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House price inflation at 26%. Avg London House £400K. How long can this really go on?

The biggest problem, as has been mentioned, is that interest rates can only go one way, up.

We've just bought a new house, we took the very maximum that any bank would offer us, (hopefully we'll be fine when the rates go up as no one would lend as much as we know we can afford due to being reliant on a relatively new business for income), but if you're salary is more fixed and you take the maximum you can afford, a 2% increase in rates is going to push you over the edge. And there are so many people in that situation, cos they've had to do it as there is nothing they can afford to buy otherwise.

I'm sure Gideon knows what he's doing, he must have serious economic educational qualifications and real life economic experience at the highest level, yeah?
 
Bahnhof Strasse said:
The biggest problem, as has been mentioned, is that interest rates can only go one way, up.

We've just bought a new house, we took the very maximum that any bank would offer us, (hopefully we'll be fine when the rates go up as no one would lend as much as we know we can afford due to being reliant on a relatively new business for income), but if you're salary is more fixed and you take the maximum you can afford, a 2% increase in rates is going to push you over the edge. And there are so many people in that situation, cos they've had to do it as there is nothing they can afford to buy otherwise.

I'm sure Gideon knows what he's doing, he must have serious economic educational qualifications and real life economic experience at the highest level, yeah?
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He's doing what he has to. Neither he nor Cameron ever really have to make any hard decisions - they just have to do what appeases their support base and apply a little gloss to make the stupid proles think they care. The toughest job Cameron faces is trying to keep his loony fringe onside, and all Osborne really needs to do is to keep looking for other people to blame as each phase goes pear-shaped.
 
Anything done to stop it would put a fair few people into negative equity, but as hard as that would be on them, I think it's preferable to alternatives.

As nothing is being done then I simply expect there will be more overcrowding. More people sharing rooms, living rooms being (officially or unofficially) turned into bedrooms at the expense of communal space etc.
 
existentialist said:
He's doing what he has to. Neither he nor Cameron ever really have to make any hard decisions - they just have to do what appeases their support base and apply a little gloss to make the stupid proles think they care. The toughest job Cameron faces is trying to keep his loony fringe onside, and all Osborne really needs to do is to keep looking for other people to blame as each phase goes pear-shaped.
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Well... given that's they barely limped over the line during a full on recession with an incredibly unpopular Prime Minister, it's hard to see how they can win an election by appeasing their support base.
 
Quartz said:
Other countries don't seem to have a problem with landlords. France, for instance, has a rental culture, even in Paris. So why does Britain have a problem?
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There are huge problems with landlordism in Paris, and problems are developing in Berlin - the more outside of the norm property prices in capitals go, the less traction renters have, even within the fairly pro-renter (compared to the UK) legislation in those countries. The largest advantage renters in Paris and Berlin have, is long leases, compared to our ASTs of 6 months.
 
ViolentPanda said:
There are huge problems with landlordism in Paris, and problems are developing in Berlin - the more outside of the norm property prices in capitals go, the less traction renters have, even within the fairly pro-renter (compared to the UK) legislation in those countries. The largest advantage renters in Paris and Berlin have, is long leases, compared to our ASTs of 6 months.
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yup, real estate speculation is a classic problem of modern capitalism. See Mike Davis for details...
 
Cheesypoof said:
I've said this before on here - but my French brother in law pointed out the other day that people in Britain and Ireland are OBSESSED with owning their own house (although that may not be possible except for the rich in London....)

He said that in France, Italy and other European countries, people dont buy a house at all, until they retire (or perhaps not...). They just rent. Maybe London in particular is going to go in that direction...
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I wouldn't say "don't buy at all", because about 20% of French households are owner-occupied.
Still, that's around a third of the volume of owner-occupiers that the UK has.
 
If there had been security of tenure I'd probably still be renting, but was tired of being booted out when landlords wanted to sell.
In 20 years time I guess London will have been completely socially cleansed and there will be a ring of camps around the square mile where key workers get to bed down.
 
weltweit said:
I said: I believe rents go up according to how much renters can afford to pay.

