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Ross Clark

When will the Tories do something about house prices?

When will the Tories do something about house prices?
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Anyone who doubts that the fiscal response to the pandemic has stoked inflation needs to look at the latest figures from the Nationwide on the housing market. Yet again they confirm that the deepest recession in modern history has been accompanied by a boom in house prices. Moreover, the inflation does not seem to have been reined-in by the ending of the stamp duty holiday. The price of the average home, according to the building society, rose by a further 0.9 per cent in November to reach £252,687. This is ten per cent up on last November and 15 per cent up on March 2020, at the beginning of the pandemic.

It is an absurd situation. Just how can a global crisis which temporarily put several million people out of work in Britain have resulted in a housing boom? The answer, as always, is cheap money and government stimulus. The Bank of England reduced interest rates to emergency levels in 2008/09, in response to the financial crisis of that time. While the economy quickly recovered, interest rates were kept at a 400-year low and remained there for a decade. When another crisis struck last year, the Bank of England acted quickly to reduce rates to an even lower emergency low, this time 0.1 per cent. Once again, the economy has recovered well, and yet interest rates remain at their historic low. Moreover, in the intervening years we have had bungs handed out to homebuyers, with the government agreeing to underwrite mortgages which the banks would not. Hence demand has been stimulated — yet supply of housing has been constrained by the closure of building sites during the lockdowns and a shortage of construction workers to build new homes.

It isn’t just the low-debt servicing costs: investors have worked out that the government will always bail out the housing market. There is now a very blatant rule as far as UK governments and the housing market is concerned: it is laissez-faire on the way up — and intervention on the way down. Under such conditions, housing becomes a one-way bet.

It is possible to identify possible reasons why the long housing boom — which has essentially been going for 30 years now, with a brief hiccup in 2008/09 — might eventually come to an end. But whatever reasons they are, it is a fair guess that as soon as the market starts to falter, they will be negated by some new government wheeze designed to reinflate prices. The Bank will print money and give it away if necessary — it is simply not prepared to allow house prices to fall appreciably. The care reforms are yet one more way of propping up the housing market. With fewer people forced to sell their homes to pay for old age care, it will starve the market further of properties for sale.

What it means for the country at large is that property will continue to become concentrated in ever fewer hands. First-time buyers will be even more frozen out of the market. Eventually, there will be an explosion, but it won’t begin as an economic one — it will be a political one as a generation of young people decide that they will no longer accept an economic system that is rigged against them. There are plenty of warning signs there, but the Conservative party — which once prided itself on being the party of home-ownership — has its fingers firmly in its ears.