Great piece which totally sums up the broken state of our housing market. You haven't even mentioned the selling off of council houses which pushes more people into private renting, and makes that housing even more expensive. Aaaaasarrrrrgggghhhh!!!
Fantastic article and I think your point about how this generational wealth transfer has stunted the potential room for tax based funding of WASPI pensions (among other things) is the standout point. Right to buy proving itself to be the single biggest policy disaster in British post war history
Excellent article. As a Gen X I have benefited from the housing market, but am being shot by both sides as Linda is arguing for more cash from my taxes (to fund a pension that gets further away for me) while trying to help Jess get a home at the same time (who I also had to fund a lot through University, even with student loans, which boomers did not). The considerable costs of childcare now something you have missed out of the equation for Jess.
Banks in the 80 & even 90s would not lend more than 3x salary. They were not allowed to for much of the period, and after rules. were relaxed were very wary. Mortgage rates were higher but so was inflation which meant that while it was a struggle for a few years the burden dropped rapidly.
However, I think the thrust of your article is broadly right, Housing costs in the English-speaking World have exploded in a way they haven't elsewhere. Unwinding it without causing a banking crisis is going to be tricky and involves probably several decades of flat house prices given low inflation and growth. Countries like the UK do not have the luxury of a massive external surplus like Japan or China which could afford to crash things and limit the damage to financiers without materially affecting the lives of ordinary people other than making housing more affordable.
A decade of double-digit inflation would do it, but has other consequences
One other point, which isn't reflected in the numbers, is surety.
Linda has a guaranteed roof over her head, either through social housing or as a homeowner (although I acknowledge that many households did lose their homes in the early 90s recession). She (or her other half) likely has a DB pension (or guaranteed retirement income of some kind). The biggest uncertainties are covered.
Jess has to worry whether her private landlord will hand her a section 21 or not get the boiler fixed. She has an auto-enrollment pension - all the investment risk is hers and she has to work out how the hell she'll turn that into a retirement income, or whether it will ever be enough to retire.
I bought my first place in London in 1987. I earned just under £12,000. I had no savings and I had (quite a bit of) credit card debt. The flat cost £49,000. I got a 100% mortgage, very few questions asked. And, as someone else has mentioned, I had MIRAS, and I could have had a bigger loan if I had been less honest about my earnings. Even with honesty, I could have had a 105% loan. At that time lenders were offering 4x joint income loans. I'm not arguing that this is a good thing, it just drove up house prices, but it did make property more accessible.
I love this way of looking at things in your post.
No one should think of money as physical leaves on a tree. Then generations/interest groups can be pitted against one another, since there are only so many leaves to go around.
Money is more like the water in central heating system, only in the 1980s a bunch of scoundrels figured out how to pump it away for themselves, so there is less sloshing around to keep the rest of us warm. We could definitely pay the promised pensions without snatching avocado from the mouths of the young but someone might have to pay (more) tax on their offshore investment portfolio.
Good points but remember not every boomer got to buy a house back then. We bought a flat in 1990 and got repossessed in 1994 and ended up with an £81000 pound debt on paper as a result of the estate agent selling our flat at a knock down price to friends. We finally settled the (sold on) debt but couldn’t afford to buy again till 2006. I only own my flat now because I inherited some money from my father in India. My younger sister was told by DWP that her pension was fully paid up and on that basis she took early retirement and moved to France, only to be told a few years later that it wasn’t and she’d lose £180 a month. Is that fair? I have children paying outrageous rents and trying to make a living at a time when AI is taking work from them. I just hope I can leave them my flat and it doesn’t all go in care home fees whenI can no longer work. (I am 72 and still working because I can’t live on my state pension.) It’s all a disaster but I don’t think it’s the fault of either generation. It’s the fault of successive Neo-liberal governments that value money over everything and are busy transferring wealth from the poor to the rich.
Boomer here! I regularly point out - to show what a mess things are, not a complaint from me! - that the deposit on my first house was two-thirds of my current mortgage payment. OK, there are some factors to take into account - area, inflation, type of housing etc - but even so, it seems incredible.
The other issue that I've noticed about accommodation is that properties seem to be getting smaller - e.g. HMOs turning a living room into a bedroom, so more people and less space! Millennials seem to get shafted at every opportunity.
