He wrote:
Nobody they know who is under 36 and not already a home-owner expects to ever be rich enough to buy a house. The average house costs as much as a helicopter or aAccording to Edmund's, a high-end Ferrari costs around $260,000 in the USA in 2008. According to the National Association of Realtors, the median selling price for a home in the USA in 2006 (the last date available) was $221,900, which is in spitting distance of the car price. And in my area -- New York Metro -- the median price was $469,300, which is almost enough to buy two Ferraris. (And that's not even near the highest area -- San Francisco is well over $700,000.)
high-ticket Ferrari.
So I don't want to hear any whining from the UK kids about how expensive their four-hundred-year-old ivy-covered housing stock is. They can do like Americans do, and move somewhere cheaper. (What's the EU equivalent of Phoenix, anyway?) And haven't the British ever heard of mortgages?
Update, later in the day: For comparison, the average British house, according to the BBC, costs 230,474 pounds. (Note that is a higher number than the US number, even though pounds are more valuable -- like many things, houses have a similar price tag in the UK and US, making the UK real price much higher.) Looking for a UK individual income number, I found some household statistics (which aren't comparable to the US numbers), and also found this BBC page from 2003 comparing income to house prices. I assume things have gotten worse in the UK, as they've gotten worse in the US, over the past four years, and those are also household numbers.
Why can't there be a single repository of all worldwide statistics on the Internet, so that we can always settle things like this?
I also found this Forbes article on various housing markets in the US, which I think speaks to my main point: there is an area at least the size of the UK within the US where housing prices are as high (relative to incomes) as the UK, if not worse. (For simplicity, we could call it "California," but other parts are as bad.) And there are other areas -- the Czech Republics and Polands of North America, as it were -- where prices are not as high.
17 comments:
On mortgages etc: the average price of a house in the UK last year was about £160k, IIRC, while the average salary was somewhere between one-fifth and one-sixth of that. You'll be lucky to get a mortgage to cover that amount, especially given the recent turmoil.
What's the average salary in the US? And how many multiples of that salary can you get a mortgage for?
I'm inclined to agree with Charlie here. One of the things about the UK is that there isn't anywhere cheaper. Remember that the UK isn't that much bigger than California, and much more densely populated. Now sure, you can go and live in Poland, but that's not quite the same as going to live in Phoenix.
A UK government survey on household expenditures recently reported its 50th annual set of results. Over that period the proportion of their income that UK families have had to spend on housing has more than doubled. Detail here.
Niall: If I'm reading this report correctly, and multiplying it out, the average weekly wage in the US for the second quarter of 2007 was $820, and thus the annualized average income would be $42,640.
So the average house costs nearly six times the average salary -- roughly what you said it was in the UK.
And, of course, the recent turmoil was because people at that income level wanted to buy houses, and in some cases didn't look too closely at the details of the financing.
Also note that it's generally accepted in the US that if you want to own a house, you'll need two full-time incomes. (That's not necessarily true -- I'm one data point against -- but it is believed.)
Cheryl: Well, given the relative sizes of the US and EU, I would say that, for a resident of California or New York, moving to Phoenix (or Alabama or Tennessee, to name two states with cheap living and recent job growth) is very much like a Briton moving to Poland, physically, economically, and emotionally. (There's more of a language gap in the EU, though.)
Yep, there's a job boom in Poland. Unemployment is currently only around 15%, down from 20% a few years back.
And I doubt you could get a job there if you didn't speak Polish, unless it was with a UK or American company.
By the way, none of this is to say that you aren't right about the cost of housing in parts of America. Heck, I live near San Francisco. I know how expensive it is. But I still think that Charlie is right about the housing prospects of young people in the UK.
There are lots of cheaper places to buy houses in the UK. Th North in general, has prices far below the average. (Naturally, salaries tend to be lower too)
The UK and Ireland have gone through similar changes recently, with demand for housing, and house prices, rising faster than the average wage. So yes, right now a lot of people are priced out, especially compared to 10/15 years ago. But things will change back eventually.
If the majority of people cannot buy a house, won't prices come down?
I mean, that is what we are seeing the US right now. The current prediction is a 20 to 30% fall from the peak prices, with wage inflation making up an additional 6-10%. A fall of 40% in 3-4 years means 5-6 years income to 3-4 years salary, not to mention that interest rates are still very low.
Ray: cheaper houses are no help if salaries are lower by a similar proportion, because the people getting those salaries still won't be able to get a mortgage. The US is a huge market, and there always tends to be somewhere you can go where the local economy is booming, salaries are good, and houses are cheap. The UK is much smaller, and that doesn't happen so much. And while in theory the EU is a single market, barriers such as language restrict the free movement of labor. There's also some evidence that house prices are rising fastest in those cheap areas. In the far north of Scotland, for example, house prices have trebled in the last 10 years.
