Tuesday, 4 December 2007

House rich, cash poor

I saw the following forecast today:

"The over-60s will own two-thirds of Britain's housing wealth - worth an astonishing £2,200billion - within two decades, a study shows. "

I have a standard reaction to any doom-laden newspaper article projecting anything beyond 12 months. It is to laugh quietly to myself and move onto the next story.

However, this particular forecast raised all kinds of interesting issues. Could we really see such a disparity of housing wealth? If OAPs owned all the houses, where would the rest of us live? Is the UK destined to divide into two groups: the wealthy geriatrics and the quasi-homeless young?

There is an obvious flaw with this prediction. Today, an uncomfortably large number of home-owners don't have private pensions. Moreover, they have little in the way of non-housing assets.

In other words, the vast majority of 40-somethings are house rich but cash poor. Let me be even more blunt, if it wasn't for their overvalued houses, these people would be plain-vanilla poor.

This is the flipside of all that personal debt that has accumulated like a bad smell in recent years. Middle-aged people are running up debts today and therefore, they are consuming their future income. That is what a debt does. You consume today, but you are poorer next year. The only thing that prevents these people from being totally bankrupt is the value of their houses.

Since the great majority of today's middle-aged homeowners have stopped savings, how will they provide for their old age? There is one thing that all 40-somethings are counting on - the state pension. However, who is going to pay for the state pension? Of course, the young. The same people who can't find anywhere to live because the OAPs own two-thirds of the housing.

Hands up anyone who thinks that 2027, UK workers, who can not buy reasonably priced homes, are going to pay large taxes so that home-owning OAPs can receive generous pensions? It is just not going to happen. The young will have a strong vested interest to pressure political parties into reducing taxation and limiting pension levels.

In the absense of a decent pension OAPs in 2027 will have to sell their houses en masse and prices will start to come down. Who will buy these houses? The young.

So I am going to make my own 2027 prediction.

"The under-40s will own two-thirds of Britain's housing wealth - worth an a bubble-crushing £1,100billion - within two decades, a housing blogger shows."

I know which projection I prefer. I also think it is the most plausible.


I love Alice said...

From this article, I deduce that you are not 40+.

Go on, tell us your age.

(ps can you post your phone number)

a j said...

I've wondered how many people are relying on housing to fund their retirement. Some of my colleagues have a ghoulish knowledge of the value of their ageing parents homes.....

Anonymous said...

People won't take being exploited unless they can see a flipside in the near future. As you say, people can vote for change at the ballot box. They can also vote with their feet and leave the country, taking their OAP-supporting tax stream with them.

CresceNet said...
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