The second salary bought nothing

Posted on: 19 October 2026

Until the late 1980s a British building society deciding how much to lend a young couple did a sum that now looks almost quaint. It took the husband's salary, multiplied it by two and a half or three, and occasionally added a single year of the wife's earnings as a courtesy, on the assumption that her job was provisional and might not survive the first child. Until the Sex Discrimination Act of 1975 a lender could also insist that a woman applying in her own right bring a father or husband to sign as guarantor. The arithmetic was paternalistic and, by any modern standard, unfair. It also had a side effect nobody intended, which was to anchor the price of a house to what one person could earn.

That anchor is what people are really mourning when they say, usually over dinner and usually after a certain age, that their father kept a family of four on one wage and still bought a house. The explanation that tends to follow is a moral one. We used to make do, the argument goes, whereas now we want a new phone every two years and holidays on the other side of the planet. I held some version of that view for a long time, partly because it is simple and partly because it conveniently places the blame on other people's habits.

The numbers do not support it. In 2003 Elizabeth Warren, then a Harvard law professor who had spent years studying families that ended up in bankruptcy court and later a United States senator, published The Two-Income Trap with her daughter Amelia Warren Tyagi. Their comparison of household budgets across a generation found that a family of four was spending, after inflation, 22% less on food including meals out than its counterpart in the early 1970s, while spending on clothing had fallen by 21% and on household appliances by 44%. The money had gone into four fixed obligations, namely the mortgage, health insurance, childcare or schooling, and the second car needed to get the second earner to work. A two-income family was earning roughly 75% more than the single-income family of a generation earlier and was nonetheless left with less once those obligations were met. The frivolous things had become cheaper. The essential ones had become ruinous.

The concept that explains why belongs to a British economist. Fred Hirsch, born in Austria, an adviser to the International Monetary Fund and later a professor at Warwick, published Social Limits to Growth in 1976, and its central distinction has aged better than almost anything else written in that decade. Some goods can be multiplied by economic growth, such as refrigerators, cars and flights. Others are scarce by their nature, and Hirsch called them positional goods, because their value lies in their position relative to everyone else's. A house within walking distance of a good school and a reasonable commute exists in fixed supply. When everyone's income rises, the first category gets cheaper because production adjusts. The second simply gets repriced, since it is in effect put up for auction and goes to whoever can bid highest.

Now introduce the second salary. For any individual household it is an entirely rational move, because two incomes allow a higher bid for the house in the right catchment area. The difficulty is that every other household on the street is making the same calculation at the same moment, and once dual earning becomes the norm the price of scarce goods realigns to the new combined total. The second income stops buying more house and becomes the entry fee for being allowed into the room where the bidding happens. A household that stays on one income is not poorer than its parents in absolute terms. It has simply been priced out of the contest.

Mortgage lending is the transmission mechanism, and it is worth being precise about it. What a house sells for depends far less on what it costs to build than on what buyers can borrow, and what they can borrow depends on the income the lender agrees to count. When lenders moved during the late 1980s from counting one salary to counting both in full, they did not make families richer. They doubled the ammunition available to every bidder at once. The Office for National Statistics records that in 1997 the average home in England and Wales sold for three to four times the average full-time salary. By 2025 the ratio had roughly doubled across much of the country, and in London the typical home cost 10.6 times typical earnings. The Bank of England has limited since 2014 the share of new mortgages lent at 4.5 times income or more, which sounds prudent until one notices that the income in question is the household's, so the cap itself presupposes two earners.

There is a cost here that never appears on a bank statement. In the household of the 1960s the second adult functioned as insurance, because if the main earner lost his job or fell ill his wife could go out to work and keep the mortgage paid. That reserve has now been spent in advance on fixed costs that cannot be compressed, a mortgage payment or a nursery fee, so a shock to either income threatens the whole structure. Warren's point was precisely that building a budget around two workers leaves a family far more exposed to any disruption than the single-earner family it replaced. Anyone who has sat on a board will recognise the pattern. A company converts the cash it held against bad years into permanent overhead, a larger office and a heavier headcount, and turnover rises while the margin of safety quietly disappears. It discovers its fragility at exactly the moment it felt most robust. I have seen that sequence play out more than once in the accounts of businesses convinced they had grown.

None of this means the moral explanation is entirely wrong. Homes are larger than they were and our sense of what counts as normal has shifted upwards, though even this belongs to the same auction, since the standard is relative and no parent wants to be the one offering their children less than everyone else is offering theirs. It accounts for part of the increase. It does not account for the mechanism that produced it.

The least comfortable implication is that no family can escape on its own. A couple that decides to live more modestly by giving up one income does not return to the life their parents led, because that life was priced in a world where almost everyone lived on one salary. They find themselves competing with half the resources for exactly the same houses. This is why sermons about consumerism are useless at best and harmful at worst. They ask each household to disarm unilaterally in an arms race in which every neighbour keeps spending.

The commonest mistake is to look for the answer in trimming small expenses, which is the advice of nearly every personal finance book and achieves almost nothing, because small expenses were never the problem. The costlier mistake is to build a household budget on the assumption that both salaries will always be there, which amounts to committing to fixed costs the very reserve that ought to protect the family. Warren and Tyagi ended up recommending something far less heroic than a return to frugality, which was to buy a cheaper house than the bank is willing to finance. It sounds trivial. In practice it means stepping out of the auction at the precise point where everyone else is pushing to get in, and keeping the second salary for the job it used to do, which was to insure the household against the year that goes wrong.