The British Housing Crisis – What’s Gone Wrong, and What We Can Do

Twenty years ago, the median salary ratio to average house price was 4:1, meaning that if an individual could save their salary in its totality for 4 years, they would be able to afford the average house price. Today, that ratio is 1:7.7. I am 17 years old and to me, the ownership of any kind of property before I turn 40 seems like an improbability. An individual in my shoes 30 years ago would not have faced a similar dilemma due to the recent skyrocketing of British housing prices, as over the last 40 years house prices in the UK have risen by more than any other G7 country.

This recent phenomenon does not seem to fit into a historical trend. Since the British Census began, this decade has seen the only fall in home ownership.

The impossibility of purchasing property through cash has meant that potential homeowners have been forced to take out unavoidable mortgages. Often, this means that individuals will incur large interest fees from their repayment over the course of decades, or in the case of being unable to afford mortgage repayment, consequent home repossession. This is not a rare occurrence, as in 2013 over 289,000 homes were seized as a result of late mortgage payments.

This expense of British housing also has collateral effects. For instance, in London, the absurd prices of housing in central areas has forced home-seekers to migrate to the suburbs, despite retaining jobs in the inner city. Therefore, increased commuter times means increased labour fatigue, and a consequent fall in morale and productivity. Now, over 3.7 million British workers face a two hour daily commute. Would it be too far of a stretch to connect the increasing commuting times in Britain to constantly falling levels of productivity? Or am I confusing correlation with causation… Either way, it is clear that the British housing crisis has had further impacts on the social wellbeing of British labour.

Commute

Indeed, one could also analyse the connection between rising inequality and increasing home ownership of the elder population. The British over 65s demographic makes up 20% of the British population. However, this 20% owns 40% of the housing wealth. True, it would go without saying that elder people have generally worked to accumulate greater wealth than fresh faced university graduates, and this wealth may well be invested in property. However, holding wealth in the form of property assets comes at the cost of the housing market, as currently there are 25 million vacant bedrooms in the UK, many of which must be held by elders as a dust collected (but constantly increasingly valuable) investment. If second home ownership were to be more greatly taxed/deterred, then the increase in supply of housing would lead to a supposed reduction in price, and allow the youth to step onto the property ladder, and hence reduce age inequality.

Politicians have proposed numerous supposed solutions to the housing crisis. It is estimated that in order to “keep up” with the  growing demand for housing, it is necessary to build 300,000 homes each year. Jeremy Corbyn argues that this can be managed through government led property schemes for council housing, whereas Theresa May calls for the partial deregulation of the green belt to free up space for increased suburban housing. The debate for the green belt is controversial. On one hand it is essential to maintain areas of ecological importance for the sake of the preservation of nature and traditional culture. However, on the other hand one survey recently revealed that more of Surrey is allocated for golf courses than housing.

Green Belt

To me, the essential primary step would be to reform Stamp Duty Tax. Currently, this tax is levied on home purchases, at the expense of the buyer. In 2016, Cabinet Ministers urged Philip Hammond that the labour mobility reducing tax deters the elderly from downsizing their homes. For a £2 million home, the tax incurred is $143,000. This means that elderly couples may be discouraged to move homes, therefore not allowing a young family to relocate into a more suitably sized home.  The LSE recently calculated that if stamp duty were to be abolished entirely, then the “rate of home moving” would increase by 27%. This would not be out of place in terms of international norms, as Britain already has particularly high tax rates levied on property compared to other countries. In 2014 property tax in Britain made up 12.7% of total tax revenue, compared to 2.6% in Germany.

Of course, it is all very well theorising methods of how to solve the housing crisis in economics terms, however, in reality the political controversy of the housing crisis and its solutions means that its resolution would be very slow and painful to implement- no doubt following numerous redrafts, crippling compromises, fruitless debates, years of squabbling committees, and these committees subsequently diverging into subcommittees, only to be abandoned before any real change can be implemented. Unfortunately, this does little to help the 20-something year old who is currently facing the prospect of investing the majority of their salary in unfeasible rent costs, with a laughable prospect of actually ever owning property themselves.

Renting

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