Who is rich? The distorting problems caused by very high London home prices.

Many readers will know that I wanted quicker fixes of the main banks balance sheets and capacity to lend, rather than Quantitative easing. I wanted the illiquid or damaged banks to have to sell off assets and raise additional capital so they were stronger sooner. The advocates of QE are now able to claim that there has been no great general inflation so far as a result of their money printing, because credit was badly damaged by the crash and remained very tight owing to the tough regulation of the banks thereafter. At the same time as the crash there has a general glut of food and commodity supply worldwide and highly competitive prices for many manufactured goods. There has been, however, a major inflation in the prices of assets, led by bonds but including London home prices. This brings with it social and financial consequences.
House and flat prices are now so high in central London that no normal person on a good UK salary can afford to buy one without other capital. Let us compare two different people, and ask if either or both of them can be said to be rich.
The first is a retired woman living on her own in a one bedroom flat in central London. She owns her flat outright, and it is now worth £1.5 million. She was on average London wages for her working life, has no employer pension, and lives on the State retirement pension and top up benefits and pensioner concessions. She always spent her modest income in full and has no savings. She and her husband bought the flat years ago in an unfashionable district at that time, and paid off the mortgage before his death. She finds it extremely difficult to pay the service charge on her flat which has gone up a lot, and to pay all her daily bills. She wishes to carry on living in her flat close to all her friends and the activities she does to keep herself interested.
The state treats her as poor. The income and financial assets tests show she has very little to live on and she does need help with her Council tax and daily living costs. She has no money left over for treats or travel.
Some would say she is very rich. Having £1.5m in assets puts her well into the top bracket of the wealthy in capital terms. In one sense she is rich. If she chose to sell her flat, she could buy a good detached home in most parts of the UK, and would have £1 million left over in her bank. She could draw down say £50,000 tax free for more than 20 years as the money stayed on deposit and on that could live well. The state says it has no wish to make her move, so she is poor. She can scarcely afford to live where she lives even with state help. I am not myself saying I think she should be made to move, as that is certainly not my view.
In contrast is the successful young man working near her flat in the centre of London. At the age of 29 he is already on an income of £70,000 a year plus an employer pension contribution, putting him well into the higher tax paying category. He has saved £150,000 so far in a pension plan for his eventual retirement, and has £45,000 accumulated in ISA savings. He rents a very small flat for £20,000 a year. After tax and rent he can still afford a reasonable lifestyle. He would like to buy a one bedroom flat near his work. The cheapest acceptable one for him is over £1 million. With only £45,000 available as deposit he does not even have the minimum deposit needed. His income of £70,000 gets him nowhere near a large enough mortgage to buy the one bedroom flat near his place of work.
Some would say he is well off. They would point out he could afford to buy a perfectly nice property 30 miles out of London and commute in as many do. He does have financial assets of £200,000 already, though he is years off getting access to most of them. Others would say he is part of suffering Generation Rent, consigned to small and expensive accommodation all the time he wants to be in London. At 29 he is still a long way off owning a flat in the area he wants to live in.
So I ask two questions for you today, recognising that many of you will want to answer some other! The first is are either or both of these people rich? The second is what if anything could and should be done about the impact of high London home prices on people’s lifestyles, income and wealth?
For those who like even more difficult moral and political teasers, what would the answer be if the young man was the woman’s nephew and due to inherit her flat? Would that change your mind as to his riches if a) his aunt died suddenly and prematurely and he found the ones to pay the IHT and moved into her flat and b) if she lived for another 30 years so her flat made no different during most of his working life?


  1. BarryJones
    November 29, 2015

    I would prosecute the people who have turned London into the money laundering capital of the world where dirty money has helped to push up property prices to ridiculous levels. Then I would prosecute the money printers who are just as guilty as the money launderers.

    The problem with both those courses of action is that we now live in a country which has made these practices legal. I suppose the best course of action for the young man would be to schmooze his way into a Quango, NHS management or something similar where he could be assured of a banker type salary and of legally lining his pockets while taking no risk or responsibility for anything. The lady would do best to sell her property or take out a mega loan on it, spend the lot on cruises, gambling and booze then present herself to the local authority when she needs care.

    How curious it is that we live in a society where such things represent the best course of action for people both young and old.

    1. Anonymous
      November 29, 2015

      Barry – Not just the money laundering capital but the place where just about everything British is flogged off – including our homes.

      1. acorn
        November 29, 2015

        That’s the beauty of globalisation. Large lumps of capital marauding around currency areas distorting economies, purely for profits.

        The spiv city of London is, beyond doubt, the money laundering capital of the planet. Also, the UK is one of the cheaper places to “flip” property. That is, buy-hold-sell property in days or weeks. London’s property has become a traded commodity similar to gold.

        In order for these conditions to apply, the spivs need a particular type of tethered politician to enact the appropriate legislation. Let me know if you need me to fill in any blanks here.

  2. Mike Stallard
    November 29, 2015

    Here is Wisbech, Cambs, we had a similar problem. It was one of the richest towns in England in the 1960s. The North Brink was a stretch of wonderful 18th century mansions. The rest of the town centre bustled with life and shoppers. We were on a working railway and the heart of the fenland agriculture. We also had a thriving port.
    Now the North brink is still there – and bought up mainly by Chinese and other foreign investors who, of course, live elsewhere. etc ed
    The shopping dried up as people soon learned to go elsewhere when the travel became unpleasant and Dr Beeching stopped the train service. The port is now a Marina. The centre of town is Lithuanian mostly and the English, including the local travellers, have largely left. We shop – and live – in the suburbs (Superstores) round the outside.

    London could easily do the same if the banking sector dries up.

  3. rick hamilton
    November 29, 2015

    I suppose this lady could take advantage of a reverse mortgage in which she sells her property to a finance company in exchange for the right to live there for the rest of her life. From what I have heard this isn’t a great financial deal for the applicant but if she has no children and isn’t concerned about her heirs’ finances, it could make sense.

    As for the young fellow, I have often wondered why London councils do not build social housing on land that they own and sell it leasehold (at building cost) to people on modest incomes who have lived and worked there for a few years. If they could only sell on to similar people when they moved out, that would create a pool of affordable homes. Or have councils already sold off all their assets to fund local government pensions?

    It does seem extraordinary that there are no restrictions on foreign investors driving up property prices, forcing ordinary people out of the market. The Australians had a rule that non-residents could only buy new property, so on exit only an Australian could buy the used one. In some countries foreigners can buy the property but not the land.

    I suppose the free-market economy mania overrides any concern for the poor fools who vote and pay taxes !

  4. expat in London
    November 29, 2015

    Neither are rich though I would hazard to say that the 29yr old is doing quite well for his age salarywise and has an unusually high amount saved for someone of that age living in London, whose rent is probably 700-1000 a month (room in shared house)

    I too live in London and make a similar amount although a couple of years older. As someone who has, since leaving home at 18, never received a benefit I do however feel aggrieved. I do not earn enough to responsibly have children and pay for their upbringing. Travel costs me £1500 p/a. With all the taxes I pay, I lose closer to 60% of my pay packet than 40%. Saving the 40k minimum deposit is tough!Gallingly, many of my staff live in rent assisted accommodation, work short hours and get state top ups. (Personal details of others known to correspondent deleted ed)

    The av. wage for young professionals 25-35 in London is around £40k what with the cost of renting, saving is a pipe dream. If stamp duty were abolished and council taxes made more progressive then the lady in the case study would likely be inclined to sell and downsize thus freeing up the chain. However, why should she have to? I should point out Dr JR, that your case study is an extreme one. 1 bed flats even in outer London, zone 4/5 are £300,000!

    If we stopped taking in 300,000 immigrants per year, forced the lazy to work and stopped subsidising the irresponsible to have kids there would be less pressure on housing and a less inflated market.

  5. Dame Rita Webb
    November 29, 2015

    JR this lad seems to to live in the world that only MPs inhabit. Assume he left university at 21. Did he walk immediately into a such a high paying job? There is no consideration of the debt load that he has accumulated while studying. Yet after paying 40% tax plus NICs council tax, tube fairs , utilities etc he can afford a £20k flat. Also, unless he works in public sector, its unlikely he will be in a final salary scheme. So if he is in the DC alternative he must have received some stellar investment advice build up a fund of that size. More than likely he would be in some dog default managed fund. Stellar investment advice or not, he also has spare cash enough to have such valuable ISAs as well. The volatility since 2007/8 seem to have left him unscathed.

    It must be rubbing shoulders with Cameron and Co whose daddies paid for everything that makes you think such people exist.