A great article and a nice approach to this phenomenon. Just one quibble. You say: Assuming a 5% deposit and 2015 interest rates, if house prices had remained at 1985 levels (adjusted for inflation).
But you can’t do that!!
House prices were much lower in part because rates were so high! 1985 the Bank of England base rate was 11%, not the 4% of today.
Also, yes 5% deposits had just recently been introduced but relatively few people got those, in large part because of the even higher rate you would have to pay, and many lenders capped loan to income multiples at x3 or x3.5.
I was too young to worry about these things as a spotty teenager back then, but guess what? My first shitty bedsit in early 90s London cost me 40% of salary, rent was always an issue.
Still, your point stands- house prices are simply unrealistic for today’s young people without a significant leg up from parents etc… leading to disenfranchisement with all its potential societal unrest looming.
There was also tax-relief on mortgage interest payments in 1985. There are so many ups and downs in policy and background that precise figures are almost impossible.
But I don't think any of those changes invalidate the scale of the difference the article covers.
This is true, I’d forgotten about MIRAS! A large contributor to both boom and then bust when removed I seem to recall. Took some people over a decade to get out of negative equity trap.
But the authors juxtaposition of 1985 inflation adjusted prices and 2015 interest rates is a false market by a factor of nearly 3 to 1 so really not trivial!
Yeah, it’s a really valid comment to raise but it becomes sort of impossible at a certain point to try to account for everything, a bit like the impact of interest rates themselves, and intuitively a lot of stuff seems to cancel out through homeostasis in some way - like tax rates are quite different but when I looked at the relative tax burden in 1985 to 2015 it seemed actually pretty similar overall. Which makes sense because a lot of these things are linked - lower income taxes opens space for council taxes and so on.
Excellent article. I’d add a couple of other thoughts: (a) You briefly allude to student loan repayments but of course these are very significant for Jess (although not as bad as they are after the 2023 reforms meaning they will be repaid for 40 years rather than 30) and non-existent for Linda who is far less likely to have gone to (or needed to go to) university; (b) Linda might well have had a non-contributory final salary pension while Jess will have to put a chunk of her salary into her defined contribution pension.
I guess the only thing I would quibble with is your deliberately provocative assertion upfront that WASPIs “are right” to believe millennials are quite well off compared to them. No. They are right if you exclude by far the largest household outgoing. Which is another way of saying they’re wrong.
Tbf I think his point was that they are right only in a sense, i.e. that alot of day to day things are cheaper today, and so that is most salient day to day, they point was that they're not making it up out of thin air that young people today can afford a whole bunch of things they couldn't afford as much, but that this is dodgy for comparison
Brilliant as ever. I realise this is beyond your scope but I'd love to know more about "the same entry-level office job that Linda or her husband walked into at 18 with a couple of A-levels" now needs a degree - I'm guessing because the huge expansion of HI made it a recruiter's market?
Just to pick a fight/stimulate a discussion here -
Linda would say the following things: (a) Jess is overpaying for her housing because she does not have to live where she lives. I presume in this example Jess is near a city/biggish desirable town. Linda would say that Jess is valuing that too highly and if she can't afford it live somewhere else, and (b) Linda, if pushed, would point to loads of things that the Government could just not do to compensate her. While there is no magic money tree, there are lots of things that the Government does that Linda thinks should be a lower priority than this.
Besides, neither of these things are her problem.
FWIW, I agree that the WASPI women are swinging the lead a bit, but I worry that the argument you make could apply to basically any campaign group/spending request.
Compromising on where you live usually creates a massive reduction in quality of life. A good example is my parents who bought a house in the 80s in a nice London suburb on very low salaries. An equivalent couple now would have to live much further out of London and not only have to spend a fortune on travel but would also not have the job opportunities they had in their area.
£264k was the average house price in England at that time. In a city this was be more like £500k - even a one bed flat in the south east is typically £300k, and if Jess wants to raise a family a 1 bedroom flat is not going to cut it. As for what things Linda thinks the government is spending too much money on, the bulk of spending is going to the NHS and social care of which a major proportion is going to… Linda’s generation.
But in a sense, yes, the same is true of most campaign groups and it’s why I think most of them are unjustified - life isn’t fair, it doesn’t necessarily entitle you to massive compensation.
Agreed on a rational basis, but Jess could just live in -Hartlepool/Workington/Whitehaven/wherever - "after all, your dad and I couldn't just live where we wanted".
