The UK is not the only country suffering from less affordable, high quality housing – in fact, many of the Organisation for Economic Cooperation and Development (OECD) countries around the world are experiencing surging house price increases that some are comparing to the bubble warning that preceded the 2008 financial crisis.
Factors that have caused the current level of house prices include record low interest rates, fiscal and monetary stimuli from governments, lockdown savings and limited housing stock, together with an expectations that the global economy will recover quickly once the pandemic is deemed to be over. In addition, the housing needs of those able to work from home have changed and some governments have offered tax incentives to home buyers.
A comparison of price-to-rent and price-to-income ratios help to analyse the countries at greatest risk from a bubble ‘correction’, where prices are thought more likely to cool rather than collapse.
The OECD has analysed data from its 37 member countries, which shows surging house prices in many countries.
Knight Frank says that, in the year to March 2021, house prices in Turkey have risen 32%, in New Zealand by 22% and in the United States by 13.5%. Several other western countries have seen house price inflation of over 10%, including Austria, Luxembourg, Netherlands, Norway, Peru, Russia, Slovakia and Sweden.
The official measure of house price inflation in the UK from the Office for National Statistics in 10.2% over this period.
Apart from the housing market, UK consumer price inflation has risen over 2% and may reach closer to 3% by the end of the year and average earnings here are expected to reflect this trend. Developed nations have experienced an increase in the number of people in employment, due to rising house prices. New Zealand’s labour force participation rose from 58% in 1980 to 78%. The country was followed by Iceland, Switzerland, Japan, Sweden and Australia, and in the UK the employment rate is 75%.