    1. MikeP
      November 29, 2015

      Dame Rita, £70k isn’t that untypical for someone aged 29, with ability, talent and drive working in Central London, say in a legal or accountancy firm, with 5 or 6 promotions in 8 years on a graduate scheme. That may not seem fair and it may be at the top-end but it happens.
      His defined contribution pension scheme could easily have accumulated funds at 15% of his salary each year (he would have paid in 5-7%, his employer might well have contributed 7-10% on top) and grown at 6-7% p.a. with the help of the investment managers for the funds he’s bought into. So £150k – which to you appears unlikely – is not atypical either. Bear in mind £150k would only provide an income of only £7500 a year so he will be aiming for an even bigger pot by the time he retires. Those in final salary pension schemes may have no notion of the size of their “pots” (they have no need) but a civil servant with a pension paying say £40k a year has a notional pot of £800k !

      1. Dame Rita Webb
        November 29, 2015

        Sorry Mike but you are still assuming he starts off at £70k which for most top flight graduates is still an unrealistic expectation (see the FTs recent research on graduate salaries) A registrar might hit that amount with a London weighting but if you were here yesterday the starter salary for a HO doctor is around £25k. Also are you factoring in the effects of charges on his DC pension? If he wants access to top flight fund management he will have to pay for it. The new workplace schemes do not seem to offer the really sexy fund managers because to get access to them would bust their charging structures. If he was in a DB scheme he could get a notional idea of his fund by requesting a transfer value which in the days of ZIRP could be substantial

        1. libertarian
          November 29, 2015

          Dame Rita

          Who said he was a graduate? He is 29.

          At age 30 in 1985 I was earning £55,000 pa in London I didn’t, sadly, buy a home there. I couldnt afford it then either. I’m not a graduate. Its perfectly possible to be earning that kind of money in London at that age in a range of professions.


          You are ………no one was suggesting that Bill ( why Tarquin ? In your addled world only public school types earn that kind of money do they?) Is hard done by. What JR was trying to highlight is the opposite, that even people that are well off by most standards are poor in liquidity in London.

          By the way Bazman the young man in the example is a plumber and heating engineer.

          1. Dame Rita Webb
            November 30, 2015

            Libbie that probably explains why your comments here come with no supporting evidence and are usually wrong. Now whats that about student nurses running up a debt of around £40k each?

          2. Bazman
            December 1, 2015

            A plumber On 70k a year? Maybe if he owned a company. You read the papers to much

          3. Edward2
            December 2, 2015

            Plainly you have never hired a plumber in London or other major cities.

    2. Bazman
      November 29, 2015

      Well done Webby. I was thinking the similar. Tarquin is on 70 k a year at 29 and 150k in a pension already living a 400 quid a week flat and we are to believe he is somehow hard done by in past and present circumstances? On top of that his Aunt Doris may just croak and leave him a 1.5 million jackpot which is considerably better odds than my footy pools numbers coming up. Jealousy? You will all have to do better than that. What he needs to do is get on his bike.

      1. Lifelogic
        November 29, 2015

        Why would anyone sensible or numerate buy “footy pools”? or lottery tickets when there are so many better ways to make millions if that is what you want?

    3. lifelogic
      November 29, 2015

      It is I think fairly realistic for some top London based graduates in say Law, Accounting, Consultancy, banking and finance.

      True they may well have to pay another 9% in student loan repayments (over 21K PA). Thus perhaps only keeping slightly over half their earning. Perhaps just leaving him 15K PA after rent tax and loan payments. He has done very well to save so much especially with the banks giving negative real returns. Still there is this silly new help to buy ISA gimmick from Osborne I suppose.

      Interestingly I note that Osborne has also increased the student loan repayment tax substantially by fixing the £21,000 threshold rather than increasing it in line with earning as borrowers has been told when they entered the contract.

      Yet another (post agreement) underhand tax grab from this appalling tax, borrow and waste chancellor. He seems to despise tenants for some reason I wonder why?

      Perhaps the best way to fund university and further education is to cut the numbers hugely. At least half the courses are pretty or even totally worthless or just hobby subjects. Restrict the loans to doctors, engineers, builders, scientist, proper economists, mathematicians, plumbers, bricklayers, road builders, chemists and the likes. Switzerland and Austria have far fewer and do rather well.

      The UK has far too many graduate in essentially non subjects and in hobby subject and far too many rather over educated dopes. Especially in the cabinet it seems.

      People should generally pay for their own hobbies, interests, leisure and sports I tend to think.

      1. Dame Rita Webb
        November 29, 2015

        The local private school around here has gone under because it can no longer attract enough Chinese punters. As the Chinese economy slows down the universities may also have the rug pulled away from under them when the students stop turning up there too. Remember most universities charge their Chinese students around twice what they do the locals. So they must form a substantial part of any universities income. When the kids see that their elder siblings cannot get a decent paying job and have a load of debt then we will see the universities transform themselves back to what they were in the 50s.

      2. Iain Gill
        November 29, 2015

        He would be lucky to get 6% employer contribution to pension, so unless in the public sector or contributing way more than average that pot is unlikely

      3. a-tracy
        November 30, 2015

        “I note that Osborne has also increased the student loan repayment tax substantially by fixing the £21,000 threshold” this generation of graduates pay 9% from £16,000 not £21,000 (that became applicable for students starting their courses in Sept 2012).

  6. Mike Stallard
    November 29, 2015

    The answer to your question:
    The young banker ought to take his elderly aunt out to the Ritz (or wherever). He ought to suggest that he rent, from her, the top room of her mansion as a decent rate. He also ought to offer to buy her a nice bunch of roses on her birthday as part of the rent.
    I did the same for my mum and it worked a treat!

    1. Iain Gill
      November 29, 2015

      She is in a one bed flat.

    2. Denis Cooper
      November 29, 2015

      But her one bedroom flat is only a “mansion” in terms of its market value, not in terms of spacious accommodation and multiplicity of bedrooms.

    3. JJE
      November 29, 2015

      Alternatively as his circumstances are similar to my daughter’s, perhaps we should introduce them to one another?

  7. Denis Cooper
    November 29, 2015

    Well, one of the cases being an retired single lady I was already thinking “inheritance tax”, aka “estate duty”, before I got to the end of the article …

    I’m not in favour of the state trying to force elderly people from their long established homes so they can realise the asset value and hopefully will no longer need to have their incomes supplemented by subsidies from other taxpayers.

    On the other hand I’m also not in favour of the state giving income assistance to elderly people with large illiquid assets without taking some kind of first charge on the value of those assets when they die.

    Specifically in the hypothetical case presented in the last paragraph I see no reason at all why other taxpayers should agree to fork out to support the aunt during her later years but also agree not to touch the nephew’s inheritance upon her death.

    1. Anonymous
      November 29, 2015

      Denis – It’s odd that when we needed a spacious home the most (with young family) would could not afford one, yet now we don’t need it we can.

      Old people living on their own in large dwellings has been a problem for a long long while now. There are many in this area.

      This is largely because they find moving on scary – and it is.

      The government should (instead of Help to Buy) be providing Help to Move to older people.

      But then inflated property prices is what government strategy is all about. It’s the only trick they have left and anything that makes things easier for people will not do.

  8. Lifelogic
    November 29, 2015

    Well clearly neither are rich you really need more than about ten million nowadays. The first should simply borrow and spend as she feels like it. After all the government will only steal 40% of it off her on death anyway. She should think about is as a40% discount on all purchases. Or do as the French do sell the flat with a lifetime interest and get a cash sum or annuity income now.

    The second just has to make choices take a lower paid job out of London or just keep renting (but rents are likely to rise thanks to Osborne’s moronic and immoral tax attacks on landlords and tenants) or just commute. You pays your money and takes your choice. Given the absurdly high stamp duty, renting for any less than about ten years is likely to be as cheap as buying anyway. There is no great advantage in buying unless prices shoot up.

    The solution is more houses and flats and relaxed planning, there is lots of room in London to go up and down. Osborne’s attacks on non dons, enveloped dwellings, cgt for offshore buyers and the rich will perhaps bring prices down at the top end anyway. As would any relaxation in world tensions which has made the UK a safe haven.

    Given IHT at 40% is is surprising that anyone rich still stays in the UK especially after Osborne ratting on the £1m threshold promise all those years ago.

    The main thing to remember is that individuals will, nearly always, spend, invest and save far better than tax borrow and piss down the drain governments like this one.

    People should remember there are rather better investments than housing and you can even get seis and eis tax breaks and no CGT and IHT exemptions on them.

