Silly season newspapers have been full of stories about house prices beginning to rise again, inspiring the usual enthusiastic reactions from the market cheerleaders.

But treat the headlines with caution - the figures are very hard to interpret reliably at the moment.

First, they tend to come from the mortgage lenders, who base their data on the amounts quoted in mortgage deals on their own books, not actual prices paid, so they tend to be on the generous side.

Land Registry records are a bit slower to come out but are a more accurate reflection of the entire market. This data shows prices rose a whopping 0.1 per cent in June, and were still down 14 per cent year on year.

Even these figures are probably masking the true fall in the value of homes, which may be far bigger than sales prices indicate.

Sales data is questionable at the moment. As few people are choosing to sell, the number of transactions is still very low - down to less than a third of what it was before the credit crunch began. When volumes are so low it becomes a seller’s market and a few rich purchasers, who don’t care too much what they spend, can distort average price data.

It is, of course, good that low interest rates and public pressure on the banks have kept repossessions down, but this also helps to hide the true fall in property values. In the last housing bust, when interest rates hit 14 per cent, it was forced sales that really drove house prices down. Even then, the biggest annual fall was only 11 per cent, so it’s pretty clear that we’re experiencing a far more serious bust this time round.

Even if the lenders’ figures are right and house prices are on the up again, it’s not unalloyed good news.

Young people and first time buyers will continue to be shut out of the market, parents will still have to find the small fortunes needed to help their children buy a home, and affordable housing waiting lists will continue to grow.

Worst of all, a return to business as usual could mean we miss a unique opportunity to reform the housing system and prevent another turn of the boom-bust cycle.

Lessons learned?

A brilliant new report by left-wing pressure group Compass, Don’t bet the house on it, makes a strong case for doing just that. It clearly sets out the damaging consequences of our national addiction to house price bubbles and the policy failures by successive governments that have caused them.

And it’s not just the obvious problems of unaffordable homes, soaring debt levels and squeezed social housing, the Compass report shows how house price booms have distorted our economy and damaged our society. Because we sink all our hard earned cash into mortgage repayments, we fail to invest enough in the productive businesses that sustain jobs.

The illusion of housing wealth has prevented us from noticing that most of us have been struggling to maintain our standard of living as ordinary people’s real incomes have stagnated over the past 30 years.

Worryingly, the Compass paper also blames the boom-bust housing economy for our woeful undersupply of housing.

This may seem counter intuitive - after all, as prices have fallen, production has dropped dramatically from a modest pre-crunch peak. But the argument is sound: booming house prices fuel massive speculation in the land market, which pushes the cost of house building through the roof.
To make a return on sites they have bought at inflated prices, developers must squeeze all their other costs and pray that the bubble doesn’t burst before they’ve sold the last flat.

So the size and quality of new homes goes down, even as the price goes up, and no one wants to build too many homes in case local oversupply causes prices to fall.

When most of the value has been capitalised into the land price paid up-front, there is little left over to pay for infrastructure - the lack of which is another major constraint on housing supply.

This is why there was so little market response during the housing boom years. In 2000, when house prices rose 15 per cent and had been booming for four years, private housing supply in England actually fell by 4 per cent, and then fell again in 2001.

Following pressure and cash from the government, production did eventually pick up, but as soon as the bust came, developers shut up shop completely and laid off their workers.

A new approach

Reforming a massive and complex system like the housing economy will never be easy - it requires action on mortgage lending, planning, affordable housing provision, allocations, tenancies, public accounting rules and taxation, and that’s just for starters.

And, of course, it requires money which is in short supply everywhere right now. But if we are ever going to try to restructure the way in which we build, buy, own and occupy our homes it must surely be at a time like now, when the old ways are thoroughly discredited and everyone can see that a new approach is needed.

John Healey has made an impressive start as housing minister, grasping whole clumps of nettles that others have avoided for years.

Whether he will have the time, the ideas or the support to start reforming the market itself remains to be seen.

Whatever the latest house price headlines say, we mustn’t go back to the bad old days of housing boom and bust.

Jon Cruddas is Labour MP for Dagenham

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