As the platinum jubilee celebrations draw to a close and we look back over the changes the UK has gone through over the last 70 years it is easy to see how much of an incredibly different place the UK is compared to 1952 when the Queen first ascended to the throne.
From 14 prime ministers to England winning the world cup to a worldwide pandemic. However, the most shocking and interesting change she has lived through is that of house prices.
According to statistics found by Savills, house prices have risen 130 times higher than they were at the start of the Queen’s reign.
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What Does This Mean?
The root cause of this rapid growth is up for debate.
A small percentage of this growth is made up of inflation. When the Queen first took the throne in 1952, the average price of a home was just under £2,000. If house prices were in keeping with inflation, then a house today would cost £56,000, instead of the £260,000 that the average UK home costs today.
A growth in population does not appear to be the cause of the rise in prices either. In 1952 the UK population stood at just over 50.5 million whereas today it stands at just over 68 million. Whilst it is a big change, it is not a big enough change to warrant a five-fold property price increase.
Lucian Cook of Savills believes that the rise in prices is down to six extended spells over the Queen’s reign where annual house prices have averaged more than 5% above inflation. Whilst there has undoubtedly been price drops, there has never been enough to un-do the real terms growth.
Lucian Cook said, “While this has been punctuated by a series of relatively short-lived, but uncomfortable, downturns, the upswings have been magnified by a systemic undersupply of housing over the past 40 years.”
What Does The Data Show?
Below is a graph that details the house price growth from 1952 to 2022 against inflation and nominal growth.
House Price Growth From 1952 To 2022 – Inflation Adjusted (Real)
|House Price Growth From 1952 To 2022 – Nominal Growth
|Q1 1952 to Q2 1958
|Q2 1958 to Q2 1971
|Q2 1971 to Q4 1973
|Q4 1973 to Q2 1977
|Q2 1977 to Q4 1979
|Q4 1979 to Q2 1982
|Q2 1982 to Q2 1989
|Q2 1989 to Q4 1995
|Q4 1995 to Q3 2007
|Q3 2007 to Q1 2013
|Q1 2103 to Q3 2016
|Q3 2016 to Q4 2019
|Q4 2019 to Q1 2022
Sources: Nationwide, ONS, Savills
The main period of growth that Lucian Cook identifies is in the 1980s. The reason for this could have been the ‘right to buy’ legislation that Margaret Thatcher brought in as there is a staggering 79% rise in prices, even when adjusted for inflation. This legislation allowed council tenants to buy their council houses from the government at a heavily discounted price. Whilst the legislation was a huge success, seeing 2.6 million homes sold under it, less than 5% of the houses sold were ever replaced, leading to a house availability crisis.
The more recent rise in price, however, is even more substantial. From 1995-2007, the property market went through an eyewatering 173% real-term rise; and whilst in 2007 there was a correction following the financial crisis, prices rose once again by 23% from 2013 to 2016 then by a further 13% in the last couple of years.
‘On a nominal basis, house prices increased by 87% over the 2001 to 2004 period alone,’ said Cook.
‘This created a sizeable wedge between those who were and weren’t able to get onto the housing ladder over this period. It is a divide which became entrenched in the post credit-crunch, age of mortgage regulation, and has been a catalyst for government intervention in the housing market, through schemes such as the soon-to-end Help to Buy.’
Housing Market Cool Off
Whilst house prices have been rising and reaching a 17-year high in April this year, according to Nationwide, the housing market is headed towards a cool-off following the last two years of record-high prices.
Inflation is at a 40-year high and is facing upward pressure from a tight labour market. This paired with rising costs of living means consumer confidence is plummeting. The Bank of England has already raised the base since December and is expected to push the rate beyond its current level of 1 percent as it looks to contain inflation. This is a decision that will weigh on mortgage borrowers.
These economic factors are expected to cool down the housing market, which for the last two years has risen rapidly since it reopened in May 2020 following the COVID 19 lockdowns. However, analysts speculate that they are unlikely to cause a price crash like that seen in 2008 or in the late 1980s.
What Will Happen Next?
Whilst we are seeing all the tell-tale signs that the housing market is cooling off, the real question is will it be a sudden drop in price or a gradual cooldown. Sir Jon Cunliffe, the deputy governor for financial stability at the Bank of England, believes there will be no market ‘crash’ as prices will begin to slowly correct themselves after two years of growth and that instead, it will be a cooldown.
A sign that this may be the case is that the annual rate of house growth slipped to 11.2% in May, this is down from 12.1% in April and 14.3% in March, according to figures from Nationwide. Figures released by Zoopla further back this claim as they found that more than one in 20 homes for sale had their asking price slashed by 9% on average.
This sums up everything you need to know about the housing market cool off, if you have any questions, queries, or insight into the housing market, please feel free to get in touch!