    People with more than about £10m should probably leave, as you have such a left wing, inept government and it will likely get worse with Labour. Is is worth being about £1m a year worse off just to live in the UK?

    1. Lifelogic
      November 29, 2015

      In the case where they are related it is easy. They just come to some arrangement where she stays in the home They borrow on the asset as needed, he buys or rents and take taxke advice to minimise tax and IHT. This is howeverirather hard with all the gift with reservation rules, Osborne’s ratting on IHT,rules on IHT debts and the maze of other tax lunacy.

      The should always remember it is there moral duty to stop Osborne types wasting by minimising their tax bill.

    2. Dame Rita Webb
      November 29, 2015

      Steal only 40%? Once she begins to start to drool the local authority will be potentially helping themselves to 100% of what she owns over £23,250. So if she clings on for a long time, her successors will receive nothing. Meanwhile the old lady in the local authority flat across the road gets the same level of service for free.

      1. Lifelogic
        November 29, 2015

        Often very true.

    3. Bazman
      November 29, 2015

      Osborne’s moronic and immoral tax attacks on landlords and tenants will cause rent rises. They presumably are just going to pass the addition take onto the tenant? Could any other business just do this? Most would have to absorb the rises from their own pockets. This alone tells you of the level of subsidy to landlords and your bleating about IHT paid for by the recipient forgets the other reasons why the rich are here. I don’t see many fleeing to Russia to enjoy 15% tax rates. Rather they come here. What does that tell you about Russia and the UK? Maybe they could flee to the Cayman islands, Monaco, Switzerland or even laughably the Isle Of Man. Get real and just go if that is the case you will not then have to use the faculties that London gives using pissed down money.

      1. Lifelogic
        November 30, 2015

        Supply and demand will see to that. Supply will clearly decrease due to Osborne’s damaging tax grab.

        1. Bazman
          November 30, 2015

          Not only they can increase rent they can also cut off the supply? WOW! Is wrestling fixed?

    4. Iain Gill
      November 29, 2015

      Many of my rock star heroes with more than 10 mil in funds came back after years of tax exile, although some left due to the London riots never to come back other than short visits. On balance we are better off with them paying tax here. Mostly people at that level do what they want and gave up worrying about money long ago.

  9. Lifelogic
    November 29, 2015

    As I have said before £10M invested with a return of 7% PA (after inflation) for 30 years tax free grows to £76M in real terms.

    With Osborne’s combined taxes of CGT 28%, income tax 45%, dividend tax and IHT 40% it would likely only grow to about £12M in real terms. Hardly growing at all in real terms and that is if your investments do well!

    Who needs wealth taxes the state have robbed you of 84% of you wealth anyway? It might not be so bad if they spend some of it wisely, but they almost never do often they do huge net damage with it as in Iraq.

    1. Lifelogic
      November 29, 2015

      I find myself in complete agreement with Corbyn and the shadow Chancellor on the pointless proposed bombings by Cameron. A shame their economics are even more chairman Mao than lefty Osborne’s loony stategy.

    2. Bazman
      November 29, 2015

      The numbers are pants, and he will not be paying IHT at 45% his relative winning millions on a lottery with him holding the only ticket will be, but basically you are arguing that someone with 10 million quid is somehow hard done by.
      What kind of fact is that?

      1. Lifelogic
        November 29, 2015

        No I am just saying the government with take 85% of you Wealth off you in those circumstances and give little of value back in return.

      2. Lifelogic
        November 29, 2015

        The numbers are just basic arithmetic. Do the sums yourself.

        1. Bazman
          November 30, 2015

          Basic arithmetic that is wrong and the lottery win? I will be dealing with you on your own level from now on..

          1. Edward2
            December 1, 2015

            Your “level” Baz, is that anyone much better off than you, should have that excess taken off them by the State.
            Either during their living years or at death.
            We must all be equal.

          2. Bazman
            December 1, 2015

            There is massive inequality in this country more often than not due to the rich gaming the system at the poor persons expense, so where does this fit into having’ wealth taken away from them’? The middle class social security system and bank and tax rules/laws for example. You are laughably going to tell me that this is not true and is just jealousy? They are all undeserving one presumes. If this is the case then so are the rich. It not just creaming off wealth and giving it to the poor that is needed as this would not work as anyone can tell you. It a reform of a system that allows the rich to plunder the poor in this country vthat needs to be addressed.

          3. Edward2
            December 2, 2015

            Strange how standards of living for everyone have managed to rise greatly over the last 50 years if as you believe the very rich have only become rich by plundering the poor.
            This odd theory of yours assumes a finite amount of wealth which is yet another dodgy idea Marx had.

          4. Bazman
            December 3, 2015

            The all boats rising theory is becoming defunct due to what I am saying and much of the rise in standards of living is due to scientific and in particular political factors such as wealth distribution via the tax system which is becoming broken. They do not want to share edward2 and to say they created the wealth and we only deserve Alms from them is politically laughable.

  10. Richard1
    November 29, 2015

    Is it a right to be able to live where we always have irrespective of costs? I think the woman in the 1-bed flat would do best to sell up and move. We often hear leftists argue that extraordinarily high housing benefit is/was necessary so people don’t have to move out of their ‘communities’. The logic of this is people such as the woman in your example – and her children if she has any – should be subsidised to carry on living in Eaton Square or wherever the fictional flat is in perpetuity.

    What is of course needed is removal of impediments to people moving – planning restrictions which make development by people (as opposed to out of town developers) very painful, high stamp duty (osbornes measures will reduce liquidity in the housing market and disincentivise moving) etc.

    1. Lifelogic
      November 29, 2015

      Not if she likes living there just borrow spend and save on IHT why move and pay more stamp duty.

      1. Richard1
        November 29, 2015

        Yes that’s true, given IHT will cost her estate c £500k the best thing for her to do would be to borrow against her flat and live off that. That also saves a few £10ks in stamp duty and other transaction costs. The tax system incentives her to stay put.

        1. Bazman
          November 29, 2015

          You really think she would see it like that when she is struggling to get by? As lifelogic says she should just cash in via equity releases an spend the money on cat food or move. She would have to consider the options and not just financial of both. A bit different if you live in a 200k flat though the same circumstances. She might also spend the money on care being taken from her estate via the governments money grabbing scheme for those daft enough to save, have one or no children and have an asset.
          Spend the lot in the pub go bankrupt and have 10 kids instead. Nobody is promised tomorrow.
          Where does that fit?

        2. Lifelogic
          November 29, 2015

          Indeed so long as she can borrow at reasonably rates. Banks in the UK can be a bit of the rip off when lending to the elderly, or indeed anyone else.

          1. Bazman
            November 30, 2015

            Like you can with rents they just do what they have to do.

  11. Antisthenes
    November 29, 2015

    A property boom is rarely good news it is however cyclical and will eventually reverse hopefully not in an immediate and devastating collapse. As government has largely taken the free out of the housing market it most likely will as in the same way it is currently aiding the boom by it’s market interference.

    However it is still subject to market forces and a scenario is possible that means eventually it will drive out many to less expensive locations not just home owners but businesses as well. London will change from being the economic hub of the nation into being something else good or bad only time will tell.

    If it does then the Northern powerhouse that the government is so keen on will become more likely. So with the other incentives government are providing to produce the Northern power house you could say maybe the London house boom is exactly what the government wants and maybe the country needs to redistribute job opportunities for all of the country and not just London. At the same time expanding the base from which economic actively can take place.

    Naturally the housing boom is hurting many and also benefiting others. Unfortunately the world does not stay still and changes take place in many ways all the time which is continually creating winners and losers. The losers cannot change being losers by demanding someone other than themselves do something as that inevitably makes the position worse or pushes the losses onto others.

    Natural forces work to motivate every living thing to adapt as conditions change that is how evolution works and progress is made. It appears humans are slow to accept that fact and too often fight the inevitable and mostly lose or at best win a Pyrrhic victory and so increase their own suffering in the long run.

  12. Paul Perrin (@pperri
    November 29, 2015

    Old woman should get no benefits – she can move or use equity release. Why use taxpayers money to provide some random nephews inheritance?

    She is no different to an MP building a property empire on expense.

    I know many people who have ‘downsized’ why to you have a particular soft spot for this woman – financed with tax payers money – not your own…

  13. Alan Wheatley
    November 29, 2015

    The individual should have the maximum freedom to make choices for themselves. The individual can not expect the state to arrange things for them such that the choice they would like to make is the choice they are able to make.

    Life is never always fair: today you win the Lottery, tomorrow you are struck by lightening.

