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UK house prices are now nine times average incomes. Why is the cost of a new home moving so far beyond the reach of most people? Banks are the missing piece in the puzzle

UK banks are ‘too big to fail’ — allowing them to collapse would send shockwaves throughout the whole economy // Photo: smemon via flickr

This can create a different, but equally dangerous ‘doom loop’.

Banks issue mortgages, housing demand outstrips supply, house prices rise, more people need mortgages and it starts all over again: AKA the ‘doom loop’ // Photo: aotaro via flickr

In the UK average house prices are now nine times disposable income, a similar level similar to that which they reached before the financial crisis.

Booms and busts are nothing new, but their effect on the cost of a home is

Given the limited supply of new homes and concentration of economically desirable land in south east England, the result is, inevitably, higher house prices.

UK versus Germany

Very different banking cultures…

Savings banks in Germany, or ‘Sparkasse’, operate locally, independently and in the interest of regional customers and businesses // Photo: dustpuppy via flickr

… and we value land differently

The financialisation of land and property

The result is a seemingly never ending housing bubble.

Government schemes such as ‘Help-to-Buy’ and ‘Buy-to-Let’ are fueling a dangerous housing bubble in the UK // Photo: eepaul via flickr

What’s the solution?

Breaking up the banks…

… and rethinking how we value land

The demolition of London’s Heygate Estate, and the displacement of its 3,000 residents, is an example of land being used for the wrong reasons // Photo: photosak via flickr



The New Economics Foundation is an independent think tank that specialises in innovative economic thinking.

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