What is causing ever accelerating house prices relative to most peoples’ pay

I have researched what’s causing house prices to rise and fall, as they have over several decades recently.

Having seen programs like BBC Two – Britain’s Housing Crisis, What Went Wrong?
it is clear that more detailed and renewed consideration is necessary to avoid further damage to our housing economy.

The BBC’s recently televised programs explain what the economists currently believe is causing the house price crisis facing homebuyers today.
However,  I myself have come to a very different conclusion from that of the academic community. This might be something to do with the fact that I was trained as a valuation surveyor in the sixty’s & seventies and I’ve watched the continued cycles of price changes from then, into and through the next millennium – with increasing incredulity.
Seeing this happening, up front and personal so to speak, and knowing how others were feeling about this, has driven me to find and diagnose the real causes. My explanations are not from the viewpoint of an economist but are exclusively from that of a qualified valuer or a working surveyor’s standpoint.

The conclusions I’ve reached are therefore not only unique and easy to understand but are fully able to be used to remedy the house price crisis which we are now experiencing.
What follows is a brief explanation of my findings. The rest of my web site explains my reasoning in full and I hope you enjoy what I am able to describe to you here.

What are actually causing ever accelerating house prices relative to most people’s pay levels are two separate Financialisation anomalies which are both culprits causing house price crises within our British housing markets.
They act rather like a sort of fog, wreaking havoc for those driving their cars but instead, this state of confusion is allowing excessive pricing to not only exist but to accelerate, especially during times of financial stress. My conclusion explains why during such times as we have seen, particularly more recently, house prices tend to keep on spiralling upwards, before the inevitable correction.

If both of these two legislative anomalies were to be removed, housing markets across Britain would start to match general affordability and would also become price stable. This would bring desperately needed price affordability back to those communities that need this for their very survival.

The legislative instruments creating these two anomalies were both conceived a good long time ago. It is therefore perhaps understandable that they have remained intact because each seemed logical when they were originally made into law.

In chronological order, the first of these (anomalies) was the logic of extending the work of estate agents to cover both sides of the sale process of individual houses, both on behalf of buyers buying and sellers owning these.

The original purpose of having estate agents, going back more than a century, was to create specialised offices, essentially to advise large estates belonging to landed gentry for whenever they wished to dispose of land and buildings deemed surplus to requirements. In addition, these offices would negotiate any purchases on behalf of the large landed estates. The estate offices would work solely on behalf of their employers, with a view to negotiating the best price able to be negotiated as and when required. 

The Estate Agents Act 1979 (enacted over 40 years ago), has since enabled estate agents legally to represent single house owners in selling such property as well as to allow any house buyer out there to also be represented. Unfortunately, doing this is causing what we now know of today as ‘Financialisation’ of the housing markets.

It is clear today that for individual house sales, agents should be limited to having to act for and advise the buyer primarily not the seller as well – in order to avoid causing the degree of house price inflation to which I am referring. However, to achieve this would require a change in the Estate Agents Act legislation.

A further explanation about this is given in the web page entitled: ‘This House Price Solution is devised to resolve the current housing crisis completely’. The link is below.

This House Price Solution is devised to resolve the current housing crisis completely

This explains that true market prices can only be determined by supply and demand in a perfect marketplace. In a perfect marketplace, the whole amount of homes on the market would be sold and the demand for them would also be fully satisfied at all times. The present UK housing market as a whole, is therefore very far from perfect!

IF, housing markets around the whole country were near perfect, economically speaking, it wouldn’t take a year or more for each house-move to happen. Houses and flats going onto the market would take much less than a year to attract a buyer ready to complete on their purchase. 

There would then be fewer unsold and empty properties waiting to find buyers. Supply and demand would be in balance. House prices would enable this to happen and would facilitate sales to take place more swiftly than upwards of a year.

On the rental side of things, here markets are in a very different situation. There are far more people wanting to rent than there are rental properties available. Also, the supply of flats and houses is shrinking currently, which is forcing rent-levels to inflate. Demand for these properties seriously outstrips supply, economically speaking. Here, the obvious solution clearly has to be to provide more properties available for rent.

It should be noted however, if there were to be less unsold properties at any one time, there would be a lessening of demand for properties to rent, because more tenants would’ve become buyers! Therefore, improving buyers’ markets would clearly help with lessening the rental-demand side of things as well. That would be an important added bonus for both marketplaces, which is why ‘The House Price Solution’ is the final answer.

