Are The UK Housing Costs Sucking The Life Out of Our Economy?

The UK’s housing costs are a staggering 44% higher than in comparable countries. This situation means that rather than investing in growth and supporting their families, younger individuals grappling with these expenses are inadvertently contributing to escalating inequality. Something has to change.

Housing costs are wreaking havoc on the UK economy. A recent report from the Resolution Foundation has driven the point home, highlighting just how much we're feeling the pinch due to excessive housing expenses faced by mortgage holders and renters alike.

On average, prices in the UK sit at about 8% higher than those in OECD countries—the Organisation for Economic Co-operation and Development, based in Paris and comprising 34 nations typically considered among the wealthier in the world.

As a proud member, we share this economic club with our European neighbours, alongside Canada, the USA, Japan, Australia, and others. While daily living costs are already slightly elevated here, the disparity in housing prices is nothing short of staggering. We're a whopping 44% above the norm when it comes to housing costs, and this discrepancy has far-reaching consequences.

These costs primarily burden renters—often younger individuals or those on lower incomes—as well as mortgage holders, who usually fall into similar age and income brackets. The effect ripples down to children being raised in households struggling under the weight of high housing expenses.

In short, the skyrocketing housing costs that have ballooned in the UK over my lifetime are significantly undermining the economic prospects of our younger generations and those with limited financial means. As a result, we’re finding it increasingly challenging to achieve the prosperity seen in other countries.

This disparity has a profound impact. It undeniably fuels poverty, and we’re talking about genuine poverty here; once people have paid their rent, which is non-negotiable, there’s hardly anything left to enjoy those little luxuries that bring joy to life, or to provide children with the essentials, or to promote economic growth.

So, why do we face such exorbitant housing costs compared to others? The answer is straightforward. It’s not merely due to planning restrictions. Nor is it fundamentally about a lack of housing, since most people do have somewhere to live. The crux of the issue lies elsewhere.

We’re entrenched in a rentier economy.

The term rentier stems from the word rent, describing someone who extracts value from others by charging excessively for a limited resource.

This is precisely what has transpired in the UK. We have placed an unfair burden on younger generations for access to housing, allowing an earlier generation—the boomers, of whom I am one—to thrive in relative comfort. There has been a significant transfer of wealth in the UK from younger, lower-income generations to older, higher-income ones.

We’re facing a crisis – a wealth crisis, to be precise. It’s a wealth distribution crisis that’s robbing our younger generation of their dreams: dreams of owning a home, enjoying a decent standard of living, and providing for their children. Is it any wonder many are choosing to have just one child? The harsh reality is that with rising costs, many struggle to save, let alone buy a house or contribute to a pension.

This upward transfer of wealth denies the chance for prosperity, creating a bubble. When that wealth eventually trickles down – and it will, since everyone does eventually leave this world (sorry to break it to you!) – it will largely land in the laps of the children of the boomers who were fortunate enough to own properties that skyrocketed in value. This is a problem that’s both immediate and long-term.

So, how do we tackle it? The answer is clear: we must start redistributing that wealth. It’s essential to provide social housing for those who can’t secure their own homes, funded by those whose hard work won’t quite cover the soaring rents of the private sector.

The government must shake up the rental market to introduce affordable alternatives, and it can absolutely be done.

We recognise that over £100 billion yearly flows into pension funds. The majority of this is put towards speculative investments. At best, it merely inflates the paper value of wealth without translating into genuine, long-term prosperity or new job creation.

Perhaps some big changes are on the horizon for our UK pension funds.

Unless we reassess our stance on this matter and tackle the concentrated wealth embodied by the UK’s housing stock, which denies many the opportunity to live well, we’ll find ourselves in serious trouble for the foreseeable future. Therefore, change must be prioritised on their agenda.