Good reads from around the Web.
One of the big frustrations of the ‘priced-out’ generation – which is fast becoming anyone under 35 in the South East, or at least those without access to Feudal leg-ups from their parents – is that older generations really don’t get how tough it is to buy a house under your own steam now.
“It was equally hard in my day,” some 60-something property millionaire next door will say.
“We ate baked beans for three months and used toxic waste drums for furniture. To get a mortgage I had to marry one of my girlfriends just to look respectable to the bank manager, and she still had to take care of him behind the golf clubhouse to seal the deal. Interest rates were 8%, and I had to sell my LPs.”
Even I’ve underestimated the younger generation’s despair, and I’m not a complacent home owner.
Rather, as a conscientious objector to high house prices in London and hence a deliberate renter, I’m on their side, too.
So I really shouldn’t have opined to some much younger friends over email that their unwanted office relocation out of Central London to Zone 2 at least put them within shooting distance of cheaper property they might eventually buy.
One bombarded me – as is the way of the under-30s now – with animated movie clips of the clinically insane cackling and of cars being deliberately driven off cliffs.
The other emailed: “Twenty three minutes on and I’m still laughing at the idea of ever buying ANYWHERE myself.”
I did the maths. He earns about £35,000 a year. He’s doing okay, by ordinary late-20s standards.
He’s screwed.
The dirty dozen
On this point, The Guardian has come out with some new statistics [1] that show how stretched the market has become:
A homebuyer earning the median salary for their region in 1995 would have had to spend between 3.2 times and 4.4 times their salary on a house, depending on where they lived.
In 2012-13, the last year for which complete data is available, the median house price had risen to between 6.1 times and 12.2 times median regional incomes.
Prices have only pushed higher since 2012-2013.
And as those of us foolish enough to live in London keep reminding everyone else, it really is a madhouse down here:
In 1995, the median income in London was £19,000 and the median house price was £83,000, meaning that people were spending 4.4 times their income on buying a property.
But by 2012-13, the median income in London had increased to £24,600 and the median house price in the capital had increased to £300,000, meaning people were forced to spend 12.2 times their income on a house.
Now, this data does overly exaggerate the escalation in house prices to incomes over the past 20 years.
That’s because prices in 1995 were still in the dumpster due to the last big house price crash.
(Yes, we used to have those, even in London.)
I know that well, because that’s when I first took an interest in London property. The sticker shock of seeing prices well above those lows just 4 or 5 years later definitely discouraged me from buying, even when it was still a sensible thing to do.
Nevertheless that doesn’t change the thrust of the argument.
I’d imagine the median pre-1995 would still only have been around 5 times back to the mid-1980s, and probably lower before that.
But regardless of how much it’s grown, a price to income ratio over of 12 times in London is far in excess of what’s prevailed throughout history.
You’ve got to fight for your right to party walls
So younger people aren’t just moaning like every generation before them when they say that property is almost hallucinogenically expensive.
It is.
The wonder of it is they’re not rioting on the streets every day, like some previous generations would have.
Certainly the baby boomers of the 1960s would have been making their voices felt.
But then, they could afford to take a six months leave of absence to drop out and rabble rouse.
At least as far as the men were concerned, they lived in a world of full employment [2], free higher education if you could get in, good blue collar salaries if you couldn’t, and social mobility was peaking.
And though the fun wore off in the 1970s, by the 1980s they could begin amassing the property wealth they have today – aided enormously by the right-to-buy and buy-to-let booms that the current Government is only just applying the brakes to.
People obviously weren’t evil in doing this (despite what some bitter Internet warriors say).
They were just trying to improve their lot.
If Monevator had been around in the mid-1990s I am certain many of them would have been reading it – and for that matter I’m sure we’d have been making the case for getting into property for those double-digit yields.
But that was then, and this is now.
We know the consequences of all that, and something has to change.
A European problem, too
For me, it could eventually be the country I live in.
The gulf between what you can buy in the UK and in the great livable cities of Europe is staggering.