The second, and equally damaging piece of legislation for house prices has been the longterm use of some of the provisions enacted under the Town and Country Planning Act 1947 (conceived over 70 years ago). This Act was the first major one to start directing how and when land could be developed, or used for different purposes. It specifically provided for such decisions ultimately to be decided using powers vested in the Secretary of State to appoint a planning inspector. These officers are effectively appointed by central government acting on behalf of The Crown, as being the ultimate owner of all land outright sitting above the legal estates granted in fee, such as freehold interests.

(For those who want to know a little more about land tenure this goes back in essence to William The Conquerer, after which time all land in Britain effectively belonged to The Crown. A freehold title granted by The Crown can be an estate in fee . An estate in fee simple, for example, is the highest estate possible with the least restrictions. However, even that state of ownership is subject to the laws of the land as and whenever they may receive Royal Assent.)

Rather importantly, there has just recently been a new Act of parliament which received Royal Agent on Thursday 26th October 2023. It augments the operation of the Town and Country Planning Act 1947 (as now amended). This new Act of parliament is called the Levelling-up and Regeneration Act 2023.
It has been prepared by the Department for Levelling Up, Housing & Communities and comprises approximately 530 pages, It underpins the government’s current levelling up agenda and covers among other things, provisions concerning local democracy and town and country planning. It covers additional details about Local Plan making and Neighbourhood Planning for example.

However, in this newly enacted legislation the Secretary of State still retains the power to finally determine planning appeals by using the existing method of appointing a planning inspector to determine planning applications on appeal, irrespective of the views of the local community or even the local authority, including ones submitted under the new Local and/or Neighbourhood Development Plan rules.

I contend that modern-day decisions on things like land use and planning should, from now on, be allowed to be made locally and democratically, rather than autocratically or dictatorially as happens currently using the existing powers vested in the Secretary of State to appoint a planning inspector.

I contend that whenever a planning decision has been decided at local level, that decision should no longer be able to be superseded on appeal by a planning inspector appointed by central government.

Whilst such determinations may have appeared to have worked well initially in the distant past, as the years have gone by, things of this nature have become more and more fraught. Nowadays, we are all very much aware of the discord surrounding decisions ultimately being decided by planning inspectors whom are appointed by central government. This often happens when they simply do not accord with what local communities actually want and require of course.

Unfortunately again, the damaging aspect of such centrally made decisions is what we know of today as ‘Financialisation’. The result of decisions such as these, being made remote from the communities directly involved, causes progressive damage to the very community that these were originally intended to protect. This occurs through the loss of essential residential uses such as those for local first-time buyers. The result is houses which are mostly priced out of local reach, for local people, and this is the last thing these people currently require.

My suggestion for resolving this is for government to vest those representing local communities with full responsibility for determining local residential planning applications depending on which uses are most needed within the community and as provided for within the democratically agreed and adopted Neighbourhood Plans, subject only to an appeal on a point of law (for example, if there had been some misdirection or misuse of the legal framework of the application or of its tenure of ownership).

[For clarification, this should also mean that instances of National Policy Framework considerations should be within the remit of local planning committees to make determinations.]

It would clearly require a significant change to the existing Town and Country Planning legislation in order to accommodate these new fundamentals.

A further explanation about this is given in the web page entitled: ‘Manifestos of those political parties looking to attract winning votes at the next general election should include the following’. The link is below.

Manifestos of those political parties looking to attract winning votes at the next general election should include the following

(This is about the manifestos of political parties looking to attract votes at the next general election.)

My conclusion is that with the twin changes pointed out here, local land use and the resulting prices of property being built, would be restored to price levels affordable by those living in their respective areas. Buyers could fairly compete to purchase residential property from sellers without interference by estate agents acting for sellers. Planning uses could be decided democratically using previously approved Neighbourhood Plans.

I contend there would be no downside from a governmental point of view, in accepting such proposals as I have outlined here.

As I say, top down solutions such as planning ones, especially residential planning applications, not only fail often but are becoming extremely unpopular for the reasons outlined. Devolving decision-making to those with the most to loose, (and/or gain), is the only logical alternative. I ask that these proposals therefore be thoroughly debated and I recommend that they be adopted very soon in order to deal with and fully resolve the exceptional difficulties now being experienced in satisfying modern-day housing need at affordable prices.

In peacetime (i.e. whilst our country is not at war with another), residential planning consents should be delegated to all local town or parish councils for them to determine, depending upon local housing need.

