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The Thinkhouse Review: making sense of the evidence on housing market trends and outcomes
Professor Ken Gibb, from the UK Collaborative Centre for Housing Excellence, picks out some recent studies on housing market trends and outcomes and geographical inequality in the latest Thinkhouse Review.
Housing markets are both fundamentally local but also unquestionably shaped by wider forces. In trying to decide which recent additions to the Thinkhouse library I should discuss here I opted for two different but similarly interesting studies that speak to housing market trends and outcomes, as well as trends in geographical inequality.
Writing for the Resolution Foundation, Lindsay Judge and Cara Pacitti (Housing Outlook Quarter 3) ask what previous recessions may tell us about housing market performance as we move through the emerging COVID-induced economic shock? This indicates that it can take a long time, as much as a decade, for real UK prices to return to previous peak levels (and specific regions will perform worse). Looking forward, the Office for Budget Responsibility present three scenarios for future house prices, although clearly the actual outcome will depend on what happens to the underlying drivers of house prices and there remains considerable controversy around which drivers to focus on.
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Ms Judge and Ms Pacitti also focus on the plight of would-be first-time buyers. They argue that future falling prices may benefit this group but they will also be hampered by falling incomes. This may be offset by higher savings in recession, boosting potential deposits, but this will require that would-be purchasers already had amassed significant savings before COVID-19 struck. The lending market is also sending mixed signals regarding the sorts of loans on offer but in any case, high loan-to-value ratios may be problematic if prices fall next year.
Ms Judge and Ms Pacitti also make the interesting point that, for most purchasers, the temporary upward revision in zero rates for stamp duty (and Land and Buildings Transaction Tax in Scotland) don’t really benefit most first-time buyers since they were already operating at a price point in most cases at a zero rate.
Writing for the Institute for Fiscal Studies, Sarthak Agrawal and David Phillips ask whether geographical inequality in the UK is increasing and why? They find that geographical inequality of incomes is much lower once housing costs are accounted for. Second, regional wealth inequality is increasing, also shaped strongly by housing. Third, they suggest we should look more at local rather than regional inequalities. Fourth, focusing in former industrial towns and coastal settlements, they argue that while they are poorer, they are not necessarily becoming relatively even worse off.
Mr Agrawal and Mr Philips ask: why does the perception of greater inequality outstrip the empirical reality? First, they think that slowed inequality more recently does not overcome the longer widening in inequalities that took place in the last part of the previous century.
Second, the stagnation in incomes and earnings has made inequality more apparent.
Third, they suggest that other forms of inequality – health, education, housing wealth – may be more salient to people than productivity and other economic metrics.
They also think that local issues matter and are too easily missed in the aggregate analysis.
All of this suggests that policies to level up not only need to consider COVID-19’s impact on geographical inequality but will also require a coherent understanding of the pre-existing forces that generate that inequality.
Professor Ken Gibb, professor in housing economics at the University of Glasgow, and director, UK Collaborative Centre for Housing Evidence
