Ms ZiYou Housing

What are we leaving the kids – Intergenerational Unfairness – Part 2 – Housing Market

Time is a great healer; all those injustices you felt in the past fade in importance in your life. But what happens when you see a bigger injustice as time passes? Do future generations seem to have it even worse? After looking at higher education in the first part on intergenerational unfairness, today in the second part I want to look at the housing market.

As I’ve mentioned before the housing market has been good to me. Actually very good – my timing has been uncannily lucky – buying only at the major dips and making handsome untaxed profits on each purchase.

Nonetheless, I am getting concerned more and more that this is not repeatable for younger people today. The market seems to have fundamentally changed in a way that doesn’t seem that fair to me.


Over the years as the world pursues growth objectives we see changes in many facets of life. Today focussing on housing, I hope you can agree that the housing market has been changing. Both house prices for sale and rental prices appear to be growing exponentially in real terms, without any corrections to level it out.

Alongside this, inflation is ever-present in developed economies and incomes are also increasing. However, housing costs and wages have been growing apart from each other. Both prices for property for sale and the linked cost of renting housing have risen. While wage growth struggles to keep pace with inflation, housing costs have increased by more.

Housing Market Today

As these two costs diverge, we are now in a place where young people are spending more and more of their income on housing. But comparing them to people 50 years ago and even 25 years ago, you can see significant differences between the generations.

To buy a house in 2018 (latest data available), you’d have needed an average of 7.8 times annual earnings. In 2002, this figure was 5.0 times annual earnings.

However, these are just averages. And when you look into the detail, you can see how variable it is – some places are still relatively affordable, whereas others are very expensive compared to incomes. Watching the graphic below change from 1997 to 2018 you can see as areas become more affluent they also impact the areas around them. Moreover, by 2018 all of the South becomes unaffordable relative to local incomes.

And the observant will note, that the areas where more people want to live, i.e. cities are some of the most unaffordable. And that is even taking into account the significantly greater incomes enjoyed by the residents on average.

For that stats and details minded, you can read all about in in the ONS – Housing Affordability Report.  Alternatively, for those more graphically minded, they have produced a great graphic to demonstrate this.

Housing Market Affordability

And so in 2019, we have ended up with a housing crisis. People who want to buy in some areas cannot afford to. And no matter how many avocado toasts and lattes they cut back on homeownership seems an impossible dream. Some people like me have struck it lucky – saved up and had enough income to buy at a time before house prices accelerated. And even older generations like baby boomers have benefited even more if they were on the housing ladder; sitting on very handsome profits. This is creating a gulf of inequality between generations. What you could do years ago could not be repeated today with the same results.

And so?

So what is the problem if some people can’t afford houses? Or to live where they want to? While I agree it’s unrealistic for us all to be able to afford a flat in Mayfair, I do think it is realistic for a top 1% earner to be able to do so, from her/his own income alone. And at the other end of the scale, we need to have easily commutable places near London where lower-earning staff can live. We need a mixture of people in society and all our cities. I’d argue the road sweepers, cleaners, shop assistants and chefs are just as important to house as the top earners.

Everyone needs a home, and we need a mixture of people.

But now we are in a situation where younger people can’t afford to live in lots of the country. We are creating a gulf between the older middle class who bought at the right time, and the younger who aren’t as lucky. Families are using their money to help out their youngsters, thus entrenching benefits on those with richer parents.

This goes further than money; a home is a safe and secure place to live. After all, there is certainly a reason Maslow rated shelter and security as very fundamental in his hierarchy. By allowing housing to become so unaffordable, we are forcing future generations without rich parents to make difficult decisions. And ultimately their standards of living and mental health will suffer.

It’s not just me saying this – read more from the press:

Privilege Check – isn’t this all a bit middle class?

