Thursday, 3 May 2007

Property in the UK 1: An Obsession

Anyone living outside the UK and lots of us here find it difficult to understand why the British are so obsessed with owning a house. Partly it is because the way you are viewed especially by banks and estate/letting agents is very much shaped by whether you own your house or not. In the 1980s Prime Minister Margaret Thatcher won a lot of support by allowing council tenants to buy the houses they lived in and since then the whole demand for property in the UK has gone mad. Aside from a crash in prices 1990-3 the cost of properties has just kept on rising and so it is a far better investment in the UK than any bank or shares or anything. This has fuelled even more buying and even more price rises as people 'buy to let', i.e. a house they are not going to live in, just to rent out. Even if they do not get tenants the value will have risen about 10% per year depending on what area it is in. The British live primarily in a narrow corridor from London North-West to Liverpool and so demand remains high especially in South East England.

The main difficulty is that salaries have not matched house price rises. The average salary is around £23,000 per year (€33,580 or US$46,000) and yet you can easily pay £189,000 for a 2-bedroomed flat, more in London (where the average salary is admittedly £30,000). 80% of the population earns less than the average salary as it is distorted by the numerous millionaires in the UK. Banks previously would only lend you 3.5 times your salary so an average of £80,500, not nearly enough to get a flat even if you have a partner. So they now have 57 year mortgages and such like and the prices still keep rising.

Now you might ask: what is the problem? Just rent. Well, in the UK in contrast to other countries in Europe, tenants are seen as second class citizens and as I will outline later, that is a licence to get swindled and over-charged by anyone who fancies. In a country where status is so important it is very uncomfortable. I know it comes nowhere near prejudices suffered by millions of people, but it is an element in British society. It also makes the country unresponsive to change. You cannot have the regional shift for example, along the lines that West Germany saw in the 1980s when work moved from the North to the South of the country. Rents were higher in the southern cities, but not 3-4 times higher which is the difference between the cost of the same type of house in southern England compared to northern England, Scotland, Northern Ireland, etc. Ironically, the Conservative Party which told the unemployed to 'get on their bike' and find work, made that almost impossible. In addition the fact that property rises in value so quickly means that places such as the London borough of Ealing, have thousands of empty properties when families are desperate for accommodation. This has been improved by councils charging council tax on empty properties for the last couple of years, but more needs to be done, especially in high demand areas, to follow initiatives of US cities in getting empty property into use. More competition and a fall in house prices will have a knock on effect on rent. In some parts of southern England this has risen 20% in the last 18 months and the Bank of England wonders why it is having problems slowing down inflation despite the falls in grocery and consumer good prices.

Despite the longer mortgages and the better terms there is going to come a day, probably very soon when there are going to be insufficient people who can afford to buy a house and then there will come a slump. As in 1990-3 this will hurt the property owners, but at least it might mean more people will be able to afford somewhere to live and large enough to accommodate them. It might be better in the long run to shift to a situation as in the rest of Europe in which tenants have better rights and are not seen as scum. There has been a good step in this direction this year, but it will probably take the next decade to shift and British attitudes take even longer to change, but change they must. I suppose the bulk of Britons are not interested in an inclusive society and actually relish its divisions, but as you can tell it is something that exercises me, so there.

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