Brad: your economic instinct is good. If demand for housing drops off because people can't afford it then surely the suppliers have to reduce prices. That's bound to happen to some extent, particularly with new housing. But if, at the same time, the population is increasing, then demand for housing increases, keeping prices high for those that can afford them. And you have to figure the rental market in as well. If you can make more money renting a house than you need to pay in a mortgage, then you can keep buying up houses and renting them out to cover the cost of the purchase. People who are rich enough to buy a second house can keep on doing this, buying up more and more of the housing stock, while people who are not rich enough to buy a first house are stuck, forever paying out huge sums in rent and not able to save for a deposit on a home. Finally the whole mess is exacerbated by the fact that the UK currently has serious shortage of homes, and of places to build them.
Cheryl, yes, I agree, cheaper houses are no good if wages are lower. The same argument is true about moving to Poland - house prices and wages are both lower.
The question, in both locations, is are they lower by the same proportion, and that's not a given. Have wages trebled in the north of Scotland?
(I'm not saying houses aren't expensive, just that Charlie is exaggerrating)
Ray: You are absolutely right about the Polish economy. That's why so many Poles are leaving their country. I picked Poland as an example more to illustrate to Andrew that the EU is nowhere near as culturally homogeneous as the USA.
I have no idea what wages are like in northern Scotland, but Aberdeen aside there's not much industry up there. When I'm in the UK I live in the South West. There's not much in the way of employment prospects here either, but that hasn't stopped house prices from shooting up.
I'm just reporting what the news media are covering, in this case.
The average age of first-time buyers is around 34 and has been rising by more than one year every 12 months. If Feorag and I wanted to, we could sell our apartment in Edinburgh and move to a house with equivalent floor space in New York. Yet we're priced out of London (if we wanted to move there).
Current projections put the UK population (currently 60.2 million) at somewhere in the range 65-110 million by 2100 (depending on how immigration policy goes, mostly). Yet 50% of our surface area is uninhabitable. If the UK was populated to the same density as Greater Los Angeles and suburbs, we'd have to off-load 30% of our population to fit!
That current average house price of 175K is actually $350,000 at the current exchange rate. But in the south east (where the bulk of the population live) it's more like US $500,000. A one-bedroom flat here in Edinburgh (not the south east) goes for £110-160,000; to get cheap accommodation you need to either look to buy in really rough high-crime areas, or the boondocks (and remember, if you go for the latter you're looking at gas costing $9/US gallon when it's time to commute).
Coincidentally we have some new numbers today. The current average price of a new home in the UK is £197,244 ($387,525).
The credit crisis is having an effect. Prices didn't rise much in January. The average rate of price rises over the past 12 months is only 4.5%, as compared to over 11% 4 months ago. However, the major mortgage lenders are currently only expecting flat prices through 2008, not the 20%-30% falls that Brad says the US is experiencing.
Andrew - I suspect that The Economist has the database you want, but you have to pay for access.
To be clear, this "Nobody they know who is under 36 and not already a home-owner expects to ever be rich enough to buy a house." is the bit that smacks of hyperbole, not the comparison to the price of helicopters or cars. (And incidentally, saying a house costs as much as a Ferrari makes me think the houses are cheap and the cars overpriced)
I'm curious about the stat that the age of home-buyers has been rising a year per year recently - how far back does your data on that go?
Hyperbole? No, I don't think so. Remember that he's not saying that no one will be able to afford a home. He's saying that if you haven't got a foot on the ladder by the age of 36 then you probably never will. And that's because your chances of significant promotion at work will be gone and you'll be paying too much in rent to be able to save. Also the older you get the harder it is to get a mortgage.
There are potential holes in that. In particular if your parents die then you may inherit enough money from the sale of their home to be able to buy one yourself. Death duties will probably prevent you from keeping their home, even if you are an only child, but you may be able to afford something smaller. But by and large I think it is reasonable.
Charlie will have to answer himself as regards the age of first time buy stats as I don't have the numbers.
"He's saying that if you haven't got a foot on the ladder by the age of 36 then you probably never will."
???
No, surely then he'd have said ""Nobody they know who is _*over*_ 36 and not already a home-owner"
That's more defensible, for the reasons you suggest, but it doesn't fit with the statistic about the ever-rising age of home purchase.
(I'm interested in the age of home-buyers, btw, not because I think anyone's being foolish enough to expect a never-changing trendline, but because a chart on that sounds interesting in itself)
OK, see what you mean. I'll have to leave it to Charlie to say what he actually meant, but clearly saying that no one who is currently under 36 and doesn't have a home will never be able to buy one is silly. There are always people who will get well-paid jobs. (Although your average Ned is never likely to know anyone like that.)
It is an interesting statistic. It would make sense if people were having to save for longer and longer to afford a deposit, but as I understood it the mortgage people were responding to that by allowing ever more generous credit, which is what got us into the current mess.
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