents keep rising, buyers will find a way to raise a deposit, because staying in rented, will cost more in the long run.
An expanding population means more accomodation is required, this demand will go to the easiest option, which is currently rental stock, but the investors have noticed this. Eventually it will switch back to home ownership again! A BTL investor wins both ways. High rents due to high demand in rental stock or lower rents, but greater capital growth when home ownership demand rises. Of course it is possible for house prices and rental prices to rise at the same time.
Last comment NOT mine!
Whoopee Doo - I've been cloned... again!
Wonder if THIS one has a single functioning brain-cell...?
Time will tell, no doubt.
What an idiot !
@Un(a)hppy Chappy & rantnrave.
You are losing me here! Or is it me? ;>)
Ive got ashfirds disease hehe!
indeed many would be sellers are now letting there properties, but more potential buyers are now renting.
These would be buyers are either put off or unable to buy
Therefore the increase in demand for rental property is higher than the increase in supply pushing up rents.
However in turn this results in a decrease in demand for FTB mortgages maintaining downward pressure on house prices.
Or i could be talking utter rubbish!
If there is a shortage, in a year or two, there are likely to be more vacant rentals in student areas. BTLs in uni towns don't appear such a great investment if students look to cut costs and stay at home to study.
@rantnrave
Is there not a SHORTAGE of rental properties at the moment?
lol.... easy rant, just watching from the side lines.
Many who can't sell their house at the moment are choosing to rent it out instead. So there's an increase in supply to the rental market. That should then feed through to lower rents?
Of course, inflation is currently well above official targets. I would expect stories of rents rising at less than inflation to be newsworthy too.
@Unhappy Chappy
If so, there should be SOME kind of relationship between the two?
I dont think we will see a 20% rise in house prices in 5 years.... I do forsee a 20% rise in rents though.
Sibley's been snapped up to present a TV programme about buying-up distressed BTL portfolios.
As for FTB Dan - with a name like that, there's a rumour that he's been hired by Grant Schapps to be one of those FTBs he doesn't consult.
I reckon he's really hooked up with Wardy and they're doing a world tour right now...
rant: I guess you got me there, matey - bang to rights!
ANYWAY - where's your wingman Sibley's... these days?
Don't tell me he's bought something after me nagging him constantly to do so...
And - FTB Dan's gone quiet as well. Surely not PeeBee 2 HPCers 0??
You wanna worry, rant! Muhahahahaha!! ;o)
Are there any none vested interests commenting on the housing market???
Quelle surprise!!
So NO vested interest whatsoever in that ridiculous comment, then...
I work for Estate Agent Yesterday auction house.
Adam Smith:
What the heck have you been smoking, sniffing or otherwise ingesting??
Or, more probably (I hope - for your long-term wellbeing...), which Auction company do you work for...?
Grant Shapps has a good point about house prices trebling in a very short space of time. House prices in England are currently at unaffordable levels. There is lack of confidence and uncertainty. The only true barometer of house prices is sales at auction with realistic reserve prices. With lack of mortgage funds, it is now a cash buyers market and auction sales are the most appropriate method of selling - unless a seller has time on their hands.
I was going to start a long rant about house prices, but then realised I just couldn't be bothered.
Don't know what you're all moaning on about when Tescos launch their build to let scheme it will all come good as we enter into a complete dystopian consumerism existence - Of course the smart money will have gone and left this miserable pathetic country to somewhere that still has values and isn't run by merchant bankers - trust me it's all good
Where is the money coming from to fund this 20% rise?
Since the new build/FTB/deposit idea I had fell on its arse I am looking at new ways to help out my builder buddies.
I hope they love me for this!
The National Housing Federation represents 1200 Housing Associations in England
Less Home ownership and more social housing will expand their operations.
Sounds like a bit of lobbying to me
Shapps has one thing right though.
Predictions are “hellishly difficult” to make and “nearly always wrong”.
I am surprised that prices will rise with demand falling. How does that work?
I bet this waster is a mate of dimwit Shapps.
Nice to think there may be a 20% rise but can't quite see it just yet.
By the way Asfird/Ashford did you know that dyslexia rules KO? Look again at what you dashed out earlier - England going town the pan again eh! Their is how it goes but I suppose you got all the letters but just a bit jumbled up. Better luck next time.
Ashford*
Another reason for potential vendors to think htier house is worth more than it is! oh joy!!!