Does the housing market need a kickstart? The question has to be asked after the Nationwide said today that there is now a good chance of what seemed unthinkable a few months ago: that house prices will end 2009 higher than where they started.
More than a good chance on current trends. As I pointed out three weeks ago, both the Nationwide and Halifax indices showed that prices were up in the first six months of the year. The 1.3% rise revealed by the Nationwide this morning is the third monthly rise in a year and it means the average price is now £158,871. That’s 3.8% higher than in December 2008.
Why has this happened at a time of continuing recession? The Nationwide says it’s down to a combination of pent-up demand - a pool of buyers who held off taking the plunge following the banking crisis - and very low levels of properties coming on to the market.
However, that ignores the effect of the lowest interest rates in history. There seems little doubt now that the emergency measures taken by the government and Bank of England have not just put a floor under prices but actually sparked a modest improvement. How long will rates stay at 0.5%?
So what about the £925m kickstart programme launched on Monday? Given the improving market - ‘unthinkable’ at the time the programme was being drawn up - is the ‘appetite and capacity’ of the housebuilding industry detected by the Homes and Communities Agency any real surprise?
Except of course that housebuilders are interested in rising profits, not just rising house prices. Those profits depend on all sort of other factors like their borrowing, the price they paid for the land, the mix of homes they build, their section 106 obligations and so on. Those who over-borrowed at the height of the boom are still ruthlessly holding down costs - and jobs.
A good case can be made that the kickstart should actually have been bigger - and quicker. Much of the investment will go back to the Treasury in increased tax revenue and reduced spending on benefits. About half of the £925m is in any case loans repayable in five years.
Housing starts are not going to recover from their lowest level since the 1920s to pre-recession levels - let alone the government’s 240,000 target - any time soon. But leaving the housebuilding market to its own devices would just reinforce the shortage of supply in the wider housing market.
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