Baby boomers would accept a fall in house prices if it helped young people to buy

Over 55s currently own 63 per cent of the UK's housing wealth


Almost three-quarters of British people believe that housing is driving a wedge between generations, according to new research from the National Housing Federation.

And with over 85s owning more of the UK’s housing wealth than everybody under 35, resentment seems inevitable. However, the ill-feeling may only go one way, the poll suggests.

62 per cent homeowners over 55 saying that they would accept either a stalling or a drop in house prices if it would help the young to buy, against just 52 per cent of younger homeowners.

Of the older cohort, 35 per cent would accept a drop in prices, against just 15 per cent of under 35s.

The Housing Federation suggests that the so-called Baby Boomers may be more relaxed about house prices because they are comfortably the most asset-rich segment in society, having already reaped the benefits of decades of housing price growth.

Additionally, this cohort is most likely to have children currently struggling to get on the housing ladder.

David Orr, chief executive of the Housing Federation, called on the government to heed the results and adjust its approach to housing.

“Contrary to political opinion, the British public are no longer obsessed with perpetual house price growth. In fact, the overwhelming majority would now accept a less buoyant market if it made life easier for the next generation. Nobody wants a crash, and we are certainly not advocating one, but politicians need to hear this.

“That so many who stand to benefit would today pass up the opportunity to do so demonstrates the extent of public empathy and underlines the severity of the problem for the young.

The National Housing Federation hosts its annual conference in Birmingham this week.

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13 Responses to “Baby boomers would accept a fall in house prices if it helped young people to buy”

  1. Mark Thompson

    Well they say they’d be happy with a drop in house prices, but then their cohort diligently votes for parties that (tacitly or otherwise) promise the opposite.

  2. NHSGP

    Flog your house for half price to some one younger than yourself.

    Er, I meant for someone else to sell me their house cheap.

  3. Imran Khan

    No wonder nobody has put their name on this article. It defies the laws of economics.

  4. Boffy

    ““That so many who stand to benefit would today pass up the opportunity to do so demonstrates the extent of public empathy and underlines the severity of the problem for the young.”

    Except no one, other than landlords and housebuilders is benefitting from higher house prices! If you are over 55 and have had your house for 30 years, its paper price might have risen by around 3000%, but what use is that? Its not like owning a share which has risen by 3000%, and which you can simply sell. If you sell your house, you still need somewhere to live, whereas you do not need to buy another share to replace the one you sold.

    If all house prices have risen by 500% when you come to buy another to replace the one you sold, that will have risen by 3000% too, and because all of the costs of moving house, such as estate agents fees, and solicitors fees are based on the price of the house, all of those will have risen. And, while you are living in the house, similarly, the cost of house insurance and so on will have risen. Yet the house itself, in terms of its utility, will be less than it was thirty years earlier, because it will be older, will have deteriorated through age, and require expenditure on it, for maintenance and repairs etc.

    Moreover, if you bought a house thirty years ago when you were twenty-five, you might have expected to have been able to move up to a better house than one you could afford in your youth. If you paid £30,000 back then in 1986, you might have expected to have been able over the years to save a bit each year, and move up to a £60,000 house. However, whilst your £30,000 house now sells for £150,000, the £60,000 house you would previously have been able to move up to costs £300,000, a £30,000 deficit has become a £150,000 deficit, which you now can’t bridge, which is why so many existing homeowners in that category, have found they cannot move up to a better house, which then also stops them putting their own cheaper houses on the market.

    In addition, people in that older age group, with kids, have been morally blackmailed to borrow against their existing house, even where they had paid off their original mortgage, so as to provide cash for their kids, to go to University, or to put a deposit themselves on an overpriced house of their own. So, even nominally any cash they may have enjoyed has been swallowed by the ridiculous rise in house prices, and in place of the asset they acquired in the period when the post-war prosperity allowed workers to accumulate assets, they have now been lumbered with a debt, hence the spectacular rise in the amount and proportion of household debt.

