House sales set to fall as public sector cuts loom

Published 15th Jun 2010

A quarter of homeowners are civil servants. With 50,000 predicted to lose their jobs, the ripple-effect is huge.

Cuts in the number of public sector workers may hit the property market, drastically reducing sales and leading to price falls in areas where such staff account for a large part of the workforce.

The Office for National Statistics says there are 6.1 million public sector workers, some 4.9 million of which fall outside the "protected" NHS and are therefore vulnerable to cuts.

The Chartered Institute of Personnel and Development (CIPD) predicts 50,000 public sector job losses in the next nine months to meet the government's first phase of £6.2bn of cuts, while Manchester Business School puts the figure at 100,000.

They predict it could take years for the private sector to create the compensating jobs. All this is before the much larger spending cuts – to be outlined in the 22 June emergency budget – which will take effect over for the following four years and could lead to 750,000 job losses, according to the CIPD.

Independent housing analyst Simon Morton, based in Oxford, says: "Some 65% of public sector workers are homeowners, representing 25% of the UK's total. Buying and selling will be a low priority in the next few years if their jobs are vulnerable and their pay frozen or cut."

The effects will be acute in northern England, Scotland and Wales, where the public sector forms a large proportion of the workforce, and to which the former Labour government devolved several departments.

David Adams, of Chesterton Humberts estate agency, warns: "Redundancies will increase the supply of homes to the market, as those who relocated north move back south for private sector jobs. With demand still at 50% below peak levels, this will have an impact on prices.

"There will also be an impact in areas where there are companies with large government contracts."

There is a growing north-south gap in house price movements, which some analysts link to regional imbalances in public sector workforces.

Separate reports from the Land Registry and Centre for Cities, an urban research group, suggest most places with growing private workforces have enjoyed larger house price rises than those with big public sectors.

Prices in 10 urban areas where the private workforce expanded most between 1998 and 2008 have grown an average of 9% in the past year. The 10 where the private sector shrunk most, saw recent rises of just 4%.

Savills, the estate agency, whose research team has been strikingly accurate over the past three years, has revised its forecast for the mainstream housing market for the rest of 2010. Instead of small rises, it now predicts falls – between 2.8% and 4.1% in southern England and London, about 5% in the Midlands and 7% in parts of northern England. Of the homes it sells – typically between £250,000 and £4m – about 15% are bought by public sector staff.

Particularly dramatic are its regional figures. These show that in high-priced areas – London and the south-east – even well-paid public sector staff are priced out of the top end of the market. Elsewhere, chiefly in the north of England, where public sector staff are relatively well paid compared with other locals, the reverse is the case.

So while in London and the home counties only 8% of Savills's sales are to public sector staff, that soars to 24% in northern England and 20% in Scotland.

In the far south-west of England, also unusually dense with public sector staff, it is 23%. "The relatively high pay of these buyers, when compared with other jobs in the local area, has meant they've been able to purchase larger homes," says Marcus Dixon, a researcher at Savills. This has allowed them to be in the market to buy properties with considerable equity later in their career, he says.

The mainstream housing market's much-vaunted recovery is already slowing. The Hometrack consultancy says prices are rising only in 20% of UK postcodes and that low transaction numbers have fallen further recently.

Now the Royal Institution of Chartered Surveyors says there will be more "distressed sales" after the summer, especially if late-year interest rate rises make buy-to-let too expensive for some landlords.

Against that background, public sector cuts and tax rises could deepen concern for a fragile market.

Source: ' Guardian '

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