Think tank suggests housing market about to crash

Latest figures from think tank Resolution Foundation shows property market on knife edge


The think tank Resolution Foundation has predicted that the property market may be about to crash due to a number of factors as the majority of Britons do not earn enough to get onto the property market with many spending record levels of their income on housing. People are spending between 25% to 28% of their income on housing with the highest in London.

The ratio of house prices to earnings is nearly at pre credit crunch levels of 2007/08. A slight rise in interest rates or a reduction in wages could trigger a crash.

“Spiralling house prices and stagnating wage growth created a growing wedge between housing costs and incomes, which peaked on the eve of the crash,” said Lindsay Judge, senior policy analyst at the Resolution Foundation.

housepriceearningsratioapr2016

Wages are not growing with cost of living resulting in record low disposable incomes. The median income in the UK is £24,300 only 3% higher than 2007/08 and in real terms taking into account inflation wages are lower. This is illustrated in the graph below.

incomegrowth97-2015

The proportion of under 35 year olds who own a property has dropped from 60% in 1997 to just 25% today as housing becomes too expensive.

ownersvsrenters

The last factor that could trigger a crash is the latest changes to tax for landlords. With the introduction of the extra 3% stamp duty on second properties and the removal of mortgage interest relief being phased in over the next 4 years, many landlords could see their investments making losses. This could result in a sell off by investors.

Written by: Houseladder