True, it helps enormously that I don’t rely on those famed London office-based salaries for my income – and that I’ve saved a fair wodge along the way.
So really all I’ll be doing if I was to move to Spain or Portugal or Italy is arbitraging how far my savings will go.
The indigenous youth of those countries actually think property is a pipedream, too, according to a report in the FT [3] this week [search result]:
The affordability gap has widened so much that 72 per cent of Europeans questioned in the ING survey believe that society would benefit if house prices fell.
This is felt most sharply by renters, with 93 per cent of Spanish, 75 per cent of British and 74 per cent of French tenants citing expensive housing as a block on their path to home ownership.
Of course, in most of those countries a sickening proportion of the young haven’t got jobs at all.
That’s not the cure for high house prices that anyone wants.
You can’t swipe your first flat
Bottom line: If you know a young person, be kind to them.
Yes, they have iPhones, Tinder, and they live in a more tolerant, flexible society.
But the majority of those without wealthy parents foresee no chance of ever owning a place of their own.
And rightly or wrongly, in the UK we all want one of those.
Note: Constructive comments are always welcome, but I will be deleting abusive ones or anything that sounds like it was written by a die-hard in a newspaper comment section. If you’re going to be snarky, be elegantly snarky!
From the blogs
Making good use of the things that we find…
Passive investing
- Where are the customers’ Porsches? – Evidence-based Investor [4]
- A crazy idea for managing market uncertainty – Rick Ferri [5]
- Have bonds failed? [US but relevant] – The Irrelevant Investor [6]
- Slowly moving over to the passive approach – diy investor (uk) [7]
Active investing
- Q&A with Lasse Pedersen about market efficiency [Podcast] – Covel [8]
- Emerging market rout continues – A Wealth of Common Sense [9]
- Paying for hope is not confined to football – Value Perspective [10]
- Fighting the Fed fear factor – Musings on Markets [11]
- 12 things learned about Ben Graham from Charlie Munger – 25iq [12]
Other articles
- 2016 dividend tax hit will be worse than expected – IT Consulting [13]
- Ten downsides of early retirement – SexHealthMoneyDeath [14]
- Baby steps for future millionaires – The Escape Artist [15]
- The ‘fascinating’ history of safe withdrawal rates – Retirement Cafe [16]
- Your financial adviser may be part of the problem [Video] – E.B.I. [17]
- How to register for / fill in a self-assessment tax form – FIREstarter [18]
- A year of riding electric bikes – Mr Money Mustache [19]
Product of the week: TSB [20] has bank accounts that – used together – The Telegraph reports [21] could see savers earning up to £238 a year (with a cashback bonus) on relatively modest balances. There are, of course, catches.
Mainstream media money
Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1 [22]
Passive investing
- Swedroe: Beware the death cross! (Or not..) – ETF.com [23]
- Felix Salmon: Ban daily stock market reports – Fusion [24]
Active investing
- DeGiro will offer free trading in 2016 with ‘DeZiro’ – ThisIsMoney [25]
- Don’t even think about trading places in markets – Bloomberg View [26]
- Value investing – you’d be crazy not to [Search result] – FT [27]
- Defensible reasons to go active – Morningstar [28]
- The decline of the trading desk memoir – The New Yorker [29]
- 3 ways UK shares are cheap [Though author seemingly doesn’t understand what a P/E ratio is, he’s citing solid third-party research] – Telegraph [30]
Other stuff worth reading
- Longevity gains could mean State pension at 70 by 2050 – ThisIsMoney [31]
- Is this global slowdown different? [Interesting graphs] – Bloomberg [32]
- The financial case for studying at a university in Europe – Guardian [33]
- How Bitcoin may yet transform finance – The New Yorker [34]
- Room to rent in London is a garden shed… in a room – Metro [35]
Book of the week: The podcast interview with Danish finance professor Lasse Pedersen I linked to above prompted me to look up his book Efficiently Inefficient [36]
Like these links? Subscribe [38] to get them every week!
- Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩ [42]]