From the Appraiser's Perspective: Home values in the United States vs. those in the United KingdomCharlie W. Elliott Jr., MAI, SRAhome cost in the US and UK, survey
We hear a lot about the prices of homes here in the United
States and not so much from the United Kingdom. However, we do seem
to hear that the prices of everything in Europe, especially in the
United Kingdom, are much higher than here in the good old United
States. Recently, while on a trip to London, I decided to do some
comparison shopping. It's not that I had expected to buy a home
there, but I did my share of eating at restaurants, staying at
hotels and shopping in general. I also took note of some of the
advertisements for houses in London. I expected the home prices in
London to be higher when compared to the less populated parts of
the United Kingdom, but at least I got an idea of what it would
cost to own a piece of the Queen's land.
Even though I was warned about English sticker shock, I was not
fully prepared for what I found there. At the time I was there, the
British pound was trading at about 1.92 times that of the U.S.
dollar. In other words, it took almost $2 to buy what a pound would
buy. This, within itself, did not seem to matter a whole lot in
that what a pound would buy seemed to be the most important. Well,
to put it mildly, a pound would not buy a whole lot. In the absence
of a scientific survey, most food and lodging seemed to cost in
pounds about what you and I would pay here in dollars for an item.
An example would be that a hamburger with a couple of side items in
an average restaurant here might cost about $8-10. There, the same
meal (but not as good, I might add) was 8-12 pounds. A little quick
math tells us that the cost of food there is about twice of the
cost of what we find here in the United States. I found the same to
hold true to hotel rooms. A good quality room here that rents for
$100-200 per night seemed, in my mind, to be about 100-200 British
pounds there. We are not talking about anything fancy - just a
small room that had air conditioning and its own bath. By the way,
not all rooms there had air conditioning and a private bath. Given
the high costs of these items in the United Kingdom, how did real
estate stack up in my unofficial survey?
My survey was twofold. The first of the two was the least
scientific. I skimmed through a number of newspapers and magazines
with ads offering apartments for sale. These were, for the most
part, new units in town with no special amenities, from what I
could determine. While prices varied greatly, it was not unusual to
see one-bedroom units starting in the 200-300 pound range, with
two-bedroom units starting at 300 and going past 500 pounds. Don't
forget that we are talking pounds here, not dollars. To discuss
dollars, we must, for all practical purposes, double the
amounts.
It was also revealing to compute the price-per-square-foot of
finished space where sufficient data was available. When converting
from pounds to dollars, it was not unusual to see these properties
advertised at prices of $500-1,000 per square foot. This was in
London, and that makes some difference when compared to areas
outside the city.
My second and third surveys - more scientific ones - were to
research home-sales statistics. These statistics were for the
entire United Kingdom, not just London. Both surveys produced
similar results. These figures are listed as follows for the
average typical house in the United Kingdom. This is what we refer
to here as the average or mean cost of a house in the United
Kingdom as a whole.
-Nationwide monthly house price index (August 2006): 167,721
pounds
-The HBOS Report (July 2006): 176,509 pounds
-Average (rounded): 172,000 pounds
-Average (converted and rounded): $330,000
The following represents the mean cost of housing in the United
States at a comparable time:
-National Association of
Realtors (June 2006): $227,500
The above shows the average price of a home purchased in the
United Kingdom to be about 30 percent higher than that in the
United States ($330,000 vs. $227,500). There are other factors, of
course, that may enter into this discussion to provide a true
comparison. A few that come to mind would be the average income
comparisons between the United Kingdom and the United States and
what an average house would be in Britain, as opposed to in our
country. While the scope of this article is not sufficient to
properly address these issues, it would be my opinion that in both
cases, conditions in the United States favor my contention that
we've got it good here and that we should appreciate our situation.
Another variable not cited previously but should be considered is
that it is not at all unusual for multi-family homes in the United
Kingdom to be on leased land, creating another cost of ownership
not always reflected in the price of the home.
A bit of information that I did not heretofore reference is that
of conversations that I had with various people, including one
corporate executive from outside the country who travels to the
United Kingdom regularly and employs many people there. I asked how
it is that the Brits deal with the high prices. Are their incomes
such that they have more spendable income than we would here in
America? The response was quite to the contrary. Most, according to
the executive, earn no more, if as much. Their taxes are higher and
they generally accumulate less wealth than their American
counterparts. They live in a different society, with free health
care and other government benefits. Many don't expect to acquire
wealth and rely more on their government for taking care of them
when they get old. America is still the premier land of
opportunity. We are very fortunate to live here.
Charlie W. Elliott Jr., MAI, SRA is president of Elliott
& Company Appraisers, a national real estate appraisal company.
He can be reached at (800) 854-5889,
[email protected] or
through the companys Web site at www.appraisalsanywhere.com.
Previous columns he has written for The Mortgage Press can be seen
on the Elliott & Company Web site.