This way, genuinely democratic decisions may be arrived at using local decision-makers whom are best able to understand what the current needs of the community are at any particular time.

As a retired residential property valuer I remain convinced that if democratically elected local councillors were to be granted full authority to decide local residential planning applications, the effect of this could resolve the whole housing crisis.

Decisions made by such elected representatives would not be based upon NIMBYism ‘Not In My Back Yard’; quite the contrary!

Instead it would be a question of ‘IN My Back Yard’, as these councillors would be representing the wishes and needs of the local community – not simply trying to resist necessary change!

There could be no finer outcome than this, especially where residential property is concerned, because with this solution these councillors could work to actually resolve the housing crisis which we are now all being affected by, particularly owing to its increasing severity.

Outside links to the BBC:

Episode 1—Series 1 – How politicians promised home ownership, but with policies that sent prices out of reach.

Episode 2—Series 1 – How the strain on housing – from new builds to social homes – reached breaking point.

Also:

Watch exclusive interviews with the programme’s contributors

Finally, for more information on the necessary house marketing changes, go to:

The House Price Solution

How to Improve all local housing markets in England and Wales

Posted by: Peter Hendry, Housing Valuation Consultant

Author of:– The House Price Solution otherwise known as The Hendry Solution.

The Politics of Housing

The Politics of Housing is necessarily societal. In other words you can’t really divorce housing from politics.

When canvassing for the Brexit vote in 2019 and accepting becoming our Prime Minister in July 2019, Boris Johnson promised that his government would be a government inclusive for all in society; having won the popular vote on that basis.

Whatever political view individuals may take, it would appear that there are three institutions that should be held as being vital to the wellbeing of present day society. These are The Judiciary, The NHS and The Town and Country Planning Acts.

Whenever setting out to make new policy for the benefit of Britain’s populace, these three and established pillars of fairness should always be carefully considered.

Tough love, directed towards some parts of society, may well be necessary for its further improvement but it would, by its own definition, have to be based on love and nurture and not prejudice.

However even so, the noblest of such decisions, taken in the quest to improve the lot of society may occasionally fail, especially where housing matters are concerned.

What follows is a set of proposals specifically designed to resolve the present housing distribution problems.

FIRSTLY: Before designing a new Town & Country Planning system, ideally for the whole of Britain, it would be a very good idea to get a clear picture of what might make each local community thrive, and then incorporate precisely that into the new planning model.

To date we have seen little evidence of such an approach and practically no justification for the arbitrary zoning designations which are being proposed in the Planning White Paper currently being debated in Parliament. This does, therefore, deserve further and serious consideration.

In peacetime (i.e. whilst our country is not at war with another), residential planning consents should be delegated to all local town or parish councils for them to determine, depending upon local housing need.

This way, genuinely democratic decisions may be arrived at using local decision-makers whom are best able to understand what the current needs of the community are at any particular time.

The clear and over-riding objective must surely be for ordinary working people to be able to find openings for good new jobs close to where they may live.

This should mean the forward plan ought to involve a proper debate with business leaders to start searching for and employing more-skilled people, including training them up and paying them adequately whilst expecting more productivity/profitability from them in return.

Such an outcome and gain to industry could be achieved from increasing the incentive amongst school leavers and university graduates alike to decide on a higher-skilled career for themselves earlier, and then to train them more intensively for that.

Those youngsters who do not choose to follow this clear path would be likely to have to accept the unskilled jobs which there may be and at low wages (though with little or no prospects), of course.

This is, in effect, increasing the incentive for job seekers to decide what they would like to do earlier and to embark on getting the necessary training and qualifications which they will need for their choices of career.

Other successful economies have already achieved such outcomes and because this has been done elsewhere it could certainly be done in Britain, if the incentives were provided.

One organisation, KPMG (the accountancy conglomerate) is already in the news for helping in the battle for greater diversity among types of job, especially within the poorer communities, by offering apprenticeships. It wants nearly a third of their staff to be coming from working class backgrounds by 2030. Enabling diversity of perspective, fresh thinking, and, wide-ranging insight which should help all businesses to perform better.

People coming from routine maintenance and service organisations may apply. Levels of pay and prospects in life really matter to employees but so does aspiration. Van drivers, butchers and factory workers should be among those applying for schemes such as these if they should wish to do so.

