Housing Market of the 1970s

In the 1970s, the housing market was as volatile as the rest of the economy. The 1970s saw a continued rise in home-ownership rates. In the early 1970s, there was a real boom in house prices. Then, from 1973, with the period of high inflation, there was a sharp fall in real prices before recovering in the last part of the decade.. Over the whole decade, those who were able to buy houses in the early part of the 1970s saw a rapid increase in the value of their prices. Many housing market trends of the 1970s would be continued under Thatcher Britain in the 1980s.

Born in 1976, it was interesting watching the TV Series – The 70s, which gave a few insights into the housing market. When you think about the economics of the 1970s – the first thing that springs to mind is inflation, strikes, the 3 Day Week and a loan from the IMF. However, the 1970s was also a period of rising consumer spending, a new materialism – and also a dramatic rise in house prices as Britain really became a property owning democracy. Thatcher may get the credit for the phrase of a ‘property owning democracy’, but it was in the 1970s that a new generation became able to buy rather than rent.

The house price boom. This shows nominal prices (unadjusted for inflation). Yet, despite the inflation of the 70s, we see a large rise in the average price of houses – nearly a fivefold increase.

The Early 1970s House Price Boom

From 1970 to late 1973, there was a real boom in house prices. Again partly this was fueled by inflation, but there was also a real increase in house prices.

Home Ownership Rates in the 1970s

• In the period 1953 to 1971, home ownership rates increased from 32% to 51%.
• Between 1971 and 1981, home ownership increased from 51% to 57.2%
• Home-ownership rates were to peak at 70% in 2003.

What Caused the House Price Boom of the 1970s?

• Deregulation in Mortgage Market. It is hard to imagine that in the pre 1970s, the only place to get a mortgage was your local building society. It was kind of expected that you had a savings account with them. If you were lucky you would get a small mortgage 2.5 or 3 times your income. There was no real competition in the mortgage market. In 1971, the Bank of England changed the rules and allowed profit oriented high street banks to compete and also offer mortgages. The result was a big increase in the availability of mortgages and it became easier for people to get on the property ladder.
• Mortgage Interest  Relief at Source. MIRAS In 1969, the government offered tax relief on mortgage interest payments. This gave a clear financial incentive to get a mortgage and buy. MIRAS was abolished in 2000.  In 1963 the government had also decided to abolish taxation on the rental value of owner-occupied housing.
• The Housing Subsidies Act 1967 subsidised the mortgage interest rate for low-income households. Around 25,000 a year benefited from this.
• Low Cost Mortgage Schemes.
• Mortgage schemes launched in the 1970s:
• 1972 National Economic Development Office.
• In 1975 the Department of the Environment and the Building Societies Association launched a joint low-start scheme
• 1978 the Home Purchase Assistance & Housing Corporation
• Rising Incomes. It is easy to forget that the 1970s was actually a period of rising prosperity. There were real crisis, especially 1973, 74 and 76. The UK also decline relative to other advanced economies. However, for many people, the 1970s saw a rise in real incomes and rising expectations. It was a decade which saw a rapid rise in car ownership, foreign holidays. With rising incomes, there was an aspiration to own a home and move away from overcrowded terraces.
• Growth of foreign ownership. At least in London, there was an increase in foreign ownership of UK housing. For example, the newly rich oil states invested their money in buying British property.

Housing Crash of 1973-77

From 1973 – 77 house prices rose in nominal terms by  31%, but actually fell in real terms by 32%.

Reasons for the House Price Crash included

• High inflation of 1973 onward.High inflation reduced the real value. But, also inflation reduced living standards discouraging people to buy a house.
• Barber Boom and Bust. In 1972, the chancellor Barber pursued a dash for growth, which saw a rapid rise in growth and incomes. However, this proved short-lived leading to recession of 1973 and 1974.

House Prices Since 1952

UK economy in the 1970s

Record levels of peace time inflation

Notice ‘Barber boom in 1982 and subsequent recession

Sources

• Home Ownership rates in the UK Smith Institute – google quick view
• UK economy in the 1970s