trouble brewing*
This is probably very dull to most people, but I like to rant from time to time. This particular nonsense was sparked off by a dreadful yet strangely compelling programme on Welsh telly last night - a review of the year in pub-quiz format. Most of the questions were banal (who cares what Charlotte Church got up to?) but two facts lodged in my little brain because they are of some small relevance to me.
The average gross salary in Wales is £464 per week
The average Welsh property costs £141,000
Even I can see that these don't square up. But it's worse. Regional variations mean that the average gross salary in Ceredigion is only £454, and the average house costs a whopping £173,000.
Think about it. Even if you're a couple of average earners (and bear in mind that women earn on average £100 a week less than men - oh yes, Wales that bastion of equality), that's a combined gross annual salary of £42,000. Most sensible financial advisers recommend you borrow no more than the smaller salary added to three and a half times the larger. A quick tap of the calculator keys comes up with a smidgeon over £100k or £76k short of the average house. Even if you can get a really wild lender to give you three and a half times your combined incomes, that's still £26k short.
This is a rant close to my heart. When we first moved here six years ago, it was possible to buy a small house without having to rob a bank first. We didn't because we didn't know whether the Horse Doctor's job would work out and I didn't have any job at all. By the time we'd come to the conclusion we were settled, prices had escalated out of all proportion. I've seen several properties sell round here for three times what they fetched six years ago. Faced with that kind of inflation we have no hope of ever getting back into property.
House price inflation has been good for the British government. Property owners feel that they are getting richer (even though this is not so - sell your house and you'll need all your gains to buy somewhere else to live), and this feeling of prosperity has fed into the consumer boom that has shored up the UK through a world recession. Meanwhile the Chancellor of the Exchequer has reaped billions of pounds in stamp duty and inheritance tax he would otherwise not have realised. And all the while the cost of housing has just gone up and up.
And yet people are still buying houses, that much is obvious. These people are desperate enough that they borrow from parents (who remortgage their own, grossly inflated houses - thus creating inflationary ghost money); they self-certify and inflate their incomes; or go to the worst kind of lenders just to scrape enough money together. But all they're doing is feeding the frenzy. Meanwhile a growing number of people are become the new poor. This isn't to say that they're needy, or worthless, just that they can't afford to buy a house, nor can they conceive of a time when their earning potential will put them within range of being able to buy a house.
There was a time when this was commonplace. Councils used to provide housing for those who were too low-waged to buy or rent on the open market. Industrialists provided accommodation for their workers, charities looked after homeless children and for those too indebted to fend for themselves, there was always debtors gaol. In the countryside, farmworkers lived in bothies or tied cottages (much like the one I'm sitting in right now). The vast majority of the population didn't own anything more than the caps they doffed as the gentry rode by. Then Maggie Thatcher had the bright idea of letting people buy their council houses. Almost overnight she created a property-owning ethos.
Britain's arcane and archaic planning laws have effectively limited the number of new houses being built, whilst deregulation of the lending markets has made borrowing quicker and ever easier. The defeat of inflation (in all but the housing market) has made money cheap. Couple this with the fragmentation of the family unit so that now most properties are effectively single-occupant and you have a classic case of demand exceeding supply. It's no great mystery why house prices have boomed.
But people expect to be able to buy. They don't like having to rent. And since we Brits are so class-obsessed, we don't much like the social stigma of not being able to afford our own house either, even though that makes about as much sense as judging a person by the colour of their skin or their accent when they speak. Being forced to accept that reality is likely to leave a population disgruntled at the least.
Once you've ceded something to a society - in this case the expectation that they will be able to own property - then it is very hard to take that back. In allowing house price inflation to gallop away, whilst leaning very hard indeed on wage inflation, I suspect that the powers-that-be have set themselves up for a nasty surprise.
Around here they used to set fire to the cottages that had been bought as holiday homes. How long before they start torching everything out of spite and envy?
