Fifty years of rising house prices

by Cliff D'Arcy on 29 January 2010  |  18 comments
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What does the future hold for house prices? Cliff D'Arcy takes a look at the lessons we can learn from the past 50 years of rising house prices.

We reveal how house prices and British society have changed over 50 years.

Halifax, the UK's largest mortgage lender, has just released new housing research covering the past 50 years. This report makes for fascinating reading, as it reveals a huge amount of information about social trends in Britain over the past half-century.

Fifty years of rising house prices

According to the Halifax, the average UK house cost £2,507 in 1959. Fifty years later, a typical home would set you back £162,085. In other words, the typical house today costs almost 65 times as much as it did 50 years ago. Put another way, over 50 years, the typical house has grown in value by 8.7% a year.

However, both wages and the cost of living have increased dramatically over the same period. After stripping out retail price inflation (RPI; the rising cost of living), the Halifax reckons that house prices have risen in 'real' terms by 273% since 1959. This equates to a more modest growth rate of 2.7% a year.

Over the same period, wages have risen by 2% above retail price inflation, so houses today are far more expensive relative to wages than they were 50 years ago. Here's how real house prices have changed, decade by decade:

From the Fifties to the Noughties

UK real house prices, 1959­-2009

As you can see, during the boom years of the Eighties, house prices rose by an average of 4.9% a year above inflation. However, boom followed bust, with real prices falling by 2.4% a year throughout the Nineties.

The strongest decade was the Noughties, when house prices raced ahead of inflation by 5% a year. To me, this strongly above-trend growth makes it highly unlikely that house prices will race ahead over the coming decade.

Indeed, according to the Halifax, there have been four distinct periods of rapid real growth in house prices: 1971-­73, 1977-­80, 1985-­89 and 1998­-2007. All of these periods were followed by significant falls in real house prices. Therefore, I suspect that -- despite a bounce from spring 2009 -- the current property downturn is not done yet.

The great boom in home-ownership

Another clear trend in the Halifax report is the growth in owner-occupiers, combined with falls in social housing and private tenants. Here are the figures:

As you can see, the rate of owner-occupation rose strongly from 43% in 1961 to 69% in 2001. However, during the last housing boom, owner-occupation tailed off, slipping back to 68% in 2008.

The biggest boom in owner­occupier rates happened in the Eighties, thanks (of course) to the Thatcher government introducing the Right to Buy scheme for council tenants. The sale of council houses (1.3 million between 1981 and 1991) caused a sharp decline in the level of social housing -- from 33% in 1981 to just 18% today.

Note that there has been a huge drop in the proportion of privately rented homes: from 33% in 1961 to a mere 9% in 1991. However, growth in buy-to-let investing in the Nineties and Noughties pushed this proportion back up to 14% by 2008.

The new family

For decades, most homes were occupied by married couples. However, with marriage becoming less popular and divorce becoming easier, the proportion of households occupied by one person has soared. Increased longevity, particularly among women, also explains why one-person homes are on the rise, as my third table shows:

Households in England by composition

As you can see, the share of households occupied by married couples has fallen from 70% in 1971 to 42% in 2009. The proportion of one-person households has leapt from 19% to 33% over the same period. Also, co-habiting has become much more popular, shooting up from 1% in 1971 to 11% today.

Changing homes, shifting society

Here are a few fascinating snippets from the Halifax report:

Icy WC

In 1960, one in seven households (14%) lacked an inside loo. By 1996, this proportion had fallen to one in 500 (0.2%). As a young boy in the early Seventies, I remember when my grandparents' home was extended to include an inside toilet. This improvement made winters up North a lot less cruel, I can tell you!

Creature comforts

In 1971, over a third of British homes (35%) had central heating. By 2000, this proportion had almost tripled to 92%. In other words, 11 out of 12 British homes now have central heating. Cosy.

More people = more homes

Between 1961 and 2009, the UK population rose by nine million, from 52.8 million to 61.8 million. Of course, the number of households has followed suit, rising from 16.7 million in 1961 to 26.6 million in 2009 -- a rise just short of ten million. At the same time, the average number of people per dwelling has fallen from 3.17 in 1961 to 2.32 in 2009. So, families aren't as large as they once were.

Between 1959 and 2009, 13 million homes were built. Driven by local authorities, house-building peaked in the Sixties, with 425,800 units completed in 1968 alone. However, thanks to a sharp fall in local-authority projects and fewer private-sector builds, fewer than 157,000 dwellings were built in 2009.

And finally...

It's quite clear from Halifax's report that massive changes in British society have also been reflected in changing demand for property, particularly as living alone becomes more common.

Of course, the huge boom in owner-occupation which began in the Eighties is an event which cannot be repeated. Indeed, with almost seven in ten homes being owner-occupied, homeowners are now firmly in the majority.

This report also dispels a common myth: that house prices always go up. In fact, over the past 50 years, real house prices (after deducting retail price inflation) fell in 15 years, which is 30% of the time.

In addition, the powerful British desire to own a home often pushes up house prices to unsustainable levels. The property boom of 1995-2007, followed by the crash which began in the summer of 2007, is a perfect example of what happens when bubbles get over-inflated.

Lastly, the 62% real rise in house prices between 1999 and 2009 was the largest on record. It's highly likely that such a strong rise should be followed by an equally powerful bust. So, watch this space, because I'm still far from convinced that the worst is over for UK house prices...

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