Will Property Prices Keep Rising?
Summary
TLDRThe video script explores the dramatic rise in property prices over the past decades, using visual metaphors like 'P's and 'blocks' to illustrate the increase from £1,891 in 1952 to around £287,000 today. It discusses factors influencing this growth, including inflation, declining interest rates, and population migration. The script also addresses affordability concerns, wage growth, and the impact of government policies on housing supply, suggesting that while property prices may continue to rise, the era of exceptional returns might be over.
Takeaways
- 🏠 The average cost of a home in the UK has increased dramatically over the past decades, from £1,891 in 1952 to around £287,000 today.
- 📈 The increase in property prices is partly attributed to inflation, which has reduced the purchasing power of money, but also to other factors such as declining interest rates.
- 💷 Inflation is estimated to account for about £45,000 of the price growth of an average home, though some sources suggest it could be as high as £65,000.
- 📉 Real wages have seen little growth since 2008, which, coupled with high house prices, has made affordability a significant issue for many.
- 🌐 Immigration and population growth have had a noticeable impact on house prices, with a 1% increase in population due to migration increasing house prices by 1%.
- 👶 The UK's aging population and declining birth rate are contributing to the need for continued immigration to support the economy and social services.
- 🏗 The UK has struggled to build enough homes to meet demand, with estimates suggesting a need for around 4 million new homes.
- 🛠 Barriers to building new homes include planning restrictions, high land prices, and labor shortages in the construction industry.
- 📉 There has been a recent stagnation or slight decline in real house prices due to a combination of high inflation and relatively static nominal prices.
- 🌟 The era of record-low interest rates is likely over, and a return to more normal interest rates could act as an anchor on property price growth.
- 💭 The expectation for property price growth should be realistic, considering the changing economic environment and potential for higher interest rates.
Q & A
How much did the average cost of a home increase from 1952 to the time of the script?
-The average cost of a home increased from £1,891 in 1952 to approximately £287,000 at the time of the script, which is around 151 times more expensive.
What is the role of inflation in the growth of property prices?
-Inflation, which is the fall in the purchasing power of money, is responsible for about £45,000 worth of house price growth over the period according to the Bank of England. This means that the currency's value has dropped, not necessarily that the house itself has increased in value.
What is the significance of declining interest rates in property price growth?
-Declining interest rates have caused a majority of property price growth in the last few decades. Lower interest rates make borrowing cheaper, which in turn can increase demand for properties and push up their prices.
How does the script suggest that property prices might behave if interest rates continue to rise?
-The script suggests that if interest rates start going up, property prices could potentially fall. It references a Bank of England paper that indicates a 1% sustained increase in real interest rates could result in a long-term fall in real house prices of nearly 20%.
What is the impact of net migration on property prices according to the script?
-The script cites research suggesting that a 1 percentage point increase in the UK's population due to migration can increase house prices by 1%. However, the impact is not uniform and can vary by region.
What is the current state of housing affordability in the UK as discussed in the script?
-Housing affordability has been worsening, with the average home costing around eight times the average income, up from under five times in 1997. This is making it increasingly difficult for first-time buyers to enter the market.
How many new homes does the script suggest are needed to address the UK's housing shortage?
-The script references studies suggesting that around 4 million new homes are needed to address the UK's housing shortage.
What are some of the barriers to building new homes in the UK as mentioned in the script?
-Barriers to building new homes include planning restrictions, high land prices, labor shortages, and skills shortages in the construction industry.
What is the script's perspective on the future of property prices in the UK?
-The script suggests that while property prices will likely edge up long term, homeowners should hold realistic expectations around returns due to factors such as higher interest rates and a reversal of the decade-long trend of declining rates.
How does the script use the analogy of peas to illustrate the growth in property prices?
-The script uses the analogy of peas to visually represent the growth in property prices over time. The number of peas needed to represent the average cost of a home today compared to the past illustrates the significant increase in property prices.
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