You said :


Aren't we saying the same thing. i.e. landlords charge as much as they can get punters to pay!
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There's a difference between what a renter can afford, and the maximum a landlord can extract. This is why we have renters visiting foodbanks and the like - because renters are paying more than they can actually afford, and still pay for life's other necessities.
 
existentialist said:
I think that was what sim667 was saying. The market is essentially, like all (reasonably) free markets, pricing for what the market will bear. And, all the time there's a ready source of tenants who can pay the price - a bit like the property market itself - there's no reason to cut rents. Ironically, right now, all the "good" things that could happen in the economy - wage rises, increases in employment, continued increases in property prices - only serve to make the rents/property prices problem worse. I am really not sure that there is anything "good" that could possibly happen to gently reverse the upward trend.
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Trouble is, "what the market will bear" for housing is essentially limitless. Everybody has to live somewhere, so you can basically keep squeezing people, rent is an ever escalating proportion of people's income.
 
Dogsauce said:
The 'solution' will be ever smaller accommodation (I think Britain already has the smallest flat sizes in Western Europe) - bedsits rebranded as 'crash pads', apartments made out of shipping containers, people living on converted prison ships on the Thames Estuary etc. The government will laud this as 'innovative solutions to London's housing crisis'.

Thing is, London is attractive to young graduate types because of stuff going on culturally, and they'll continue to flock there and make do with what they can afford, displacing working class communities by being able to pay just that little bit more or able to call on the 'bank of mum and dad'. Most aren't wise enough to figure they're getting screwed (and people with less to pay screwed even harder) because they don't really care - existing is enough just to be somewhere where good gigs and so on are going on. Funding for cultural stuff (and loads of good social projects) outside of London was massively cut back firstly by money diverted to fund the Olympics, then by austerity. It's never come back, and a lot of other cities are relatively bleak despite the cost of living being much lower.
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Another "innovative solution" will probably be dormitories for single workers, analogues of those weird Japanese hotel cublicles. :(
 
Thing is, government makes an absolute mint out of stamp duty, they love nothing more then a booming housing market especially in London where hardly any homes are in the 1% bracket.
 
Monkeygrinder's Organ said:
No, I don't think so. What does afford to pay mean? If someone ten years ago was paying 30% of their income for accomodation and now they're paying out 60% does that mean what they can 'afford to pay' has changed? I don't think it does.
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30 years ago, if you were paying more than a thrid of your net salary out in housing costs, you were either being exploited or paying a massive mortgage. Nowadays, most people in the UK are paying between 45 and 50% of net. In London this is often up to around 70%. That's nothing to do with being affordable, and everything to do with landlords extracting maximum value from their asset, regardless of the social consequences to renters.

What people can afford to pay represents at most a bottom line - obviously if people literally can't come up with the money in any way at all then landlords can't rent to them at that price. Beyond that though it's not that meaningful on it's own. It certainly doesn't drive the increases in rent.
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Greed does that, pure and simple. Weltweit's faith in the invisible hand is touching, but it's also naive. There are far too many externalities influencing rental prices in London for a simple market equation to hold sway.
 
ViolentPanda said:
.. Greed does that, pure and simple. Weltweit's faith in the invisible hand is touching, but it's also naive. There are far too many externalities influencing rental prices in London for a simple market equation to hold sway.
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Where have I said I have any faith in the housing market?
Landlords are charging whatever they can get away with and they are!
 
quimcunx said:
Anything done to stop it would put a fair few people into negative equity, but as hard as that would be on them, I think it's preferable to alternatives.

As nothing is being done then I simply expect there will be more overcrowding. More people sharing rooms, living rooms being (officially or unofficially) turned into bedrooms at the expense of communal space etc.
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As my foster-mum put it, "back to the '50s and '60s".
 
