Tuesday, March 9, 2010

Home-Owner-Ism achieves important milestone

Nine out of 10 young families in London cannot afford home

Ninety per cent of couples under 40 with children in London cannot afford to get on the housing ladder, it emerged today... The figure of 10 per cent in London compares with 21.4 per cent in the South-West and 23.8 per cent for the South-East. Almost of a third of young working couples without children in the capital were able to afford a home in 2008, the last year figures were available... Typical first-time buyers have seen average deposits soar from 16 per cent of annual income in 2000 to 64 per cent last year.

Posted by mark wadsworth @ 06:47 PM (2594 views)
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25 thoughts on “Home-Owner-Ism achieves important milestone

  • Shocking.

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  • It really does not take the “Brain of Britain” to work out what comes next now, does it!

    My guessis the HPC will start in earnest this Autumn, and London will be the hardest hit.

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  • tenant super says:

    A spokesman for the Department for Communities and Local Government said: “The Government continues to demonstrate a long-term commitment to affordable housing and to supporting first-time buyers by increasing opportunities to buy a share of a home.”

    What he really said is: “The Government continues to demonstrate a long-term commitment to un-affordable housing and to enslaving first-time buyers by increasing opportunities for them to take out a huge mortgage to buy a pathetic share of a home… maybe a couple of windows and one wall…and on top of that pay rent on the remainder and endure a suicidal Tesco-Value-Beans standard of living under the debt burden.”

    Sadly, people are not economically literate enough to carry out this translation from political language to truth. Therefore they keep jumping into these awful schemes which help prop up the bubble. If the bubble ever does collapse they will be trapped by nequity in a totally unsuitable (for a growing family) flat for a long long time a situation thousands of young Irish families find themselves in now.

    The thing is, the 75% of the flat you don’t own has to be bought by someone, usually a housing association and there is a massive funding gap for this as banks and investors have no more appetite for this lending. Boris wants to plug the gap with public money but this can’t go on ad infinitum at loony prices. Then of course Quango Housing Associations currently have a £53.1 billion debt which is just another off-record public debt. It all seems to me like shuffling money between Whitehall, Banks and Quangos to try and keep the balls in the air.

    … ah the ‘dream’ of home ownership!

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  • mark wadsworth says:

    Tenant, I actually giggled when I read your version. Does that make me a bad person?

    As it happens, there is a kind of “shared ownership” scheme that I wholeheartedly support – where you own the bricks and mortar and pay rent on the land bit (that’s the part that’s inflated). It’s called ‘land value tax’. And as to blocks of flats, as Drewster has pointed out many a time, these are best off being owned by one landlord who chucks out the bad tenants and sorts out the repairs. Why anybody would want to own a flat in a large block is a mystery to me.

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  • tenant super says:

    One of the readers’ comments under the article made me giggle too: “For the lowest paid workers, you can start with buying the doormat, then work up to buying the street door… ”

    We are not bad; it is often said the best way to deal with tragedy is to laugh at it.

    The fact that only 5% of couples in their thirties in my borough (Southwark) can buy a family home shocks me into mute disbelief which is only surpassed by the restrained anger that this is seen as a healthy situation. My laughter is directed at the incredible level of insanity.

    I sometimes feel like I imagine it would feel to be a completely sane person wrongly sectioned in a psychiatric hospital, surrounded by lots of people with bizarre delusional beliefs. Then, when the time comes for my assessment, I think ‘great, they will realise their mistake and release me’ but to my horror I realise all the Doctors and other Officials are also delusional and mad and I start to fear, I am never going to get out of the asylum. Then I start to listen to their delusional ramblings and start to wonder if actually I am the one who is mad after all. Then I visit this blog… my link to the world outside the asylum.

    Let us also remember that the 5% of under 40s in Southwark who have salaries which make a house affordable are mostly blow-ins from the City who buy apartments in trendy Borough and Bankside or those from affluent areas like Dulwich Village. The borough has high unemployment and strip out the small pockets of affluence and practically no couple under 40 would be able to buy. The few middle income professionals in this age bracket who live in average terraced houses in places like East Dulwich only do so because like me, they bought when they were young and before the boom took off. They couldn’t afford to buy their own home now (at the current valuation).

