Housing in London – gone mad

With the news today of a 0.25% increase in the interest rates from the Bank of England, there was a timely, though horrible report released about the state of the housing market in London.

It is now claimed that with the average London salary being supposedly £25,000 the average London house price is now about 10 times the average salary. So of course that means that most people can’t afford to buy in London and there is a dearth of first time buyers. Well it doesn’t take a Sherlock to realise that.

What is interesting from the report though is that apparently parents of first time buyers are now shelling out on average £28,000 to help their offspring buy a place in London. Otherwise the person buying the place needs to earn £80,000 a year to afford it.

Okay, this isn’t good news, but we have known about this for a while, though the figure that parents are giving/lending their offspring surprised me, given that I am sure there are many parents for whom that amount of money is a great deal. I personally was very lucky to buy my house over 5 years ago, with a massive 25% deposit, and sufficient salary to do so. Though now even on the same salary, there is not a chance I could afford to do so, even back then I was stretched as far as one could go.

There are worrying thoughts here.

1) That the house price is so far in excess of the ‘normal’ person, that no one can move because the gaps between different types of housing make it impossible. If I wanted to upgrade to a 4 bed house, I couldn’t if I tried.
2) The continuing call for building more places in London. We don’t have the space, we don’t have the infrastructure, and we don’t have the resources. How many more people are we going to squeeze into a space that doesn’t exist, how much of London’s green space do we need to lose before enough is enough! Look at the current situation with the water crisis, how does putting even more people in London fix that, the problem with the electricity blackouts because of too much demand. It is simple to know that London simply doesn’t have the infrastructure to cope with the amount of people here now, why add more. Too few schools, too few hospitals, the list is endless, London is suffering badly, and these calls for more and more properties just adds to it getting worse. An example in case is where they squeeze more and more into a street and wonder why there is a parking problem. Funny how the council didn’t think about that, but was happy to have the opportunity for more council tax.
3) Fix the issue at hand, which are the extortionate house prices which are far in excess of anything realistic. This is an issue that underpins it all, it isn’t helped by the fact that the inflation target is based against an inflation that doesn’t include the mortgage payments, if it did, and then it would make it clearer as to the problems involved. These prices are fuelled by banks, etc lending money when they shouldn’t be. Lending someone 5+ times their salary and also relying on their parents, or having friends club together just so they can get a place, says that the market is in trouble and extremely unhealthy. Inflation in this country is much higher than people realise, and the ‘official’ figure is tainted and fixed, as it removes so many things it should include when calculating inflation.

Housing in London has gone beyond the sensible; it has gone beyond anything anyone possibly imagined. I know in the late 80s it wasn’t this bad, it was difficult before the crash, but it never reached this level. And even then they were calling for more houses, it doesn’t help matters. We need a more regulated market, one which thanks to Thatcher we don’t have, and now any Tom, Dick and Harry can get a mortgage because the banks aren’t sufficiently ensuring that people can actually afford it. Why do you think that they went from 3 times salary to affordability? Yep, that same affordability means that each and every increase in interest rates means that people get themselves into more and more problems. The buy now, never pay attitude. I know of enough people who have interest only mortgages, with no vehicle to pay the capital off, I guess hoping it will never happen.

As a side point, there is increasing unemployment, increasing debt, which after today is going to get worse not better, and I for one hope I won’t be hit with the downturn, but we are overdue for it, and sadly a lot of people have been spending money to get out of it, and so many are living on credit. The last figure I saw was something like £10K per person, and with 60 million of us in the country, there are so people seriously in debt, and the banks give them more to hang themselves with, wonderful. The banks win either way, they never lose. But if someone is enough of a mug to put themselves so indebt, then to be honest, they don’t deserve my sympathy.

The house market in London is so overdue for a crash, and when it does come, and it is hard to imagine it not, because of the economics surrounding it, it will make the late 80s crash look like a piss in the wind, it really will.

I don’t wish a crash, but we have forced ourselves into it. London is sitting on a time bomb which will go off, and no manner of building more houses will fix it. Building further into the sky won’t help either; it will just bring back the eyesores of the 60s and the associated problems that came with them. London is already at bursting point, it is like trying to push the extra bit of rubbish in the bin because you can’t be bothered to empty it, it won’t go.

Anyone has a better idea please say, I would really like to hear it, because in my opinion, London is up s**t creek without a paddle