UK House Prices Reach Critical Levels

It has now been announced that the UK has the most expensive housing in the Western World. The cost of accommodation has now reached the point where most regular working Joes cannot afford to buy a property.

UK housing no longer affordable for ordinary people

If you look at the cost of housing per sq ft. it is not all that expensive when compared to countries like Japan. The main problem is the cost of living in the UK far outstrips the amount people own.

This is leading to a huge housing crisis in the UK. More people are homeless than ever before. The majority of the people who are considered to be living in poverty are in fact working. Many of them are working full time. Unless the cost of living falls drastically or wages rise steeply there is no light at the end of the tunnel for UK residents.

Housing values continue to rise in virtually every part of the country. Where the prices are stable there is very little well paid work available, so people still struggle to be able to afford the rent.

The housing bubble that will not burst

In the past, this has been an issue. However, normally the housing bubble would burst, prices would fall, wages rise gradually and people would start to be able to enter the housing market. This would in turn push prices up again and for a few years housing would become impossible to afford. Eventually, this lace of demand would make the bubble burst and the cycle would start again. This has not happened, in the UK, for nearly two decades.

Even the financial crisis of 2008 did not make it happen, as many financial institutions expected. So, why has this happened?

Foreign buyers fuel UK house prices

Well, the answer is quite complex, but, without a doubt outside forces have had a big impact. In the past demand for housing in the UK came almost exclusively from the domestic market. I.e. long-term residents of the country.

Now, there are more markets for house-builders to sell to. The UK´s buoyant housing market makes it extremely attractive to outside investors. In London, there are whole blocks of flats that are almost entirely empty. Both domestic and foreign investors are buying up these flats almost as soon as they come on the market. Tax laws and the fact that the value of these properties continue to rise year on year means leaving them empty is economically viable. In some cases, desirable.

This buying pattern means that new homes get built, but they never enter the market. Therefore, demand for rented accommodation continues to outstrip what is available. So, naturally rents stay high. This in turn leads to the value of properties continuing to rise. As a result, the buy to let market remains buoyant, so the cycle continues.

How this cycle can be broken is hard to say, but, without a doubt this is a serious issue for the UK. The population continues to grow and the UK is still a popular destination for those who want to move country. This also increases demand and makes it even harder to break the cycle.

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