    Those who give themselves the best chance by making wise decisions should be able to profit from those decisions. Those who don’t won’t. Those who can’t should get help.

    I believe asset rich and income poor is common. If you want to improve your income then realise your assets. Asset rich is not necessarily an indication of either very high prior income or good fortune, it can also be the result of modest income spent acquiring assets rather than going on regular, expensive holidays. People with assets should not be penalised for their prudence and judgement by the state so as to counteract its imprudence and ill judgement; the result of such a policy is that we all go on regular, expensive holidays and there is no capital left to tax.

    As to the lady, one option is to get together with her local friends and all move to the attractive but much cheaper location. They will be able to hire a coach to take them to London shows and the like.

    As to the man, if he is that good then why not show some entrepreneurial spirit and start his own business in a location where he can afford his own house. And run the business from a garden office.

    Expensive London is another bubble that will burst eventually. We should not subsidise London costs.

  14. Alan Wheatley
    November 29, 2015

    As an aside, the mayoral electioneering chant of “London for Londoners” is an indicator of what is going wrong. London is unique in as much as it is not just a city, it is also the Capital. And as the Capital it should be for us all.

    1. lifelogic
      November 29, 2015

      I used to live in London for 20 odd years until about 7 years ago and enjoyed it a lot. I tend to find now it is far, far better to fly in and just stay in a nice hotel or club for a few days as I wish, treating it as a good holiday break or business destination like Paris, Rome, Zurich or Monaco.

      Thus having a better quality of life and saving a few million in tax in the process. Also given Cameron’s planned pointless bombing of ISIL, the polluted air, the high crime rates, motorist mugging and the appalling traffic probably rather safer too. Certainly if you like cycling.

  15. David Murfin
    November 29, 2015

    The first is “are either or both of these people rich? ” Both. They have choices.
    The second is “what if anything could and should be done about the impact of high London home prices on people’s lifestyles, income and wealth?”
    If you are a true conservative, the question is addressed to the individuals concerned. My answer is “Move out” but theirs may not be.
    If you are a socialist, the answer is take away the wealth in taxes to even things up with those who do not have enough to make choices.

    1. lifelogic
      November 29, 2015

      The socialist answer is no answer at all. Even if the homes were cheap we can not all have a house in Chelsea unless we can build 20 million more of them. Doubtless they would be reserved for politicians, party members, hangers on and state employees. The roads would have ZIL lanes for this “elite”.

      Everyone else would be very poor indeed, probably starving as in Mao’s China.

      1. Bazman
        November 29, 2015

        They are already owned by politicians, party members, hangers on and state employees. This state and in particular corrupt foreign ones. The Zil lane for the elite are coming soon just after the gates are installed on these streets. Just watch and they are starving look at the rise of the foodbanks as the denial by the ruling ‘Communism For The Rich’ party reaches Chair Mao levels.

    2. Bazman
      November 29, 2015

      The old chestnut of Doris living in an expensive flat due to changed circumstances is a constant Tory obsession. The changed circumstances of the same Doris living in a council flat with a spare room leads to an extra rent cost to incentivise her to move to a non existent smaller flat or pay extra rent without the option of a 1.5 million sweetener.
      Tarquin is doing pretty good for 29 year old with the chance if Doris pegs it he will do even better and even if she does not his children are in clover anyway. He is Generation Rent this is true, but hardly living on steam in a bedsit as many are.
      It tells us all we need to know about the priorities of the Tory party as you say.

      Reply it is not a piece about cOnservative priorities but a piece about the impact of high house prices and how you should define rich for tax and other purposes. Sometimes I ask questions rather than providing answers. Sometimes you should be less angry and more enquiring.

      1. Bazman
        November 29, 2015

        The piece pleads poverty and hardship for a privileged group John.
        You could have set out another scenario using average peoples problems and levels of wealth and not, as most with any sense, as you can see by some replies other than mine, would see as people with wealth problems. This does indeed show Conservative priorities.

        Reply It pleads nothing. It asks questions. Would you tax the lady out of her flat and make her move somewhere cheaper?

        1. Bazman
          November 29, 2015

          This as I said then beggars the question of taxing the poor out of their homes via additional rents for vacant rooms when no other property is available. Rich Doris at least has large equity and options many do not. In both cases it is a pity that the property market and government policies these create these circumstances and the massive drag on the economy. My main point believe it or not! For most the equity cannot be cashed in as you would then have to rent and be back to square one. Downsizing for most is not a realistic option.Or cannot save for a house due to high rents.

        2. Lifelogic
          November 29, 2015

          She will be taxed to the hilt when she dies anyway by IHT ratter Osborne. No she should not have to move if she likes it there she should be able to borrow. Though in my experience many of the elderly would rather struggle than borrow. But borrowing at sensible rates is the thing to do it saves IHT too.

          1. Bazman
            December 1, 2015

            She is not taxed at all when she is dead. The state does not tax dead people as they are dead! They cannot pay! Can you not understand this its logical?! Her lottery of life winning relatives get taxed and as they have done nothing but wait for this pay day. It makes it a just tax on the lazy and feckless helping to build infrastructure and services that in the main created this wealth for them and enables them to do nothing in comfort and security. Not creating wealth as they do nothing, just spending it. They are only able to ‘invest’ betting on the rise of house prices by themselves or via a banking system that ‘invests’ in them and so further inflating them as they are to stupid to do anything else.
            The idea that affordable housing is desirable is not real. What would you say if a government came to power and by a truly massive house building programme, zero interest state loans and massive subsidy for all areas of house building and ownership caused house prices to free all for the next ten years? What would house owners say? Landlords?!
            Personally I would just laugh. None of you want it. What you all want is rising house prices and rising affordability. As if.
            Dingbat economics of a scrounging class that we hear so little of. The home owner and landlord. Often both.

          2. Edward2
            December 2, 2015

            The State does tax dead people.
            It taxes their estate.
            Before anyone can distribute the assets of a deceased person you have to pay the tax imposed on them by the State.

            One day your loved ones will inherit your hard earned wealth and why not?
            You have earned it.
            You have paid tax on everything you have accumulated during your life.
            You have chosen who may receive that wealth after your death.
            They will also pay further tax after they inherit in the form of VAT or CGT or Stamp Duty

          3. Bazman
            December 3, 2015

            See above as for why not. It is a just tax and in the future some generations of the mega wealthy may well decide to politicise this money they have done nothing to earn or really understand how they got by funding political parties of their own maybe extreme views undermining democracy.

          4. Edward2
            December 4, 2015

            As usual your logic is that the State spends our money better than we do ourselves.
            And so all must be taxed as it is a virtuous thing to satisfy the State’s increasing appetite for more and more money.
            Sadly predictable coming from you.

  16. Anonymous
    November 29, 2015

    Of those people that are well off some have to be on the Angel Estate – championed by The Evening Standard because the youth there are deprived and turning to crime.

    What ? The same youth living free in an area of prime London estate with all the job opportunities that people from all over the world are flocking to ?

    London property is skewed as much by our welfare system as foreign speculation. The constriction in supply is as much to do with reserved sink areas as with lack of planning permission. There are plenty of unoccupied properties going for a pound up north where these people could live if they refuse to work in the Jobs Capital of Europe.

    As long as this goes unchallenged both the young worker and the old lady are poor. Their notional wealth counts for nothing. It is what is apparent in their day-to-day lives that count.