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  • Simply the net result of the miracle or mirage economy.

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  • tenant super

    I like your reverse asylum analogy.

    I’ve had similar thoughts but failed to express them that well.

    If it’s any consolation I have started noticing quite an increase in sales falling through down here in South Hampshire.

    Whether thats people coming to their senses or surveyors bringing them to their senses I don’t know.

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  • gone-to-colombia says:

    Totally agree with enuii, this is a kind of ghastly fools paradise.
    A capitalistic dystopia, all is being sacrificed upon the altar of high property values.
    Since when was it better to pay more for anything?

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  • Thats the reality and it sucks big time, me and my wife are earning 60K annually (combined) and still dont think we could get a mortgage. Maybe those 10% figure who could own a home, are those in council housing with right to buy option. Sadly people who studied hard, worked in median office work are being punished beacause the govt can assume we can own without help, and those suckers are being prioritised. Something is very wrong here.

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  • While the IR are still low there will be money to keep the housing market up in London. The pollys dont care becuase they have their portfolios to look after. But eventually it will have to fall… ask Newton.

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  • tenant super says:

    The status quo is unsustainable.

    I got a new nephew last week and looking ahead to when he starts thinking about buying his first home after graduating in 21 years time, both his parents are teachers so let’s assume he follows in their footsteps and becomes a middle income professional. If the last decade is replicated in terms of wage growth (30% per decade) and house price inflation (200% per decade), over the next two decades little baby super can then expect to earn about £58,480 pa. However, the average home nationwide would have risen from about £165,000 to £1,485,000 (tripling to £495K in the next decade then tripling again the decade after), that will be around 25x his salary and a 10% deposit alone would cost almost three years’ gross income.

    In London, a first-time buyer flat is currently about £250K if that tripled then tripled again it would cost £2,250,000 or about 38 x his salary, so all he could reasonably afford to buy at say 4 x salary would be a 10% share.

    Of course this isn’t going to happen, I am just highlighting the absurdity of the last decade. I don’t know if prices will crash or whether there will be spiralling wage inflation or whether there will be a long period of stagnation. I won’t be buying junior a tent for his christening pressie just yet.

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  • mark wadsworth says:

    Agreed, this blog is my link to the world outside the asylum, despite there is a fair share of nutters on here (from which I will not exclude myself).

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  • London is not for young families. 60 % of houses in central London are second homes and I think a lot of areas in London are for investors not for young families. I have nothing against investors only if they would build some nice homes in London rather than buying the old ones.

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  • Mander, the situation is almost as bad in the whole of the South of England. The percentage able to buy in the South East outside London is only 23% which isn’t really encouraging. For many, job opportunities are limited to London and the SE. When I was in my first serious job over a decade ago, I was working in biomedical publishing. Jobs in this field are pretty much limited to London (with a very few smaller presses in the equally unaffordable Oxford or Cambridge) with the main players, Elsevier, Wiley, Nature Macmillan and CSG all in Central London. There is a limit to commutable distance due to train fares and inconvenience and the marketing of housing developments in places like Norwich as London commuter town is a bit of a cheek!

    I’m not entirely sure I understand your point about investors and who you mean by investors (homebuilders, amateur landlords, HAs, Councils?) The solution is simple, to let the market find its own natural floor by:

    1. Not promoting UNaffordable shared ownership schemes (If you can only afford to buy a 25% share then the property by definition is unaffordable to you in the same way that if I only have 10% of the cost of a Porshe 911 in the bank and can only borrow another 15%, that car is unaffordable to me). Remove public funding for sale and rent back schemes, interest free loans to buy homes with and other artificial props.

    2. Not distorting the rental markets with LHA

    3. Bringing CGT in line with income tax and abolishing all tax relief and subsidies for landlords

    4. Freeing up sections of greenbelt around London and building enough homes and infrastructure to meet housing need (this will assist the correction in central London too). Discourage heavy population growth, especially in the South East.

    5. Deal with this gentleman http://www.thisislocallondon.co.uk/news/5046962.Resident_angry_at_proposed_affordable_housing/

    6. and no list would be complete without MW’s signature Land Value Tax to replace current property taxes.

