The real reason house prices went up so much...
is a tad more complicated. More money, because more people work, is a part of it.

But what happened was rather pointless and simply indebted many of us to the banks.

Here's how (assuming zero inflation, by the way):

Houses are a fairly finite resource. More accurately, the land to put them on is, and in the UK we still have something of a phobia for high-rise, although some cities are starting to get past this now.

So, you have a plot with a house on it, once worth £13k. It was an average house, and average household income was, say, £5k. Banks were much more reluctant to lend back then, so they'd only give 2x income mortgages at best. That meant that an average household could afford an average house at £10k + £3k deposit. Perfectly fine.

In the recent madness, banks found it was very cheap for them to borrow even for what were actually quite high risk borrowers. It was a slow process - first mortgages went up to 3x with a 5% deposit. The same family who could afford the £13k house can suddenly afford a £15k+deposit house - say, £18k. The borrowers didn't see the increased risks to them and their livelihoods, and all that happened was that it might take longer to pay back the mortgage, and people are rubbish at looking at future costs. If they weren't, they wouldn't buy into so many rubbish 24mth mobile phone contracts.

Anyway, before long you had 5x mortgages. So Mr & Mrs Average can suddenly afford £25k+deposit house. Then some banks had the fantastic wheeze of self-certified mortgages, where you didn't need to prove your income - you just signed a declaration that said "I really really promise that this is true." Well guess what, many people are dirty rotten liars. Especially the ones who are rubbish at seeing ahead. Suddenly Mr & Mrs Average declare that they actually make £8k a year. Now they get that £40k+deposit dream house. Far better than the poxy £13k house they'd have got at the beginning.

Except it's the Same. Freaking. House.

Who benefits? Well, the banks, of course. Not the liars. Not Mr & Mrs Average. They all bought into it because so many people have been fed the bizarre belief that houses are great investments that only ever go up. With the geared investments made on a house (you actually only 'invest' the deposit) the profits seem massive. That £10k house has a £3k investment, but by the end of the story it's worth what? £43k? So in the period of the story, the original investment will have returned £43k - £3k - £10k = £30k. That's a hell of a return.

So the real value behind a house disappears as people get caught up in a borrowed investments frenzy. Banks take excessive risks, individuals take excessive risks, and the only people that actually benefit are those who bought their homes when they were relatively cheap. Old middle-class people, funnily enough. Which helps them pay for their care homes when they get all frail, and also fills in the pension gap.

And that, dear friends, is why the government allowed this to happen...

PS - I just realised what a long rant that was. Soz.
(clopinettes, Wed 30 Dec 2009, 11:24, 1 reply)

also...
... if you dropped into the middle of the housing frenzy of the last 15 years say, and found that your housing options were

1. stretching past the limit to get a mortgage on a decent place or
2. renting a flat underneath a sociopathic ex junkie

then most people would aim for '1' ... which also added to the upward price spiral, until such times as '1' was no longer an option for anyone earning less than £35k pa unless they had rich parents ... now lots of people live underneath sociopathic ex junkies (not that i'm bitter)
( writerblock ... embedding disabled by request on, Wed 30 Dec 2009, 12:13, closed)

but...
...you weren't forced to live under the sociopath. Of course, the cost of renting is linked to the cost of property, so that's an issue too.

Blame the banking industry which was, in effect, generating a housing based Ponzi scheme. Sorta.

One thing I've noticed is that far fewer people seem to share with friends, especially outside of London, than they used to. This is a shame - this is a chance for some people to maybe learn some social skills, meet new folks, etc.
(clopinettes, Wed 30 Dec 2009, 18:56, closed)