Image: LifeofgalileoA former member of the Bank of England's Monetary Policy Committee has predicted that UK house prices will rise to 15 times average income, does this mean the end of ownership?
Do the maths. Let's say, David Miles, an economics professor at Imperial College, and a former member of the Bank of England's rate setting committee – the MPC – is right. He has predicted that house prices will steadily over the next 100 years, rising from around 5 times average income today to 15 times.
Assume, someone on an average income pays 50 per cent tax including national insurance, which is not quite right today, but maybe in 100 years’ time, it will be. That means someone owning an average priced home could sell up and have enough cash to live for 30 years on the equivalent of an average wage. Or if they saved 100 per cent of post-tax income it would take 30 years to buy a home. Or 60 years if they saved 50 per cent of their post-tax income.
Then again David Miles is a clever fellow, who often appeared in the press making what turned out to be prescient predictions even before he joined the MPC.
He reckons transport, or rather lack of it, will be the main driver of house prices rising to that ratio. He says: "If there was a bullet train that got you from where I live in Somerset to Paddington in 40 minutes, that would transform the market, not just in London but in Somerset. Land and house prices here are very cheap compared with London."
Is he right and if so what are the implications?
For younger people, it would seem that the dream of home ownership would disappear forever, indeed many may find they will have to share with others forever.
But is this not very much part of the millennial/collaboration ethos anyway? We used to own music records, the Millennials led the way to renting access to music via Spotify. As autonomous cars and the Uber economy converge, car sharing will become the norm, and the different mindset required to embrace car sharing will surely begin with Millennials and maybe generation Z.
And as the work place changes, technology disrupts the labour market, a career for life morphs into people having multiple careers at the same time, the mobility of labour will be transformed, renting and even house sharing will be the way things are done. Will surging house prices create this new way of thinking, or will the relationship be more intertwined than that?
But this begs the question, is David Miles right? Here are three reasons why he may be wrong.
New technologies such as Hyperloop may transform travel times - Somerset to Paddington in 20 minutes!
Virtual and augmented reality may remove the need to travel, we may be able to work from home or, more likely co-working centres, and via the magic of technology - holograms for example - if may feel as if we in the same room as our colleagues.
Thirdly, across much of mainland Europe, unlike the UK, the population is set to fall, this may create an oversupply of housing in these regions. People would be able to live in say Germany, but either travel by Hyperloop to London, or work from the London office 'virtually'. The fly in the ointment to this possible factor is Brexit, making it harder to work for a UK company when you live outside of the UK. But then 100 years is a long time, and hyperloop, virtual and augmented reality and the pro-multicultural mindset which seems more common among the millennial generation, may come to dominate within ten years.