    None of this will ever be gifted willingly by the insane psychiatrists who run the charade or our farcical economy. The question is how will reality thrust itself upon the madness. I think it will be interesting to see.

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  • brickormortis says:

    really, since when? I thought it was just me! Well this does put a whole new perspective on the matter. The question is, how did this happen? I mean, did the local market turn into a buy to let frenzy? Have bankers been using bonuses to build up massive portfolios and drive up prices? Have the wealthy been paying deposits for their children? Have the less wealthy been withdrawing equity from their property? Have people mortgaged themselves to the hilt to live in [email protected]&&y flats which are now called apartments cause it sounds trendier?

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  • Bye London it was nice knowing you!

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  • tenant super says:

    What it doesn’t highlight is that “Ninety per cent of couples under 40 with children in London cannot afford to get on the housing ladder” and probably double that number of couples under 40 do not have children because they cannot afford to house them .

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  • @ tenant super
    In Twelfth Night the so-called comic characters send Malvolio mad by telling him the things he can see in front of him don’t exist.It’s a side-splitter!
    The fact that pretty much nobody can afford to live in London anymore is actually an improvement IMO.The time when about 30% could n’t afford it was worse because the subject of housing unaffordability was never mentioned : there was a huge spike in house prices in the early 70’s but you got treated like loony for pointing it out.(Inflation meant wage inflation in those days.) Yes I am very old-but still alienated after all these years.

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  • mark wadsworth says:

    Tenant @ 12, yup, good list.

    Brickor – the main reason why housing is now unaffordable to buy is because people need to save up a deposit of two-thirds of annual income, that is quite a new development since the credit bubble burst.

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  • TS and MW you got my vote

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  • Long live high house prices. Sacrificing the future for the baby boomers once again.

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  • Terrorists don’t love it, that’s why they keep trying to blow up the tube and poison its occupants with sarin gas. All the time. Obviously.

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  • tenant super,

    Buy to let call themselves investors. I do not like the idea of them being allowed to buy already built property as a business. As a business they get the interest on their mortgage deducted from their income (the rent they recieve). Now a young family does not get the interest deducted from their income. Under these circumstances already built houses tend to get bought and rented back to young families and this where the shortage comes from. Over 4 million of these houses belong to investors. I do not mind investors buying apartments that are reantable properties or build new property but no way buying existing family homes.

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  • tenant super says:

    Oh, I agree with most of that Mander although there should be no tax relief full-stop for the BTL mob even if they are new apartments.

    Titanic C @ 23,

    As I explained, for some people, their chosen career limits them to London or commuter towns. I don’t fancy spending two hours a day standing on an overcrowded commuter train. As it happens, one of the main motivators in my career change (in progress) from publishing to academia was the scope to move away from the Capital.

    Many towns have tried to tempt businesses away from London but they don’t seem to have been massively succesful. Perhaps eventually the unaffordability of London will eventually be its own downfall.

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  • mark wadsworth says:

    Mander, hang about here:

    “As a business [buy-to-letters] get the interest on their mortgage deducted from their income (the rent they recieve). Now a young family does not get the interest deducted from their income.”

    1. The BTLer still has to pay income tax on total rents minus interest. Overall, income tax receipts from a rented property are higher than from owner-occupied.

    2. A BTLer also has to pay capital gains tax at 18% if and when he sells at a profit. Overall, capital gains tax receipts from a rented property are higher than from owner-occupied.

    3. Further, a BTLers annual losses or capital losses usually don’t get relief for tax, they have to be carried forward.

    4. So yes, it is fair to say that BTL income and gains are taxed much more lightly that e.g. employment income, but BTLers are taxed much more heavily than owner-occupied housing (which is hardly taxed at all).

    5. It’s all well and good bashing BTLers and expecting them to pay MORE tax, but as a teeny-tiny first start, how about increasing taxation on owner-occupation to the same level as BTL-property? Why should there be any difference in the overall tax revenues generated by one property depending on legal arrangements? It’s the same people in the same houses.

    PS, I go after hard targets like the Home-Owner-Ists. Simply bashing the banks and the BTLers is so-o-o 2009.

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