Housing and Planning

The hidden costs of the housing crisis

We tend to conceptualise the housing crisis in terms of affordability – and justifiably so. Over the last two decades, the ratio of median house prices to earnings in England and Wales has more than doubled.

Back in 1997, house prices represented, on average, around 3.6 times workers’ annual gross full-time earnings. By 2016, however, prospective buyers could expect to spend around 7.6 times their annual earnings on purchasing a home. Drilling down to a regional level yields even more dramatic results, particularly in London and the South East, plus cities like Oxford, Cambridge and Bristol.

No one doubts this worrying state of affairs, but I sometimes wonder whether we may be missing the true scale and severity of the situation. After all, the housing crisis has many hidden, human costs, that can be easily lost in the data.

Firstly, exorbitant rents mean less disposable income – and correspondingly high opportunity costs. One recent study determined Londoners and residents of several other cities in the UK to be spending, on average, more than a third of their monthly salary on rent, before even considering household bills or council tax payments. In practice, this equates to billions in lost consumer spending as people forego luxuries by necessity. Consider the cash boost to UK businesses – and uplift to our overall quality of living – if some of this rental expenditure could be freed up for other uses.

Another product of the housing crisis? Perpetual teenagerhood. The number of adults aged between 21 and 34 still living with their parents today has risen by more than 700,000 since 2005, with the increasing difficulty of getting a toehold on the housing ladder one of the key factors.

Of course, there’s nothing innately wrong with living with one’s parents, but the problem is that longer periods spent at home (often, while saving up for a deposit), mean that major life events can be taken off the table as a result. Conservatives, whether small or large “c”, should be particularly concerned by these developments. The charity Shelter has estimated that 59 percent of people aged 21-34 have been forced to postpone milestone events like marriage, starting a family, or moving into a job.

This latter point carries other knock-on effects, for labour mobility is a much-overlooked factor in generational inequality. As the Resolution Foundation has outlined, Millennials (Generation Y) have so far been 20-25 percent less likely to move jobs voluntarily than members of Gen X at the same age, following a trend that began in the early 2000s. And, by moving for work less frequently, this cohort loses out on significant pay rises. Switching jobs, rather than staying with the same employer, is almost always associated with an earnings boost, but the highest pay premium of all is reserved for those willing to relocate to a different region altogether.

Such trends are partly explained by Millennial loyalty to employers, but are also likely exacerbated by the housing crisis. Just as the burdens of stamp duty deter older residents from moving home or downsizing, high moving costs and the growing average spend on deposits conspire to lock younger workers into existing accommodation, leaving them worse off as a result.

There are other, even less obvious, by-products of the housing crisis.

As anyone who’s ever tried to move in London with a cat or dog will attest, landlords are notoriously reluctant to accommodate our four-legged friends. According to the Dogs Trust, 78% of owners have struggled to find pet-friendly rentals. While it’s quite understandable that many landlords would prefer to avoid the risks of fur and mess, the fact they can afford to be this selective in the first place is surely symptomatic of wider supply-and-demand issues. The UK is, famously, a nation of pet lovers, with nearly 50% of us owning some kind of domestic animal. In a less dysfunctional market, the decision to exclude vast swathes of potential tenants in this way simply wouldn’t be economically viable.

Or consider the implications for interior design. Many landlords are now reluctant to let tenants add personal touches to their rental accommodation, e.g. by painting their walls a different colour or making minor alterations during their tenure. This is partly a result of changing decor trends, but also derives from economic realities. Just as a shortage of supply has allowed landlords to rule out pets in areas of high demand, so too can they prohibit tenants from making changes to their rental property, given the ferocity of competition for housing stock.

The housing crisis doesn’t just mean higher rents, then, but also condemns renters to impersonal, minimalist homes. My mum’s house was recently profiled in a Daily Mail feature examining “Britain’s tackiest interior design trends” (“Meet the women who are keeping them alive!”), showcasing her Victorian-style chintz curtains and William Morris wallpaper. I suspect her inclusion is only partly down to eclectic taste. In an environment where more people could decorate their homes as they wished, my mother and her eccentric wallpaper patterns wouldn’t be such an anomaly.

