Property prices in London have been at stratospheric levels for a while now. Demand has massively outstripped supply while the government has happily allowed UK property to become ensnared by the speculative gambling of the global financial industry. This catastrophic failure in public policy is most evident in London where it’s now Silly Season in regards to its house prices.
Take this rather shitty little flat as an example. It’s only got one small bedroom, a tiny kitchen and a small living room. Link (correct as of 18/01/2017.
This spectacular mansion will set you back a whopping £350,000.
To put that into context, at typical rates, to get a suitable mortgage for this property a couple would both have to be earning around £50k a year. Below are the results from the online mortgage calculator I used to calculate this.
Remember that this is to buy one of the cheapest, smallest types of flats you will be able to find in London!
But what about those couples who want to buy the sort of London house they might have grown up in?
What about, this poky, slightly run-down 3-bedroom house?
This would set you back £750,000.
Using the same mortgage calculator as before, the picture below shows what sort of mortgage two people (earning at least £100,000 a year each…) would need for this property. This would put them both in the 10% of earners in the country by the way.
Clearly, this situation is completely crazy and utterly unsustainable.
Something has to give. Currently, almost the entire next generation of Londoners will just not be able to afford to buy a house in the future. Instead, they’ll be stuck in a brutal rental sector where it’s not uncommon for 40% or more of your monthly wage to go into rent.
Even if you’re a rabid capitalist (which I’m not), this situation is dangerous. How is consumer spending (the backbone of the economy) going to increase indefinitely and prevent the economy from collapsing when the bulk of many peoples’ wages instantly evaporates into a totally unproductive part of the economy- landlord’s pockets?
The bubble will have to collapse at some point, the city will simply stop functioning even when just 20-30% of its population become completely priced out of housing. This process of large numbers of people becoming unable to afford housing is already happening.
What’s the solution?
1. Migration needs to be curbed- it’s clearly not sustainable to have net additions of 300k or more people every single year. We need to aim for a sustainable population limit and build the infrastructure accordingly. Currently, there is no consensus as to what the limit should be and it’s not even a mainstream discussion. The current unplanned system is completely bonkers.
2. Somehow stop the global super rich from treating London property as a financial asset.
3. We need to build more houses (but somehow not simultaneously transform southern-England into Coruscant at the same time).
What should have happened from the start?
The state should have never stopped building social housing. It should never have made home-ownership a country-wide aim for UK citizens.
Take two scenarios.
The British government builds 40,000 quality homes for £120,000 a pop and retains ownership of them. Then it leases these at super low rates to poorer citizens indefinitely- the money going back into the treasury, forever…
A profit-seeking developer builds 40,000 “luxury flats” aimed at rich investors with a fat subsidy and tax-cut from a heavily bribed local council. These are then bought by filthy rich foreign investors and pension funds at massively inflated prices and sat on as financial assets- while remaining empty of actual residents. The treasury gets no rent money…
Call me Ho Chi Minh, but I know which scenario I’d prefer.