This is an half-formed thought but I wonder to what degree Covid and Ukraine has completely scuppered the arguments here. These are both evidence that there is in fact a magic money tree if the Government really wants there to be - you found money for Kiev, what about Keighley? I further suspect that the asylum/hotel/rioting issue is being viewed in those terms.
Leaving aside the morality of the argument, it's a really tough sell politically to say that we cannot afford £300 to heat nana's house, but we can afford to put asylum seekers in relatively expensive hotels. I suspect Linda (and Jess) have very firm views on where the money for that should go.
Some of this is big numbers vs small numbers - the pension saving is £181bn so far which dwarfs the other things people think are expensive. But some of it was also just bad politics, like I think lots of boomers would understand a means tested pension but what was introduced was too regressive
The real issue is that "boomers" is actually a very unhelpful term in this context since it encompasses those in social housing with very severe health problems and those who are relatively well (as in 'can go on a cruise twice a year' well) who are sitting in a 5 bed detached in Surrey worth millions.
Yet, for reasons, we have no way of doing anything about that unearned wealth. It is literally an act of God which no man can do anything about.
It's probably more valid to point out that Linda could live anywhere. And take the difference in the house prices from the move to fund the perceived gap in her retirement income.
Is that not a slightly circular argument? At which point would Jess' life be better if she worked in a shop in Hartlepool? Linda would say that Jess is choosing glamorous big-city life.
I just think the broader argument of "boomers have had a good life so shouldn't complain" won't work.
I mean, why bother educating anyone, least of all women, at all? Surely the point of expanding higher education (including to women) was so that they can get higher value jobs, and have a better standard of living. There are a lot of people whose vision of their future - and the talents they have that can contribute to the economy and give them a fulfilling professional life - goes further than working in a Spar in Hartlepool.
What Martin highlights is that this vision of living (get a degree, get a job, get a house, have a nice life) was sold to millennials and has spectacularly failed to deliver due to the explosion of housing costs compared to anything else.
Great piece which totally sums up the broken state of our housing market. You haven't even mentioned the selling off of council houses which pushes more people into private renting, and makes that housing even more expensive. Aaaaasarrrrrgggghhhh!!!
Fantastic article and I think your point about how this generational wealth transfer has stunted the potential room for tax based funding of WASPI pensions (among other things) is the standout point. Right to buy proving itself to be the single biggest policy disaster in British post war history
Excellent article. As a Gen X I have benefited from the housing market, but am being shot by both sides as Linda is arguing for more cash from my taxes (to fund a pension that gets further away for me) while trying to help Jess get a home at the same time (who I also had to fund a lot through University, even with student loans, which boomers did not). The considerable costs of childcare now something you have missed out of the equation for Jess.
Banks in the 80 & even 90s would not lend more than 3x salary. They were not allowed to for much of the period, and after rules. were relaxed were very wary. Mortgage rates were higher but so was inflation which meant that while it was a struggle for a few years the burden dropped rapidly.
However, I think the thrust of your article is broadly right, Housing costs in the English-speaking World have exploded in a way they haven't elsewhere. Unwinding it without causing a banking crisis is going to be tricky and involves probably several decades of flat house prices given low inflation and growth. Countries like the UK do not have the luxury of a massive external surplus like Japan or China which could afford to crash things and limit the damage to financiers without materially affecting the lives of ordinary people other than making housing more affordable.
A decade of double-digit inflation would do it, but has other consequences
One other point, which isn't reflected in the numbers, is surety.
Linda has a guaranteed roof over her head, either through social housing or as a homeowner (although I acknowledge that many households did lose their homes in the early 90s recession). She (or her other half) likely has a DB pension (or guaranteed retirement income of some kind). The biggest uncertainties are covered.
Jess has to worry whether her private landlord will hand her a section 21 or not get the boiler fixed. She has an auto-enrollment pension - all the investment risk is hers and she has to work out how the hell she'll turn that into a retirement income, or whether it will ever be enough to retire.
I bought my first place in London in 1987. I earned just under £12,000. I had no savings and I had (quite a bit of) credit card debt. The flat cost £49,000. I got a 100% mortgage, very few questions asked. And, as someone else has mentioned, I had MIRAS, and I could have had a bigger loan if I had been less honest about my earnings. Even with honesty, I could have had a 105% loan. At that time lenders were offering 4x joint income loans. I'm not arguing that this is a good thing, it just drove up house prices, but it did make property more accessible.