And yes – this is a very middle-class perspective and first world problem. Every generation is stratified; there are babyboomers who have always rented and never benefited from the housing market. Likewise, there are millenials who have millions and mansions. But overall on an average basis, things are getting harder as time flows on. And if we leave these problems compounding they will impact social mobility and deny more and more people equal opportunities. So yes, it is a middle-class problem, which unchecked could ultimately lead to the hollowing out of the middle class.

In summary – something needs to change

To conclude, I don’t have a solution for this issue. We do need to build more, many more homes. We need to stop NIMBYism. Building on the green belt vs building higher needs to be evaluated. Revitalising the north is key – encouraging more business to relocate and decentralising government departments out of the capital.

But I do firmly acknowledge this is really a problem that needs much more focus. Given the complexity of the issue, a nuanced multi-faceted solution will be required, that takes into account the many driving forces, of which only a few I’ve covered.

Now, if we don’t make any changes we are entrenching inequality generation by generation. Do we really want to go back to when only the landed gentry owned and homes flow in families?

Over to you

  • What are your thoughts?
  • Do you think we have issues with intergenerational unfairness?
  • What do you think the future of the housing market?

Thank you for reading – please leave a comment below and join in the conversation. You can also connect on Twitter or contact me privately.

28 comments on “What are we leaving the kids – Intergenerational Unfairness – Part 2 – Housing Market

  1. I challenge your premise here. The system is working as it is designed to. There are certainly some flaws (e.g. stamp duty), but what you are describing is the free market in action.

    If there is a finite quantity of something and an increasing number of people want it, the price goes up. Conversely if demand for something drops off then the price goes down.

    Britain is an island, the very definition of a finite space. The bulk of the highly skilled and highly paying jobs are concentrated in London.

    This acts as a magnet for folks seeking employment opportunities, but also concentrates demand for housing into a relatively small commutable area. The larger the population gets, the greater demand for a finite volume of housing, raising prices.

    The housing “crisis” is a manufactured issue, based upon the flawed argument that everyone is entitled to live wherever they desire to, irrespective of their income level. The harsh truth is that they are not.

    To illustrate this try out the same argument after substituting another asset class for housing: “I want to own VWRL shares but can’t afford them. Rich people can, so that is not fair. ‘They’ should do something, so that I too can own the asset despite not being able to meet the purchase price”.

    Few people would argue the entire population is entitled to own VWRL shares.

    Looking back over the 2000+ year history of London, can you identify a single point in time where the majority of the population genuinely thought “wow, these property prices are perfectly reasonable and I can afford to buy exactly what I want”? The best I could come up with was the black death, when supply tragically and temporarily exceeded demand.

    Our parent’s generation may concede the multiples are higher today than in their time, but few would describe their own experiences at the time as feeling easy or comfortable. Same for their parents, and so on. Housing only look cheap in hindsight.

    You rightly observe that not everyone gets to live in Mayfair. The same can be said of London. Those shop assistants and chefs and school teachers you mention all have the option of plying their trade in a locale with a lower cost of living. Living in London might be their preference, but it is an expensive one. Opportunity cost at work.

    Throwing up vastly more housing around London perpetuates rather than solves the systemic problem. Establishing employment centres elsewhere and improving high speed commuting options, to spread out the demand and ease the pricing pressure would deliver a more sustainable outcome.

    1. Thanks for commenting Indeedably, I do love hearing everyone’s points of view and different perspectives on this.

      And the great fire certainly corrected that housing surplus after the plague.

      So should the housing market be based on a free market? Is housing not a universal human right?

      1. That is for each society to decide for themselves.

        In the UK real estate is viewed primarily as a financial asset.

        Housing is certainly a basic need. Everyone requires a safe warm place to sleep.

        However property ownership is not the same thing as access to housing.

        I’d argue everyone already has the right to purchase one (or more) properties, many just lack the financial means to do so.

        People always have the option to rent, and those who can’t afford that can receive housing assistance in the form of benefits or council housing.