  17. Iain Gill
    November 29, 2015

    It’s not just London though is it? It’s the whole of the South East.
    Your questions:
    “The first is are either or both of these people rich?” Yes the old lady is rich. The young man maybe rich depending on a few factors, the main one being whether he is in an occupation where it is likely he is able to stay in one place a long time – if he is forced to move frequently for work then he won’t be able to buy anyways and when he his working outside London his pay will be lower. In his position the sensible thing to do is commute in.
    “What if anything could and should be done about the impact of high London home prices?” For a start the government could stop hyping house prices with help to buy, the top ups to ISA’s for those saving a deposit, and so very much more. Next the government could actually DO some proper immigration control instead of simply TALKING. Thirdly I am coming to the conclusion like many other countries we need punitive taxes or other restrictions on non UK residents or citizens buying and owning property, the other countries I am thinking about that do this do a lot better.
    What would the answer be if the young man was the woman’s nephew and due to inherit her flat? For now no difference as it’s quite possible the value of the flat will be spent on her old age care, as old folk’s accommodation is running at 15 K a month, and must be more in London, it wouldn’t take long for that to eat into it. It’s a disgrace the way people are forced to sell their home to pay for their care (while those who have been reckless with their finances are paid for by the state), but there it is.
    If a) his aunt died suddenly and prematurely and he found the ones to pay the IHT and moved into her flat. Yes he is rich. He could sell up, move somewhere cheaper, and live on the difference, maybe a bit of part time work but no need for a stressful full on job.
    If she lived for another 30 years so her flat made no different during most of his working life? Then he becomes the same as she is now.
    The other dynamics you need to think about are the person in a nice house but the catchment area of an Ofsted 4 school for the children, versus a person in a grotty house with an Ofsted 1 school catchment. Which of those is better off?
    Or the insulin dependent diabetic living in an area giving 40% of such patient’s insulin pumps, versus someone similar living in an area where they only give out 0.2% of such patients pumps? Which of those is better off, given the massive difference in life expectancy being rationed by the state?
    It’s not only London. I know a couple with a nice house in the Midlands who are selling up to retire to the coast in the North East. They will get a broadly similar house for about half the money, and use the rest towards their retirement funds. I don’t see why the lady you describe could not have done the same, although I recognize there is an age when it becomes too late.
    And I know plenty of people living near Wokingham on 100 K salaries, had children late in life, had a working career moving frequently for work and so been unable to buy, who cannot afford to buy. The choices are stark, one is put the wife and kids in a house further North and see them at the weekends living in B & B during the week, commute star ship miles, accept that you will be renting forever.
    People over 50 with toddlers who will retire before the children leave school are poor regardless of what the tax man thinks of their wealth this year, they will end up with a teenager and no income and often no house either. One of the reasons the tax system being so complex but so simplistic is wrong. Plenty in this demographic.
    But one thing you are starting to hint at is the capital in property, and the way it is treated by the tax and benefits system, is part of the problem. You see if you have all your capital tied up in your house, and you are out of work, you will be entitled to a lot of benefits that an equally but no more wealthy person with their capital in the bank but living in rented accommodation will not get. These differences on their own are a large part of the reason people are so keen to buy in our system.

  18. JJE
    November 29, 2015

    The young man on that salary will have probably paid off his student loan. Most of his contemporaries and those following on will be dealing with their debts for many years more. The £150k figure in his pension is surely greatly exaggerated? If you are asking if he should be allowed to use his pension money to buy a property I say no, that way madness lies.
    With rental yields in London at about 4% currently he is living in a half million pound flat paying £20k per annum in rent.
    He could buy a one bed flat in a nice part of West or South Hampstead for half a million rather than the million you suggest but even that will be out of his reach.

    It’s a bubble isn’t it?

    1. Lifelogic
      November 29, 2015

      Not really most flats are bought by two people. But then they struggle when they if they have children, with income childcare and needing more space. Plus the huge stamp duty to move again.

  19. JoeSoap
    November 29, 2015

    Are either or both of these people rich?
    No. The predicament of both result from malevolent government policy. The woman can only benefit directly by moving away from the home she bought many years ago. However the state shouldn’t be adding to her assets-i.e. her assets should be taken into account before any income-related support is given. Home equity loans are available for this situation, which secures her income until death. So she needs no support.
    On balance the young man is paying far too much tax. With a 15% sensible total income tax deduction on this wage he would still have £60’000 a year on which to spend say 3% of £1m i.e. £30k on a mortgage.

    The second is what if anything could and should be done about the impact of high London home prices on people’s lifestyles, income and wealth?

    The numbers look daft, of course, in comparison with average wages. This is the fault of both Labour and Conservative governments which have opened the housing market to the world and squeezed out locals. Just like you have the NHS. Simultaneously QE has reduced interest rates.
    What can be done in hindsight, now that the horse has bolted?
    -Reducing immigration would help.
    -Increasing interest rates would help
    -Building a few new houses would help
    -Limiting purchases for overseas buyers would help

  20. JoeSoap
    November 29, 2015

    It is interesting to note that the Swiss, who despite having more immigration per capita than any other country have stagnant house prices. Strict controls on lending and restrictions on overseas buyers have stalled the market. This is something we need.

    1. Lifelogic
      November 29, 2015

      Selling of most of Chelsea and Knightsbridge is surely our main export now. Much needed for our balance of payments problems.

  21. Anonymous
    November 29, 2015

    The junior doctor working for £23k a year is the poor one in that area !

    1. a-tracy
      November 30, 2015

      How much would a 29 year old doctor be earning in London in this same scenario, not the 22 year old junior doctor (don’t junior doctors in London get London weighting?).

  22. The Prangwizard
    November 29, 2015

    The lady should stay as long as she thinks she can live without misery. In 5 years her flat could be worth £2m. The man ought to move out and buy something, somewhere. £20,000 rent, crazy to stay.

    1. Lifelogic
      November 29, 2015

      Why buy why not invest in other assets and rent. Renting at say 3-4% of capital value is a good deal. Do not assume value will surge again, there are many better investments around.

      It is only worth buying if you are staying put for some time 10 years plus perhaps and can buy something big enough for you needs (and your children to be & wife perhaps).

  23. Margaret
    November 29, 2015

    Firstly, neither of them are rich. They both seem to have enough money if handled well, to find a solution to live comfortably. Desire for something other than is affordable versus what is investment and therefore an asset is an individual pursuit. The scenarios posited depend on many other factors, for example stability of employment, relationship with immediate family, inheritance tax, likelihood of partnership for the young man, possibility of partnership for the older lady. Reliance on others for future income is always a tricky situation and is what gives the one with capital leverage.

  24. fedupsoutherner
    November 29, 2015

    If the old woman didn’t receive benefits then she would have to make a decision. Sell up and make her own life more manageable. Many of us have to do this anyway, unable to afford the upkeep on our present homes or unable to keep up with the maintenance. Why should others who quite possibly live in crap areas with no choice have to fund her lifestyle? It is common sense. The younger guy will just have to accept that he can buy elsewhere and commute like thousands of others do. Life isn’t always easy but we all have choices. We should not expect others to pick up the tab for their choices. There are many of us having to commute who do not live in London. It depends on whether you want to rent or buy and what you can afford. Simple.

  25. Ex-expat Colin
    November 29, 2015

    Watch the Flog It TV programme…selling their stuff off after downsizing and quite a few of them shown doing that. Having others subsidising this through the state is simply wrong.

    The young guy has to make his own mind up as I did..I went overseas PDQ having suffered much political meddling in the military. I did not want to work in a UK City…ever. I have a flat in London that I let my son use for a small rent that he wants to pay. The rent is used for repairs/refurb and he will get it all back I suspect.

    November 29, 2015

    A science fiction writer could best deal with the problems you pose JR through a kind of cathartic literary therapy.
    He would paint a literary landscape on a wholly strange world where nothing actually makes any objective sense whatsoever except to the characters involved and the willingness of the reader to accept at least in passing absurdities he could not accept in the real world.
    Like all good science fiction stories, small but significant insights could then be made into what we think is our own rational reality…. suggesting things are not quite as logical and sane as we might think. This was done in “Alice in Wonderland” ; “Gulliver’s Travels”; More’s “Utopia” and many others.

    JR you have in your article today written an inverted Sci-Fi story. Shown the London reality as a complete ridiculous fiction that cannot possibly exist and posed questions that could impart a few insights into the real life on Planet X where most things do not rail against mental equilibrium and commonsense.

    1.You ask if the Mad Hatter and Alice are rich.
    2. What should be done about high prices for rabbit holes and how they impact on free-falling into a hospital and be presented with medicine marked “Drink Me”
    3. And as a teaser you ask if the child of the sister of Alice who happens to be the Mad Hatter should get ownership of the rabbit hole when she dies because of some largely unexplained but accepted idea in the story that a love relationship in which you took no part should give rights to property.

    If we are to take the fantastically and fantasy-dystopia of your story: “London” as worthy of finding any logical and rational answer then one word would and should do it..an operative word DEPOPULATE

  27. graham1946
    November 29, 2015

    In absolute terms? Maybe not. In relative terms, certainly, compared to the average wage earner, both are. The real difference between rich and not is not just the amount of ready cash they have to spend or the size or location of house, but the fact that at any time they wish, they can lay their hands on substantial amounts of money, maybe by downsizing or even by upsizing in a more sane place than London. The poor cannot and must cut their cloth according to their income.

    Regarding the young man, I would advise him to get out of London, get on the property ladder and put up with commuting – we’ve all done it. If he continues renting, one day he will find that his retirement will catch up with him and he will lose a considerable amount of income, whilst his ripoff landlord will probably be charging rent at ten times the rate it is now, even though the property has been paid for for donkeys years and he has put nothing extra into it. If you are asking us to feel sorry for these people, then forget it. I’d rather save my sympathy for the every day striver who works just as hard as the highly paid ones, but just happens to be paid less.

