A little noticed change in Britain’s housing market spells trouble for everybody. Moving home is becoming a rarity. After the 2008 financial crash, people have been moving far less frequently (on average once every 23 years), than during the boom in 1988 (around every 9 years).
So, why are people staying put? The causes of the current conditions are extensive.
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The golden age of the 1980’s property turnover encouraged people to buy their own homes. Credit blossomed as banks jumped into the mortgage market alongside building societies. This made it easier to take out large home loans and climb the housing ladder. The rate of home moving tumbled to an all-time low in 2009. At that time, the ordinary house would change hands once every 25 years. Nobody wanted to sell as prices took a nosedive after the onset of the financial crisis and negative equity loomed.
Many assumed that with the uncertainty that followed the referendum, house prices might at last slump. They haven’t. The market for the most expensive properties in London is weak and overall price growth has slowed. Delving further, it becomes clear that there are huge issues in the property market. The post-Brexit referendum stagnation in the number of sales further reinforces a long-term trend. Over the past twenty years, Brits have become markedly less inclined to move. This decline in residential transactions might seem like a minor factor when compared with the high cost of housing, but it leaves us worse off.
Decline in construction
One clear indicator would most certainly be the long-term decline in construction. Restrictions on planning and policies mean housebuilders are finding it difficult to find sites to develop. Around 50,000 fewer new build homes come to market each year than in the ‘80’s.
Demographic changes are also at work. An ageing population is a less mobile one. The way council tax is structured gives the elderly less incentive to downsize. Meanwhile, more of us live alone. Since 1981, the number of households with one occupant has risen from 20% to almost 30%. These people are less likely than those with children to require more space, so do not necessarily need to move up the housing ladder.
Low volume markets also tend to skew costs – at a time when prices are already high, this only serves to push them further. This then filters down the chain. In the current market, people are more concerned about getting enough money to fund the move to the next place and not how much extra they’ll be able to make. A lack of movement near the top means higher prices all the way down. High prices with thousands of pounds of stamp duty on top also means that it is nearly impossible for a lot of people to move from lower priced areas (i.e. areas in the North) to higher priced areas (generally in the South).
Arguably the biggest reason of all, are the ‘squeezed’ living standards of people and rising house prices. People can only move up the property ladder if they have the money to pay agency fees and have enough for a deposit. The sad truth remains that the growth rate of real household disposable incomes has fallen from approximately 3% to 1%. Things have only got worse since the vote to leave the EU thanks to higher inflation eating away at wages. Poor levels of wage growth make it difficult for homeowners to accumulate savings needed to move up the ladder. Nationwide values the current average UK house price at around £205,000. A decade ago, it was £172,000 and at the end of 1996 it was £55,000. Over the past 20 years, house prices have increased while wages have stagnated, and low interest rates don’t help buyers build deposits or savings needed in order to climb the property ladder.
For first-time buyers, a deposit can take up to 61% of their individual or joint earnings compared to 12% twenty years ago. Charting first-time buyers over the past 20 years shows how the norm is changing, from buying your first house alone to buying as a couple – today’s deposit would eat up far more than 61% of most individual salaries. The number of first-time buyer mortgages have also declined as a result of deposit amounts rising. This group have become rare and skewed, coming from wealthier backgrounds.
The graph using Council of Mortgage Lenders data shows how first-time buyer mortgages have fallen over the past 20 years
Alongside high property prices comes stamp duty. Two decades ago, tax was anything but significant. The average amount of stamp duty in the last decade per residential transaction has risen by 30% in real terms. For houses priced above a certain level, it has all but ruled out anything other than staying long term. In much of the South-East, a 4-bed family home can cost upwards of £700,000, and this puts the stamp duty at £25,000 in tax. This situation is compounded up the ladder where existing property owners might be looking to take the next step in their property journey from a two bedroom to three- or four-bedroom property, but see gaps of anywhere between £150,000 to £200,000.
Rightmove figures show the jump between the average first home in London and the next step is £200,000 with the average second home priced at £658,000. This issue is no longer isolated to this region, but has become a national issue.
This is where the alternative presents itself. As opposed to moving, renovation has returned to fashion, fueled by a shortage of homes for sale and high prices. Current political uncertainty is a large issue plaguing the housing market, with many buyers waiting to see what happens with Brexit. This uncertainty has caused some sellers to stall, which limits the number of properties on the market. Buyers who would have previously dismissed the idea of a home overhaul are now more open to the idea. Homeowners who’ve made the decisions to delay their move until the political climate improves are opting to extend and renovate. For some buyers, choosing a home that needs improvement is the only way to afford a home.
A slow housing market leads to a variety of issues. This is bad for younger generations. There is a tight correlation between the number of property transactions and the number of homes built each year. One potential explanation for this is that those building houses are focusing their efforts on the top 10% of the market – towards the more profitable area of the market. A lower rate of property transaction will therefore lead to fewer properties being built. This does nothing for people priced out of the market entirely, and there is nothing to suggest that the rate of these transactions will rise in the coming future.
The government has made a lot of noise about trying to get older people to downsize, however there are no serious policies in place to encourage them to do so. Alongside this, Brexit will only deepen the problem and inflation will continue to wear incomes down.
So, the reason people are staying put isn’t really a choice at all. The combination of increased costs of moving and lack of fresh stock on the market has made it harder to move than ever before – more homeowners are staying put and looking to add value to their properties. For those attempting to jump onto the property ladder to those circumnavigating the market, all are faced with the same barriers.
Short term prospects will be heavily dependent on how quickly the political and economic uncertainty shifts, but ultimately, the outlook for the housing market and house prices will be determined by the performance of the wider economy – especially the labour market. For positive changes to begin taking place, the UK needs its population to take the plunge and start navigating the property market.