        Whether that assistance should afford them the opportunity to occupy that flat in Mayfair is debatable. I’d argue not, as from a service provision perspective it would result in a poor return on investment. The same money could provide housing for multiple families in a more moderately priced locale.

        1. However as the property market has gone up and up, rental prices have also increased making them much less affordable for those on lower incomes. And not everyone who can’t afford a private rental gets social housing or benefits.

          And the cycle seems to be perpetuating itself….

          1. Unfortunately that is how the system is designed to work.

            The financially successful coalesce towards the perceived desirable areas. Those areas surrounding them gentrifying and displacing the less fortunate out.

            Meanwhile the costs of child care, tradespeople, restaurants, and so on shoot up in those desirable areas. Low earning staff can’t afford to live nearby, so the scarce pool of available workers drives up local wages.

            The effect ripples outwards, resulting in disadvantaged communities and the social problems that brings.

            Notting Hill is an instructive example. 50 years ago it was an undesirable struggle town, full of migrants and people with no other options. Today it is recognised as well located and desirable. As the yuppies moved in, many of the former residents got priced out. It sucks to be them.

            However, those who managed to buy back then, and were patient enough to hold, are paper millionaires today. The opportunity existed for all, but few availed themselves of it.

            Sounds easy, but only in hindsight.

            The “Millionaire Next Door” showed wealth gets created through business ownership and expectations management. Social climbing and status seeking are the reverse of that. The true winners are those living modestly within their means, however many zeroes their bank balance may contain.

            Those earning low wages but wanting to live in Mayfair have already lost, paying too much for everything due to their location. They just don’t realise it yet.

  2. No need to worry Jeremy says he will build 1.2 million social houses, the bbc says this is not enough and needs to be at least 3 million.

    Lots of free houses for those on benefits.

    You will pay for it via land tax on your property, wealth tax on your investments and capital gains and dividends tax which is unearned income.

    Then we can be happy that our conscious is clear, everyone has free stuff and we are lightened of the burden of having savings.

  3. They should start by banning BTL, and increasing taxes on holiday homes and empty properties. Then chase all the accidental landlords that are not declaring their rental incomes with punitive penalties. There are probably a lot of them, big data should help identify this easily.

    This will help suppress the demand a bit, and values will slowly drop.

    Then introduce land value taxes, like most other civilised countries have. At same time remove stamp duty to get people downgrading/ upgrading as appropriate.

    Offset this by reducing higher tax rates on income, as working harder / earning more shouldn’t be punished as it is in the current system.

    Cheaper overall housing costs for everyone will mean more money to spend in the economy….

    Just my 2 cents.

    1. Hi Travelprof – ah, I’m also in the anti-BTL way of thinking. The recent BTL tax changes have started some changes, would be good to see what happens next.

      I can see the benefit of more land value taxes and less income tax, it’s a good productive balance for the economy.

  4. I’d challenge quite a few of the notions here.

    We are obviously pretty close to providing housing for everyone as there are not huge numbers of homeless (yes, there are still too many – but the reasons are not generally those of supply). What we don’t have are enough properties for everyone to have a BTL (or dozen) as their pension/FIRE vehicle while satisfying the needs of the majority for accommodation that suits their needs. Often BTLers are in direct competition with younger people wanting to buy their first house (and are better moneyed and benefit from greater tax relief).

    Some areas like Scotland had a population decrease and yet still had huge house price increases.

    Visit parts of Liverpool and North Staffordshire you’ll find there is plenty of ultra cheap and empty housing available – but few want it. That suggests that part of the problem is distribution of economic opportunity with a strong bias towards London and the South East.

    The biggest problem in my view is that of credit. House prices tend to track availability of credit and it seems to me that banks and the UK government has done everything possible to prop up a market which is by no means a free one.

    1. Hi greencat – thanks for sharing. If we look at the wider picture I agree there are enough properties for everyone in the country – but people would have to make a lot more compromises than they do now. Landlords would need to take less rent, people to live in less desirable areas and for people to move as their family unit increases or decreases.

