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Window of opportunity

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As the Halifax reveals another big fall in house prices, there’s a timely reminder today about the continuing consequences of lack of housing affordability.

A report from the government’s National Housing and Planning Advice Unit highlights the widening gap between housing ‘haves’ and ‘have nots’ as one of the main effects of long-term affordability problems as the children of affluent owners become still richer and the children of poor non-owners become even more disadvantaged.

Lack of affordability leads to recruitment problems and wage pressures in the public sector. It leads to pressure on the private rented sector and over-crowding in the social sector. Physical and mental health problems multiply. 

Meanwhile volatility in the market leads to high borrowing and increased risk of default, with debt lingering for longer because of low inflation. And repossessions and falling house prices dent consumer confidence and cause problems in the real economy.

And the message from the NHPAU is that those problems will re-emerge with a vengeance once this downturn is over and be exacerbated by the fall in housebuilding.

So far, so good, except that the NHPAU has no answers. Set up following the Barker review, its remit adopts the same one-club policy of increasing supply.

Building more new homes has to be part of the solution - just as fewer new homes (70,000 rather than 240,000 forecast this year) is likely to create even more problems.

But if the last 18 months demonstrate anything it is that it is only part. The long boom between 1997 and 2007 surely had more to do with low interest rates and booming credit - and that was exacerbated by homes being seen as investments rather than places to live and by increased demand caused by speculative investment.

That raises all kind of issues about the taxation of housing relative to other forms of investment, about regulation of mortgage lending, about the treatment of inherited housing wealth and the advisability of government targets and incentives to increase homeownership. Increasing supply is fine but we have to tackle demand too.

The Halifax index showed a 1.7% fall in house prices in April, taking the annual rate of decline to 17.7%. Prices are now down £45,000 or 22.5% since the peak of August 2007. 

The bank itself says that further price falls are ‘likely’ - an unusually gloomy pronouncement - given the state of the economy and unemployment. The average house price is now 4.26 times average earnings - still above the average since 1983 of 4.00 - and still higher than at any stage between 1991 and 2002.

Housing is too important to be left to a market that has failed. Yet action to tackle the sort of affordability problems revealed by the NHPAU is only politically possible at a time when house prices are falling and voters can see the negative consequences. There is a window of opportunity but it will not be open for long.


Read More

Experts warn downturn will not solve housing crisis Experts warn downturn will not solve housing crisis
House prices hit five-year low House prices hit five-year low

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