These may seem like minor issues in the grand scheme of things, but are worth bearing in mind all the same. We are rightly outraged about rising housing costs. But where is the anger about the fact that, due to entirely avoidable government policies, millions of us lack the freedom to keep a pet or even nail a few shelves onto the wall?

This article was first published in CapX. 

Madeline is the IEA’s Editorial Manager, responsible for commissioning and running the IEA blog, and creating content for the IEA podcast channel and other media outlets. Prior to joining the Institute, she worked as a Parliamentary researcher and speechwriter, and as a reporter for Newsweek Magazine. Madeline graduated from St Hilda’s College, Oxford in 2014, with a degree in English. As an undergraduate, Madeline was actively involved in university politics, and was elected to Standing Committee of the Oxford Union during her studies.

6 thoughts on “The hidden costs of the housing crisis”

  1. Posted 23/09/2018 at 10:25 | Permalink

    Very true people are finding it harder to move out and start families and it probably has a negative affect on the economy.

  2. Posted 23/09/2018 at 11:55 | Permalink

    I would also mention rising living costs outside of just rent and bills. For example if restaurants, shops, cinemas etc also by implication have over-priced property values, rental costs and business rates then it costs more even to live even if you own a house with a paid-off mortgage, such as a pensioner envied by generation Y since said places will pass on the cost to consumers.

    The only people to benefit from high house prices are people who own more than one house. Anyone who believes they have ‘made’ money from owning only one misses the fact that they will always need somewhere to live, and their next house has just gotten more expensive.

  3. Posted 23/09/2018 at 19:54 | Permalink

    At least your mum isn’t the one with the avocado bathroom suite.

  4. Posted 24/09/2018 at 11:34 | Permalink

    Madeline. You say in respect of housing costs paid “In practice, this equates to billions in lost consumer spending as people forego luxuries by necessity”. Accepting there will be some friction in the transactions, the money still goes back into economic activity in the form of wages paid to council employees (council tax), and cash paid to landlords (rent) and the mortgage holders who will in turn spend the money.

    A bit like energy – this capital is not destroyed it is just distributed in a different way – and some would argue on things that have much more benefit to the economy (jobs, local infrastructure) rather than often imported luxury consumer goods.

    Graham H

  5. Posted 26/09/2018 at 03:17 | Permalink

    You mention less disposable income: and some of this would likely be invested in ongoing learning. We therefore end up with a less skilled populace.

    I would also add that lower birth rates = reduced future tax base/increased pressure for immigration increase and more Brexit-like social tension.

  6. Posted 23/10/2018 at 12:55 | Permalink

    Imagine Madeline is a lovely privileged person wearing rose tinted specs.. A landlords’ ideal tenant …if only. I once- hesitatingly agreed to accept a tenant ‘with a small dog’. Never again he used it to intimidate me.( 26‘ balcony decking replacement necessary ++!) TDS is what it says – protection of Tenant ! I recall in the late 50’s my German friend commented “.in Germany very few people 12% (?) own their own home -Most people rent”. I presume greater respect for legislation there which ensures Tenants accept the necessity to comply & respect . Landlords provide homes & take Agents advice ‘it’s easier to let corporate image’ & charge *fair & reasonable* rents . That -for the landlord is based on calculations of his own costs :-Agents;Solicitors ; Accountants fees. Health & Safety certs ; Insurance(s). maintenance + repair + replace. New legislation now requires Landlords to check immigration status. These charges determine a viable Rental .
    What is never mentioned are the ADVANTAGES of renting -FLEXIBILITY affords young aspiring folk to accept the right job on offer . No ties other than a Contract of Notice, usually 2 months.
    If looking to buy in a certain area why not rent there ! You get the bigger picture; to select the best location you can afford *before committing *.

    comes first …Young by taking into account ultimate penalties of further taxation IHT: Capital Gains against the value of their asset .
    are better observed enforces

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