There is no doubt that first-time buyers in the UK are finding it ever more difficult to climb aboard the property ladder. Even the recent 2008 US led mortgage crisis, which led to a collapse in worldwide property prices, gave little respite to first-time buyers with many properties still out of their reach. So, why have UK property prices become so detached from household incomes?
Right to buy
Margaret Thatcher introduced the controversial right to buy scheme in the 1980s which allowed council tenants to acquire their properties at a discount to market value. The idea was to introduce the idea of homeownership across the UK and encourage more people to invest in their property, often giving them greater incentive to push their employment careers as far as possible. Looking back there is no doubt that this was the beginning of a sustained period of growth in the private rental market as council houses fell in number, the population grew and many were forced to move around the country looking for employment opportunities.
Private rental market
As the number of council houses in the UK fell during and after 1980s many investors saw the emergence of a growth market. The buy to let market we see today is unrecognisable from the market prior to the 1980s having mushroomed in size. In what became something of a self-fulfilling prophecy, as property prices continued to grow, household incomes failed to keep pace, it soon became apparent that many would-be first-time buyers would need to look at the private rental market at least in the short term.
As demand for private rental properties grew, this brought more investors into the marketplace thereby pushing property prices further and further out of the reach of first-time buyers. This forced even more people to look towards short to medium term rental opportunities which again fed demand for the buy to let market. Surely this is the ultimate self-fulfilling prophecy?
The UK property market has been a magnet for many overseas investors for some time now. Even if we put the London market aside, which has attracted billions upon billions of pounds of investment over the years, there is still great interest in the rest of the UK. A relatively stable economy, relatively stable political situation together with a relatively strong currency is often seen as the perfect alternative to the turmoil we have seen in the European Union in recent years. London in particular has become something of a safe haven in the minds of many property investors pushing prices to levels which are in theory unsustainable but in principle keep moving higher.
Governments have attempted to reduce demand from overseas investors with the introduction of draconian tax measures but still the flow of investment funds continues.
Over the last 50 years or so we have seen growth in homeownership across the UK, a reduction in council housing, an increase in property prices far greater than the increase in household incomes not to mention overseas investors adding themselves to the mix. Even the underinvestment in newbuilds across the UK pales into relative insignificance when you take into account the above factors. Will it ever change?