  28. oldtimer
    November 29, 2015

    Neither are rich. But at least they have choices.

    The lady could enter into an equity release scheme. This would provide capital to spend and enable her to continue to live near her friends. Alternative she sells up and moves to one of the many retirement communities that now available and being developed and seek to make new friends.

    The young man could buy one of the many studio style apartments being built in the commuter ring around London and commute to work. Depending on where he made his choice there will be something available in his price bracket; he then gets himself on the property ladder and then trades up when, where and how his circumstances may permit.

    How much do you need to be “rich”. One definition (it was actually for wealthy) I heard some years ago was to have £100,000 unencumbered, free and clear to spend on whatever you wanted. Today that would be too low and an incomplete definition. Lifelogic`s £10,000,000 in assets is nearer the mark and if your assets are that size why on earth would you live in the UK?

  29. Narrow Shoulders
    November 29, 2015

    In answer to your question the old lady is rich and she should realise the asset and not have her life subsidised by the state. At the point she can not cover the costs of owning the asset she is bankrupt and all assets should be utilised. This is unfortunate for her but she should not be receiving anything but the state pension, bus pass and TV licence available to all pensioners. Certainly no top ups to allow her to cause property bottle necks.

    I he young man is not rich. After tax he may clear £45 to £50K depending on his tax code. In London that does not go far and he is already saving and putting away a pension. He is competing against not only workers earning similar and less than him but also benefit recipients (in work and out of work) who take home £30 to 40K on minimum wage. With such small differentials in take home totals he can not be deemed rich.

    The benefits system needs reforming but to do that the cost of housing needs addressing from both the supply and demand sides. Many of those he will be competing with in London will be recently arrived from Europe and elsewhere.

    Indeed my new next door neighbour has recently arrived from Romania with his disabled son and young twin daughters. He, his wife and her sister were complaining to me “…………only yesterday that their state provided house (three bedrooms) was too small and they expected something bigger. I bit my tongue about how much private rent I pay to my landlord as we have to move soon so the landlord can realise his asset and the conflict would be pointless.

    1. Anonymous
      November 29, 2015

      It should be easy to tell how much the London property market is subsidised by welfarism by checking out how much housing benefit is paid there.

      In any case. It isn’t the houses occupied by the benefit recipients that would show out so much as the competion for those remaining. Benefit funded households, however, have had an impact on our £70k a year worker (who, at his station, would have laughed at a 1 bed flat only twenty years ago) struggling to live a decent life – much less be able to marry, start a family and outnumber the (people ed) that our establishment facilitates to (have children ed).

  30. Ian wragg
    November 29, 2015

    What I don’t understand is why asylum seekers and the like are allowed to live in London at taxpayers expense when taxpayers have to commute at great expense which is not even tax deductible.
    Why are we paying millions in housing benefit for London homes for foreigners which distorts the rental market.
    We are not rich by any measure
    We own a reasonably large house without mortgage and we have some money in the bank
    Until the government rigged interest rates to continue tax borrow and waste., we enjoyed a reasonable return on our savings. Now we have to subsidise overseas aid stupid climate change subsidies and paying for infrastructure projects for Eastern Europe via the EU.

  31. bigneil
    November 29, 2015

    “Rich” is relative to the world each one of us lives in. £1m here will buy you several houses or one very nice house so long as it is not in an expensive area. Move to the middle of London and that same amount is an ex-council flat.

  32. MikeP
    November 29, 2015

    Interesting questions (and worthy of my wife’s Social Sciences degree course so this is our joint response). Significantly Governments have no issue with tackling corporations that have benefited from an overly favourable market – they apply a windfall tax. That is politically expedient, but addressing asset-rich citizens in London is a no-go area?

    So the elderly lady is sitting on a £1.5m property, an asset that has grown in value more by the actions of property investors and speculators around her than by anything remarkable that she has done personally. Because of London’s position as our capital city and our financial centre, speculators and cash-rich foreign landlords have much more to gain there than in say Liverpool, Manchester, Leeds or Edinburgh, despite them being financial hubs and/or having re-generated centres like Media City, Leeds Dock or Albert Dock.
    The solution perhaps is the flip-side of the “Help-to-Buy” schemes, dub it say “Help-to-Live”, where the lady’s asset value over a couple’s IHT threshold (as she and spouse used to be a couple) should be subject to some form of equity release to the State, in return for the State supporting her with the benefits she receives. If she or her family don’t like that she can move to avoid the State grabbing a share of her “wealth” and that may do something to slowdown the inexorable and silly rise in London property prices.

    This may appear a non-Conservative, even Socialist, suggestion but we do have some responsibility to close the gap between rich and poor (whether in cash or non-cash assets) and as others have said the lady, and certainly her heirs, are actually rich in most people’s books. She could and perhaps should choose to move to release some cash but I can understand if she is reluctant to give up her roots. But the State shouldn’t be adding to the problem by paying benefits when she chooses to sit on her goldmine of a property. So many others aren’t anywhere near as fortunate as she is and the State should act to get a share in this windfall like any other.

    As for the young guy, he has his whole working life ahead of him and can choose to rent, or maybe move out to Wokingham and commute like the rest of us. He isn’t poor by any measure in my book so should live by the consequences of the choices he makes and he will need to think hard about where any future children he may have are schooled and brought up. Rent in London or buy in the suburbs, simples !

    1. Lifelogic
      November 29, 2015

      “we do have some responsibility to close the gap between rich and poor”

      Complete rubbish why?

      Perhaps we have some responsibility to provide a safety next so the poor do not starve and have some where to live but beyond that closing the gap just destroys incentives, removes any moral hazard and does huge harm.

      If someone is an alcoholic, feckless or drug addict what benefit is there in giving them yet more of other people’s money?

  33. Bert Young
    November 29, 2015

    London will always be an anomaly in property ownership concensus . Whether to live there and work ,or work there and live outside is a highly personal conundrum . I could not put up with the turmoil of the daily commute and the impossibility of occasionally very long hours , so , in the end a flat in London was a necessity .

    I moved out of London when I could – lifestyle again the motivation . Living there had become unpleasant and increasingly expensive ; today I regard it as a foreign city with not very much English spoken . My window sills are no longer covered in soot and my neighbourhood is a quiet one . Property values ?- true the increase where I live now is not in the 1,000+% category , nevertheless it has still been substantial and is still increasing

    Where I live is my home and represents a society relationship vital to my lifestyle . I do not regard it in a £%age category , those who do this are mis-leading themselves and need to go back to a much more basic attitude to life . I would rather be poor and happy than rich on paper .

  34. formula57
    November 29, 2015

    Both people are rich although that obliges us to recognize that nowadays wealth does not buy you the lifestyle you want!

    If the man was to inherit the woman’s flat, that only changes matters by reinforcing the fact he is rich. (Though then he should buy a place outside of London where he should live at weekends and at her’s mid-week whilst she does the opposite.)

    What a pity Miliband’s Mansion Tax is not something either need to take into account. That would have forced the old lady to sell up and made the young man recognize that his prospects were truly bleak of owning in London so he would at last accept a 30 mile commute and otherwise abandon his fond dreams to then get on with his life.

    Nothing can be done about London property prices, not least as so much of government policy is aimed at boosting them there and across the country. We have to accept that the centre of London will in furture be a non-residential zone so far as concerns anyone other than multi-millionaires (likely other than British). In any case, would it not be racist to prevent foreign money launders and tax cheats from using the London property market as they have been in recent years?

    What can be done is relocating UK jobs away from London so workers can afford to live on the wages they receive. Most of government, for example, could be moved elsewhere.

