Why aren't house prices included in rising cost of living reports?

[ParkingFeud]

There's loads of talk about rising cost of living and inflation but these articles very rarely mention that the now 11% rise in house prices is just another economic disaster for the something like 60% of under 35 year olds who don't own their own homes. We earn what we once would have thought were good salaries but still really struggling alongside paying rent, student loans, gas bills (crap rental house, no other choice), other bills, fuel, aldi price rises, tax increases etc. Just feel so so hopeless about it all. And no, we don't have children, new phones or fancy cars. Nor avocados or meat.

Rents have doubled where I am in the past 18 months or so. It’s utterly depressing (from an older long term renter)

I think it’s so nuanced to area, mortgages vs owned outright vs rent. Whilst you can work out an average shopping basket or an average energy and that be fairly accurate.

At least rpi included some housing costs, even if it overstated social rent.

It's a joke OP. We all get shafted by it and it's part of why wages haven't kept pace with living costs.

Because everybody needs to eat, so a rise in the price of food makes everybody worse off to some degree. Whereas if you own your own home, a rise in house prices makes you wealthier on paper at least.

Also, there are factors which affect house prices very significantly but don't have much affect on retail prices, such as availability of mortgages.

Bad lad true but it means we have no real measure of the genuine rise in cost of living, which is why "inflation" based wage rises aren't maintaining costs of living, not even close

Well house prices might finally start falling if interest rate rises come to try to control inflation. People might stop being able to afford ridiculous house prices.

@Mountaingoat12

Well house prices might finally start falling if interest rate rises come to try to control inflation. People might stop being able to afford ridiculous house prices.

In 2005 (random year before the crash), house prices rose 5.1%. The BofE interest rate was 4.5%. So higher interest rates don't necessarily equal lower house prices.

I was reading an article that suggested pent up demand for housing was so high, with so many people on the various rungs just below house affordability, that any price drop due to less money in pockets will be pounced on by those who are just below current affordability, thus pushing prices back up. There may then be stabilisation due to lack of money, but then the next dip will be pounced on by those who missed out last time / have saved more since, thus bumping price up again. All it might do is cause house price stability, not cause a meaningful drop in prices at all.

I believe the arguments are that houses aren't something that is 'consumed' regularly and a house purchase is more akin to an investment. Rents are included but social rents are weighted too high.

I disagree with the argument which has served to make inflation appear much lower than it is in reality over several decades. Housing and rental costs are the most major expense for most people, at least below a certain age. They have massively disadvantaged the young and those without wealthy families.

There is a measure. It's called CPIH. Last month it was 4.8%. The government prefers CPI (non-H) and that's what tends to be reported.

Meanwhile, for those old ones among us who still think in old money, RPI inflation last month was 7.5%. It's back to the 70s time, folks!

RPI is definitely more accurate but still not high enough. ZIRP has kept the cost of mortgage repayments artificially low up to now.

also because it varies so much where you live in one part of UK it maybe up 15% in another it could even be down 2-3%

Housing isn't included as a "cost of living" because for the most part people only buy a house every few years at most. When you're not moving or looking to move the change in house prices is largely irrelevant to your cost of living because your mortgage doesn't shoot up because the value of your home has gone up, if anything that means you can get a lower interest rate when you renew.

It does seem area dependent. We are looking to purchase a house and in some areas prices have just recovered from the 2008 crash. In other place, like the south coast prices have gone nuts.

I have noticed prices have stalled and reductions happening everywhere. I doubt they’ll ever be a crash but I think there will be a general correction.

Interest rates do matter because when we sold our last house and offers were put forward by the agent, some people were borrowing vast amounts.

Because they aren't an everyday purchase. Inflation includes a basket of what a typical person buys regularly, mortgages and rents vary so much that it's impossible to include a typical cost, we pay £1100 for instance, it's only a 50% ltv but it's a 15 year term so you can't bread anything into the amount

I think because house prices are tied to interest rates. House prices are high at the moment because interest rates are low. If interest rates go up, then house prices may dip a bit, but this doesn't really make much difference to a typical first time buyer with a mortgage (i.e. you may be paying less for the house, but you are paying more in interest to the bank, so monthly payments are the same).

A drop in house prices mainly benefits cash buyers rather than a typical first time buyer with a mortgage.

What you need to remember is that house prices are dictated by affordability, so if prices rise or fall, it's because people (in general) can or can't afford them. In other words, a fall in house prices is unlikely to benefit first time buyers - prices only drop when people can't afford to buy.

@MorningStarling

Housing isn't included as a "cost of living" because for the most part people only buy a house every few years at most. When you're not moving or looking to move the change in house prices is largely irrelevant to your cost of living because your mortgage doesn't shoot up because the value of your home has gone up, if anything that means you can get a lower interest rate when you renew.

But for young people who dont own already it has a massive impact. So really, the cost of living for younger people has skyrocketed beyond what is reported in cost of living reports and articles. I'm so terrified about our economic future, primarily due to the ever increasing and unavoidable cost of keeping a roof over my head and it just seems to be ignored or framed positively by news articles.

1/3 rent
1/3 mortgaged
1/3 own outright

The rental aspect and the issues surrounding it is largely ignored as it is perceived as a bit of a first world problem it’s met with attitudes of
Your not working hard enough
Your not willing to move area

I did some work with the press on this a few years ago and how it impacts families. There’s just not the appetite for it, as there are people poorer with bigger housing issues. You’ve a roof over your head what are your moaning at. Is essentially the response.
However there’s swaths of kids growing up in rentals, not able to have pictures on their walls, not having pets, not being able to grow veg or plants in the garden as they probably won’t be there for them to fruit. Having to move schools as they are no longer in catchment to go to the next stage with their friends or priced out of the area. Parents panicking about deposits when something is spilt or the kids get the paints or pens out. Having to move every few years, never settling or being part of a community.
It does have an affect and it is shit. But there’s bigger issues and no one wants to tackle this one.

They will when there’s a housing benefit bill crisis, when the costs goes through the roof when generation rent get too old to work.

Historically ruined the narrative of low inflation (~2%), so Labour brought in RPIX and then later CPI so inflation looked great meanwhile housing and mortgage interest was up 10% every year.

If they brought it back in, the reported inflation rate would rocket. Why would the Tories want any attention given to their policies (H2B equity loans, lack of house building or regulation etc) propping up the housing market making life increasingly unaffordable for the majority?

Official Data for December was released today
www.ons.gov.uk/economy/inflationandpriceindices#timeseries

The Consumer Prices Index including owner occupiers’ housing costs CPIH = 4.8%
The Consumer Prices Index CPI = 5.4%
The Retail Prices Index RPI = 7.5%

It's probably realistically because if they included everything, they'd have to admit we aren't paid enough. So then big companies and politicians would lose out on a bigger profit and that can't happen. So we are paid less, going to be taxed more, increased bills and expected to just put up with it. And you know what? We will.

The value of my house has gone up, but the amount that i pay monthly for my mortgage has gone down.

I think that rental prices are included in the calculation though?

I suppose that part of the problem is the fact that buying property is considered an 'investment' rather than a necessity. From the government's perspective, it simply isn't necessary for everyone to own a house when they can rent one.

In order for some people to have multiple properties, others must have none.

Agree that it's a shit deal for renters and very unfair on younger generations without family money.

Yeah, they should be. House prices rising too quickly does far more damage to the economy and society than rapid inflation in the price of Nespresso capsules or whatever.

As already pointed out, in the relatively early days of BoE independence etc, house prices were deliberately allowed/forced to let rip in real terms, so it wouldn't have been politically acceptable to have them in the inflation targets.