Young Britons hoping a house price crash will let them buy a home could see their dreams thwarted, leading economists warn.
David Miles, a former member of the Bank of England’s Monetary Policy Committee and now a professor at London’s Imperial College, and colleague James Sefton argue in an influential report that house prices could continue to defy gravity.
The two say home values will carry on rising until the typical property costs 15 times the average income.
Warning: Economist David Miles, right, believes that house prices will ‘defy gravity’ for generations to come
The figure is already more than five times a first-time buyer’s average income, according to Nationwide. London buyers have to find ten times their salary.
Some economists say home values are overinflated and will have to fall at some stage. But Miles believes they can continue rising for several generations, freezing first-timers out of the market.
David Miles believes home values will carry on rising until the typical property costs 15 times the average income
He says this is due in large part to the fact that public transport has barely improved since the Second World War. This means people cannot commute far to get to work.
He argues that the introduction of the Underground in London and buses there and in other cities allowed their populations to grow in the past without pushing up house prices to unaffordable levels.
This was because people could travel in from suburbs. But since there have been no major improvements in transport systems since the 1940s, prices have soared.
‘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.’
Miles and Sefton have published a model predicting house price growth over the next 100 years.
‘Over the next 50 years the cost of housing relative to wages will rise by about 40 per cent; over the 50 years after that, housing costs double relative to wages,’ they predict in the paper, published by the Centre for Economic Policy Research.
Miles says we may all end up renting and owning small stakes in homes through pension funds. He believes prices might not go up so much if people opt to live in flats or if transport gets better again.