To think the housing boom has falsely made the U.K. think it was rich

[Upthebracket22]

The U.K. manufactures very little these days - we import a lot of things. Brexit really has caused a lot of export issues to Europe (which was our closest large market) for many businesses. I know people are talking about Ukraine a lot at the moment but actually it’s brexit that has also done a huge amount of economic damage.

A lot of the money rolling around in recent years has been created by the housing boom- people getting building work done, using the equity in their houses to buy cars & holidays etc. Everyone felt wealthy.

The cheap money is coming to an end and so people don’t feel so rich. It’s more expensive to borrow money accross eve board.

It really feels like the U.K. is going through such a shift - hopefully we’ll come out the other side but it feels bleak at the moment.

And yes I do blame the tories for a lot of this but Blair also as he started a lot of it too. And it was the 2008 financial crash that caused the low emergency rates we have been on too. Obviously brexit is Camerons fault.

I just don’t think basing a lot of your economic model on rising house prices has been a good thing!

Tho I agree the rates should have been raised earlier and things like stamp duty holiday have not helped at all.

I'm not convinced our whole economy is based in housing.

Willing to have it explained tho

@HeBeaverandSheBeaver i just think the housing boom has falsely made Britain think it’s a rich country - I mean, Sunak stoked the boom during lockdown by removing stamp duty.

Cheap money- low monthly housing costs- have meant that people had more disposable income. But it wasnt real- it was built on a country living on emergency low interest rates - and people were addicted to cheap money. Take that away and it looks really bad.

I think under Blair immigration from Europe was encouraged. It gave the impression that UK was booming, house prices rose (supply &demand) cheaper labour for posh folk to do up their houses, cheaper for NHS as Ozzies, Indian, and European doctors, nurses and HCPs flew in rather than be trained up. 30 years later we are left with high house prices, not enough doctors nurses and HCP and services stretched to the limit because of immigration and an ageing population. Meanwhile a whole group of people in their twenties are hugely in debt because they were encouraged to go to University but aren’t in jobs which we actually need them to do.

The UK does manufacture a lot - it tends to be higher value stuff, not cheap tat. The services sector is also extremely valuable and (I think) less vulnerable to economic and geopolitical shocks that upset manufacturing.

But agree the cheap money era is coming to an end. That is what drove house prices and general feeling of wealth. Combined with the disappearance of cheap labour (Brexit and the over 50’s crashing out of the labour market), here we are. It’s been a long time coming.

The UK is still in the World top 10 for exports.

But the entire Western World is a ponzi/pyramid scheme with an illusion of wealth based on "funny money" artificially created by debt. Housing prices is one of many pretend bubbles.

As we saw with Truss/Kwarteng, the reality is we owe so much money to prop up our fake wealth that the financial markets are in control of us as they're desperate to keep up the illusion of wealth - the entire Western World being on a knife edge.

Like the sub prime housing mortgage crisis of 2008, if one country flips and goes "bankrupt", then others will fall in a cascade, as also illustrated with the pension fund crisis which toppled Truss/Kwarteng.

We also had incredibly cheap food compared to other countries. Why was this- was it cheap imports from EU? But even things like New Zealand lamb were cheap for something that had been shipped around the world. Whatever the reason was it’s certainly ending now

I agree that the housing market and he current prices makes people feel that they are much more wealthier than they probably are and I do include myself ( I have a very modest three bed semi)

OP, you are presenting it like it was orchestrated for ye benefit of homeowners. It wasn’t. It just bad governance over 25 years.

The low productivity cycle started with nu Labour and their disastrous economic policies already leading to asset price inflation. Then the economy was less resilient in 2008 when the financial crisis happened. And so began a further impact, 14 years of money printing exacerbating the low productivity and high asset prices. The Tories have done nothing to fix the decline in the nation’s productivity. The rot is well and truly entrenched now.

