Monday, 9 May 2016

Housing crisis: there's only one boat, and we're all in it.

Prices are rising, but who is winning?
Having spent the weekend debating the divisiveness of party politics, let's cut to the chase and talk about one of the big political issues of the day, which is housing. Conventional political thinking assumes that this is a generational matter, pitting the interests of older house owners against those of younger renters. Since older people are more likely to vote, that makes for a political no-brainer.

We could buy into that convention, which would make this an issue of inequality, or rich versus poor. This is what the political establishment would like us to do, because it suits the adversarial framing of party politics (in which the rich generally win). Or we could look at it another way, and try to work out what would be in everyone's best interests.

Research published last week shows that the "Bank of Mum and Dad" will help to finance 25% of all UK mortgage transactions in 2016, to the tune of £5 billion. To add to the picture, it is reported today that Nationwide is to offer mortgages that are funded through to age 85. So it's not only mum and dad, but also granny and granddad, who are using the value of their houses to raise finance for the younger generation.

It's pretty clear, therefore, that so far from having different financial interests, the generations in a family are all in the same boat together, each with a hand to an oar. For the oars to be effective, however, they need to be pulling in the same direction, and this is where the politics of fear come in. The older generations may think (or be persuaded to believe) that high house values are essential for them to be able to afford the help the children need.

The maths, however, says that the reverse is the case. Lower prices help everybody, reducing costs both for the first-time buyers themselves and the people who are helping them. Total borrowing, whether by older or younger, is less overall, so the only losers are the banks and lenders.

Lower house prices should bring hope, not fear, but that's not an easy message to convey to generations of established home-owners. I'll post some sums later, to illustrate the logic, but can anyone think of a more powerful way to make this convention-busting point?

Photo credit: copyright Terry Robinson and licensed for reuse under this Creative Commons Licence

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