The topic that comes up most in conversation with friends is housing. In the UK, we are sort of obsessed with housing anyway (how many bedrooms, is it detached, don't tell me it has an ensuite as well!) but this is even more pronounced amongst us young.
Some of this is cultural and societal. Our parents measured their wealth in terms of the value of their houses so why shouldn't we as well? It has become a marker of success and the main way that British people feel like they accumulate wealth. After all, we don't want to be less successful than our parents. This inherent feeling is difficult to combat but some perspective is required.
It is perfectly possible to not own any real estate and still be fabulously wealthy. Imagine someone like Bill Gates selling his house and renting instead. This does not automatically mean he is going to become poor. It is also perfectly possible to own a mansion and still be pretty far from wealthy (anyone heard of cheap credit?). An example for this is someone who owns a £1m house with a 90% interest only mortgage. Technically speaking unless this person has paid down any equity in their property and the value hasn't gone up significantly, after sales proceeds and solicitors fees, they only really have less than £100k. Doesn't make them paupers but doesn't make them rich either.
Now let's get to the real problem. Why are my friends constantly talking about housing? There are two different reasons really. The ones that are lucky enough to be buying will usually be talking about house prices and the ones who aren't lucky enough to be buying will be talking about rent prices. Even this terminology is incorrect however. Why should buying be considered lucky and renting 'unlucky'? The satisfaction of knowing you are owning an asset aside, it is because there are no secure rentals in the UK.
The example of Germany is often given in the media but one I am familiar with through a close friend. She was extremely surprised when I told her I was buying a house with my partner saying that her parents only bought in their 40s (her mum was a teacher and her dad a civil engineer for anyone interested) and people rarely buy before then. I suppose there is no need for people to rush into it because once secured into a tenancy, landlords have very strict limitations on how much they can increase their rents by, making tenants feel secure and permanent in their homes.
This is the absolute key to solving Britain's housing crisis. It is unlikely that there will be a situation where everyone in Britain will own their own homes (some people might not want to, some might choose to have flexibility over stability) but there can be a situation where everyone has secure housing.
So what is stopping millennials who want to buy from buying? One is the state of modern day employment and will have to be the subject of a different post. The other one is the cost of housing. Now Britain is a small island with a population of 65m so is it simply lack of space? Possibly- especially given the fact that housing should not be at the cost of nature. Largely though, it is because house prices are kept artificially high with cheap credit and a couple of government policies sold as being 'helpful' to prospective buyers. Help to buy?
It sounds like a good idea for a government who wants to get young people on the property market to effectively lend them 20% of the property value with very low interest rates, right? That is until you look at the details. It is only applicable on new build properties. Meaning, there are more people chasing a much smaller number of properties effectively pushing up house prices and lining the pockets of the house builders.
I think this is a subject that needs to be expanded on much more but ultimately in case Theresa May is reading this, these are my tips for her to fix the housing market:
1) Long term rent controls- the rental market is critical to ease the pressure off the buying market.
2) House prices to be controlled
3) Don't sell off housing stock (right to buy- more to come on that)
Going forwards and assuming I will not be able to change government policy with this blog, I will aim to give pointers on how we can survive in this political and financial climate.
Some of this is cultural and societal. Our parents measured their wealth in terms of the value of their houses so why shouldn't we as well? It has become a marker of success and the main way that British people feel like they accumulate wealth. After all, we don't want to be less successful than our parents. This inherent feeling is difficult to combat but some perspective is required.
It is perfectly possible to not own any real estate and still be fabulously wealthy. Imagine someone like Bill Gates selling his house and renting instead. This does not automatically mean he is going to become poor. It is also perfectly possible to own a mansion and still be pretty far from wealthy (anyone heard of cheap credit?). An example for this is someone who owns a £1m house with a 90% interest only mortgage. Technically speaking unless this person has paid down any equity in their property and the value hasn't gone up significantly, after sales proceeds and solicitors fees, they only really have less than £100k. Doesn't make them paupers but doesn't make them rich either.
Now let's get to the real problem. Why are my friends constantly talking about housing? There are two different reasons really. The ones that are lucky enough to be buying will usually be talking about house prices and the ones who aren't lucky enough to be buying will be talking about rent prices. Even this terminology is incorrect however. Why should buying be considered lucky and renting 'unlucky'? The satisfaction of knowing you are owning an asset aside, it is because there are no secure rentals in the UK.
The example of Germany is often given in the media but one I am familiar with through a close friend. She was extremely surprised when I told her I was buying a house with my partner saying that her parents only bought in their 40s (her mum was a teacher and her dad a civil engineer for anyone interested) and people rarely buy before then. I suppose there is no need for people to rush into it because once secured into a tenancy, landlords have very strict limitations on how much they can increase their rents by, making tenants feel secure and permanent in their homes.
This is the absolute key to solving Britain's housing crisis. It is unlikely that there will be a situation where everyone in Britain will own their own homes (some people might not want to, some might choose to have flexibility over stability) but there can be a situation where everyone has secure housing.
So what is stopping millennials who want to buy from buying? One is the state of modern day employment and will have to be the subject of a different post. The other one is the cost of housing. Now Britain is a small island with a population of 65m so is it simply lack of space? Possibly- especially given the fact that housing should not be at the cost of nature. Largely though, it is because house prices are kept artificially high with cheap credit and a couple of government policies sold as being 'helpful' to prospective buyers. Help to buy?
It sounds like a good idea for a government who wants to get young people on the property market to effectively lend them 20% of the property value with very low interest rates, right? That is until you look at the details. It is only applicable on new build properties. Meaning, there are more people chasing a much smaller number of properties effectively pushing up house prices and lining the pockets of the house builders.
I think this is a subject that needs to be expanded on much more but ultimately in case Theresa May is reading this, these are my tips for her to fix the housing market:
1) Long term rent controls- the rental market is critical to ease the pressure off the buying market.
2) House prices to be controlled
3) Don't sell off housing stock (right to buy- more to come on that)
Going forwards and assuming I will not be able to change government policy with this blog, I will aim to give pointers on how we can survive in this political and financial climate.
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