  35. William Long
    November 29, 2015

    The answer to your first question: are these two people rich, is of course a very subjective matter. Most people would say that anyone with more money/assets than them is ‘rich’, so there could be an almost infinite numbers of answers to the question! But importantly, you have made it clear that both of these people are living where they are by their own choice; they could both live more cheaply somewhere else if they wanted to, and the young man could get on the housing ladder at the cost of a commute, but he has chosen to rent. They can both afford to make such a choice, though it seems borderline for the old lady. Most people would not be able to afford this choice and clearly compared to all of these they are both relatively rich. However at the moment the nephew’s main source of funds is his job and if he lost that he could quickly be in trouble.
    On your second question, as to what could, or should be done about the impact of high London house prices, you have to ask, who actually needs to live in central London? The answer is only those whose employment demands it; the rest are living there by choice and whether or not they want to pay the cost is up to them. House prices will only continue to rise for as long as there are enough people who want to pay up. When this stops there will be empty houses, the squatters will move in and house prices will fall to a level that makes them affordable again. This shows no sign of happening now, but it is important to remember it can and has happened, the last war being an excellent example.
    For those for whom living near their work is essential, I am sure any MP will agree it is up to the employer to fund accomodation costs without this being considered a taxable benefit. I would include in this local authority and othe service employees necessary to empty the dustbins etc of those who choose to live in central London, with the cost of accomodation these service employees being subsidised out of Council Tax.
    If the young man suddenly inherited his Aunt’s flat, and there is no doubt of his being able to pay the IHT as he could either sell it or use it as security for a loan, then I would certainly regard him as becoming richer because he would have still more flexibility as to how to run his life. If the Aunt lived on, I would not change my view about the young man’s riches, unless he knew about his expectations and could rely on them.

  36. yosarion
    November 29, 2015

    The problem is wider and needs to be addressed, when Cecil Rhodes went to Africa and had a Country named after him they sold the family farm on the outskirts of London.
    Today you can catch a train from that very sight to Paris or Brussels, though it is nowhere near the outskirts of London’
    There has to come a time when the survey we all have been waiting for will be done, and that survey will be the one that say’s how many people old England can sustain, because the one thing we did not build anymore of last year, was land.

  37. Bazman
    November 29, 2015

    Maybe the answer to this question is to have a system of permits deciding where one is allowed to live based on the job one does and its usefulness to the state and the economy, because how as John says is Tarqin meant to live and work in London at these prices? Compulsory purchase and forced relocation for renters would hasten this modernisation of the housing system.
    As the problem grows more acute it will be not possible for anyone who is not rich to live there, and the areas around London continue to become even more expensive making commuting for cleaners and even nurses not viable or desirable. I live 50 miles out and a 3 bedroom house is about 200k or 800 quid a month. Out of the range of cleaners on minimum wage already, though could be wrote into their contracts and benefits denied to make this happen. Tradesmans rates will include ‘London Costs’ as an item on their bills unfairly adding costs to those able to afford to live there all of this causing stress to London’s economy and additional cost to the wealthy who already pay to much tax.
    Failing a permit system which will also be needed in areas such a Cambridge too soon, barracks could be build for workers on disused airfields and other wasteland for living in during the week whilst servicing these ultra expensive areas.

    1. Iain Gill
      November 29, 2015

      The state allocates housing location (like it already does in the social housing sector) like it allocates schools and hospitals? you will just end up with more corrupt allocation and some animals being more important (animal farm). Really really bad idea.

    2. Anonymous
      November 29, 2015

      Well done Bazman !

      Your harsh treatment of workers (permits) must surely mean that you agree that the unemployed should be shipped far out of London too.

      You DO agree, don’t you ???

      1. Bazman
        November 29, 2015

        Lefty nonsense. Why should those producing the wealth have the drag of non producers in these wealth generating zones?
        Not just workers, but anyone who does not contribute sufficiently to the economy. Super rich with empty houses, the unemployed and those not earning enough should be relocated in zones where their needs can be more accurately catered for. Many towns on the coast are full of rich pensioners such as Frinton or full of benefit claimants such as Blackpool. London/Cambridge rich professionals and so on. It is merely a more official expansion of this already occurring phenomenon. I live on a ex council estate built for London overspill and of course there is a large number of London overspill people here and arriving as the town expands.

    3. ian wragg
      November 29, 2015

      Bazman has obviously been reading Huxleys’ Brave New World. I bet he sees himself as an Alpha.
      Good book. I did it for my A level. That’s when you had to read and write not necessarily both.

  38. turbo terrier
    November 29, 2015

    When I worked in London there was a London allowanceon top of your normal salary. Just by choosing to work/live there one is better off. How many millions commute into London daily?

    If the rail and bus services who have a captive market were bought into line and provided efficient services then more could and I believe would, move out of London and enjoy listening to the sparrows singing.

    Paying handouts for people to stay in London is a joke. We all have to make choices in life and living in a city is one that people choose to make, therefore the state shouldn’t be funding what is a personal choice.

    For far too long we have failed to deal with the asset rich money poor population.

  39. Ian B
    November 29, 2015

    Rich? The widow is potentially rich, but a valuation is not the same as a value; that is, she would be rich if she realised the value of her asset. As she has not, she is not rich at the moment. But this is all a bit meaningless.

    The big problem is that the State is pouring money into the London economy via the City, destabilising the economy. It does this indirectly, but the fact is that we have a nationalised money system and the State constantly expands the supply via the City. Thus, the City always gets new money first, which artificially inflates the local economy.

    Yes, this is standard Austrian Economics (I can see your eyes rolling already, heh) but it’s no use staring baffled at this bizarre economic situation and not asking why we are where we are.

  40. Stephen Berry
    November 29, 2015

    Let’s get this right. There is a little old lady with an asset worth 1.5 million and a bloke on seventy grand a year (with a few extras) and we have to work out whether they are rich or not? Was this one of the questions posed at a modern poverty symposium? If the little old lady lived in the north of England in a flat worth £100,000 and then won a million on the National Lottery, how would she be regarded? Why should a young man of 29 expect to live smack bang in the middle of one of the most expensive cities in the world?

    I have a friend who moved into a run-down one-bedroomed flat in the student quarter of South Kensington around 1970. He now finds himself surrounded by city-slickers (with a sprinkling of the well-heeled Serbian and French) in flats worth a million or so. Of course, he does not regard himself as rich and this tells us a little about human nature. It also tells us a little about how much Britain has changed these last seventy years.

    Should the government do anything about the price of property in London? It could close down a few ministries, get rid of the staff and sell the buildings to be converted into residential property. That would help a little and make the job of our doughty chancellor a bit easier. Beyond that, no. The fact that over the last 25 years London has become the major city of Europe has certain consequences. One of them is that many talented people from around the world want to live in London and are willing to pay top dollar for the privilege. This is a problem only for the short-sighted.

    Reply The state regards the woman as needing financial assistance from the state as a pensioner on low income.

    1. graham1946
      November 29, 2015

      Reply to Reply

      The State is an ass.

      No wonder we get into such straits with thinking like that. The State is merely safeguarding the heir’s inheritance. They may take IHT later on, they may not, depending on what different govts. think will be popular with their supporters. No way should the State protect an inheritance. There are plenty of alternatives for the old lady including equity release meaning she does not have to move – she could easily get £400,000 to live on out of it if she so wished and it would take at least 20 years for her equity in the house to be used up. The lad must fend for himself and take what is left, if anything. No-one owes him anything.

      1. Iain Gill
        December 1, 2015

        A lot of London flats are empty as they have been bought as investments and not to live in.

    2. Bazman
      November 29, 2015

      Its a political problem across the world. Even in Russia Samara is where big fish swallow small, new tower block of posh flats replaced by new massive tower block of unaffordable flats. Bulldozing of buildings of historical significance due to rampant corruption shoddy building work and so on. The state tenants still have rights. Ideally they would be turfed out of this potentially lucrative city centre, but in the provincial cities like this where central government power is weak there would be riots. Same here.

  41. ian
    November 29, 2015

    The answer is he take out a 45% mortgage on his aunt flat for 40years so he can afford the repayments with both incomes of 80,000 which would acceptable to some mortgage companies because they 55% of the of the flat not on mortgage and would have no liability for IHT and take the 675,000 in cash and use that as a deposit on a buy to let 3 or 4 bedroom property in London like acton about 5 miles away or maybe nearer with a another 325,000 buy to let loan interest only and let two to three bedrooms out at 150 pounds a week each which 150 pounds would be tax free to qualify for the BTL loan.
    He now has 2 property worth 2.5 million, no IHT to pay and his income has gone up by 450 pounds a week and 150 pound tax free and he lives rent free and can pay back the buy to let loan with the rent coming in and bike to work, all without wet& mad help.

  42. StevenL
    November 29, 2015

    I consider both of these people to be ‘rich’. To have assets of £1.5m at retirement, or assets of £200k at age 29 and a £70k a year job is ‘rich’ in my opinion.

    Up here in Aberdeen there are a lot of oil and gas workers in their 20’s on similar salaries and everyone tends to think of them as ‘rich’, even if they do blow it all on the hiring and fuelling latest audi s or bmw m.

