Soaring Housing Prices in Britain

By Aditya Koppikar ‘18

uk-housing-rentsHousing prices have increased worldwide because of the expansionary monetary policies most countries have adopted. However, Great Britain faces a unique problem. Over the past twenty years, its housing prices have increased by more than any other country in the world. In fact, it is predicted that the average London property will cost 1 million pounds, or 1.5 million dollars, by 2020. If the housing prices continue to escalate at the pace they are currently, then it will become increasingly difficult for British citizens to afford homes.

            The increases in prices can be explained through a macroeconomic perspective. Population growth in Britain has been positive since 1983. The current rate of population growth for the United Kingdom is 0.6%. With the increase in population, demand for housing has increased. Additionally, with the housing prices in Britain continually increasing, there has also been a trend for foreign investors to buy property in Britain. Demand has also increased because of the increasing number of single buyers. With the 21st century trend to marry later and with the divorce rate increasing worldwide, many more individuals are looking to either rent or buy homes for themselves.  All these separate factors have caused a strong upward pressure on housing prices.

            We could also look at the supply side of the U.K. housing market. Britain is not currently producing homes at the pace it should to accommodate everyone. Local authorities built about 2000 homes last year, yet the population of Britain increased by about 500,000 people. This increase in demand far surpasses the relatively small increase in supply. With such low levels of supply and high demand, the housing market in Britain is not scalable enough to house larger populations of British citizens.

The housing market especially poses a toll on youths. With housing prices increasing so rapidly, owning a home is becoming increasingly difficult to U.K. millennials, who will now have to carry more debt than their predecessors. Because of the housing market, youth are forced to either live very frugally or find far-off housing and take very long commutes to work.

There is also the problem that some housing is underpriced. This could also be a problem because if a house is too cheap, then the landlord may not bother spending money to renovate the place because of the low revenues associated with selling the house. Thus, this often leaves many buildings able to house people, yet inhospitable to living because of damage to the housing and or infrastructure. This effectively lowers the supply of housing even more.

We cannot say Britain has not done anything to solve this crisis. Tower Hamlets, a London borough, has increased its housing supply by 30% since 2004. With public transportation, such as the Tube and buses, becoming more accessible, Tower Hamlets is more appealing to the British. However, even such efforts are not enough. There are almost 20,000 people on a waiting list for housing in Tower Hamlets.

Solving Britain’s housing problem is critical to not only improving its economy, but ensuring more economically sound lives for its citizens.  We are living in a time where even upper middle class citizens are struggling to find places to live. We want to ensure that the British youths will not be burdened by the cost of housing for most of their lives. However, this situation can definitely be solved. The government simply needs to focus on ensuring an adequate supply of housing so every British resident can find a home for a reasonable price.

 

Sources:

http://www.economist.com/news/britain/21667973-britain-has-one-booming-market-could-do-crash-through-roof

http://www.economist.com/news/britain/21667972-some-london-councils-are-cramming-lots-more-homes-it-still-not-enough-build-up

http://www.economist.com/blogs/freeexchange/2015/07/housing-britain

http://data.worldbank.org/indicator/SP.POP.GROW

http://www.bbc.com/news/uk-33266792

http://www.theguardian.com/society/2015/mar/14/britain-housing-crisis-10-ways-solve-rowan-moore-general-election

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