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”
Boffy
Actually, I’ve written several good accounts of the 2008 crash, as well as predicting it was about to happen.
https://boffyblog.blogspot.co.uk/2008/07/severe-financial-warning.html
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: http://outsidethebubble.net/2016/09/22/a-fairer-deal-solving-the-housing-crisis/
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 -https://www.amazon.co.uk/gp/product/B00MNHZCLU?*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%.