Why house prices skyrocketed over the last 45 years


There is a strange new housing phenomenon that is manifesting itself in the small Sussex town where I live. A woman with three young children is moving into a hut in the garden of her parents, around the corner from where I live.

I’m assuming that the plan is eventually to swap homes with her parents. In fact, it may be an important model for multi-generation living – if (and it’s a big IF at this time of year) – they can keep it warm enough.

The hut presumably makes use of the planning freedoms we now have – which even I have made use of – that we can build virtually anything in our own gardens as long as it is no higher than two metres tall.

Now it is clear that even the middle classes have difficulty affording anything in the current market (the woman described above is a graduate too).

And in case anyone thinks by this that I am only concerned about the middle classes – when most of us won’t be able to afford to live in the neighbourhoods where we grew up (a reasonable objection for the author of Broke: who killed the middle classes) – I am simply pointing out how tough it is for everyone now.

I am also mourning those middle class values that so many of us were brought up with – thrift and hard work paying off – and which the architects of the Great British Homes Bonanza claimed to be embracing.

The real question is why house prices have accelerated so disastrously.

This is one area of policy where my opinion seems to contradict the views of almost everyone  know – certainly at Radix. It isn’t nuclear energy or any of the usual topics.

No. It is my opposition to the old canard that the only way to bring down the prices is to increase the supply of homes.

It isn’t true. We need to be clear about why house prices have risen so fast, and the best way to do that is to look again at the graph showing the rate of rising prices – starting with the abolition of the ‘corset’, which used to regulate how much money was going into the housing market.

There was another jump in 1987 – after Nigel Lawson announced the end of mortgage interest tax relief. There were more ratchets up of the market, like the introduction of buy-to-let mortgages – or, as in Tokyo in the 1980s – the first steps towards ‘grandparent’ mortgages, which will finally be paid off in two generations’ time.

In short, this is a classic case of inflation – of too much money chasing to few goods.

Of course, it can’t act help that they are also building so few homes. But – when the market is open to every investor in the world and when Far Eastern investors have regular group visits to London and go home clutching the title deeds to two or three new flats each, which they normally leave empty – how could we ever build enough?

In other words, there in a nutshell is the real reason why house prices have been sucking up so much of our available money – and with it, our freedom of choice. More about whose fault this is and what it means in Broke, my book about the plight of the middle classes.

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Radix is the radical centre think tank. We welcome all contributions which promote system change, challenge established notions and re-imagine our societies. The views expressed here are those of the individual contributor and not necessarily shared by Radix.


    • Blissex says

      «difficult to explain why “build more houses” WON’T bring down house prices.»

      Apart from all major parties sharing the determination to buy the votes of a large block of proprietors (whether occupiers or landlords) with booming property profits, there are two important details about “bring down house prices”:

      * Actually in most of the UK outside southern England property prices have been falling in real terms for a while, see this chart and article for the 2005-2015 period:


      * The technical reason why they have been falling in most of the UK is that property prices are a tax on job incomes, and in most of the UK there is scarcity of of well-paid jobs.

      * Building more houses outside southern England would be pointless because there is a large surplus of housing in those areas. Building more houses in southern England might temporarily work but is not going to happen for political reasons.

      * The political reasons why in most of the UK there is a scarcity of well-paid jobs and thus falling property prices are:

      ** Population density is higher in southern England, so there is a big block of southern english proprietors whose votes can be purchased with big property profits, and that big block is enough to swing elections.

      ** Therefore government policy is usually to concentrate massive investment in infrastructure in southern England to attract jobs, and thus tenants and buyers, to southern England.

      ** If governments were to invest to attract jobs, and thus tenants and buyers, in areas outside southern England, the inflow of new tenants and buyers to southern England would end, and probably lots of people would move from southern England to those cheaper areas, thus triggering a stagnation or a fall of property prices and rents in southern England.

      ** But property prices in southern England cannot stall or merely fall a bit: if they do a lot of people who bought property there only because they expected big fast capital gains will immediately sell because they would not want to keep their capital invested in an asset yielding nothing or losses, and this trigger a collapse in property prices in southern England.

      * A fall of property prices in southern England would collapse the entire UK banking system, because 95% of bank lending is for mortgages, the vast majority of the amount is for mortgages against southern english property, and the small amount of capital that UK banks have would be wiped out by even a small fall in souther english property prices.

