Yesterday I analysed the way that yet more austerity is likely to squeeze the life out of the Greek economy one more time. Today I return to a very British problem and crisis which is the cost of housing which for many people squeezes the life out of the family budget. Of course the conventional and mainstream view is that the price of housing boosts wealth and hooray we are all richer. But of course much of the increase is in fact inflationary and it reduces the wealth and indeed financial position of those looking to buy a house. As I regularly point out “Help To Buy” for first time buyers is an opportunity to buy an overpriced house with real wages which have been falling. What could go wrong? Back on the 16th of March I pointed out (via BBC Womans Hour) that women do fear what might happen next.
I look around at the children who are 19 and 20 and I don’t know how they will ever be able to afford a mortgage?
I would prefer the housing market to halve in all honesty and let people get in on the market even though I would lose money. But I don’t see it as losing money…..
Young people won’t get a chance with landlords snapping up every available property….
However there is another factor in the situation which is to look at the implications of the current situation for those who rent rather than buy. If we look at the last quote above we are reminded of the Buy to Let boom and the fact that more people are either choosing or being forced to rent. They also are having a hard time of it as I pointed out on the 27th of March. From Your Move
Rents across England and Wales are now 15.2% higher than at the time of the last General Election in May 2010……This is faster than inflation. Over the same period since
May 2010, consumer price inflation (CPI) has amounted to
11.6%. This leaves a 3.6% increase in rents after the
effects of inflation – or the equivalent of a 0.7% real terms
increase each year over the last Parliament.
I compared that increase to an 8% increase in average wages over the same period or a 7.2% decline. So yet another form of real wage squeeze has been in process for those who rent. Or as Gwen Guthrie so aptly put it.
Cause ain’t nothin’ goin’ on but the rent
You got to have a J-O-B if you wanna be with me
Ain’t nothin’ goin’ on but the rent
You got to have a J-O-B if you wanna be with me
Friday saw more bad news for both actual and prospective renters from Your Move research.
Rents driven to new all-time record by
divergent south-eastern regions….. Residential rents up 4.5% year-on-year across England and Wales, powered by three southeast regions.
In case you are wondering how much..
As of May 2015, the average residential rent across England and Wales now stands at £778 per month.
As ever London leads with £1207 per month. But it does not lead the annual increases as the leader is the East of England at 13%. Does anybody have any detail or insight to this?
exceptional economic expansion in the Cambridge area,
A rentier society?
The Your Move report goes on to measure returns for landlords.
Total annual returns, on the other hand, have continued to cool. Across England and Wales, returns came to 9.5% in May 2015 – down from 9.8% in April and 11.8% in January.
If you compare that to a Bank Rate of 0.5% or a ten-year Gilt yield of 2% that looks hot hot hot to me rather than cool. There are of course costs (maintenance etc.) but in these times 9% + looks like nectar does it not?
An international perspective
Renters who note that rents are rising at a solid lick when you consider that we are supposed not to have any inflation will not be cheered up by the fact that they are still rising faster than wage growth. Even its recent spurt falls short. But adding to their pain is the fact that the UK is very expensive when compared to its peers as the UK Housing Federation points out.
In fact, private renters in the UK pay the highest price for housing in the entire European Union. With an average monthly rent of 902 Euros per month (the equivalent of around £730), private renters in the UK pay almost double the amount of the European average, which is 481 Euros.
If we look to compare with our peers then we are in fact still considerably more expensive.
Even when compared to other Western European countries with similar income levels, the PRS in the UK remains expensive. For example, private rents in the UK are around 50% higher than in Germany (600 Euros) or the Netherlands (625 Euros), both countries with a large share of privately rented households.
There will have been an effect here from the rise in the UK Pound £ against the Euro especially at the 1.41 it has reached this morning. However that still leaves a fair-sized gap to explain as we mull concepts such as “rip-off Britain” and the fact that our whole economy has been tilted towards the housing sector.
Existing mortgage holders have their problems too
I have written in the past about how big a deal credit rating is on an individual basis and we got a hint of this yesterday from the RBS announcements. From its chairman (h/t Investis)
Around half of all mortgage customers in the UK are still on Standard Variable Rates.
You see that is at 4% which is rather different to the headline rates for new customers.
Dr.Weale has been quoted in the Financial Times today.
The FT reported that Weale, a member of the BoE’s Monetary Policy Committee who voted for rate rises last year, believed the central bank should be ready to raise rates as soon as August.
Perhaps rather than speaking to newspapers he should actually vote for such a thing. We know he did not in June as the vote was 9-0 against. Of course Dr.Weale was voting for a Bank Rate increase up until January. Actually he now has two sequences of voting for a rise then changing his mind.
It is increasingly pointed out that the UK has strong elements of a rentier society. Today we see that rents are not only on the rise to record levels but are very high in international terms. We also know that as fewer people can afford to buy and the stock of housing for public-sector renting falls – especially under the new Right To Buy plans – then more will find themselves privately renting. They find themselves doing so just as the terms and costs move against them. How very credit crunch! We live in a world where official claims that there is no inflation clash with the fact that quite a few things are more expensive.
So renters are likely to be mulling the thoughts of Dido.
If my life is for rent and I don’t learn to buy
Well I deserve nothing more than I get
Cos nothing I have is truly mine