Shrinkflation! Alastair Parvin 29/03/12 14.25
Why we need to stop perpetuating the myth of the 'property ladder'
One of the most resilient and widely-accepted beliefs we have, propagated enthusiastically by journalists and broadcasters, is that rising property prices are good news, and falling property prices are bad news. You can pick up more or less any newspaper, or flip onto to more or less any news site, and you will find headlines such as "House price slump may last a decade" (Daily Mail), "Hooray! Housing market rockets" (Daily Express) or "House prices are on the up" (The Sun). And it isn't just the tabloids, the Telegraph and Guardian are at it too.
Even news outlets with an ostensibly more balanced view of the world are guilty of this. Beneath apparently benign headlines such as "House price rise is temporary" on the BBC news, the language makes it pretty clear what our view is meant to be. Increasing house prices are described variously as "optimistic", a "boost", or a "revival", whereas stable house prices are usually referred to as "stagnation".
THE INFLATION GAME
It's one of those beliefs which is all the more fascinating because it is both incredibly popular and also spectacularly wrong. The newspapers and Sarah Beeny-esque TV programmes which repeatedly incant it probably do so less out of conspiracy, more out of habit. Nonetheless it's a very damaging habit. In Britain a whole generation of homeowners have come to believe that they almost have a right to see their house go up in value beneath them. Where their other pension investments may have failed them, property represents, for many, the retirement fund to be relied upon.
It's worth making clear that when we talk about rising property prices, what we really mean is inflating property prices. The houses are the same houses - no bigger, no better, but simply inflated in price – money has appeared out of nowhere, a reward for no work at all. In 1971, the average price of a UK house was £5,362. By 2008 it was £227,765. To put that in perspective: had the price of food inflated by the same amount over the same period of time, buying a supermarket chicken would today cost around £47 (Shelter).
The biggest chunk of that inflation took place from the mid-nineties to 2008 . In the last seven years of the boom, the average cost of a house in the UK rose by more than 200%; from £98,000 to £216,000.
Ordinarily, any government which presides over runaway inflation is voted (or forced) out of power. But when it comes to housing, we don't call it inflation, we call it growth or boom.
INSIDERS / OUTSIDERS
The first, and most obvious explanation you'll hear for this is that it's simply a function of middle-class democracy; insular, blinkered homeowners, hiding behind their copy of the Daily Mail at Breakfast, thinking in their own self-interest, without regard for those left behind who 'missed the bus'. I'm one of them (minus the Daily Mail). It's those of us who are on the bandwagon vs those who aren't – and those of us who are form a sufficiently large voting bloc to get our way. Economists refer to this as an 'insider / outsider' problem.
But actually, when we stop to think about it, rising house prices are not in our self-interest; even as 'insiders'. Certainly, falling house prices are a nightmare for those who find themselves in negative equity, but rising house prices aren't a great deal better either. If you're a mortaged-up member of the homeowning middle classes it might feel very reassuring to tell your friends your house has gone up in value since you bought it - but really it's just a figure. My house could be worth billions on paper, but until I actually choose to sell it, it's a meaningless number. When I do choose to sell it, I'm still going to need a house, and of course if the price of all the other houses has gone up too by a similar amount, I'm no better off.
It's worse even than that. In the same period that house prices had gone up 200% during the 2000's, our average earnings only went up by about 28%. So anyone who was planning on upgrading to a slightly larger house than their own would have been doubly-screwed, as the 'property ladder' grew faster than their income - and the rungs got further and further apart.
In truth, rising house prices are only beneficial to two kinds of people: retiring households looking to downsize (or use an equity-release scheme) and property market professionals: banks (who get to offer ever-larger loans), developers, estate agents, contractors, architects, and so on.
In other words, rising property prices are only good news as long as you're primarily interested in houses as things to sell, but terrible news if you're interested in houses as somewhere to actually live.
The problem is we seem to have collectively forgotten that we all do actually need somewhere to live. The more house prices go up, the more unaffordable somewhere to live becomes, especially for people who never made it onto the housing market – which includes pretty much anyone under the age of 50. Under 50s comprise about 2/3rds of Britain's population, but they own only 18% of the housing wealth.
GETTING LESS FOR MORE
In pretty much any other market, we wouldn't have a problem recognising the obvious: that rising prices is bad news. In technology, for example, we're spoiled rotten: digital hardware is governed by a rule of thumb called 'Moore's' law, which predicts that every 2 years your computer will either halve in price, or get twice as fast. It's fantastic, and the industry usually exceeds it. As a result, in 2012 we can buy a piece of kit for just a few hundred pounds which less than a century ago would have been considered to be worth millions, if not priceless.
House price inflation is the same, but in reverse. If property prices go up 200%, it means either that buying a house has become twice as expensive, or your house has halved in size and quality. In other words, when price goes up, real value goes down. We may think we're getting richer, but in fact everyone is getting continuously less and less for their money.
And that is exactly what happened: we got less and less for more and more. During one of the longest property booms in history, the UK found itself building tiny houses – the second smallest dwellings in Europe – 25% smaller than the european average. In a decade of affluence we found ourselves essentially constructing places of deprivation: unhealthy, small, socially-isolating, inflexible and energy-hungry dwellings.
As the recession wallows on, it seems pretty logical to say we now have the opportunity to do something about it; to shift the conversation away from 'increasing property prices' towards 'increasing housing affordability' and quality for everyone, and to avoid any 'recovery' which involves returning to such a badly-designed market. But we're not going to even begin to do it if we go on allowing ourselves to cultivate the myth of the 'property ladder', or continue to accept the empty-headed media that comes along with it; what Rory Sutherland calls "All this property porn… (turning) the whole bloody country into a nation of speculators, all the while making property completely unaffordable for anybody under 40."
He puts it pretty brusquely:
"If we never see again another programme in which some vapid idiots mince around redecorating a house, our lives will have gone up in value by 30%"
Data and graphs have been taken from A Right to Build, a joint research project by Architecture 00:/ and University of Sheffield School of Architecture, exploring the UK Housing crisis and the future of housing.
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