LONDON: Surging house prices in the UK are making it more difficult for younger generations to follow the most common path for accumulating wealth, widening a gap between the rich and the poor.
Homeowners are benefiting from the coronavirus crisis, with cheap borrowing and government tax cuts driving real estate prices to an all-time high last year. The cost of a home averaged £253,374 (US$340,000) in December, up 6% from a year ago, according to mortgage lender Halifax.
That gravity-defying increase during the worst economic slump in three centuries has put ownership further out of reach for the young, particularly in London where the value of property has almost doubled in the last decade. It’s piling misery on a section of the population already hard hit by the pandemic, with young people more dependent on sectors closed by lockdown.
“It’s about the imbalance of economic power, ” said Robert Joyce, deputy director of the Institute for Fiscal Studies and a participant in a review of inequalities led by Nobel Laureate Angus Deaton. “More and more houses are owned by the same people, a narrow segment of society who are renting them out to younger people.”
There are implications for the productivity of the economy too. High housing costs can make it hard for workers to relocate, depriving companies of talent and robbing young people of opportunities for better jobs and pay.
The widening gulf between “generation rent” and those just a decade or two older has spawned a range of housing initiatives since the financial crisis. More recently, it has fuelled a debate over whether Chancellor of the Exchequer Rishi Sunak should follow countries such as Argentina by levying a wealth tax to help repair Britain’s coronavirus-ravaged public finances.
A vocal advocate of higher taxes on the rich is Gary Stevenson, an inequality economist and former Citibank trader who accurately predicted rock-bottom interest rates remaining for long after the financial crisis. He sees a similar scenario unfolding now and warns that London house prices could double again.
“It makes social mobility completely impossible and housing completely inaccessible for the bottom 50% or 60% of society, ” Stevenson said. “It’s like cutting off the bottom half and saying, you guys lost capitalism, you’re out.”
Affordability is particularly stretched in the UK capital, where first-time buyers paid £420,618 on average at the end of 2020, the equivalent of more than nine times their earnings, according to Nationwide Building Society. It means buying often requires outsize deposits, or having money from family.
While overall wealth inequality in the UK is far less pronounced than in the US, the gap has widened in the last decade. That reflects both Bank of England stimulus to fight the financial crisis, which fueled a surge in asset prices, and fiscal austerity that hit those of working age harder than older people. — Bloomberg