@sst1234 i do think it has been orchestrated to ensure rising house prices to be honest. I think that has also kept the tories in power- when middle England think their house is making them 50k a year, they feel rich and think life under the tories is splendid. Sunak should never have stoked that during the pandemic- it’s outrageous to use public money to do that too.

The thing is, people want really cheap products and you can really only have this if you’re prepared to pay very low wages - hence the rise in products from Bangladesh/Vietnam originally and then China. The U.K. still competes well on luxury goods which are made at a premium. When you look at the relative cost to wages ratio of goods produced in the U.K. back in the 40s or 50s, no one would pay this much for things when we can get them cheap from China.

So we stopped mass producing things and the economy moved towards services instead.

There are so many interlinked issues that have arisen over the past 70 years really - the rise of cheap Asian goods, the rise of the service sector, the end of the British commodities sale (coal etc), the encouragement of so many people to go to university and the expansion of this sector, the rise of the two wage family, the expectation that women and men could get equally good jobs, plus lots more.

And I agree that the propping up of the property market has been part of that.

Allowing people to borrow highly geared against the value of their house to spend on other things didn’t help. The loosening of the lending regulations as well. I do think the rise in house prices is a huge issue.

If It’s the Tories then how do you explain the house price inflation between 2000-2007?

This issue is an unintended consequence of bad policy. The bad policy was basically designed to have an economy where wages would be low, workers unskilled and low wages topped up by welfare. Why? Because creating a high wage, high skilled economy requires competence from politicians. It requires long term strategic thinking, intellect and leadership. Politics in this country, since 1997, has been taken over by people who are not smart enough to do anything else. Take the caricature of a typical civil servant, and then make it 100 times worse. That’s who our politicians are.

@sst1234 but then you could argue by sending 50% of young people to Uni, they did want a highly skilled economy. I agree with the premise of what you are saying- but i don’t think it’s unintended. How many politicians are landlords for example? A lot is the answer!

It all reminds me of what was said of the 3rd world in the 80s. Markets flooded with cheap imports so no local manufacture could compete. Britain’s “wealth” is all from financial shenanigans, whether from London banking, “foreign investment” by round-the-world oligarchs, or baby boomer house ownership (don’t forget the inequality there - which started under Blair).

We dont have a lot of natural resources - although we must have some? We are mainly about adding value to other peoples resources. I remember hearing all about the 'knowledge economy' in the early 2000s. It was going to be our product. It seemed so easy for someone else to get that same knowledge though.

Indeed I never understood the obsession and logic about ridiculously high house prices in the UK.

It only makes you ''wealthy'' if you sell your house and move to a much cheaper place.

If you stay put, you are only wealthy on paper and if you sell to buy something bigger/ in a better location you will also end paying a ridiculously high price too.

I think only companies/landlords that have a lot of buy to lets they bought cheaply and who exploit tenants are really making money out of this racket.

Someone politicians have manipulated a lot of people in this county in thinking that all that matters is that their house goes up in price every year.

Very odd concept and it is not good to have an economy based on housing and large part of the population who are no longer able to buy even if they have a reasonable job.

I think corporate greed and the housing market have destroyed the UK and that it is about to all come crashing down.

There should have been a house price crash years ago, instead of all the propping up.

The high house prices have a huge implication for families with both parents having to work, huge childcare costs etc.

I do hope the era of cheap money is over. Much healthier for societies.

There will be money until all the boomers houses have been sold. There's an awful lot of untapped equity in those millions of mortgage free houses. That will flood into the pockets of millennials. But when that's gone it's gone.

The generations coming behind that are trapped in renting or sky high mortgages will be poor forever.

So we have 20/30 decent years left then it hits. Only way to stop this is to build millions of houses. (Can't see it happening).

as I am well into middle age I have seen this cycle before. More than once in fact as economics tends to go in cycles of boom and bust. This one has been on the horizon for the last few years with ridiculously low interest rates and quantitative easing and endless bailouts. It was a house of cards just waiting to collapse.
One thing I do.think is that we have switched mindsets entirely regarding borrowing and financial management over the last couple of decades.

