There's no place like home

Home sweet home. Inflation is over - sort of - but prices that go up rarely come down. No-where is this more true than in housing and the price we pay for a roof over our heads. Affordable housing has become a hot topic everywhere. Buying a house is beyond many and renting is a lottery; in the UK 15 would-be renters are chasing every rental home, double the pre-pandemic average. Inflation in housing has been away higher than that for a typical basket of goods.

According to a new survey of more than 37,000 people in 37 countries on behalf of the OECD (Organisation for Economic Cooperation and Development, the so-called 'club' of richer nations) the high cost of a home is a serious dissatisfaction in most countries. Average house prices in the US are today almost 38% higher than when Joe Biden took office in January 2021; in England house prices are now eight times the average annual wage - in London it's even higher, 12 times the average London salary, compared to around four times average earnings in the mid 1990s. The relatively new Labour government in the UK has promised to build 1.5 million new houses during its five year term in office. That's about 822 per day; they have already fallen behind. The OECD poll found that dissatisfaction with the availability of affordable homes in Germany is now 46%, up 4% from last year and more than double the figure from 2012. It's even worse in Spain, where the unhappy figure is now 62%, the highest since the dark days of 2008/09. In the US the figure is almost 60%. According to the US Bureau of Labor Statistics, housing prices are today more than 555% higher than in 1975, and housing inflation over that period was an average 3.91%/year. Over those 49 years the US Dollar has lost more than 80% of its purchasing power - that roof costs more and the Dollar (and most fiat currencies) has become increasingly worthless. In the Scottish city of Aberdeen local councillors have declared a local housing emergency; the Scottish government declared a national housing emergency earlier this year, citing a shortage of affordable quality homes.

Building barriers

The problem is that while permissions to build houses and apartments can take years and then further years to build, people can move around at the speed of lightning. Keeping up with rapidly changing housing demand is difficult. The US might be facing a shortage of more than two million homes, with high costs for labor and the relatively high mortgage rates - hovering around 7%/year for 30 year fixed mortgage rates - have made building new homes expensive and buying a house expensive. The subprime mortgage crisis and the consequent Great Financial Crash of 2008 led to a long stretch of under-building in the US. In the 14 years since the 2009 financial crisis US builders delivered some 17 million homes, 20% fewer than the 14 years previously. The UK on the other hand needs an estimate 300,000 new homes a year, but has long fallen behind this target.

In the US Kamala Harris has pledged that if she becomes President she will oversee the construction of three million new housing units in four years. But how and who will that bill be paid? Zoning restrictions - controlled by states and cities, not the federal government - could be an obstacle. On top of that, finding sufficient skilled workers and the necessary materials could be a problem. Her other idea, handing $25,000 to first-time home buyers could simply result in prices rising across the board. Donald Trump's plans for more housing seem equally tricky, a combination of ejecting millions of illegal immigrants and building as many as 10 'Freedom Cities', each the size of Washington D.C.

The soured dream

A home of one's own has become a dream impossible of realizing for many young people. Unless they have wealthy parents or another lump-sum source of cash they are condemned to chase scarce rental properties. Accumulating sufficient capital to use as a deposit on property is an enormous hurdle for many. Saving in fiat currency when that currency is continuously losing purchasing power (as is happening even if central banks manage to wrestle inflation back to their 'target' of 2%/year is what most people do, but is that wise? While much of the gold price's recent strength is a reflection of weakness in fiat currencies, not all of it is due to that. There is real buying of gold happening at the level of central banks and very wealthy investors. Building more affordable houses is going to be difficult for any government that doesn't control the construction industry. Building a gold portfolio that may defend your assets is much easier, thanks to Glint.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.