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demand. In this case rising demand does not mean that everybody wants to own a string of houses. It does mean the amount they can afford to pay for their semi has increased hugely and, more importantly, so has the amount others can afford to pay. Competition among buyers, all of whom have been able to pay more over time, pulls house prices higher.
    Rising incomes pull house prices higher and incomes have risen steadily, and by about 2 percent a year more than inflation (in other words in ‘real’ terms) for as long as anybody can remember. If we go back forty years, average earnings were a few hundred pounds a year. They have risen twenty-five-fold while prices have increased fifteen-fold. Certain groups of workers, of course, do better than others. I am old enough to remember the first £100-a-week professional footballer. Now the top-paid players get nearly £100,000 a week. I shall return later to the reasons why earnings usually rise faster than prices. One entertaining way of demonstrating that they do is by reference to the time an average person has to work to earn enough to afford certain products. Thus, in 1900 the average worker had to toil for a couple of hours to earn enough to buy a loaf of bread. Today it is about five minutes.
    There is also an institutional element in the relationship between house prices and incomes. Banks and building societies base their mortgage-lending decisions on the income, and therefore ability to pay, of the borrower, offering an advance that is a multiple of annual salary. That multiple can be as high as four, five or six times the salary, although the average is only just over two. Interestingly, the ratio of house prices to incomes is usually significantly higher for older people, who have been homeowners longer, than for first-time buyers. This is because, while for first-time buyers the mortgage covers a high proportion of the value of the property, longer-term homeowners have usually built up capital, or ‘equity’, in their house. Someone buying a £25,000 house on a £20,000 mortgage has £5,000 of equity. If the value of the house rises to £100,000, the amount of equity increases to £80,000. There is, incidentally, little evidence that the housing market has become progressively more difficult for first-time buyers to enter, particularly when the level of interest rates is taken into account, of which more below. Indeed, the opposite may be true. In the past – until the early 1980s – when mortgage lending was limited to the building societies and rationing was common (societies had to have enough income from savers to lend out in mortgages), entering the market was a long and tortuous process.
    I said the housing market is different. Why, as in our potato example, do house-builders not respond to high prices by flooding the market with new houses? And why does this not bring prices down, as it would for other products? The answer is that new houses account each year for only a tiny proportion of the existing housing stock. Land, to go back to some of those definitions at the start of this chapter, is a scarce resource. And planners ensure that, as far as building is concerned, it remains so. If there were no planning restrictions and any farmer could sell a few fields for housebuilding, the housing market would be more like the market for potatoes. Big increases in supply would, from time to time, be followed by significant price falls. The planners, by preventing this from happening, help ensure rising house prices. The year 2000 was, on the face of it, a strong one for the housing market, with prices rising quite markedly and mortgage demand buoyant. It was a weak one, however, for housebuilding, which dropped to its lowest level since 1924, the industry blaming planning rules intended to prevent development of greenfield sites. Housebuilding fell even further in 2001. It is possible to stretch available living space a little, by converting houses into flats, or