Decades-long Housing Inflation is killing British Productivity and the Economy
Housing inflation is killing the British economy.
To say so is of course a heresy in the United Kingdom as the 'cult of housing' is one of the three national religions. The other national religions are The NHS and queuing.
As this post shows the ratio between house prices and average salaries has doubled in 30 years.
This is based on average salaries and house prices that do not reflect regional differences and the differences in housing types.
However, simply house prices have at least doubled as a percentage of salaries. And in some areas, the figure is a lot higher.
Now, if you are a homeowner, that’s great. If you are not.
That is bad. As there are more renters than mortgage payers this is bad.
But what does this mean for the UK economy?
Twice as much money is being drawn out of the active economy into the passive economy.
This stifles consumer spending, housing building, and investment because more money is being dragged into mortgage payments and rent costs.
Long-term investment is down as less money reaches pension funds can make long-term investments as people spend more on rent and mortgages.
Money leaves the country by distributing mortgage back securities bought by foreign investors.
People have less money in their pockets to spend on goods, services and hospitality so over time demand decreases or downshifts e.g. a meal out at Pizza Express becomes a McDonald's takeaway. Reducing jobs and investment in supply chains.
The incentives for innovation decrease as easier economic returns can be made from rentier activities over starting businesses, putting money into shares or investing in start-ups. When you can just get into buy-to-let.
If you make a ‘few quid’ why invest in a business when you could buy some buy-to-lets.
Incentives for providing services towards the rentier economy and mortgage increases, taking people and investment away from the real economy.
Outside foreign investment in residential property becomes attractive due to the returns and only helps to force more British people into the rental sector.
A regime of poorly regulated rented housing and longer mortgage terms makes it harder to start a company or be self-employed.
Ever-increasing house prices also change the psychological approach to long-term investment for the population moving them away from liquid and distributed investments toward “safe as houses” when clearly putting “all your eggs in one basket” is always a bad idea.
These ever-increasing prices also push more people to see a house as their pension rather than a home. Or avoid paying into a pension due to higher living costs.
I could go on and on, however, I feel I have made my point.
Housing inflation is ruining the British economy but will be indulged as long as the smaller circle of swing voters gets their indulgences from the high priests of house prices who paint it as a 'good thing'.