Friday, June 08, 2007

House prices to reach ten times salary? Bollocks

According to a report from a government think tank, house prices may be 10 times average salaries by 2025. It's all down to supply and demand apparently. Sure, looking at the figures in a simplistic fashion, with an increasing population and inadequate house building then house prices should continue to increase. But think about it a little longer and it clearly doesn't make any sense. Who will be buying these houses? First time buyers are already priced out of the market. Buy to letters might take up the slack but only if rents rise in line with house prices, otherwise they'd be better off investing their money elsewhere. So will rents rise as well? Given that a lot of our increase in population is driven by economic migrants, who generally are in pretty poorly paid jobs and renting, if rents rise dramatically, will they continue to come here? Probably not, since they'll be better off staying at home. So demand won't increase, meaning prices fall back to a more sensible level. There's also the question of whether the indigenous population would hang around with such ridiculous prices, meaning even less demand for housing.

On reflection, I suspect this report is purely some spin to get the idea of relaxing planning laws onto the agenda, thus enabling more house building. But whatever it's about, it's bollocks.

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