    The inflation of asset price bubbles will inevitably burst, and because it has been repeatedly inflated by central bank and government policies, it will burst more spectacularly than every other occasion in history when such asset price bubbles have burst. Unfortunately, for all those who have encumbered themselves with astronomical levels of debt, including all those baby boomers who have themselves facilitated that bubble by lending money to their kids for housing deposits, or to turn themselves into buy to let landlords, will see themselves ruined as a consequence.

  5. wg

    Well, I’m in that age group and I bought my house to live in.

    Once again we are seeing a persistent agenda to demonise old people when what is really responsible for the housing crisis is the environmentally unfriendly and unsustainable levels of immigration.

  6. Boffy

    Immigration, really? If it wasn’t for all the foreign construction workers we wouldn’t be getting anything like, even the low level of construction work that is currently happening! The real start of the rise in property prices occurred during the 1980’s, when they quadrupled. Incidentally, I garbled my numbers above, because I was basing it on my own experience.

    In 1977 I bought my first house for £5,000, which by 1988 had risen to £23,000. I bought my second house in 1988 for £30,000, which I sold in 2010 for £150,000. So, effectively between 1977 and 2010 prices had risen by around 3,000%, whilst between 1988 and 2010, they had risen by around 500%.

    The rise in house prices has nothing to do with immigrants and everything to do with lax credit policies, and encouragement for people to over borrow, as well as government policies to artificially inflate speculative demand for property, whilst restricting the supply of new housing, particularly by stopping all new council house building.

    But, the real cause of high house prices is speculation on the back of those loose credit policies. We keep being told that there is a shortage of supply, but in fact, there are 50% more homes per head of population today than there was in the 1970’s! There are over 1 million empty homes, and planning permission for around half a million more that has not been activated.

    We keep being told that there is a shortage of supply and excess demand, and yet if that were really the case, the very high prices would lead to high profits for builders causing them to build many more homes for sale. Yet, they do not, do so, and the reason is, that although there may be high levels of housing need that is not the same as high levels of demand at current prices. No one can afford to buy houses at their current prices, which is why builders will only build small numbers of them, on the basis of only building what they know they can sell.

    When as they soon will, house prices collapse, land prices will collapse too, which will considerably reduce the major cost of building new houses, which will mean that builders can build houses to sell at lower prices that more people will then be able to afford to buy, so that builders will be able to build more houses that they can sell, which will in turn create larger profits for housebuilders.

  7. ad

    62 per cent homeowners over 55 saying that they would accept either a stalling or a drop in house prices if it would help the young to buy, against just 52 per cent of younger homeowners.

    And you believe them?

  8. Michael WALKER

    If house prices halved in the UK, most banks and building societies would be bankrupt and stop lending money.

    And anyone who had bought a house on borrowed money in the past five years would have negative equity and be unable to move.

    So that’s the housing market well and truly stuffed as no lending = no new build.

  9. Boffy

    The fact that banks and building societies went bust would not mean that the deposits in those banks and building societies disappeared. A bank or building society going bust really means that the share and bondholders lose their shirt, not the depositors, especially as we have state backed deposit guarantees. It would be a great opportunity for those banks and building societies to be taken over by their workers, turned into a large new co-operative bank, and provide lending to new borrowers that would be far more safe and sustainable, because it would be based on realistic rather than unrealistic house prices. There are vast reservoirs of loanable money-capital, and it is continually being produced from revenues. It is not somehow manufactured out of the air by banks and building societies.

    The mortgages that the banks and building societies already hold would still mean that mortgagees had to continue paying their monthly instalments, whether they were in negative equity or not, and that revenue provides the basis for lending to new borrowers. There are a lot more people who bought their houses prior to the last five years than those who bought them in the last five years. The fact is that house prices are in such a bubble that for someone who bought a house 20 years ago, house prices could fall 75%, and they still wouldn’t be in negative equity!

    Such people with a 75% drop in house prices would be in a position to move up the housing ladder, freeing up their cheaper property for first-time buyers.

  10. Michael WALKER

    I suggest you read a good account of the 2008 Crash.

  11. Boffy

    Actually, I’ve written several good accounts of the 2008 crash, as well as predicting it was about to happen.

