Wednesday, 22 July 2015

The housing crisis or “Why millennials are screwed”

I think everyone knows that it is much harder for millennials to buy a house. At least I hope everyone knows. I’ve been thinking about exactly how much harder it is, so I did what any normal person would do, head to and the Office of National Statistics.

Goodbye house!
At the beginning of 1999 the median value of a house in England and Wales was £66,950, by the end it was £75,950; a very large increase in one year, and possibly the beginning of the very housing crisis that plagues Britain today (morbid).  If we put these numbers in today's money we get £105,330, £119,489, respectively. Today, the median price of a house is £179,696.

The average house price is currently over 80% more expensive than it was at the beginning of 1999.

This is worse in the South East, where median property prices have shot up from £84,250 in 1999 (£132,550 today) to £236,000 in 2012 (£248,910 today). Extrapolating from the data I would guess the median cost of a house in the South East to be around £250,000 today.

Sources: &

In 1999 the average UK yearly salary, before tax, was £14,400, in 2013 it was £21,000. Adjust for inflation for today and we get £22,655 and £22,149 respectively. Britain has taken a 2.25% pay cut in the last 15 years.

Inflation calculations: This is Money

This leads to one undeniable truth, it’s almost 85% more expensive to buy a home than it was 25 years ago.

If you want to get a mortgage on the median wage then you can get, at most, a £100,000 mortgage (and it wouldn’t be advisable). For that, you could buy half of a two bedroom flat in Stevenage.

This has had a very severe impact on the ability of young people / millennials / generation Y / Dappy from N-Dubz to be able to afford a home, and I’m far from the only person who has noticed. A recent article in The Economist, produced this graph, which demonstrates my hypothesis to be true on a massive scale.

We have gone from 30% of 25 year olds owning a home in 1985, to just 8% today. That’s absolute insanity, and clear evidence of all of the wealth being retained by the old and rich.
But why are houses so expensive? It’s really simple economics of supply and demand; as a country, we’re not building anywhere near as many houses as we should. In 1978, we finished the construction of nearly 280,000 homes. In 2014, we finished the construction of just under 140,000 homes. In fact, we are building less homes now than we ever have (there probably was a time when we built less, but it hasn’t been recorded).

Our population growth rate is much higher than it was in the 70s so we should be building more homes, not less!

The problem is further exacerbated when you consider the rising cost of rent across the country.  A recent article revealed that tenants in England spend half their income on rent, showing the scale of the problem where people are trapped into an endless cycle of rent, without being able to live a reasonable life at the same time as saving up for a deposit for a house. In fact, half of people under 40 will be living in private rented accommodation by 2025 if we keep going in the direction we are headed.


So what is causing the rise in cost of rented accommodation? I’m going to sound like a loony lefty when I say this, but it’s very obvious what has caused the housing crisis: Right to buy. For those that don’t know, right to buy is a government policy introduced in the Margaret Thatcher era which currently allows people inhabiting council houses and certain housing association homes to buy the property for up to 70% off the market price after living in the property for several years.

Now this sounds great; but it isn’t; it drives up the cost of rent for everyone, let me give you the timeline of right to buy property:

Council property → Bought at a 70% discount under right to buy → Sold by the new owner at a massive profit to a buy to let landlord → Let out to new tenants at a price much higher than before

This, coupled with the fact that we are building an exceptionally low number of council houses (we are building less houses total than just the council houses we built in the 50s), which should provide a decent quality, low cost baseline of rented housing, means that private landlords can essentially charge what they want with even low quality housing… because there simply isn’t enough.

So this is how we, the young, live. We rent a house that’s far too expensive because there isn’t enough social housing keeping the prices down; we then can’t save enough money to buy a house that’s too expensive anyway because there aren’t enough houses in general. The young are trapped a system of high rent with no escape apart from to become a very earner or to move somewhere with no jobs worthy of a graduate, because the government also refuses to invest in infrastructure in anywhere but London... but that's a whole other story.

Tuesday, 14 July 2015

Why it is fair and right that the wealthy pay more tax

In the run-up to the election, Ed Miliband very often said that, "Those with the broadest shoulders should bear the biggest burden," referring to tax increases on the wealthy in the form of a proposed mansion tax on homes over two million pounds and re-increasing incoming tax to 50% for those earning £100,000 or more
. It's all very well and good saying this, but this again typifies what I see as a very major problem with the Labour election campaign, never explaining their position. Why is it fair that the wealthiest should pay the most tax.

Don't park in the bus stop
Well the most obvious answer is a moral one, if you can still live very comfortably after your taxes have been taken then why shouldn't your taxes be used to help people who need it, the sick and disabled, the elderly, the jobless, etc. But there's actually a far more important argument than that, I think. If you are very wealthy then, chances are, you have benefited from the state far more than anyone else.

A lot of wealthy people are business owners, if you run a business you need workers. Those workers need to be educated, healthy, and possibly more importantly, be able to get to your place of business. All of these things are funded by the taxpayer: Your employees have almost certainly used the NHS, even if you have private healthcare; unless you are an insufferable snob, a large proportion of your employees were educated in a state school, and even if they didn't, went to a university funded by the taxpayer; all of your employees either use state funded roads or state funded public transport (privatised rail and bus services still use government subsidy) to get to work.

It seems fairly self evident to me that employees remaining happy and healthy benefits the employer, and unless employers, small and large alike, want to start paying for this out of their own personal pocket then I suggest that they be happy paying the lowest rate of corporation tax in Europe.

The companies don't just benefit from their employees though. Without customers who can easily get around, the businesses will suffer also. The same roads and public transport and health will mean that it is easy for customers to go to their shops, the agencies, etc. If the government provided infrastructure does not exist, business, and specifically new businesses, cannot be facilitated.

Of course, there are other ways to become wealthy, but listing every sort of wealthy person would take far more than one blog post and, arguably, business owners are most deserving of their wealth when compared to those who inherit vast sums of money or those who bought property 20 years ago.

If the state ceased to invest in the futures of its own people, then businesses that rely on educated workers, transport… nearly every business would fail. Businesses need the state to provide healthy, educated workers; businesses need customers. Without that… no businesses.

We currently live in a society where the poor pay the largest proportion of their income of their tax and the richest only pay a slightly larger percentage than everyone else. The wealthy only pay slightly larger percentage of their income than most people in tax, despite having their benefit from the state being far greater in more cases than not, because of the reasons described earlier. Fundamentally, this is unfair. The rich deserve to pay more not only because it’s the moral thing to do, not only because it makes the most actual sense, but because, in a modern society, business owners benefit the most.