The price of houses is not derived purely from supply and demand for houses. It is also about what loans are available to create such price rises.
If you should want to move house, no matter how much your house is worth it is still the ratio between what one can sell it for and the price one can buy for that counts. If you can’t afford to buy at all, your problem simply endures but the overall number of house sales will suffer - as a direct result of what are currently over-inflated asking prices.
Some say the reason why house prices are rising is not due to the government or to people themselves being too greedy. They say it’s simply a case of supply and demand? They say that in less than 70 years our population has gone from 40 million to over 60 million but that as we are a small island nation with limited resources, not building the new houses to cater for the increasing population (partly because there isn’t anywhere suitable to build them) is causing prices to escalate to match increasing and unfulfilled demand. Add to that virtually unrestricted immigration and house prices can only keep going upwards, they say. We disagree.
The problem with this argument is that is takes no account of the age-old anomaly of estate agents acting predominantly for sellers and hiking up asking prices all the time, when the real market cannot support such increases.
The most desperate people out there are understandably prepared to borrow more and more to become owners (and the government is, whether they admit it or not, supporting such excessive borrowing). It is this that is fuelling these price increases.
Such growth in house prices is unsustainable whilst wage growth lags so very far behind. The price increases we are seeing are having to be found by poorer people deciding to overstretch themselves by obtaining ever larger mortgages. They then have to live in fear of interest rate increases and/or job insecurity etc. It’s a vicious circle which afflicts especially the lower wage earners in the UK and it is no substitute for real economic growth.
It’s unacceptable to produce improving economic indicators that simply look good, instead of creating actual wealth via increased manufacturing just because the latter is not able to be achieved in the timescale available before the next election. This is political short termism of the worst possible kind and proposing simultaneous tax concessions for the low-to-middle income earners is not the way to stimulate our economy. It’s just a way to try and get the majority to spend their way out of trouble which is exactly the way we got ourselves into the last world-wide recession in 2008.
As far as housing is concerned, these policies tend to serve the wealthier in society because they allow these people to arrange multiple loans from banks and building societies (just as happened before) and thus to leverage their wealth towards ever higher levels by making profits on their residential property investments.
Against this backdrop, the less well off ordinary folk can only try and borrow comparable amounts, in order to compete just to get a roof over their heads. This means that in effect, ordinary folk are actually helping to finance the house-price spiral which in turn assists the wealthier among us to become even richer!!
The trouble is, there’s no-one in high office, in a position to do anything about it any more.
For more relating to this problem and how it should be overcome, please see our earlier article:
Earlier article as updated: Full details of our proposals.
This will be updated and commented upon as soon as possible after the Chancellor of the Exchequer broadcasts his upcoming 2014 Autumn Statement.