When I was young people were encouraged to.save and only borrow responsibly. That kept prices in check.especially in the housing market but the low interest rates have meant house prices are totally unaffordable for many.now as prices run out of control like a runaway train
. I feel we need a more balanced approach of encouraging people to save more ( so reward savers more etc ) and have an adjustment in the housing market ( though I dont think they will allow that as faling prices will be catastrophic for many.) I agree that cheap borrowing has made people feel wealthier but people have had little option other than to borrow to.the hilt to.be able to afford a property so I am.not blaming irresponsible borrowers rather the government and B if E policy
It is a mess basically !

We DO have lots of natural resources. It's why the Industrial Revolution started in the UK. We have coal, tin, iron, clay under our feet (still lots of it unmined). We also have water (fresh and sea), arable/farming land, a good climate, large areas of flat land enabling transportation, etc. Prior to the industrial revolution, we had plentiful supplies of woodland from which to build ships (huge areas of the country were woods). What more do you want? We had it and still have it, all in one small concentrated country.

Trouble is, labour is too expensive in the UK to continue to exploit our natural resources, hence why we have "offshored" out high labour requirements to cheaper countries. But that is now turning as the "cheaper" countries are getting more expensive as their worker want to benefit from higher labour costs etc.

The two major relevant concepts that have created Britain’s economy are neoliberalism, which emphasises trading over production, and inverted totalitarianism. The latter may not have been the actual plan, but it was obvious to anyone that that was what was happening. Globalism, which really got going under Blair, plays a major part too, - all fed into the deliberate destruction of local self-sustainability and self-reliance. It became seriously unfashionable to raise those concepts for a long time. With global supply chains you get the increased environmental damage caused by excessive transportation too of course.

Sadly ideology does have fashions, and our future was absolutely sold out in its favour.

It is interesting because I suppose if I included the value of my home (bought for 600K 10 years ago with 120K mortgage) I am above the median net worth of 302K of a UK citizen (thanks Google). If I don't include the house my net worth would possibly be 5-10K.

I think I have an old fashioned idea of home ownership. Buy a house as a family home, raise your kids in it over 25 years or so, pay off the mortgage, buy somewhere small and manageable, give kids money for house deposit of their own.

Yes I agree OP.
Many of the older boomers on our street have worked in pretty run-of-the-mill jobs and yet have lovely 4 and 5 bed homes with no mortgage, second homes that they either rent out or have a 20-something child living in, and motor homes for regular holidays. Often only one of them worked while their kids were young and the wife has only ever had a part time, low-paid job. It's all thanks to rising house prices.
DH and I have joined in over the years. We did up a 2 bed terraced house in a shit-hole area of a regional city and made £100k in 3 years. So people probably look at us, living on our nice street, and think "How can they afford that place" or "Wow their mortgage must be huge".
The UK is a low productivity, low wage economy with a weak industrial base. Everything, for decades, has been focused on housing and banking, and now its coming back to bite us.

Very good point re globalisation - for a long time the concept that each country had its specialisms and should concentrate on that was the only way things should be done. If people talked about countries being self sufficient it was seen as parochial or even a bit racist. Look at Trumps “America First” ideas. I know now we’re all seeing the problems but even 5 years ago, to say “should we let a dictatorship run our telecommunications?” was seen as kind of racist towards China. Not just the U.K. - Australia was the same. We sold all our commodities to China, plus our wine, seafood etc - we literally put all our eggs in one basket and then were surprised when an actual dictatorship acted dictatorially.

I read an article related to this the other day.

It said London is rich, but the north of England is poor. As poor in places as a third world country. So it’s incorrect to assume that Britain is wealthy. It’s only London that is wealthy.

It also said that nothing will change as long as Britain is a service economy. It doesn’t manufacture enough to make it wealthy. And this is going to get worse.