I would firstly like to mention how housing has become more about making money than about being a home. Although I believe the term housing needs some differentiation between the house and the land it is built on. While I do agree it is financialised I also don’t believe this was an issue until the housing bubble of 2007 (and onwards). One of the biggest concerns over real estate I have is the ability of a house to be an asset or a liability. Which of these is the case is often decided by the household income which can be very fluid. One other issue is inheritance where properties can be passed down the family and, at least in the UK, this often is a benefit to those with greater wealth. As long as a house has no mortgage still remaining it can be inherited up to £325,000 with no tax and this can increase due to tax allowances for direct descendants. As of 2020/2021 in the UK a direct descendant couple can inherit a £1,000,000 home with no tax payments. Since the average UK home is around £230,000 this covers a huge percentage of property in the UK. You also pay no capital gains tax if you choose to move into the property as a main residence and sell it later, as well as stamp duty not being levied for the majority of inheritance. While the baby boom years are getting older this is taking more affect into the market. By doing this the inequality, as stated in the OHCHR, increases massively between the wealthy and the working classes. Source: [https://hoa.org.uk/advice/guides-for-homeowners/i-am-managing-2/inherit-a-house/] This is highlighted even further as a problem as many capitalist countries after the second world war introduced many new policies to boost home ownership as a way to build communities and morale which raised ownership to around 70% in both the USA and UK by 2000. [Source:The great mortgaging: Housing finance, crises and business cycles by Òscar Jordà, Alan Taylor and Moritz Schularick]. The housing bubble was partly a result of this huge boost to home ownership creating a speculative market that thought a never ending demand was possible. Of course as inheritance is so easily done without taxes this creates a further issue as the demand for homes for those not old enough to benefit from the 1940-2000 home ownership boom is not as required. Therefore property prices drop as the demand for new homes drops. In 2017 Market Financial Solutions did a survey of 2000 adults in the UK stated that 36% were set to inherit a home. If the population keeps ageing as it currently is then property will be held onto for longer and longer forcing more people into rental accommodation due to high deposit requirements from lenders.
Looking back at the global level it was around 1950 when property really started to show an increase in the global average house price in real terms [Source: No price like home: Global house prices 1870-2012, American economic review, Katharina Knoll et al; https://www.aeaweb.org/articles?id=10.1257/aer.20150501]. In the early 2000’s the largest boom happened and even after the housing bubble popped the average prices show a very miniscule drop compared to the previous climb. Although some countries felt the impact most with a large drop in prices on a global level you really don’t see the mean reversion that you do in countries such as the USA and UK however, as the market has returned it has been estimated that the average house price is still overvalued.
As mentioned in previous lessons in this course the cost of building over the years has remained relatively stable in relation to house prices. One thing to consider is actually the value of land. Although the construction has remained rather stable the construction only contributes to the actual structures built. A great bit of research was done using the ONS site to gather this data [https://jamesjgleeson.wordpress.com/2017/04/03/historical-housing-and-land-values-in-the-uk/]. Although this only considers the UK you can see that the structures themselves didn’t actually increase and follows a similar trace to the construction costs mentioned in this course. However the rest of that house price could be attributed to the land it contains. In the UK especially, around the 1950’s, new laws came into play which protected certain areas of land (green belts) where building permission was extremely difficult if not impossible to obtain. By doing this you effectively raise the price of the remaining land available. As mentioned in the previous paragraph it was around the 1950’s where house prices in real terms started to increase. In addition to this many countries were now heavily rebuilding and developing their cities after most were bombed during the wars. This lead to a large amount of housing / industrial construction around cities. Ever since then people have increasingly flocked to large cities in search of work as the rural areas are often stripped of jobs or heavily specialised in one industry which attracts a smaller percentage of workers.
An excellent example of which is the UK. Looking at the HM land registry [https://landregistry.data.gov.uk/app/ukhpi/browse?from=1990-01-01&location=http%3A%2F%2Flandregistry…] it can be shown the differences in regions for average house price and growth year on year. Taking the north east as an example although it suffered from the same growth during the 2000 – 2007 the drop from the 2007 bubble wasn’t as significant as other areas. I find it hard to believe that the price of land wasn’t a factor in this region as during the 1980’s the government started to rapidly deindustrialise regions in the UK with the coal mining of the north east being the biggest employer with employees coming from all across the UK. As such a lot of miners were out of a job and therefore left the region or required new work which now comes from the automotive industry. There are still few markets to work in outside of automotive in this region and a lot of “brown belts” which allow for construction but require some demolition of existing buildings to build on. Due to the massive deindustrialisation there was a lot of construction land now available to build on. This availability of land is one of the reasons why house prices are cheaper in these affected regions than in the south east as many flocked to the rapidly expanding cities like London and the surrounding areas where the government wanted to centralise the economy. Areas up north who were mostly affected and furthest from the new centralised economy city of London did not see the same increase in costs which is still increasing in London and the South East.
London does also suffer from another problem. A tax haven for local and foreign investors. As an area which is in desperate need for cheap and good quality housing due to the huge population looking for work; it has an increasing problem with wealthy investors using the city to hide large sums of money. This report highlights the significance of the issue [https://www.transparency.org.uk/faulty-towers/#.WipwcbTQrBI]. Real estate in large city centres with high property prices have become an excellent way to hide wealth and avoid taxes by the global elite. The report states across 14 developments in London 80% were owned by overseas investors with 40% from high corruption countries or secrecy companies. In the UK it is perfectly acceptable to create a company name for little cost (around £12 at this time) and use this to tie up money as assets to that company. Due to the enormous wealth trying to be hidden, property developers have proceeded to build luxury homes to cater to that market inflating the supply over the demand at a time when affordable housing in London is at it’s worst. The report from the London government site shows the amount of affordable homes actually being built since 2008. [https://www.london.gov.uk/sites/default/files/affordable_housing_starts_and_completions_-_end_of_mar…]. It should be noted however that affordable for London is on average around £300,000 where the average salary is approximately £37,000 in 2020. Despite this property has become a profit target rather than a necessity for the huge amount of people who will simply never afford a home in this area and instead suffer from the increasing cost per square meter issue under rental markets.
As investment and economies continue to centralise around large developed cities the financialization of housing is likely to continue as the cost of land and the tax policies will proceed to allow developers to take advantage of profit margins of the extremely wealthy while the lower classes will continue to feel the effects of increasing rental costs and sub par living standards.
I’ll leave you all with a question. Do you think this is likely to get better or worse and why? Let me know in the comments section.
One Grand Tour 