How to keep house prices low for generations?

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Our summary of and views on this BBC News article in November 2016.

I came across this article on the BBC News website titled How to keep house prices low for generations to come by Brian Milligan and hope you will find it interesting. 


The article is about the Community Land Trusts in England and Wales and how they are building affordable homes for people. People can buy an equity share in the property but when they come to sell they cannot sell at the open market value but only at the price limited by the increase in local wages. The idea is a return to the view that your home is somewhere where you live and is not a means of making profit.


I have always had the concern that since property prices rise so much more per year than our salaries, then the natural conclusion would be that at some point in the future 90% of all properties would be unaffordable to 90% of all of us. And the follow-on conclusion to that is a cycle of boom and bust.


This is best shown as an example and I shall use as our example a typical first time buyer in Edinburgh:


If this first time buyer has a salary of £25,000 and the average cost of a one bedroom property is £100,000, then at this starting point the cost of the property is 4 times the salary. If salaries were to increase by 2% per year and property prices increase by 5% per year then in 10 years time, the buyer’s salary would be £30,000 and the price of the house would be £150,000 which would be 5 times the salary. The gap between salaries and property prices widens. And the gap gets wider the bigger the property and the value of that bigger property.


So, another a possible consequence of this ever-widening gap is that people get stuck in their properties, unable to afford to move up the property ladder and so that affects the whole property market with fewer properties becoming available for first time buyers. We know how this problem was solved previously: lenders offered 100% mortgages and gave mortgages to people who could not afford the monthly payments. And we know how that ended!


I like the idea of the Community Land Trusts building affordable homes for people - and perhaps if the government became involved in building such homes - that would go some way towards a change of mind set in the way we think of our homes: a return to being a place where we live and not just of making a profit.


At Cameron Stephen & Co. Solicitors and Estate Agents Edinburgh, we have helped hundreds of people in and around Edinburgh become first time buyers. So if we can help you, please give us a call on 0131 555 1234.


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