  12. Craig Mackay

    House price inflation is a key source of inequality in our society. It needs a radical solution to bring it under control, and an active approach to changing the taxation regime on property to progressively force down prices. Have a look at a much more detailed piece on this very subject on:

  13. Boffy

    If you look at past periods over the previous century there are fairly clear, approximately 25-30 year periods when real terms asset prices rise or fall, and this is essentially down to turns in long term trends in market rates of interest. During periods when the average rate of interest is rising, inflation adjusted asset prices – shares, bonds, property – fall, and vice versa.

    The reason for that is quite simple – capitalisation. That is the price of such assets is determined on the basis of capitalised revenue. If, profits and along with it, dividends are rising, that will tend to cause share prices to rise. However, that is offset if the average rate of interest is rising. Take a share that produces £10 in dividends, and has a current value of £80, so the yield on the share is 12.5%. If profits rise, and the share then pays £12 in dividends, if the yield on the share remained constant then we would expect the share price to rise to £96.

    However, assume the average rate of interest was initially also 12.5%, so that in order to obtain £10 of income, you needed to own some other asset with a value of £80. For example you may own a bond with a value of £80, or a piece of land with a value of £80, that pays £10 in rent. If the average rate of interest rises – which, of course, is not something central banks can control whatever they might pretend – because the demand for money-capital rises, as firms seek to expand, and so on, to 20%, then in order to obtain £10 in interest, you only need to own an asset with a value of £50, the capitalised value of the income stream thereby falls.

    A share that pays £10 in dividends, would then fall in value to £50, and although the rise in dividends from £10 to £12 causes the share price to tend to rise, the rise in the average rate of interest causes it to fall by a larger amount, i.e. the capitalised value of £12 in dividends becomes £60, resulting in a fall of 25%, in the price of the share. This is why stock market speculators, bond market speculators and property market speculators love bad economic news, because they hope it will prevent interest rates rising, and the capitalised value of their assets from being shredded.

    If you look at the charts of inflated adjusted share prices on the Dow Jones, it shows that between around 1960 to 1982 they were declining. That was a period when the average rate of interest was rising. From 1982 the average rate of interest was falling for around 30 years, which led to the huge bubbles in share, bond and property prices – between 1980-2000, the Dow Jones rose by 1300%, as opposed to only around 250% growth of US GDP.

    From around 2012, the long term trend in the average rate of interest began to turn, though it isn’t apparent in bond market prices, because of central bank manipulation in the developed economies. Look at sovereign bond prices elsewhere in the world, and another story, the other side of the coin can be seen. The real movements in market rates of interest can be seen in the 4000% rates of interest charged by pay day lenders, on whom increasing numbers of people are dependent, on the 30% rates of interest on credit cards, on the inability of smaller businesses to be able to obtain finance at all, or only through things such as peer to peer lending at approx. 10% rates of interest, as well as in the repeated sharp rises in short term LIBOR, HIBOR, EURIBOR and other such interbank rates.

    But, the fact is that these laws of economics will play out this time, just as they have done for the last 250 years of the existence of industrial capitalism, and the average rate of interest will steadily march higher, whatever central banks may do. In fact, the central bank manipulation of the last few years is likely only to make matters worse, a bit like damming up the stream until it eventually bursts through. As the secular trend of interest rates rises over the next thirty years, as always happened before there will be a thirty year secular fall in real terms asset prices, be they shares, bonds, or property, and given the extremely low level of rates currently, and the actions of central banks to try to maintain asset prices at their current bubble levels, we can expect that even modest rises in average rates of interest will cause large falls in capitalised values of assets. In other words we can expect large falls in the capitalised value of assets in the short term, as I set out in my book -*Version*=1&*entries*=0 – I expect a much larger financial crisis than 2008 in the near future, which may be followed by some short term recoveries within an overall long term trend of decline in financial assets.

    For, example, the capitalised value of £10 is £100 if the average rate of interest is 10%, and fall to £80, if the average rate of interest rises by 2.5 percentage points to 12.5%. But, if the average rate of interest is 1%, the capitalised value of £10 is £1,000, which falls by a whopping £715 to just £285, if the average rate of interest rises by 2.5 percentage points to 3.5%.

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