Most of us think of investing only after setting aside money for life’s essentials: accommodation, food, transport and clothing. For millennials, who are setting out on their career paths and are unlikely to own their own homes, this is particularly true.
But when it comes to the cost of housing, recent price trends have put an extra strain on budgets.
As outlined in a recent article by Nathan Brooker, property editor of the Financial Times, property prices in major cities around the world have synchronized over the last decade and in one direction—upwards.
As a result, average property prices in relation to incomes have moved way above historical ranges: houses cost 2-3 times median earnings in London during the 1970s, 1980s and 1990s, for example, but they cost over 10 times earnings now.
Similar trends are made evident in New York, Shanghai, San Francisco, Tokyo, Sydney and Hong Kong, now the most unaffordable city on the planet. And in Paris property prices jumped 12 percent in 2017 alone.
According to Yolande Barnes, head of research at property firm Savills, who is quoted in the article, there is a direct link between the actions of central banks in response to the 2008 crisis and recent property price inflation.
Low or near-zero interest rates and quantitative easing (QE) policies have pushed prices up and yields down on all assets, she says, but particularly in the prime property markets in major cities.
“Looking back, we didn’t quite understand what QE would do globally,” Barnes says.
An inevitable consequence of the rising property prices in leading global cities is that the market becomes increasingly hostile to ordinary citizens, writes Brooker.
And property unaffordability is climbing the policy agenda for political parties in many countries. Rising house prices may have fueled growing popular discontent, expressed through anti-establishment, anti-immigrant and anti-globalist votes like Brexit.
There are signs that property price rise may be at an end, at least in certain cities. In London, for example, more than half of the 1,900 high-end apartments that were built failed to sell during 2017.
But in Paris a move to attract financial professionals from post-Brexit London may exacerbate local housing market pressure.
Property price inflation has put a particular strain on millennials’ budgets. But how this trend is resolved is a major topic of interest for all investors.
Financial Times, published March 15, 2018.