LONDON — Housing in the UK is so expensive because transactions have gone into a “structural” decline, according to a new note from Barclays analyst Jon Bell.
His smoking gun is this chart, which shows that the total number of sales reached a peak in 1989 but since then have only trended down:
The overall effect of the trend, Bell argues, is that there are simply fewer houses available to buy at any one time, and that restricted supply keeps prices high. It also funnels demand into the rental market. With fewer houses for sale and prices high, landlords can command higher rents. Those rents give landlords an incentive not to sell because the cashflow is so valuable.
Bell lists half a dozen other potential factors:
- The rise of buy-to-let investors: BTL owners sell their houses less frequently, and thus essentially take houses off the market.
- The “Help to Buy” scheme may be putting new owners into bigger houses, so they don’t need to move as often, which again takes houses off the market.
- The higher cost of Stamp Duty, the sales tax on UK houses.
- Local governments are building very little new public housing.
- The ageing population moves less.
- Many consumers’ bad credit history hurts the supply of new mortgages.
The result is that home ownership in England has declined from 71% in 2004 to 64% in 2015, Bell says.
The Barclays analyst advances an interesting theory about the effect of BTL mortgages on the market. “Our view is that housing transactions are in structural decline,” he writes. “As investor-owned stock tends to change hands less frequently than owner-occupied housing; this feature of the last two decades stymies transaction levels.”
The building of new stock in both public and private sector has also declined since the 1960s, Bell’s note says. Public housing built by local councils today is a tiny fraction of what it used to be. While the private sector is more robust, it still builds fewer houses today than it did 50 years ago.
Here’s how that historic trend looks in a chart over time. The stock of owner-occupied houses in the UK has barely moved while the stock of rentals has grown:
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