When my great grandma bought a house in 1911, the price of the house was £600. This was pretty much what it would have cost to build from scratch.
Today the average house price in the UK is closer to £200,000.
Why are house prices so expensive?
1. Demand is greater than Supply.
A very simple economic truth: if demand increases faster than supply then prices will rise. This has, despite some short term fluctuations, been occurring since the end of the Second world war. It does beg the question why is demand increasing faster than supply.
2. Constraints on House Building.
Despite frequent talk of the necessity of building houses, we have a reluctance to build houses. House building is at its lowest level since the second world war. About 135,000 are being built a year. This is much less than the 250,000 the government feel is necessary to keep pace with a rising population. There are many constraints on the building of houses:
- In the most popular areas, there is a shortage of supply. It is difficult to find new land around greater London
- Environmental cost. The British have a strong attachment to preserving “greenbelt land” Many areas are protected from further housing development.
- Not In My back Yard. People are usually in favour of more homes being built, as long as they are not in their local area. Increasing supply of houses leads to more congestion, crowded amenities and loss of greenbelt land.
- Vested interests perhaps most importantly increased supply reduces the value of your existing home. Therefore, existing homeowners have a vested interest in keeping the supply as low as possible in their area.
- Lack of Social Housing. Since Mrs Thatcher encouraged the sale of council housing, the number of new social housing (a euphemism for council housing) has been very low.
3. Rising Population
The population of the UK has been rising, partly due to immigration, this increases the demand of housing
4. Rising number of households.
The number of households has been increasing faster than the population. This is because social factors have decreased the average number of people in a household. For example, divorce rates, and the fact people get married later in life, have increased the number of single people. There are more old people living alone.
5. Rising Incomes.
Incomes have risen by an average of 2.5% in real terms since the war. Furthermore people are willing to spend an increased % of their income on housing. This is because housing is seen as the best investment in the UK.
6. New Mortgages
Rising house prices have not deterred people from desiring to buy a house. In the boom years, higher prices merely led to people borrowing higher income multiples than before. The credit crunch led to a severe curtailing of mortgage availability. Tighter mortgage restrictions may yet diminish growth in house prices. Yet, many people are still benefiting from previous laxness in mortgage lending.
7. Parents helping their children.
Another reason that demand hasn’t fallen is that parents are using their equity gains to help their children get on the property ladder. See Parents and mortgages
8. Speculation
Despite the volatile nature of the housing market, housing has increasingly been seen as a good investment. The returns on buying a house have consistently outperformed the stock market. This has encouraged a new generation of buy to let investors, this has helped to increase demand further. In London, there has been a lot of demand from foreign nationals such as Russians and Arabs. Some argue this speculative increase in demand means the high house prices are unsustainable and are liable to fall. Why House prices are set to fall
9. Relatively Low Interest rates.
Since 1992 interest rates in the UK have fallen, making the cost of getting a mortgage relatively lower.
10. Renting is also expensive.
The alternative to buying a house is renting. But, the cost of renting has also risen faster than incomes. If you are paying £800 a month, it make sense to try and get a mortgage where you will be paying £900 a month, even if it means borrowing upto 6 or 7 times your income. The increased price of renting reflects the fundamental imbalance in demand and supply. It is true that the price of housing is now rising faster than renting, but it still makes economic sense to buy rather than rent. This means people are increasingly looking towards unconventional mortgages to help them buy a house.
We have the same problem here in Canada, the housing market just continues to go up and it’s also based on all the reasons you mention above.
Hi there,
the simple reason, renting has become so exspenive. Is because your have decided a 1 bedroom house or flat is worth £395 in rent per month, that is 2 weeks wages for me and more. Before any other bill at all. You are greedy in what you want to earn as an income on property and have totally forgot about people in general, and how we actaully live and what bosses actually pay us, to what you think they pay us. Sales people are responsible, for your way in which you handle your targets, with this push push attitude to earn you commision lump sum of wages / bonus / performance bonus, this is the real problem. And over that last 10 – 15 years you have just simply become obsessed with money, you kept pushing up prices this all of you estate agents, because you just did,nt care about the people at the bottom, this is the truth. You will stand there and say openly ” that is not ture and smile at me “. Because you are sales people, that is what you do best. But what you don,t t realsie is, we can actually see you are puttting on a show in your job, and that is where you have gone wrong. Some houses over £1200 a month in rent, that is a entire wage packet to most people, you are not living on the same planet at all. Greed has ruined the housing market and the economic war, what surprised i would know that. Your problem is you concentrate far to much in the backroom of the office in talks on how you can get more profit, and nothing more. yes i know you have to make money. but not in a life where greed is your number 1 target of the day of work, you have left many people with no chance to rented property and because it is completely out of our reach, you have done this. Not us the people, there was a simple act you should of all made part of the plan, what is that i hear you say.
When to stop pushing the boat out, so everyone gets a look in. When living and breathing in life, fairness in England does not exsist, what does is this attitude of arrogance and blind lies to trick people into deals of total abuse of money, of which has led to debt in the first place. This is excactly correct and right, in its basic form. You got very greedy and forgot what renting a house to a human being was about, you treated like a fashion item. That is not life, that is the blind leading the blind, and you were prepared to do what ever to make it happen no matter who you hurt, has that has no place in your world of greed.
Your prices were neve intended for people, but they were intended for people whom you very much wan to surround your self with, the Rich people. Who have great jobs, who have lots of money who have no worries in life. So that is you as humans just being arrogant and snobby once again, but your flaw is that you can,t even admit that is who you really are. So you will have to live with that guilt.
you could of gone down a better path, but you choose greed and left teh poor behind– once again. Nothing changes in this dammed country, encomic war done nohting for the poor. Thank you for not udnerstanding real life on planet earth, you certainly know how to rip people off, but no knowledge of being fair to people to progress life, but you dont want to hear truefull words anymore, isnt that the real truth of the modern day age. You have,nt changed one bit from the old days to the new, so i walk away from you, you are not worth my time or anyone i know, you would be suruprised how people hate estate angents and we have found you out to be liers in the job.
you like the cash, but you dont like good sensible rent or even doing repairs on your houses, you come up with any thing to stop doing the job or spending money, and you openly do not want to do it, because we live in run down dumps, you dont care at all. But you like to watch an stare at us from afar and look down your nose at us, like we dont deserve what you have or have no future. But it is you who have lfet us no option to get out of the gutter to improve our lives, such shame you carry this attitude everywhere you go.
no i dont see a future in England, only lies.