*If you're one of those people who likes to read the footnotes as soon as they're referenced in the text - congratulations, you've avoided wading through a longreasoned argument rant about the unfairness of high house prices.
The average gross salary in Wales is £464 per week
The average Welsh property costs £141,000
Even I can see that these don't square up. But it's worse. Regional variations mean that the average gross salary in Ceredigion is only £454, and the average house costs a whopping £173,000.
Think about it. Even if you're a couple of average earners (and bear in mind that women earn on average £100 a week less than men - oh yes, Wales that bastion of equality), that's a combined gross annual salary of £42,000. Most sensible financial advisers recommend you borrow no more than the smaller salary added to three and a half times the larger. A quick tap of the calculator keys comes up with a smidgeon over £100k or £76k short of the average house. Even if you can get a really wild lender to give you three and a half times your combined incomes, that's still £26k short.
This is a rant close to my heart. When we first moved here six years ago, it was possible to buy a small house without having to rob a bank first. We didn't because we didn't know whether the Horse Doctor's job would work out and I didn't have any job at all. By the time we'd come to the conclusion we were settled, prices had escalated out of all proportion. I've seen several properties sell round here for three times what they fetched six years ago. Faced with that kind of inflation we have no hope of ever getting back into property.
House price inflation has been good for the British government. Property owners feel that they are getting richer (even though this is not so - sell your house and you'll need all your gains to buy somewhere else to live), and this feeling of prosperity has fed into the consumer boom that has shored up the UK through a world recession. Meanwhile the Chancellor of the Exchequer has reaped billions of pounds in stamp duty and inheritance tax he would otherwise not have realised. And all the while the cost of housing has just gone up and up.
And yet people are still buying houses, that much is obvious. These people are desperate enough that they borrow from parents (who remortgage their own, grossly inflated houses - thus creating inflationary ghost money); they self-certify and inflate their incomes; or go to the worst kind of lenders just to scrape enough money together. But all they're doing is feeding the frenzy. Meanwhile a growing number of people are become the new poor. This isn't to say that they're needy, or worthless, just that they can't afford to buy a house, nor can they conceive of a time when their earning potential will put them within range of being able to buy a house.
There was a time when this was commonplace. Councils used to provide housing for those who were too low-waged to buy or rent on the open market. Industrialists provided accommodation for their workers, charities looked after homeless children and for those too indebted to fend for themselves, there was always debtors gaol. In the countryside, farmworkers lived in bothies or tied cottages (much like the one I'm sitting in right now). The vast majority of the population didn't own anything more than the caps they doffed as the gentry rode by. Then Maggie Thatcher had the bright idea of letting people buy their council houses. Almost overnight she created a property-owning ethos.
Britain's arcane and archaic planning laws have effectively limited the number of new houses being built, whilst deregulation of the lending markets has made borrowing quicker and ever easier. The defeat of inflation (in all but the housing market) has made money cheap. Couple this with the fragmentation of the family unit so that now most properties are effectively single-occupant and you have a classic case of demand exceeding supply. It's no great mystery why house prices have boomed.
But people expect to be able to buy. They don't like having to rent. And since we Brits are so class-obsessed, we don't much like the social stigma of not being able to afford our own house either, even though that makes about as much sense as judging a person by the colour of their skin or their accent when they speak. Being forced to accept that reality is likely to leave a population disgruntled at the least.
Once you've ceded something to a society - in this case the expectation that they will be able to own property - then it is very hard to take that back. In allowing house price inflation to gallop away, whilst leaning very hard indeed on wage inflation, I suspect that the powers-that-be have set themselves up for a nasty surprise.
Around here they used to set fire to the cottages that had been bought as holiday homes. How long before they start torching everything out of spite and envy?
*If you're one of those people who likes to read the footnotes as soon as they're referenced in the text - congratulations, you've avoided wading through a long
Comments
And realtors can make some pretty decent money!