COMMENT
Housing Wealth Up 244% Since 1995!

By Cliff D'Arcy
February 20, 2006

According to the Halifax (the UK's biggest mortgage lender and, therefore, homeowner), the total value of the UK's private housing stock hit an all-time high of £3,408 billion at the end of 2005.

Ten years ago, our housing stock was worth £1,100 billion, so this figure has tripled since 1995. What's more, house prices have been increasing more rapidly than mortgage debt, so our housing equity (the difference between what we owe and what we own) has grown even faster.

Back in 1995, we owed £390 billion to mortgage lenders, so our housing equity totalled £710 billion. At the end of last year, we owed £965 billion, which means that our housing equity has increased to more than £2.4 trillion. Hence, over the past decade, our housing wealth has increased by over £1.7 trillion -- almost 3½ times as high as 1995's figure.

Thus, housing equity is the UK's biggest asset; all of our other financial assets put together (bonds, cash and shares) are worth only £1.6 trillion. This explains why housing remains a hot topic among homeowners and investors -- and why property bears and bulls argue so forcefully!

Of course, as with all financial assets, the value of the UK's housing stock (£3.4 trillion) isn't evenly distributed across the UK. A single borough (Westminster) accounts for more than 1% of the total (£40 billion), and seven of the ten local authorities with the most valuable private housing stocks are in London. Indeed, at £584 billion, the value of London's housing accounts for more than a sixth (17%) of the total. This is greater than the combined housing stock of Scotland, Wales, Northern Ireland and the North put together (£520bn)!

However, the value of London's housing stock has risen more slowly than any other region's over the last five years: up 53% from £381 billion in 2000. On the other hand, the North of England has seen the value of its housing stock rocket from £47 billion to £113 billion over the past five years, a rise of 139%. Yorkshire and the Humber, Wales and the North West have all recorded triple-digit growth over the same period.

Furthermore, the North-South divide still exists, as five-ninths (55%) of the UK's housing wealth is found in southern England. A third (33%) is located in northern and middle England, while Northern Ireland, Scotland and Wales account for the remaining eighth (12%). This large inequality of housing value exists despite the fact that southern England has four-ninths (44%) of the UK's population, compared to two-fifths (40%) for northern and middle England.

Another piece of good news is that the value of the UK's housing stock has risen much faster than inflation (rising prices). Over the past five years, the value of housing stock has soared by almost three-quarters (73%), whereas the underlying retail price index (RPIX) has climbed by a more leisurely 12%.

Moreover, thanks to housing values rising faster than mortgage debt in each of the last ten years, British homeowners now have a greater "comfort cushion" when times get tougher. Ten years ago, our homes were worth 2.8 times as much as our mortgages; at the end of 2005, this ratio had increased to 3.5, so we are more "equity rich" than we were a decade ago. However, 2005's figure is down from the peak: this ratio hit 3.8 in 2002.

Finally, a word of warning: with more than half of the UK's entire personal wealth tied up in property, we really do have a lot of eggs in this one basket! Therefore, my advice would be to diversify (spread your risk) by putting more into other assets, such as cash, bonds and, in particular, my favourite: shares. This cheap, simple stock-market investment will help you to do just that!

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Cliff owns shares in HBOS, parent company of the Halifax.