It has been a long time coming, given that shares and bonds have been falling for most of the year, but this morning there are the first signs of a slide in house prices. Don’t get too excited: the Halifax House Price Index fell by just 0.1 per cent month on month, and prices are still up 11.8 per cent year on year.
But it is an indication that things might finally be changing in a market which has seemed to defy logic ever since the arrival of Covid. Yes, the deepest recession in recorded history was accompanied by a boom in house prices. Even when interest rates began to rise, still the housing market powered ahead.
With the Bank of England sanctioning a chunky 0.5 per cent rise in interest rates yesterday, it is hard to imagine that house prices are going to resume an upwards trajectory any time soon. Some foresee a prolonged slide or even a crash. The question now is will either of the candidates to be our next prime minister be brave enough to stand up and say it would be a good thing if house prices fell? Rampant house price inflation over the past 25 years – with just a brief hiccup in 2008/09 – has produced a generational gap which simply cannot be bridged. It is a gap that has grown ever wider in the Conservative party itself. Older people tend to see their homes and wider property portfolios as the basis of their wealth and that any fall in house prices would be a calamity. Their children and grandchildren would rather welcome a house price crash – yes, even young Conservatives.
So far, every chancellor, every prime minister we have had in the past two decades has sided with the oldies. True, there are some young people who managed to get on the lowest rung of the property ladder as a result of George Osborne’s Help to Buy scheme who wouldn’t otherwise have been able to afford a property. The same is true of the many wheezes that Gordon Brown devised ostensibly to help first-time buyers.
But those schemes were not really dreamed up to help the young; the biggest beneficiaries were existing homeowners, with taxpayer bungs for first-time buyers helping to keep the housing bubble inflated. And by doing so it made life even more difficult for the young. A more recent clampdown on tax relief and buy-to-lets, as well as a higher stamp duty band for second homes and investment properties, has finally helped turn the market against investors and towards owner-occupiers, but it has come too late to make life much easier for frustrated would-be homeowners. Thanks to endless bailouts for the housing market, investors have developed an expectation that governments will always step in to avert a collapse in the housing market, and that therefore property is the investment which cannot go wrong.
Will Liz Truss or Rishi Sunak finally break with recent tradition, shrug their shoulders at the prospect of a house price crash and tell homeowners that they will not do anything to attempt to buck the market? It seems unlikely. Sunak, after all, was the architect of the stamp duty holiday which led to the Covid housing boom. By setting a time-limited cut to stamp duty, and making it available to investors as well as to owner-occupiers, he set off the mad rush to acquire property in the 12 months from the summer of 2020. House-hunters were even allowed an exemption from the strict rules on travel which existed through the second and third lockdown.
As for Liz Truss, she has backtracked on her plan to allow more homes to be built on the green belt. Neither said anything in last night’s Sky TV debate to raise the hopes of frustrated would-be homebuyers frozen out of the housing market. Neither have said anything during the leadership contest as a whole to indicate that they will do anything other than follow the orthodoxy of recent times: that government should be laissez-faire during a rising housing market but turn sharply interventionist to prevent a housing market crash. Don’t be surprised, then, if the Halifax House Prices Index shows further falls in prices over the coming month, if a Truss or Sunak government steps in, yet again, to try to reinflate the house market bubble – helping older voters and scorning the young.