Avo toast?!

Comment /

Dual Income, No Kids?

…no House, no chance?

DINK (n.)

Urban middle-class couple that doesn't care about old-fashion stuff like family and kids. Life is all about having fun, travelling, and not caring about biological realities. #yolo

Dual Income, No Kids used to be a smug label proudly worn by those living the high life sans-bambinos. Multiple homes, a yacht, maybe a chalet in Chamonix, holidays whenever and wherever, and no teen-turning-on-twenties studying English lit who needs the Parental Reserve Bank to pay their rent.

Now, though, the phrase would be a much more apt to use in a semi-desperate manner, something like this: Despite dual income & no kids, we still can’t afford a fucking house!

This isn’t a result of poor financial planing. Spending money on Avocado toast and caffè lattes is not what’s holding back younger generations from being able to buy a house. Though yes, Maggie, it’s not very spendthrift. But a saving instead of splurging twenty quid on posh avo toast twice a week, every week of the year nets us perhaps £2k, so it’d still take 10 years to maybe have enough for a deposit with a 2.5% interest rate compounded.

The first problem is this: relentless high inflation coupled with low interest rates With interest rates currently at a maximum of 2.1% AER for a fixed Cash ISA (and much lower rates like 0.5% commonplace) but inflation at  6%  11% and still rising, the real interest rate is a whopping -8.9% and still worsening. Sad face. on savings are making home ownership increasingly unattainable for those under the age of forty. The amount of money needed to put down a deposit on a mortgage is increasing faster than savings, investments and income increase.

In 1980, these neo-DINK’s parents were earning an average of £6k a year, and an average house cost £21k. Now it’s £32k earnings vs. £220k for a house. Average Incomes, Taxes and Benefits by Quintile Groups of non-retired Households 1977-2013
Average household income, UK: financial year ending 2021
Office for National Statistics
Note Using the Nationwide House Price Index to calculate house prices from income figures.

The ratio between average house prices and earnings has more than doubled from 3.4 in 1983 to 7.0 in 2022. Nationwide House Price Index
Nationwide Building Society
Note Earnings data is sourced from the ONS Annual Survey of Hours & Earnings (ASHE) and pre-1998 the New Earnings Survey (NES).
House price earnings ratios calculated as the ratio of Nationwide all properties house prices to mean gross earnings.
Those in London have it even worse, rising from 4.0 to 11.7 over the same timespan.

House prices are rising faster than wages do, and have been doing so reliably for nearly forty years.

To cut a long and contentious story very short, bad monetary and fiscal policy are directly responsible for high inflation and low interest rates. This in turn leads people to save less as their time preference In economics, time preference is the current relative valuation placed on receiving a good or some cash at an earlier date compared with receiving it at a later date.
increases as money now is worth more than money in the future when a large part of it will have inflated away. Credit is cheap and easy, saving isn’t. So why bother saving? Current policy favours protecting those with exposure to credit (hint: people with mortgages, and the Government itself with mountains of debt and a colossal deficit) and not those looking to save for the future.

But of course it’s not just the struggle accumulate wealth that’s the problem. No, we don’t have one massive economic malaise at play here, but two.

The supply of housing does not nearly meet ever rising demand. Unless we build 340,000 or more homes a year, Housing supply requirements across Great Britain for low-income households and homeless people
Bramley, G.
Institute for Social Policy, Housing and Equalities Research
Heriot-Watt University
April 2019
this will continue to be the case. Schemes and initiatives like cajoling developers into building ‘affordable’ housing, Help to Buy, LISAs, First-Time Buyer Mortgages and Government House-Building targets (ha!) are just piss in the wind. You cannot defeat plain and simple economics: Supply shortages causes price levels to rise.

None of this is helped by the orthodoxy that the value of property should continue to go up in perpetuity so that those who already have it can continue to treat houses as an investment rather than a place to live. Or that interest rates can’t be allowed to go up because mortgage-havers couldn’t afford the increased payments. As a renter, I have limited sympathy. Paying ever increasing rent isn’t fun either!

I think I almost subscribe to something called the Housing Theory of Everything. Because almost everything is tied up in housing – If you’re spending so much of your cash on housing, if you’re not able to live near where you want to work, if you’re not able to have enough bedrooms – this feeds into the fertility crisis, the climate crisis, this feeds into the productivity crisis. Housing feeds into everything.

And until as a society we’re gown up enough to say that actually sometimes we need to suck it up and build some houses, and yes that might mean some more houses near where people live, and yes occasionally a field might need to be built on (Less than 2% of the country is built on with housing right now). Yes, we need to build. It’s a fact of life. It has to happen. And until politicians accept that fact, we’re going to be getting into a worse situation.

So what am I supposed to do other than pray for a crash?