What is Levelling Up really about?
Added to this post 2 jan 2022:

Levelling up is about empowering local leaders and communities.
It’s about raising living standards and growing the private sector.
It’s about spreading opportunity and improving our public services.
It’s also about boosting local pride and improving our local environments.

Young people should be empowered to learn all the skills they need in order to be enabled to use their passions and their abilities to help them get good jobs in the future, wherever they may choose to live.

All this is can now be achieved with the localised Towns Deals which are being made available by government as well as the Community Renewal Fund and other funds also to do with Levelling Up.

Link to: Department for Levelling up Housing and Communities

Equally important however is resolving the house price crisis itself!

To find out all about everything to do with the extreme lack of adequate and available housing on the market and how to deal with the non-affordability of it, see below.

What do you think about this idea for drastically improving the operation of all housing markets potentially across the whole of Britain?

Constructive comments are very much welcomed.

The Cure For The Malady Across All British Housing Markets

The cure for the malady across all British housing markets is to use a combination of two cures, in a similar way to a doctor using two specific antibiotics to cure a bacterial infection.

The expertise required to achieve that would involve first acquiring an accurate knowledge of the causes of such infections and following this, the ability to diagnose the correct medicinal cure for the specific infection involved.

It is of course imperative to be able to understand precisely how and why a specific illness or malaise will have occurred. Only then can the correct medicinal cure be prescribed.

Peter Hendry says, “I can explain in simple terms why house prices are continuing to rise despite the increasing lack of affordability affecting ever more prospective buyers.”

In a nutshell, the housing market should find the values of houses in a quite specific way.

The true value (or the correct buy price), of any house being offered for sale should be arrived at by adding THREE separately-assessed components together:

1 The land value – which depends in part upon location.

2: The construction cost (including a profit element to the builder or developer).

3: A further amount of equity or profit produced as a result of having combined these two.

These are the things that a sensible buyer should theoretically be considering, even if only subliminally.

All too often however, anxious buyers will base their offers on a combination of how much they could possibly afford and borrow, together with knowing the asking price being quoted.

“What makes this task particularly difficult to quantify is that house prices in today’s housing marketplaces are not derived in perfect market conditions at all. The reason for this is because in a perfect marketplace, the whole amount of homes on the market would be sold and the demand for them would also be fully satisfied at all times.”

IF, housing markets around the whole country were near perfect, economically speaking, it wouldn’t take a year or more for each house-move to happen. Houses and flats going onto the market would take much less than a year to attract a buyer ready to complete on their purchase. 

There would then be fewer unsold and empty properties waiting to find buyers. Supply and demand would be in balance. House prices would enable this to happen and would facilitate sales to take place more swiftly than upwards of a year.

On the rental side of things, here markets are in a very different situation. There are far more people wanting to rent than there are rental properties available. Also, the supply of flats and houses is shrinking currently, which is forcing rent-levels to inflate. Demand for these properties seriously outstrips supply, economically speaking. Here, the obvious solution clearly has to be to provide more properties available for rent.

It should be noted however, if there were to be less unsold properties at any one time, there would be a lessening of demand for properties to rent, because more tenants would’ve become buyers! Therefore, improving buyers’ markets would clearly help with lessening the rental-demand side of things as well. That would be an important added bonus for both marketplaces, which is why ‘The House Price Solution’ is the final answer.

Instead, the present day housing markets have large overruns where, either there is too much property being offered at any one time or alternatively, there are too few properties being offered to purchasers.

Both extremes are most unsatisfactory for prospective purchasers of houses in the regional marketplaces and especially in tourist and second-home prevalent communities.

Unfortunately, current day estate agency does not assess house prices in the way described just now. Instead they peg asking prices at the level they might simply guess they could sell a house for but also they may well often include what their client (the seller) might hope to achieve when determining an asking price!

Worse, they base their asking prices on what other asking prices are, including what the other recent sales will have achieved, albeit these would have used skewed marketing comparisons themselves for the reasons just set out.

To justify what is being explained here, a year ago for example a typical estate agent had 37 properties available and 379 applicants on their register (according to statistics published by the NAEA). Today, after a spirited first half of the year and after COVID has started to reduce, a typical estate agent apparently has just 23 live listings and over 400 applicants on their register.

If knowledge such as this were to be broadcast, it would skew prices-levels downwards whilst the market is flush with houses for sale and it would skew prices-levels upwards when there were not enough houses coming onto the market – as now.

