Editor’s Note: UK House Prices are an Unsustainable Landscape

3 May 2021 | Finance

Some neighbours of ours moved out recently. It was nothing to do with us, even though I did introduce myself to them when they moved in with the words, “Hey, asshole.” Long story, but it was deserved. But they lived in the apartment next to ours in Berlin and when they moved out, they did so to a house in the suburb of Kladow, about seventeen kilometres from the centre of the city.

I get it: they have small kids and want a house with a garden so they decided to move out. And both of them have great jobs—he is a doctor and she works high up in a marketing department for a major German brand, so it was with some surprise that I found out that they could only afford the down payment on their new house with some financial help from their parents (they’re both about forty-them, not the parents). But then the first surprise was tempered by the second surprise, which was that their house cost €900,000. For the mathematically-deficient among us, that’s 10 per cent less than a million.

For that type of money, I would expect to not only have a jet port for an accompanying space rocket, but the space rocket itself. And, yet, this was for an average suburban property with a handful of bedrooms and a garden and a garage. But it cost nearly a million euros and two people with high, middle-class salaries had to rely on two sets of parents for the deposit.

Even in a city where the property market is overheated and pretty much out of control, that is unsustainable.

The question that comes to my mind is what happens to those without such high salaries or parents able to help with deposits? The answer, it appears to be, is ‘nothing good’. A good friend of mine, on finding out he was going to be a father in 2006, went out and bought a house for his incoming family. At the time, he earned about £12,000 working in a supermarket. His partner, later wife, earned less than that as a care assistant. The house they bought cost £120,000 and was a former council house in Chester.

You can see where this story is going. Unable to afford the house, they began to default on the mortgage within a year. After his parents stepped in and helped them, they did okay for a time before rapidly falling once again into debt and defaulting once more. His parents stepped in for the second time. The stress caused the marriage to break down and they divorced, and the house was eventually sold. He eventually remarried and moved out of Chester to somewhere cheaper and hopefully now makes better financial decisions. Another friend of mine, despite having a good job with a good salary, was forced to move out of his home city of Manchester to Wigan so that he could afford a place by himself. The cost of that home? £80,000. And since he bought that place three or four years ago, the price of similar homes in the area have breached £120,000.

What part of ‘unsustainable’ does not make sense here?

When I was growing up in Runcorn in the 1980s, many people were buying their homes from the government under Thatcher’s Right-to-Buy Scheme. A three-story, three-bedroom property in the town could be bought in 1985 for £8,000. Those houses, by 2000, were selling for £33,500. Just six years later, they had doubled in price to £70,000. In 2017, according to Land Registry data, they sold for £76,000.

If you decided to live in the more middle-class parts of Runcorn a few years later, you could buy another three-bedroom property with a large garden and garage for £37,000. In 2019, those houses went for £195,000. In Runcorn.

That is not thinking about London. My former home (rented) there was sold for £385,000 in 2004. Eight years later? £665,000. That is an increase of £270,000. In the 101 months between those sales, that house increased in value by an average of £2,673 each month. The average year-on-year increase was a little over £32,000 per annum. According to the ONS, the median earnings per year in 2020 for those living in London was £30,720.

The current housing market is unsustainable. There are myriad reasons for how and why we ended up here. And there are probably the same number of motives for wanting it to stay as it is. But consider where we would be if house prices had risen in line with inflation.

Well, the house in Runcorn that was bought in 1985 for £8,000 would now be worth just under £25,000. And the one sold a few years later should be worth just over £77,000 today. My London house, which earned more each month than the average wage in the capital? Well, that should have been worth a little over £500,000 in 2012.

None of this should suggest I have a solution for all this. I don’t. Rent caps, especially here in my adopted hometown of Berlin have proven to be both unworkable and illegal.

All I can say is that when the time does come for me to buy a house, I’m going to leave Berlin, leave behind the idea of living in a big city, and head back home to Runcorn. There is not much going on but at least house prices are still somewhat affordable there.

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This post has originally been featured in Property Wire.