      And as you say, credit is one of the driving forces and the ultra low rates are certainly propping up that market.

  5. Hi Ms ZiYou, this is a hard one, I’m no economist and I don’t live in the UK, so I’m not sure I can comment here. What I will say is while there’s no doubt housing costs have increased more than wages in desirable locations like London or NYC, I think the bigger issue facing Millenials and Gen Z generations is the increasing lack of good, high-paying jobs in desirable cities when they start their careers. In the US, the so-called “gig economy” seems to only be growing, and there’s no way one can buy even a small condo in such places on a gig salary. As a result, places like NYC are slowly turning into a dorm for Wall Street bankers and/or high-end apartments bought by foreign magnates of dubious means, empty most of the year. Not sure what the solution is though ☹️

    1. Hi FF – that’s a great link there that you have highlighted between incomes and housing costs in locations. It’s certainly a key driving factor in popular cities becoming less and less diverse in their residents.

  6. It’s what i see quite a lot on social media is people being right on about social justice issues. Sjws. Maybe they feel guilty for being well off. Often argue for higher taxes and social justice and equality of outcomes. Ironically they will be the ones that suffer as they are in the 1% when a hard left govt gets in. Which may be this is what they unconsciously wish for, as they don’t feel they deserve the success they have earned.

  7. I’m afraid I can’t get too excited about the cost of housing….

    Perhaps it’s because I’ve seen far too many tenants over the years pissing their money away whilst claiming to be “saving for a deposit”?

    Or perhaps it’s that, having discussed housing many times with my grandparents when they were alive, I’m aware what a recent phenomenon this “right” of the masses to own houses is.

    I can imagine kids in school in a couple of hundred years’ time being taught about the short-lived appearance of a property-owning middle class in the late 20th century. People with pretty normal jobs being able to buy their own slice of planet Earth – and in their 20s too! Unbelievable!

    1. Hi Jo – thanks for sharing your perspective – and yes this middle-class homeownership is such a 20th-century thing. Now is it something that is an integral part of the middle class we want to preserve or reduce?

  8. Hi Ms Ziyou, thoughtful post.

    Unlike some of the other commenters, I agree with you. Intergenerational social disparity will only become greater, and this will always be the case given supply and demand. Capitalism at work. There are lots of small households now given demogaphic shifts whereas it was rarer in the past. So there’s that on top of the btl market.

    While it’s true we can’t expect to live wherever we want, everyone needs housing. Swathes of the country probably need regeneration. Again the capitalism fallout is that some towns prosper while others decay.

    Social mobility has already decreased. When society move more to the right, the bigger picture is lost. That is, the bigger the gap between rich and poor, those with property portfolios vs lifelong renters, the more social / civil unrest and crime there will be. Yet also the idea of a close to level playing field in the past is a myth yet social mobility was greater in previous decades.

    1. Hi Firelite – thanks for commenting – and yes we are seeing the downsides of capitalism at work here.

      Some places are prospering and some are not – and you are right addressing that might be the solution.

  9. It’s the concentration of employment and over-centralisation of the UK that is also to blame. High prices in London aren’t new – I was too poor to live in London thirty years ago, so I moved out, but at the time jobs were spread better.

    Curiously improved communications seem to have aggravated this economic concentration. When I was working on some of the early networks and the broadband, there was an assumption we would spread ourselves out in more scenic locations. It just didn’t happen that way for some reason. There are large swatches of the UK where there is no real pressure on housing and a lot is derelict, because there is no decent employment to be had for miles.

    I’m more with indeedably that with your premises in this post. If we could deal with employment (or ideally make it optional due to advances in technology creating more of the added value) then we could use the existing limited space we have far more efficiently.