I love this way of looking at things in your post.
No one should think of money as physical leaves on a tree. Then generations/interest groups can be pitted against one another, since there are only so many leaves to go around.
Money is more like the water in central heating system, only in the 1980s a bunch of scoundrels figured out how to pump it away for themselves, so there is less sloshing around to keep the rest of us warm. We could definitely pay the promised pensions without snatching avocado from the mouths of the young but someone might have to pay (more) tax on their offshore investment portfolio.
Good points but remember not every boomer got to buy a house back then. We bought a flat in 1990 and got repossessed in 1994 and ended up with an £81000 pound debt on paper as a result of the estate agent selling our flat at a knock down price to friends. We finally settled the (sold on) debt but couldn’t afford to buy again till 2006. I only own my flat now because I inherited some money from my father in India. My younger sister was told by DWP that her pension was fully paid up and on that basis she took early retirement and moved to France, only to be told a few years later that it wasn’t and she’d lose £180 a month. Is that fair? I have children paying outrageous rents and trying to make a living at a time when AI is taking work from them. I just hope I can leave them my flat and it doesn’t all go in care home fees whenI can no longer work. (I am 72 and still working because I can’t live on my state pension.) It’s all a disaster but I don’t think it’s the fault of either generation. It’s the fault of successive Neo-liberal governments that value money over everything and are busy transferring wealth from the poor to the rich.
Boomer here! I regularly point out - to show what a mess things are, not a complaint from me! - that the deposit on my first house was two-thirds of my current mortgage payment. OK, there are some factors to take into account - area, inflation, type of housing etc - but even so, it seems incredible.
The other issue that I've noticed about accommodation is that properties seem to be getting smaller - e.g. HMOs turning a living room into a bedroom, so more people and less space! Millennials seem to get shafted at every opportunity.
A great article and a nice approach to this phenomenon. Just one quibble. You say: Assuming a 5% deposit and 2015 interest rates, if house prices had remained at 1985 levels (adjusted for inflation).
But you can’t do that!!
House prices were much lower in part because rates were so high! 1985 the Bank of England base rate was 11%, not the 4% of today.
Also, yes 5% deposits had just recently been introduced but relatively few people got those, in large part because of the even higher rate you would have to pay, and many lenders capped loan to income multiples at x3 or x3.5.
I was too young to worry about these things as a spotty teenager back then, but guess what? My first shitty bedsit in early 90s London cost me 40% of salary, rent was always an issue.
Still, your point stands- house prices are simply unrealistic for today’s young people without a significant leg up from parents etc… leading to disenfranchisement with all its potential societal unrest looming.
There was also tax-relief on mortgage interest payments in 1985. There are so many ups and downs in policy and background that precise figures are almost impossible.
But I don't think any of those changes invalidate the scale of the difference the article covers.
This is true, I’d forgotten about MIRAS! A large contributor to both boom and then bust when removed I seem to recall. Took some people over a decade to get out of negative equity trap.
But the authors juxtaposition of 1985 inflation adjusted prices and 2015 interest rates is a false market by a factor of nearly 3 to 1 so really not trivial!
Yeah, it’s a really valid comment to raise but it becomes sort of impossible at a certain point to try to account for everything, a bit like the impact of interest rates themselves, and intuitively a lot of stuff seems to cancel out through homeostasis in some way - like tax rates are quite different but when I looked at the relative tax burden in 1985 to 2015 it seemed actually pretty similar overall. Which makes sense because a lot of these things are linked - lower income taxes opens space for council taxes and so on.
Excellent article. I’d add a couple of other thoughts: (a) You briefly allude to student loan repayments but of course these are very significant for Jess (although not as bad as they are after the 2023 reforms meaning they will be repaid for 40 years rather than 30) and non-existent for Linda who is far less likely to have gone to (or needed to go to) university; (b) Linda might well have had a non-contributory final salary pension while Jess will have to put a chunk of her salary into her defined contribution pension.
I guess the only thing I would quibble with is your deliberately provocative assertion upfront that WASPIs “are right” to believe millennials are quite well off compared to them. No. They are right if you exclude by far the largest household outgoing. Which is another way of saying they’re wrong.