In the former case, sadly there is inherent pressure within estate agency to want to hide the true facts of an excess of properties being listed for sale compared with buyers so as not to spook the market and to keep things going as smoothly as possible, rather than face the reality of a downwards-changing market, with prices dipping.

In the latter case however, with too few properties on their books and too many buyers wanting them, broadcasting the lack of supply actually helps agents to justify trying for rising prices even against general economic trends! This has been what’s going on recently of course.

Selling agents may try to argue that it is the desperation of buyers which is forcing the prices up but that does not explain why the housing markets are operating at such low efficiency in terms of completed sales. This shows serious imperfections, resulting in their lack of stability which means these markets are in need of a completely new approach to buying and selling houses.

In my analysis and resultant diagnosis following understanding the true causes of these problems, two specific ways to deal with them emerge.

A: Firstly there should be restrictions on the right to occupy a proportion of houses in each locality as being permanent “Primary Residence” restricted. This would mean these houses would be for use only by local people, such as key workers for example.

Most people seem to agree that each locality absolutely needs housing to be affordable to those fulfilling the essential roles in their community. This should therefore be enshrined in each area’s local planning rules.

In peacetime (i.e. whilst our country is not at war with another), residential planning consents should be delegated to all local town or parish councils for them to determine, depending upon local housing need.

This way, genuinely democratic decisions may be arrived at using local decision-makers whom are best able to understand what the current needs of the community are at any particular time.

The different local housing markets could be brought to balance and price levels better able to reflect local demand for housing, more appropriately.

Secondly and very importantly:

B: The emphasis on all prices should be changed so that these are set by ‘buyer offers’ rather than seller price-rigging, which is of course not an open market practice in any way if this is carefully scrutinised.

This is where The House Price Solution (formerly described as The Hendry Solution) could come in. It allows for both of the essential changes cited above.

It would do this by re-shaping house sales methods entirely and by including the use of “Primary Residence” restrictions on certain properties.

AND

It would enable all buyers to be free to participate and establish the price levels themselves, (subject to declared “Primary Residence” restrictions, which would be locally established using the local planning rules).

For the full details of how to address all these issues simultaneously, please follow the link:

The House Price Solution

How to Improve all local housing markets in England and Wales

Posted by: Peter Hendry, Housing Valuation Consultant

Author of:– The House Price Solution otherwise known as The Hendry Solution.

What do you think about this idea for drastically improving the operation of all housing markets potentially across the whole of Britain?

Constructive comments are very much welcomed.

How much would you need to save a month to buy a house within 10 years?

Well in theory right now, if you were to make contributions of £200 a month into a stocks and shares Isa, (i.e. put aside earnings of £2,400 p.a.) and you aimed for a realistic yearly return of 4pc after fees, you’d reach your goal of £40,000 in nine years.
If your partner did the same, this could be £80,000.

In addition, if house prices were to fall over the same period, you could suddenly find yourself just about poised and ready to buy a place to start owner occupation in.
Unfortunately, there are quite a few ‘ifs’ in this scenario aren’t there.

The main obstacle to achieving such a dream for an increasing number of aspiring buyers is house prices themselves which, even at the lower end of the house-ownership spectrum, are out of reach for many would-be owner occupiers. This obstacle could however be removed using relatively straightforward improvements in the way that residential properties are marketed.

The present ‘government’ idea of trying to get prices to start reducing is to build many more housing units.
Unfortunately, this idea is fundamentally flawed. The reason is the effect of doing this would be marginal on price. Why?
Because unless upwards of 10% of the total number of existing houses in the system were to be constructed, little or no effect on house-prices themselves would actually be felt.

If you do the maths it becomes clear that it would be impossible to build enough new houses, even over a full ten-year stretch. The calculation tells you it would take building in excess of ten times the number of new units currently able to be built each and every year for at least the next ten years!

By deduction therefore, instead of attempting to do the impossible it would be better to look at the current methods of marketing all residential properties and change that. The sales and marketing of residential property the one thing that is highly inefficient, old fashioned and in need of significant improvement. This is the key to achieving the desired result – greater owner-occupation.

Reform the way privately owned residential properties or houses are bought and sold and you will make the process open, fair, and efficient.

Doing this would bring the prices of starter homes back within the reach of first-time buyers and they would no longer have to borrow the increasingly ridiculous amounts which are currently stopping the majority of those wishing to become owner-occupiers to do so.

What do you think about this idea for drastically improving the operation of all housing markets potentially across the whole of Britain?

Constructive comments are very much welcomed.