Lo Siento. said:
Trouble is, "what the market will bear" for housing is essentially limitless. Everybody has to live somewhere, so you can basically keep squeezing people, rent is an ever escalating proportion of people's income.
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It's not limitless, though. Its limit is the availability of funding. In the case of rental, there really is a limit on what people can spend, which is ultimately going to be dependent on their salaries. The extreme manifestation of that limit is homelessness, where those who can't even afford housing at the very bottom of the market are. I don't mean to appear brutal (because it is a human tragedy), but from a political and market point of view, there comes a point where when a certain proportion of people are homeless or at risk of homelessness, something has to happen. It would be a very foolish government which let the situation get that far, and although ours hasn't demonstrated itself to be particularly clever, the penny has to drop eventually.

In the short term, all they will really be able to do is to expand housing benefit to artificially do to the rental market what "Right to Buy" is doing to the purchase market. They may have to do that, no matter how dumb, simply to keep a roof over people's heads. But of course the market will interpret that as an increase in availability of funds, and will creep upwards.

One of the things we have lost - and I know other posters have mentioned this - is the stabilising effect of a public social housing sector. Even where the supply of council accommodation was restricted, the very existence of homes which could be rented at an affordable rate meant that the market's tendency to rise was moderated. We've lost that, now, and what we're seeing is just one example of that Grand Experiment started by Margaret Thatcher, of seeing how a society could operate on a totally free-market basis. And from a purely capitalist point of view, it's all going jolly well.
 
The Local Authority I work for recently repossessed a studio in a 'nice area' I googled the value - it was about £200,000 for a pretty shitty studio or bedsit as I still think of them - I find it difficult to believe anyone would want to pay that much for a bedsit but I guess they will
 
existentialist said:
It would be a very foolish government which let the situation get that far, and although ours hasn't demonstrated itself to be particularly clever, the penny has to drop eventually.
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But all this government needs to do is prevent the penny dropping (for the populace) until after the next election.
 
weltweit said:
To my mind they are one and the same.
People are paying what landlords are charging, people don't have a choice!
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It's not really about choice, though. Nobody chooses not to have enough money to pay the rent on their home: that choice is made for you, effectively, by a combination of factors - income, costs of living, local rents. If you can't afford the going rate, you either have to find somewhere that you can (so if you're looking at the bottom of the market to start with, you're stuffed), or not live anywhere.

Those aren't really choices, though. Nobody chooses to live on the streets - it's the default option when all your other options have disappeared.
 
existentialist said:
It's not limitless, though. Its limit is the availability of funding. In the case of rental, there really is a limit on what people can spend, which is ultimately going to be dependent on their salaries. The extreme manifestation of that limit is homelessness, where those who can't even afford housing at the very bottom of the market are. I don't mean to appear brutal (because it is a human tragedy), but from a political and market point of view, there comes a point where when a certain proportion of people are homeless or at risk of homelessness, something has to happen. It would be a very foolish government which let the situation get that far, and although ours hasn't demonstrated itself to be particularly clever, the penny has to drop eventually.
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Well yeah, the limit is ultimately people's ability to subsist.
 
Quartz said:
But all this government needs to do is prevent the penny dropping (for the populace) until after the next election.
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Quite. That thought crossed my mind. So we can look forward to 5 years' crowing across the despatch box about how the government in power is fucking things up so royally. Gah.
 
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weltweit said:
Where have I said I have any faith in the housing market?
Landlords are charging whatever they can get away with and they are!
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The point you're missing is the question of why they can get away with it and why that's so much more than it used to be.

As an answer to that question 'it's affordable' really doesn't help - you can take it to mean 'every last penny you can squeeze out of someone.' but that's about all. So it's wrong in that sense. But it also carrys the implication that it's OK. If rents are going up because people have more money that's not such a problem is it? It might be nice if they didn't but hey, they can afford it. And that's clearly not what's happening.
 
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