Foreign Affairs

One of my fellow Brits blogging about the NL - who perhaps has an surfeit of spare time, recently did some calculations on the cost of renting prime retail space in London and Amsterdam. She compared the costs of retail space on Pieter Cornelisz Hooftstraat and Bond Street - pretty much the top end of the retail market in both countries. The results - when put into common units were an eye opener. On PCH you can rent a square metre of shop space at between 800-1100 Euro per year. In Bond Street the same amount of shop space will cost you 3145 Euro.

This does much to explain why the cost of living in Britain is so high and why most things cost the same or more in pounds than they do in Euros in mainland Europe, while people on average (and let's take the median not the mean here) earn less.

Most people I know in the UK really struggle to pay their rent or mortgage and have very little left over at the end of the month for little luxuries. Many people work more than they would like to meet their housing costs. Given that Holland is the most densely populated country in Europe one might assume that market economics would dictate that rents and mortgages would be more expensive here. But there seem to be fairly strict controls on domestic and commercial rents here and, for one reason or another, house prices are not ratcheting out of control. In Britain they have been regularly going up by 10% per year while wages go up at 3-5%. While there are few figures that look at median house prices and incomes -the figures I have seen suggest a small house or apartment costs something like 5 times an annual salary - whereas 10 years ago you could only get a mortgage to 2.5 times your income. Does anyone publish statistics on the % of average incomes spent on housing in different European countries? They would make fascinating reading.

What is the source of this problem? Partly public controls on rental costs and partly perhaps the balance between the privately owned housing and public housing. Both the UK and Ireland have home ownership rates that are around 65-70% - the highest in Europe and it is these two countries that have the biggest problem with house price inflation. Other countries that have more public sector housing seem better able to control house prices.

In 1979 the promise of giving Council tenants the Right to Buy was a major factor in Thatcher's landslide victory. Freedom of choice was the mantra but the government did not allow funds from those sales (at hugely discounted prices) to be used build new public houses but instead used the revenues to reduce Council tax bills. (Another example of 'selling off the family silver'). Choice was actually diminished for those who could not - or did want to buy into the housing boom.

One rarely goes to dinner at someone's house without the conversation at some point turning to property prices and how much the value of the house you are sitting in has increased between the entree and coffee. This may give some comfort to those who are working fifty plus hours a week to pay the outsize mortgages that they have. But few make the connection between inflated house prices (and therefore rents) and the cost of living and the quality of life in the UK. If inflation was running at 10% it would be painted as a national disaster. With house prices no-one (with influence) really seems to mind. Most people have too much invested in the game to seriously consider the proposition that it is all a house of cards, precariously held together by avarice, market expectations and a lack of alternative choices.