Renting shouldn’t be seen as a bad thing
November 2015 Grand Designs magazine has an interesting column from Kevin McCloud about why good design and more affordable homes are integral to solving the national housing crisis. The crisis being that very few under the age of 30 can afford to buy and instead we have a nation of sharers, renters, and “stay-at-homers”.
Kevin McCloud looks at house prices relative to national average income to demonstrate how unaffordable homes are: in 1960 a house cost £2,500, average earnings £700 per year giving a price to earnings ratio of around 3.5
Today a house may cost £188,000, average earnings £26,500, price to earnings ratio is 7 or in London the same house could cost £409,000 giving an earnings ratio of “an astronomical” 15.5.
When prices are so toppy we have to pause for thought. Is housing the best use of capital? With the cost to capital of buying and renting broadly similar, it may be renting should now be seen as a good thing as long as the capital available for property buying is kept and ring fenced as another type of investment.