If you bought a home in Britain at the beginning of 2022, you might be feeling rather smug. You locked in a low mortgage rate just as the Bank of England started raising rates, and since January 2022 the average UK property has risen in price from £248,031 to £269,862, so you’ve not only secured your own home, you’ve made (assuming you bought a property of exactly average price) about £22,000 on your investment. You sympathise with people who aren’t on the property ladder, but when you see a Financial Times headline declaring that 2025 ended with a new “record high” in house prices, that sounds like good news for you.
It’s not. If you choose to look at your home as an investment, you’ve already lost about £60,000.
Of all the things the British government could and should ban – pavement parking, gambling adverts, queueing in pubs, the monarchy – none is worse than nominal house prices, which are a toxic national delusion. The £22,000 gain on the average property is no such thing, because prices are all relative to the price of everything else, and those prices have risen more quickly since the beginning of 2022. In today’s money, the average price of a house in the first quarter of 2022 was just over £330,000, according to Nationwide, so its fall to around £270,000 represents a fall in value, in real terms, of around 18 per cent. The housing market is undergoing a quiet crash in real-terms value.
This has been going on for a long time. The real “record high” in house prices, relative to wages and the price of everything else, was reached in the autumn of 2007. The average home then cost £184,000, but in today’s money that is over £360,000 (using the Nationwide index).
Nominal house prices have roughly doubled since 2003, a fact that is often cited when talking about the affordability crisis. But because £1 today has lost almost half of its purchasing power relative to 2003, the real value of the average UK property is basically the same as it was then. In 20 years of conversation about soaring house prices, here’s what has happened to their real values:
This is not to say that young people aren’t priced out of the housing market. But what the quiet crash in house values shows us is that the issue of “Generation Rent” is not a simple problem of rising prices taking properties out of reach. It is a wider problem of young people entering a labour market of long-term wage stagnation – the 15 years after 2008 saw almost no growth in real wages for British workers – while additional costs, such as more expensive rents and tuition fees, ate away at their disposable incomes.
In the conversation about house prices in Britain, there is often a generational divide, a feeling that the Gen-Xers who bought flats in 2007 have made out like bandits at the expense of millennials and Gen Z, who will never afford a home. But this is divisive and inaccurate: someone who bought a property in 2007 has been servicing an asset that has declined in value ever since. Nor should the older homeowners feel bad about this; their home allowed them to escape renting, and houses should be getting cheaper in real terms, because they are physical goods and technology should be improving the means and materials by which they are made. It should not matter that your house, as an asset, is being quietly devoured by inflation.
It does matter, though, because your wages are also being devoured by inflation, thanks to the government’s policy of using fiscal drag to raise taxes on workers and their employers. For many in the UK, this means that inflation is simultaneously cutting their pay, raising their taxes, nibbling the food from their plates and chipping away at the value of their assets. This is a particular problem for those people who continue to think that a property can be both a home and a savings account. Any homeowner who assumes rising house prices will provide for their retirement is gambling on a horse that has already lost.
It also matters because the quiet crash is getting louder. In some areas, house prices are falling even in nominal terms. Half of London boroughs last year recorded falling prices, and in Home Counties towns such as Crawley and High Wycombe, prices fell by between seven and nine per cent, according to Lloyds.
This is going to become a serious political issue as the quiet crash brings together two groups of people: the renters who are furious that they have been excluded from the market, and the owners who are furious that the market has failed to reward them as they were led to believe it would. Landlords will try to extract even more rent from tenants as they realise their properties are worth less. Homeowners – especially younger professionals in the south-east – will be confronted with prices that seem, after many years of painful mortgage payments, like an insult. In housing, we have managed to arrive at a situation in which almost everyone gets a slap in the face.
If the government can stimulate a lot more housebuilding and help create the conditions for lower interest rates, it will alleviate some of this pain. In the long run, however, it cannot avoid the key fact about Britain that the quiet crash describes: we are not as well off as we thought we were.
[Further reading: Starmer has failed to stand up for his own principles]
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