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The UK newspapers are reporting that the Nationwide Building Society says that average house prices rose by 1.1% in 2011. Or, should I say, mis-reporting? Because not one that I have checked has mentioned that inflation is around 5% (officially, and unofficially probably significantly higher). That means, of course, that a 1% rise is in fact a 4% fall in “real terms”. Only London beat the inflation rate with a real increase of about 0.4% (reported by the news media as a rise of 5.4%).

Here are sample reports from the Daily Telegraph, This Is Money, the Daily Express (“Shock Rise in House Prices”, no less), a relatively interesting article from the BBC (which still fails to mention inflation, however), and so on.

Here is the Nationwide’s Quarterly House Prices Report for December 2011. If you look at the graph entitled “Long term real house price trend” you will see clearly, looking at the red line (“Real House Price”) that the line is descending. Indeed prices are also declining relative to earnings (the graph to the right), surprisingly. And they need to, of course. In London a house is still over 9 times average annual wages. In the rest of the country they are about 4.7 times, which is still too much. A stable figure is 3 to 3.5 times one person’s wage. If the average wage is, say, £25,000, a house should be around £75,000. Both partners in a household shouldn’t have to work, in fact: if you go back a couple of generations this was the normal situation. These days, even a joint wage of £50,000 isn’t enough to get a house for most people as the average house price is well above £150,000.


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