Housing Crisis (revisited)

I was asked to add wage information in comparison to UK house prices. I couldn't find good historical wage data from ONS but I picked up this unverified dataset from the FT. For added interest I have included UK average rent data. House price and wages have been normalised to 100 at 1952, rent data is normalised to house prices at 1994. So the vertical scale is arbitrary, the plot compares relative changes in variables over time.

Perhaps not surprisingly wages track the general trend of house prices since the majority of house purchases are funded out of wages (albeit with mortgage gearing). However house prices in more recent years display a violent boom-bust pattern and we are currently experiencing the largest deviation of house prices above wage level. In contrast, rents rises are far more consistent and match wages well, although rents appear to be increasing slightly faster than wages over the 13 years of data. In the period of 2002-2007 it is suggested that first-time buyers in the housing market were replaced, to some extent, by buy-to-let purchases. Funding for these purchases was, in many cases, not linked to wage levels but to equity in existing housing, thus potentially exaggerating the boom. I will revisit this hypothesis at a later data.