11th July 2014
Britain’s fiscal watchdog has warned the gap between house price growth and wage inflation will continue to rise, as fears emerge that the average wage could have fallen 20% more than thought.
House prices have soared over the past year thanks to a raft of government lending measures and a lack of housing stock leaving homeowners rubbing their hands with glee. However, those who are yet to get on the ladder have seen their dreams of homeownership pushed further out of reach as wages have failed to keep up with the growth in house prices.
The Office of Budget Responsibility (OBR) – which oversees Britain’s economy – has now warned that owning a home will become an increase debt burden for British families as they are forced to take out larger and larger loans to buy a place to live.
Due to the failure of income to keep up with housing and mortgage costs, the OBR has said the only way to stem the rising debt is through a ‘historically unprecedented’ increase in housing stock.
It predicted house prices could increase 5.3% a year on average but real wage growth would only rise by 2.2% a year.
This problem is compounded if estimates of average wages by think-tank Resolution Foundation, published in a separate paper, are correct.
It said the average wage in Britain may have fallen 20% more than current estimates as the number of self-employed workers are not taken into account in the figures.
There are 4.5 million self-employed workers in the UK, the largest number ever recorded.
Resolution Foundation believes this large number of people working for themselves could mean the average British worker is now £3,500, or 10% a year worse off than in 2008 rather than the 8% worse off the government’s official data states.
The think-tank has called for the government to review its figures with a comprehensive assessment of UK wages.
Laura Gardiner, senior analyst at the Resolution Foundation, said: ‘Our analysis suggests that at different times we may have both overstated and understated, often significantly, how much workers have been earning.
‘It should be possible to construct a more comprehensive and timely way of measuring wages across the workforce and we hope to provoke a much-needed debate about how best to do this.’