The British have an obsession with residential property shared by few other Europeans. In many places on the continent, you rent city centre flats until you retire, when you buy or build a home in the country.
Europeans devote around 15 per cent of spendable income to housing compared with a typical 30 per cent in the UK, or nearer 40 per cent in London, thanks to property values and rents rising at a faster rate than incomes.
Most people think residential property has been a terrific investment. In fact, we boomers made our money not from rising house prices but from the devaluation of our mortgages by inflation. For instance, in one five-year period in the 1970s, inflation cumulated to 65 per cent.
I bought and sold a house for the same price at the start and end of that period – but the real value of my mortgage had shrunk by 65 per cent, so I bought a much bigger house on a huge mortgage I could easily afford since my earnings had risen in line with inflation.
Most Britons think they have made a packet from property when in fact they have made a packet from borrowing to buy property.
And there is the rub: the game has only worked because generations borrowed more and more to buy homes. But what if they do not?
We boomers own lots of homes. What if more of us want to sell than there are people who want to buy?
This is not just because we boomers will die off. It is because we will get bored with ownership.
I am selling a property in Bristol and, by investing the proceeds, will generate enough income to rent an equivalent property in Devon.
I expect dividends to rise faster than rents. Plus, I will not have to worry about the costs of ownership. And I will be abroad in the sun every winter.
In my old age, I will not be living in a remote part of Devon. I will be in a retirement village with all the facilities I need. I will aim to rent there too. My prediction is that, over the next decade, more and more boomers will sell their properties and rent.
This is a far better way to have control of and access to your capital than equity release.
There is another factor which will also profoundly affect house prices: rising interest rates.
Property rentals may hold up for a while in the UK, but most people forget the real driver of property prices is not rentals – set by real-world factors like incomes and recessions – but rental yields set by financial markets. This is because the marginal buyer (who is always the price-setter) is the buy-to-letter.
What is going to happen to buy-to-let yields when you can get a risk-free 4 per cent fixed-term bond from your bank?
Rising interest rates are almost as bad for property – sensibly valued on a discounted cashflow basis – as for fixed interest.
Housing has been one of the biggest winners from low interest rates, so you should expect it to do a lot worse when they start to increase.
Chris Gilchrist is director of Fiveways Financial Planning