Up and down

Posted by: Jules Birch

15/09/2009

Going up: a general increase in house prices and mortgage lending for the first time in two years. Going down: one of the most respected economic forecasters says it’s all a false dawn. Where do the mixed signals leave ‘affordable’ housing?

The signals from the surveys from the Royal Institution of Chartered Surveyors (RICS) this morning and Council of Mortgage Lenders (CML) yesterday suggest it could soon be business as usual. The net balance of RICS members reporting higher rather than lower prices was in positive territory for the first time since May 2007 while the CML reported the ‘first material annual growth’ in lending for house purchase since early 2007.

On the anniversary of the collapse of Lehman Brothers and the bottom of the crisis in the financial system that seems like solid evidence that the housing market has bounced back. The RICS said on lead indicator of future prices - the ratio of stock to sales was for the average surveyor was up for the eighth month in a row - and the balance of members expecting prices to rise in future was positive for the third month in a row.

And yet all that is a false dawn, according to forecasters at the Ernst & Young ITEM Club yesterday. It said the recent increase in prices largely reflected the acute shortage of property for sale and was being driven by a small number of cash-rich buyers while many homeowners remained trapped in negative equity and reluctant to sell.

Mortgage lending would remain restricted as the banks look to rebuild their balance sheets while rising unemployment and weak earnings growth would also hold back house prices, it said. The net result is that prices could fall again in 2010 and still be stagnant in 2011 and take five years to recover to 2007 levels.

It’s a contradictory picture but one that might just be supported by other indicators in the RICS survey that suggest the pace of improvement in the market may be slowing. The rise in prices is tempting more sellers back into the market and July saw an increase in the number of unsold properties on surveyors’ book - if that continues it will put a brake on price rises.

So what does that mean for affordable housing. Will the recovery feed through to housebuilders and section 106? Can housing associations expect a return to the days of churning out shared ownership units to grateful punters and a steady flow of staircasing receipts or will they continue to face an uphill struggle in a dysfunctional market?

A thoughtful report yesterday by property consultant Knight Frank is in no doubt. ‘The affordable housing world will be changed for good by the current recession,’ says head of residential research Liam Bailey. ‘There is simply not enough money – from the public purse or the private sector, to subsidise new development for a long time. The sector needs to do more with less and affordable housing providers are going to have to work their assets harder to support more affordable development.’

Lower prices have not meant improved affordability, says its Affordable Housing Review 2009. All this at a time when up to 90% of households are now eligible for state aid to cover their housing costs - thanks to the £60,000 limit for eligibility on shard ownership schemes that could be raised to cover all basic rate taxpayers in London. 

As if that weren’t contradiction enough, the policy of the likely next Conservative government is long on what they will scrap but short on the detail of how they will fund development. 

The way forward, according to Knight Frank, is to blur the boundaries between private, intermediate and affordable housing even more with ‘a real opportunity for developers, housing associations and investors to make money’. More flexibility on subsidy allocation from the Homes and Communities Agency would help, it says, to build more housing and tackle under-supply.