    The other thing i would really love is for the government to butt out of tinkering with the finance part of mortgages. Whenrever they fiddle to make things mroe affordable for one generation, they stiff the next. House prices are an auction. It is only by buyers dropping out of the auction that prices are controlled. Government has a role in regulation and perhaps in supply of social housing, but MIRAS, Help to Buy, LISAs, no. Get out and stay out. The one place it can have a useful effect is on credit controls, we used to have that in the UK before Thatcher eliminated it in deregulation in the 1980s. Lenders gonna lend, and that drives prices up too. It used to be much tougher to get a mortgage than in the early 2000s.

    1. Thanks for sharing ermine – it’s interesting to hear that London has always been considered mega-expensive.

      I do agree that sorting out the regional divides and making other areas attractive for employment options is certainly needed.

      And yes, the govt tinkering with help to buy etc is not helping in any way.

  10. Various changes could be made to try and impact the supply and demand of housing but it will probably also require significantly higher interest rates to drive down prices.

  11. Good post and a little scratch at the surface of a major problem.
    I have been aware of the impending house price problems since I read up on demographic trends in about 2002 – this is not a new problem nut does the UK do planning for the future?
    In general aren’t ever rising unaffordable house prices a good thing?

    It does make me wonder from an FI point of view if it’s worth putting up with high cost of living (HCOL) but higher salaries to squirrel away money to reach FI quicker.
    Or is LCOL better.
    I think it’s a matter of personal choice or necessity.
    But I am in London lots and right now in Dublin and when you see house prices costing 10x+ salaries (pretax) then a 10% up/down is a whole lot of money.
    Who knows where house prices will move – it’s worked for you with your massey gainz! But someone 15 years younger in the same position may find all the luck is being hoarded by the xennials.

    Anyway – sex, politics, religion, house prices and brexit – topics to avoid in polite company.

    1. Thanks GFF – indeed I’ve made a tiny blemish of a major problem that is uber complex and nuanced. It does seem that the UK isn’t planning too well for the future and without a decent plan I fear the rich will continue to excel and the less fortunate will suffer.

      And for FI I think there are many different ways to do it – HCOL and high salary or LCOL and lower salary or somewhere in between. All are possible options and decisions are usually made on much more than the numbers.

      I think people in London would be glad to have houses at 10 x salary nowadays!

  12. “Everyone needs a home, and we need a mixture of people.”

    That really sums it up, doesn’t it? Housing should be a basic human right, right alongside healthcare and the freedom of religion. But for whatever reason, it’s rarely talked about that way on this side of the pond.

    I’ve written before about how rising standards of living can make it harder for successive generations to achieve the same: it’s a bit of a paradox. We want things to get better and better; we like that economic growth creates all these good things for us. But at some point I wonder if growth ends up having a downside…if we’ve sometimes got too much of a good thing, like housing appreciation, stock appreciation, etc.

    1. Hi DBF – I do agree it’s a basic human right and everyone deserves somewhere to live.

      The current level of growth in more areas than house prices does seem very unstable – is aspiring for more and more growth the right way to drive the world?

  13. Yep this is a huge problem in the US too. At this point $300,000 is considered affordable. That’s insane!

    Even here in Arizona prices are rising steadily. I lucked out and bought a fixer-upper at the bottom of the market. I can’t imagine paying today’s prices for either rent or a mortgage. But how are people supposed to save up the 29% for a house when rents too keep going up?

    It’s… there’s no good answer that I can see. But it’s definitely causing some severe disadvantages for today’s younger populations. I don’t know how most people will afford a place at this rate. I know we can keep building suburbs but even those are creeping up in price. I don’t know that ther is an answer. If there is one, we need to first get more people to acknowledge the problem. I’m looking at you, Baby Boomers.

    1. Hi Abigail – wow, $300k being affordable is breathtaking – it does seem to be a developed country issue worldwide.

      And there are many solutions, but we do need people to acknowledge the issues to really get started.

What do you think?