£100 chickens: Anna Minton on house price inflation
Posted by Anna Minton
EVENT: Anna Minton is at the Bookshop on Wednesday 19 July to discuss her latest book Big Capital with the Guardian architecture and design critic Oliver Wainwright. Book tickets here. Below, in an extract from the book, she explores some of the contributing factors to the galloping increase in UK house prices since the 1970s.
If the price of food had increased at the same rate as house prices in the UK over the last forty years, then today a chicken would cost more than £50. As average house prices in London are more than twice those in the rest of the country, if food prices had tracked house price inflation, in London that chicken would cost £100. High rates of inflation in the 1970s were among the factors that propelled Margaret Thatcher’s Conservatives to power in 1979, and since then low inflation has been a source of economic pride for successive governments. But while food, clothes, furniture, cars and holidays are all included in the government’s preferred inflation index, the Consumer Prices Index (CPI), house prices are not, nor are rents accurately reflected. So inflation in UK housing, which has increased by 166 per cent since the 1970s and an eye-watering 513 per cent in London, compared, for example, with Germany, where it has been virtually stable, is treated differently from every other form of inflation because it has been stripped out of official records. The paradox, of course, is that housing is also a property asset – as well as a human right and public good – and rising prices benefit owners. The result in the UK is a situation where one part of the population is pitted against the other, with those who own gaining directly from the rising prices that exclude everyone else. Despite the mythology that we are a nation of homeowners Britain has rarely exceeded the European average and we have now plummeted to the fourth lowest home ownership in Europe, with only Denmark, Austria and Germany showing lower rates of owner occupation. The difference is that these are all countries with a famously high-quality, affordable rental sector, where people want to rent rather than buy. Today, although the great majority of people in the UK would like to get on to the property ladder, home ownership is at the same level as it was in 1986, when Margaret Thatcher was just embarking on her housing revolution.
To an extent, this is part of the global trend that in the contemporary economy the rate of return on capital is greater than economic growth; rising prices mean that buying property is the best way for people to make money. For domestic investors, it makes sense to buy as much property as possible, which keeps prices high (although in London, and increasingly other cities such as Bristol and Manchester, the flood of global capital is the main driver for soaring inflation). At the same time as property prices have risen, wages have failed to keep pace, even among those on high incomes, resulting in more than a third of households being locked out of the housing market, with mortgages running at multiples of five times incomes (another factor that keeps prices high, as those who have managed to save for the substantial deposit required can then afford expensive homes). But while similar trends are evident in other parts of the world, in the UK the extent of our inflated house prices is down to the particular circumstance that we have very high land prices compared to other countries. This is the consequence of a malfunctioning planning system that no longer bears any relationship to what its architects intended. Like the housing settlement, the planning system was created as part of the postwar consensus to serve the public good, but since the mid-1980s it has been distorted out of all recognition and no longer works, becoming instead a mechanism for fuelling speculation.