Public sector job cuts to hit house prices

Published 18th Aug 2010

Areas where the state is a big local employer are likely to see the largest falls in property values, says research from Hometrack

Areas of the country most vulnerable to public sector job cuts have been warned to brace themselves for falling house prices as research reveals a widening gap between state and private sector-focused property markets.

Analysis by research group Hometrack for the Guardian shows those areas of the country with the highest proportion of public sector employees are already seeing homes sell significantly further below their asking price than elsewhere. Hometrack says the findings are an early indicator of stagnating and even falling prices in areas such as Aberystwyth, Rhyl and Morpeth in Northumberland.

"In housing market areas with a high proportion of public sector employees, more than 40%, the underlying strength of the housing market has been weaker than the national average," says Richard Donnell, Hometrack's research director.

"These areas look set to weaken more than is the case with areas with fewer public sector employees. There will be a widening gap."

Looking at "travel to work areas" with the highest dependency on public sector jobs, Hometrack says properties there went for an average of 91.5% of their asking price in June. Based on its monthly housing market surveys, it puts the national average at 94.3% while it is 95.4% in those travel-to-work areas least dependent on public sector jobs, which include Basingstoke, Newbury and Wycombe & Slough, all in the south east.

Explaining how those percentages have typically correlated with house prices, Donnell says a range of 92% to 93% represents static to falling prices while anything above 94% suggests upward pressure on prices. The low score in public sector-heavy areas could translate into falling prices before the end of this year.

"This indicator tends to move before prices – as soon as agents see pricing weakening they will tend to start looking to adjust pricing of new instructions to a level where sales volumes can be maintained – it isn't for another three to four months or longer that actual achieved price falls start to feed through," adds Donnell.

The findings follow news last week that UK house prices fell for the first time in a year in July, according to the Royal Institution of Chartered Surveyors. Its valuers across the country blamed the decline on anticipated public sector job losses.

The stagnation in public sector-dependent regions highlighted by Hometrack is in contrast to the strong house price growth in the first half of this decade when increased public spending fuelled a state hiring spree and consumer confidence was generally high.

Donnell notes that while housing markets in areas such as Aberystwyth & Lampeter and Llandrindod Wells & Builth Wells are now vulnerable to the impact of public sector job cuts they also suffer from less favourable supply-demand dynamics. "The southern-based low public sector markets have a different starting point in terms of the underlying balance of supply and demand. In some cases they are affordable markets in proximity to the London travel-to-work area," Donnell notes.

Although the bulk of cuts are still to come, recent surveys suggest the coalition's fiscal squeeze is already hurting consumer sentiment. Households say they are increasingly worried about the economic outlook and many fear for their jobs, particularly those employed by the state.

The Chartered Institute of Personnel and Development thinktank estimates that the spending cuts will make 750,000 public sector workers unemployed and push the national jobless total close to 3 million for the first time since the early 1990s.

Source: ' Guardian '

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