Housing

Today's topic is a departure from the normal betting flavour, but is a subject that is relevant to both me personally (I'm trying to move), and also on the lips of the current government as they try and 'sort' the problem...

Anyway the topic is one that has occupied Britain for decades, and will continue to do so far into the future...

It is ......... housing ....... and rather than wallow in my moving stasis I thought I'd take the long view on the overall situation in the country with a historic lens...

The post will not split down on regionalism, instead looking at the whole of the UK. London property in particular has grown more than regional property - and I believe property in the south of England has gone up rather more than the north.

These might be explored further in later blogs - and of course everyone's individual mileage varies - for now this one looks at overall averages across the whole of the UK.

First up lets have a look at the headline picture - house price growth since 1971: (Source ONS)

The 'crash' of the early 90s is in there (Though it was more of a flatlining in the round), and the 2007 correction. We can also clearly see the mid 90s -> mid 2000s  at least tripling of prices.

Of course wages have also increased from 1971 to now. Here is a plot of the average wage (I'm ignoring skew for the sake of simplicity) added to the house price graph. The source is: https://measuringworth.com/ukearncpi/ ,and both lines have been rebased to the same point.

Rising wages, rising house prices - who'd have thought it ! Although we can clearly see house prices have risen faster than wages. Anyway here is the 'ratio' graph

The local maxima are December 1973, July 1989, September 2007.

But of course there is an additional factor, the bank of England base rate - ostensibly used as a tool to control inflation - here is how that has gone from 1971 to present (The latest 0.25% increase isn't shown as the data only goes to September of this year):

From this the I'm going to derive a slightly contrived function - the average mortgage repayment (As a % of salary). The terms of the mortgage are 25 years, at the BoE base rate + 2% (This reflects that some people will be on offers, and others on bank SVR; and that the banks generally look to make a profit on mortgages !). The mortgage will repay 100% of the capital borrowed, and the mortgage is assumed to be 100% of the property value:

Anyway here goes:

The local mortgage maxima are November 1973, November 1979, the third quarter of 1989 and August to November of 2007.

Conclusion Purchasing a property financially is a game of two halves: The deposit and the mortgage repayments. Right now the deposit required for a property is historically unaffordable, but if ALL the capital could be borrowed then the mortgage repayments are historically somewhere near the global minimum due to the extremely low interest rate currently at the Bank of England.

Looking forward:

Dwelling growth continues to be outstripped by population growth1, hence the general upward trend in wage-house price ratio. Also seeing as people only need one property, the value of one's property doesn't particularly matter providing people can service the mortgage as superior properties will generally cost more, and inferior ones less.

It is also the one general purchase in life where credit almost always makes sense seeing as a use is received from housing over a lifetime, whereas the price is only paid once. This blog post doesn't have the scope to get into Buy to Let arguments beyond noting purchase of property beyond a first is to a large degree speculation.

What should be done:

The historically high house price/wage ratio makes it more difficult than at any time previously to purchase a property, though once purchased the mortgage repayments are not historically onerous. Policies such as help to buy are basically sticking plasters (And could inflate the market yet further as well as exposing the Gov't to house price risk)

A program that encourages housebuilding either directly or indirectly, and a (very) slow rising of interest rates would seem the best way out of this to me so as not to cripple the market but also return long term affordability.

1http://www.telegraph.co.uk/finance/economics/11113110/Three-reasons-why-Britains-housing-market-is-broken.html (Which has some interesting charts - chart 1 is the one to look at though) & https://en.wikipedia.org/wiki/Modern_immigration_to_the_United_Kingdom#/media/File:UK_Migration_from_1970.svg which shows immigration (I understand it doesn't show population growth but that is very highly correlated)

The "cry wolf" election.

I knocked this up June 8, before the election results came in:

Ed Miliband the Labour leader in 2015 had a broad range of policies that were not a million miles off of what Theresa May has in her SDP-Tory hybrid manifesto to bring onboard working class Labour voters.
An energy price cap here, a few modest spending increases there...
The press went after him as they have with every Labour leader forever (Except Blair) - Red Ed, mocking him for the way he ate, his late father being disgustingly attacked as a danger to the country and somehow this impacting on Miliband's standing himself. I also remember the Alex Salmond posters, not the ones portraying Ed in his pocket, but one in Broxtowe where he was shown as a burglar. He of course is nothing of the sort, and the advert for me crossed the line - however as the ASA can't regulate political advertising it could go through.
Of course Ed Miliband was emphatically NOT a danger to the country if he had attained power we'd have had no EU referendum, and Jeremy Corbyn would not be leader of the Labour party.
Anyway Ed was beaten by David and that was all history.

Fast forward to 2017 - Labour through its own incompetence now has a man who is threatening to do a left wing Donald Trump to the country, a tub thumping "For the Many not the Few" machine that has defied all political logic about how campaigns should be run, and like Trump certainly NOT playing by the established media rules. He doesn't use twitter too much himself, but his acolytes and followers do - and I have noticed that once someone succumbs to the Corbyn tendency doesn't give it up too easily. May has called an election that seems far tougher than it ought at the start, and the adoration for Corbyn amongst the young is palpable.
Moreover, he's enjoying the campaign - and I believe the Tory tools that are being thrown at him by their friends in the right wing press are simply not as effective as they should be. Jeremy Corbyn claims to be a man of peace, but he has sympathised far more readily with Britain's enemies than he has with our friends. He did give succour to the IRA, and his right hand man, John McDonnell's comments should make the whole package completely unelectable. Mo Mowlam he is NOT.
But there is a problem. The buckets of slime that were poured over Ed Miliband's head in 2015 are being chucked by the same news outlets again at Corbyn. It looks like the same monstering even though the two crimes they commit are very different - one couldn't quite eat a bacon sandwich correctly, the other finds Hezbollah a respectable organisation.
The right wing press just may have cried wolf one too many times, and perhaps the public are dismissing the warnings because of this.

Corbyn I believe will stay on even with defeat, particularly if Ed Miliband's vote total is increased (I think this will be the case now), and the movement will grow and grow. The redtops - who proclaimed our High Court judges "Enemies of the people" will have no effect on him going forward. In fact they just make his appeal greater.