Tbf I think his point was that they are right only in a sense, i.e. that alot of day to day things are cheaper today, and so that is most salient day to day, they point was that they're not making it up out of thin air that young people today can afford a whole bunch of things they couldn't afford as much, but that this is dodgy for comparison
If Linda did go to uni she got a student grant. No student debt at all.
Is it really British house prices or something broader? House prices have skyrocketed in the US as well.
Broadly a problem throughout the Anglosphere but seemingly not nearly as much in Europe.
Brilliant as ever. I realise this is beyond your scope but I'd love to know more about "the same entry-level office job that Linda or her husband walked into at 18 with a couple of A-levels" now needs a degree - I'm guessing because the huge expansion of HI made it a recruiter's market?
Just to pick a fight/stimulate a discussion here -
Linda would say the following things: (a) Jess is overpaying for her housing because she does not have to live where she lives. I presume in this example Jess is near a city/biggish desirable town. Linda would say that Jess is valuing that too highly and if she can't afford it live somewhere else, and (b) Linda, if pushed, would point to loads of things that the Government could just not do to compensate her. While there is no magic money tree, there are lots of things that the Government does that Linda thinks should be a lower priority than this.
Besides, neither of these things are her problem.
FWIW, I agree that the WASPI women are swinging the lead a bit, but I worry that the argument you make could apply to basically any campaign group/spending request.
Compromising on where you live usually creates a massive reduction in quality of life. A good example is my parents who bought a house in the 80s in a nice London suburb on very low salaries. An equivalent couple now would have to live much further out of London and not only have to spend a fortune on travel but would also not have the job opportunities they had in their area.
£264k was the average house price in England at that time. In a city this was be more like £500k - even a one bed flat in the south east is typically £300k, and if Jess wants to raise a family a 1 bedroom flat is not going to cut it. As for what things Linda thinks the government is spending too much money on, the bulk of spending is going to the NHS and social care of which a major proportion is going to… Linda’s generation.
But in a sense, yes, the same is true of most campaign groups and it’s why I think most of them are unjustified - life isn’t fair, it doesn’t necessarily entitle you to massive compensation.
Agreed on a rational basis, but Jess could just live in -Hartlepool/Workington/Whitehaven/wherever - "after all, your dad and I couldn't just live where we wanted".
This is an half-formed thought but I wonder to what degree Covid and Ukraine has completely scuppered the arguments here. These are both evidence that there is in fact a magic money tree if the Government really wants there to be - you found money for Kiev, what about Keighley? I further suspect that the asylum/hotel/rioting issue is being viewed in those terms.
Leaving aside the morality of the argument, it's a really tough sell politically to say that we cannot afford £300 to heat nana's house, but we can afford to put asylum seekers in relatively expensive hotels. I suspect Linda (and Jess) have very firm views on where the money for that should go.
Some of this is big numbers vs small numbers - the pension saving is £181bn so far which dwarfs the other things people think are expensive. But some of it was also just bad politics, like I think lots of boomers would understand a means tested pension but what was introduced was too regressive
The real issue is that "boomers" is actually a very unhelpful term in this context since it encompasses those in social housing with very severe health problems and those who are relatively well (as in 'can go on a cruise twice a year' well) who are sitting in a 5 bed detached in Surrey worth millions.
Yet, for reasons, we have no way of doing anything about that unearned wealth. It is literally an act of God which no man can do anything about.
It's probably more valid to point out that Linda could live anywhere. And take the difference in the house prices from the move to fund the perceived gap in her retirement income.
Jess can't just live *anywhere* - she needs to live where the work is, surely?
Is that not a slightly circular argument? At which point would Jess' life be better if she worked in a shop in Hartlepool? Linda would say that Jess is choosing glamorous big-city life.
I just think the broader argument of "boomers have had a good life so shouldn't complain" won't work.
I mean, why bother educating anyone, least of all women, at all? Surely the point of expanding higher education (including to women) was so that they can get higher value jobs, and have a better standard of living. There are a lot of people whose vision of their future - and the talents they have that can contribute to the economy and give them a fulfilling professional life - goes further than working in a Spar in Hartlepool.
What Martin highlights is that this vision of living (get a degree, get a job, get a house, have a nice life) was sold to millennials and has spectacularly failed to deliver due to the explosion of housing costs compared to anything else.
These are all valid points, but Linda doesn't care about any of them....