Tuesday, 3 June 2008

Just Who Lives In A Place Like This?

Seeking that elusive silver lining, a journalist recently requested my help in finding people likely to benefit from the mortgage/buy-to-let/credit-crunch fiasco. I explained that his search for goodness in this economic ill-wind is endearing, but likely to be scuppered by factors largely ignored by the media.

Outsiders might imagine that the residents of Dovecot Towers live in rented property as we predicted the housing crisis, and are cannily biding our time, waiting for prices to spiral downwards so we can emerge from the rubble as smug, billionaire property barons.

The reality is different. Most inhabitants of urban newbuilds are not aspiring landlords, and many of us are starting to accept that we will never own a home. Lower house prices are tantalising, but most of us avoid the property treadmill for reasons other than cost. It’s just that, we’re poor, and we’d need a deposit so huge and distant, it exists in space.

Dovecot Towers is populated by a surprising mix of people. There’s a sizeable amount of Divorced Dads, who will never afford a place with room for when the kids come to stay. The rest are mostly students who move at least once a year: life is uncertain (or crazy, wild and free if you’re a glass-half-full-type). Inevitably, short-termism discourages or prevents students from owning property, although parents might invest. The remaining tenants are trainees on entry level wages or just low paid, like shop workers, and impoverished ‘creatives’.

But still we are decreed capable of affording inflated rents on newbuilds, which were originally set at cheeky levels. Because our pay is so low, we will never be accepted onto the mortgage chain, although we must pay these silly rents. As my fellow blogger Alice, on the excellent ukbubble (see links below) explains, there is a limit on how much income should be eaten up by housing costs. Current prices for both owning and renting have almost reached an economically feasible ceiling.

Property prices plummet, but tenants seldom benefit as we don’t earn enough. Our problem isn’t house prices, but job insecurity, short term contracts and especially, low pay (whenever I hear politicians boasting proudly about keeping a lid on wages, I could scream.) And yet, we are supposed to aim for home ownership, despite tenuous employment, empty bank accounts and unattainable deposit rates.

There’s a brief moratorium on handing out mortgages to people unlikely to repay them, but give it a few years and the wastrels of Dovecot Towers will be actively recruited by bankers again. A few may benefit: some couples - a tiny minority - are slumming it hereabouts to save money, feet hovering on the first rung of that stairway to property heaven, waiting to pounce on a bargain.

For everyone else, the problem is wider and more complicated than house prices or low wages; it’s a reluctance, or inability to incur debt. We can’t get loans, so prudence is forced upon us. Renting isn’t a crime (well, not officially) so we’ll stay put and let those newly risk-averse bankers speculate when the boom/bust circle turns.


the reaper said...

RG,I think that a lot of people just do not believe how low housing will go in this cycle.At the w/e I met a couple I hadnt seen in a year.First question was 'are you still renting?'

before now,it would normally precede one of those smug 'we've made£z squillion on our house arent we clever.' type chats.

There is a sea change going on.This time it preceded a 'we're trying to sell and the market is dead' chat.I told them 50% down and the hubbie couldn't take it.

Realistically,when I worked in a call centre for say £13k in 1995,you could get a nice 2 up/2 down for 45k in a posh area and 33k in a worse but still nicesih area.Wages have done nothing in ten years,houses have trebled.Until,houses get back to those affordability levels they will continue to drop.End of story.there is no new economic paradigm,just a spending frenzy fuelled by cheap debt and govt payroll expansion.

The reason I've gone into this is just to demonstrate how things have changed in ten years and why they must and WILL revert back to the long term mean.

People have to stay sensible.I saw that **** ray boulger on panorama the other day and he's sayting 'put a cheeky offer in'....still ramping even into the crash.Houses are going dow big time until they become homes again and not a get rich quick scheme for middle class beeny wannabees.

Sorry to go on but you and a lot of people like you have to keep the faith and stick it out.All cheeky offers will do now is bail ray and his mates out.

Rant over

RenterGirl said...

Houses should be homes to live in. Investments should be savings, and if people 'invest in property' the market decrees that you can't be greedy with weekly rents, but must wait decades for a profit. Renting is fine, but landlords a funny lazy bunch. Thanks for reading. And rant away!