New Year is when columnists make predictions. I sometimes think we do this not because we can see into the future - although we try - but to allow our readers to laugh at us later in the year when the predictions prove anything but prescient (cut this column out and re-read it in six months’ time).
There are three macro-economic predictions that matter for the housing market. First, the recession will end. Growth may well be positive in every quarter of 2010, and will certainly be positive for 2010 taken as a whole. It may even be above trend, although not by much.
Second, unemployment will rise a bit more, because it always does for some time after the end of a recession.
Third, although the recovery will allow the Bank of England to end quantitative easing in 2010, levels of demand and so inflationary pressures will remain low, reducing the likelihood that interest rates will rise.
Rising incomes for those in work and low interest rates will underpin house prices, which are already on the up. Many people will be looking for something to do with their money - share prices have already risen, and do not look good value.
Banks are not offering great rates on savings. And the British do like owning property. Buy-to-let investors will return (there’s one born every minute, if nothing else). Many would-be second homeowners, seeing house prices begin to rise will decide to jump now while they can. And an increasing number of affluent people will buy houses, or parts of houses, for their kids, realising that it is the only way to get rid of them. All this will underpin demand.
This recession has seen very low repossession rates, given the big fall in gross domestic product (4.75 per cent in 2009). The two causes of repossessions are rising unemployment and rising interest rates. Unemployment has risen less than the fall in GDP would lead us to expect (and has been concentrated among young people who are less likely to own a home), and interest rates are very low indeed.
Not many people are desperate enough to sell now at distressed prices, and prefer instead to sit and wait. That is why this recession has been characterised by a big fall in the number of houses sold, rather than a big fall in the price at which houses are sold.
But with house prices remaining all-too-firm, many people cannot afford to rent or buy. So the waiting list for social housing is going to increase further and people will need more points that ever to be awarded housing. There will be a lot of misery of the sort that those who read Inside Housing will see all too clearly.
Rising house prices should mean a rise in the number of housing starts and subsequently housing completions. That is possible, but harder to call. Developers have been burnt recently, and there is still an oversupply of the sort of housing easiest to get planning permission for - city centre flats.
If we were to allow developers to build detached family homes on new greenfield sites in the south east, then development will occur quickly. But development on brownfield sites is riskier, and that in turn leads to greater caution. This is compounded by a fall in the number of good quality brownfield sites. Low levels of private house building means low levels of new social housing partly because there will be little section 106 money around.
If and when the Tories win the upcoming general election, they will inherit a dreadful fiscal position. Cuts are coming - and they won’t be in the NHS, the police and other high profile services. Other things will be hit hard - by an average of 15 per cent, the bean counters tell us. Transport and universities are already thinking what it means for them. More relevant to Inside Housing readers is the likely slashing of regeneration and housing budgets. A moratorium on progress towards the decent home standard? Sounds likely to me. A freeze on all new social housing building? Probably not, but a big fall in social house building grants seems almost inevitable.
So the future’s bleak, and the future’s blue (not that one causes the other, in this case). Those who have rich parents will be able to have a place of their own, albeit at considerable expense to their parents. For the rest of us, living at home in your thirties will be normal. So will sharing a flat with relative strangers in middle age and beyond if you are unmarried and crazy commutes so that you can live somewhere that is just about affordable. And, for all of us, higher taxes to pay housing benefit for the increasing number of people who cannot afford a place of their own.
The big question, then, is when the British people will say ‘enough is enough’. At some point, politicians will find it electorally advantageous to tell the Campaign for the Protection of Rural England (aka cramming people into residual enclaves) that we need a couple of per cent more land to build on, because we are sick of having our kids live at home. And yes, an increasing number of people are rich enough and vocal enough to say that they would rather like a second home.
There is no doubt that if we relax the planning regime we will be better housed, at lower cost - just like in most other countries with similar income levels to us.
Will we see that intellectual revolution in 2010? I doubt it, but there is a chance. Until now many people thought recent house price rises were evidence of a bubble. But prices are rising even in the current credit-crunch recession - making bubble claims much less plausible.
Only more house building will make houses more affordable, and lead to Britain being better housed. I am not going to predict that for 2010 but it is my wish for the new year.
Dr Tim Leunig is an academic in the department of economic history at the London School of Economics