  1. Blissex says

    «The real question is why house prices have accelerated […] why house prices have risen so fast […] the abolition of the ‘corset’ […] Nigel Lawson announced the end of mortgage interest tax relief […] buy-to-let mortgages – or, as in Tokyo in the 1980s – the first steps towards ‘grandparent’ mortgages […] too much money chasing to few goods […] the market is open to every investor in the world»

    I am disappointed with this post because like so many other discussions of housing cost inflation it focuses on the *mechanisms* that have boosted property prices and rents, which is not the *reason* why they have increased so much (in southern England), as if property prices and rents simply happened to balloon spontaneously.

    Property prices have ballooned for 45 years because that has been the single most important goal of government policy for 45 years, and every means, including those listed above, have been used to achieve that.

    Booming property prices (in southern England) have been the primary goal of every government because that’s the electoral base for thatcherism:

    * The main goal of thatcherism has been what has been called euphemistically “labour market reform”, that is lower salaries and lower pensions and less job security. As many thatcherites have said, giving priority to consumers over producers.

    * But a large majority of voters are producers, they depend on their salaries, pensions, job security, why would they vote for governments and parties (Conservatives, LibDems, New Labour) committed to shrink them?

    * They would if they were property owners (whether occupiers or landlords) and more than compensated for shrinking salaries, pensions, job security with booming rents, prices and security of their properties.

    * For example since 2007 in England average wages have fallen by 8% in 16 years per year compound) in real terms, and average property prices have risen by 80% in real terms. Consider then a person on an wage of 30,000 a year and in a property bought for 150,000 in 2007: over 16 years they lost a total of around 19,000 in wages (total of 461,000 instead of 480,000), and gained 120,000 in property. A fantastic deal!

    * It is a particularly desirable deal for thatcherites since the 19,000 saving on wages benefits usually someone richer than that person (the owners of the business they work for), while the 120,000 extra cost of that property is usually paid by someone poorer than them (the next buyer).

    Therefore owner-occupiers and landlords are a large mass of “petty bourgeoisie” whose living standards depend utterly on booming property prices and the vast majority of them vote accordingly.

    English politics and economics revolve around booming property prices and rents, because without those the politics and economics of thatcherism would not have had the same electoral success.

  2. Blissex says

    Some relevant quotes (our of many I have collected) that illustrate the importance of booming property profits:

    A candid commenter on “The Guardian”: «I will put it bluntly I don’t want to see my home lose £100 000 in value just so someone else can afford to have a home and neither will most other people if they are honest with themselves»

    «bought his council house in Devon in the early 80s for £17,000. When it was valued at £80,000 in 1989, he sold up and used the equity to put towards a £135,000 fisherman’s cottage in St Mawes. Now it’s valued at £1.1m. “I was very grateful to Margaret Thatcher,” he said.»

    «I raised the problematic policy on my CLP Facebook group. I was stunned by the support for the policy from the countless landlords who were Party members! “I can’t afford to give my tenants a rent holiday” “This is my pension, I’ll go bust” etc etc. Absolutely stunning. I had no idea how many private landlords there were in the Party. Kinda explains a lot…»

    «Privatised Keynesianism sounds a bit joyless, but the political classes found something to give it extra zap. Call it housing-market heroin: the special high the Brits get when property prices are really taking off and Sarah Beeny is on the telly explaining how we can all cash in. Thatcher was the first PM to really push housing-market heroin with her right-to-buy programme and her Lawson boom but, with their love of aspiration and Home Ownership Task Force, Blair and Brown knew its potency, too.»

    «Certainly, we overstretched ourselves when we bought our lovely period home for £419,000 in 2002. But with mortgage companies practically throwing loans at us in a rising property market, we slept soundly at night, smug in the knowledge the house was making us money. […] The valuer had barely been in the house for five minutes yet we were able to borrow a further £80,000. […] We were lulled into a false sense of security about our wealth. Whenever we overspent we just remortgaged without comprehending the consequences of taking yet more equity out of the property. […] In our defence, we weren’t spending the money on expensive designer clothes, luxurious holidays or flash cars. Much of it was going on school fees and upkeep of the house. By the beginning of 2008 we had remortgaged three times»

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