    Londoners don’t need to run cars, so you would expect their rents to absorb the cost of running a car. But £20k a year is an awful lot for one person to spend on rent + car anywhere. If I did this I’d have to leave the pension scheme and stop eating or wearing clothes.

    In Aberdeen you can rent a decent one bed for £8k a year, leaving you £12k to hire the latest 200 mph German gas guzzler.

  43. English Pensioner
    November 29, 2015

    There are a lot of elderly in a similar position, the difference is that I have a small company pension and some savings so that we are not yet reliant on the state.
    We would have liked to have downsized when I retired some years ago, but the costs were against us. When we bought our 4 bedroom home, smaller two bedroom homes in the area were considerably cheaper and it would have been feasible; now the differential is such that the difference in price wouldn’t cover all the costs involved in moving, so it is a non-starter. Newly build two bedroom flats near the centre of our small town are on sale for more than I believe our home is worth!
    Should we move out of the area? Where we are, our daughters and their families are within an hour’s drive and drop in regularly to provide help with things like the garden. We also have all our friends in the area, and it is said that one of the biggest problems of the elderly is loneliness; friends who have recently moved out of the area to be near their son in the West Country are finding it difficult to make new friends, and we all keep getting invitations to come and visit.
    Clearly our costs are going to rise significantly. I can no longer do the work on the home that I once did; I am considered unsafe on a ladder, for example, and so I’m now having to pay for work to be done that I could once would have done for myself. The garden is becoming a bit of a struggle, and whilst the family helps, they have their own homes to look after, so I will soon have to start paying for work to be done there.
    We’ve considered other options such as jointly buying a bigger home with one of our children, either would go along with the idea, but our solicitor was strongly against on the basis that many such arrangements end in disaster, either due to one of us needing care, or the younger generation falling out and having a divorce.
    So we stay where we are, fortunately we can still afford to do so without state assistance; however, I suspect that several of our neighbours who are in a similar position and aren’t so well placed financially are having difficulties.
    It is a quandary facing many of our generation; I’m not moaning but trying to point out that our life is not quite what many youngsters would like to imagine or even as I imagined before I retired.

  44. ian
    November 29, 2015

    and he still got the 45,000 investment and pension of 150,000 intact .

  45. Margaret
    November 29, 2015

    Andy Murray is rich and it is all the richer for GB . World champions , the Davis cup winners to Fortune Empress of the World. Keep it up GB

  46. ian
    November 29, 2015

    and he will be able to give his aunt 60 pounds a week so she can treat herself each week.

  47. MPC
    November 29, 2015

    I would say that the young man can clearly be defined as relatively well off. He would like to live near where he is living now in Central London, but there are still affordable areas to buy a flat in East London and Essex for example on his salary and using some savings – hardly an onerous option for someone of that age. Otherwise he’ll have to think about buying with someone else in a more central area – again an option many have chosen to consider.

    Re the older woman – she is hardly ‘typical’! The value of one’s home remains a pretty good proxy for wealth which is why the domestic rating (council tax) system has always been regarded as the fairest approach to local taxation – over and above other options such as local income tax.

  48. stred
    November 29, 2015

    If the lady could persuade two of her friends to join her and all sold their flats, they could buy a £3 million five bedroom house with a two bedrooms divided for a nephew flat, near Gidea Park station in East London. The three friends would all qualify for free travel passes into central London and the nephew could commute on Crossrail quickly into his job. He could share his spare flat bedroom to an attractive eastern European nurse, who would keep an eye on the ageing folk next door for £15k pa paid by the ladies. To ensure that they pay no IHT, if they live another 7 years, they could give a share of their £3 million property share to relations each year to reduce their riches to £350k by the time they finish enjoying their time spending the million left over, at a rate of £50k pa over 20 years. The nephew, after a few years paying no rent would have enough to buy a million pound coal hole in central|London, if he could not stand living near the green belt and country parks or with electric tanned Essex natives.

  49. Ken Moore
    November 29, 2015

    These people are relatively poor..but like those with buy to let mortgages they will be an easy target for our spendthrift chancellor. He will need every penny he can get and more.
    Being seen as superficially ‘rich’ is enough to set you out as an easy target.

    George Osborne seems to think we are a rich country now because he found and spent an imaginary 27bn. Mr Cameron is similarly deluded believing there are is an army of 70,000 ‘moderate’ Syrians waiting in the wings….

  50. petermartin2001
    November 29, 2015

    I might just have a slight quibble about the wording of the title but this is an interesting read.

    There’s a house price bubble in all the Anglo Saxon countries (including those with low population densities) ie USA, Australia, NZ, Canada as well as the UK. Germany has a refugee and high immigration problem too, so the usual arguments as to why UK prices are high need to treated sceptically. It has to be connected with the creation of cheap credit leading to a price bubble. ie Monetarist economic policies to create stimulus in the absence of excess export revenue income.

    In the longer term prices in the UK and Germany can’t possibly continue to diverge. There has to be a painful correction for UK property holders and probably sooner rather than later.


    1. Iain Gill
      November 30, 2015

      Prices in Chicago are very low, people remember the sub prime crisis and are wary. We seem to have our own sub prime crisis and money laundering crisis.

  51. Monty
    November 29, 2015

    They are both wealthy enough to be disqualified from welfare benefits. All they need to do is sort out their own priorities.
    The lady could enjoy a much more comfortable lifestyle, if she realised her main asset and moved to a cheaper area. The young man could cut back sharply on his current “reasonable lifestyle”, in order to save more of his income.
    If he is her nephew, why shouldn’t he move into her flat and sleep on a futon? He could pay her about £5K a year before she would have to pay any tax on that. They would benefit from the “two for the price of one” effect on their heating, hot water, council tax, buildings insurance, electricity and telephone line.
    Too many folk refuse to define, then accept the consequences, of their own priorities.

  52. David Price
    November 30, 2015

    One description I have seen is that “rich” means being able to live off the interest on the interest of your capital after housing is established. This aligns with Lifelogic’s 10m which would resolve to around £30-50k pa but means you cannot touch the capital or it’s direct interest.

    So I would class neither as rich.

    Both are well off though in the sense they have choices. I don’t believe she should be forced to sell and move but the taxpayer should not maintain the value of the estate for any beneficiaries. If she wishes to improve her liquidity then she does have a choice, as would any of us, to move and realise property value for some cash, somewhere warmer perhaps.

    The young man is well off and has more choices than the old lady, he has indeed chosen to put his money into investments rather than a property so I don’t believe the state should assist in any way though it is clearly a problem that few people can afford to rent, let alone buy, property in London and the South East. The government does have a responsibility not to make things worse so I believe they should aggressively curtail immigration, limit foreign ownership of property and restrict welfare subsidy of the rental market.

    I did think the one-time bond to cover aged care floated a few years ago was a very good idea as it allowed those who were inclined to responsible financial planning to do so. I don’t think the state should plunder the value of her estate but neither should the beneficiaries get everything. The issue is one of reasonable balance but the public sector is apparently incapable of such moderate behaviour.

  53. Robert K
    November 30, 2015

    Both are reasonably well off.
    The fix to the problem is for interest rates to revert to a normal level – the lowest mortgage I have ever paid is 0.65% (now) and the highest was 13% (in 1992). This would reduce the value of Mrs A’s house but increase the income she would get from her savings. It would also keep retail prices down, reducing her cost of living. It probably wouldn’t make much difference to Mr Z because although the value of his flat he wants to buy would fall it would also cost him more to service the mortgage. Sorry, but he has to commute. The value of his pension pot would fall, naturally, because bond and equity yields would increase.
    Second, unblock the process so that landowners and developers can add to supply, thereby reducing the value of the existing stock of properties.

  54. David
    November 30, 2015

    Surely the correct questions are :-
    1) How did we get where we are?
    2) How do we fix it?
    I would say that people should not get benefits if they have more than £500k equity and no one should get housing benefit to rent a home which costs more than £500K.
    The both would encourage many people to leave London and make prices lower.

  55. a-tracy
    November 30, 2015

    Shared ownership for the worker something like http://www.rightmove.co.uk/new-homes-for-sale/property-37691145.html?premiumA=true#tab=floorplan
    rent out second bedroom.
    Equity release for pensioner but often this won’t be done, even though her quality of life would be better spending her equity because of fear of being ousted, being in debt again and state benefits ending, also this awful dilemma of wanting to leave the home to her family.

  56. Iain Gill
    November 30, 2015

    Other issues also apply, if he is in a profession that is very hire and fire and insecure then he can expect large gaps in employment which make his likely averaged pay a lot lower and so on.

  57. […] Who is rich? The distorting problems caused by very high London home prices. […]

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