Protecting the housing market means a lost generation of buyers

Published 23rd May 2011

Too many people have too much to lose from a falling housing market, but it means excluding a generation



Rents have risen to an all time high after the "strongest" April on record, crowed the biggest letting agency in the country this week. Great if you're a greedy landlord, but yet another dollop of misery for tenants, few of whom are enjoying pay rises, and all of whom are seeing food and fuel bills rise relentlessly.

Rents are now 4.4% higher than a year ago across the UK, according to LSL Property Services, which owns Your Move and Reeds Rains. The picture is worst in London where rents are now 7.9% higher than a year ago.

The Jenga tower that is the British property market (economy rubbish, real incomes falling, house prices remaining at near record levels and rents rising) wobbles but just won't fall over. There are simply too many interests – from the banks and existing homeowners through to landlords – determined to keep it standing at any cost.

But they are protecting something that is, viewed globally, uniquely dysfunctional. A report from the Joseph Rowntree Foundation this week said that, on current trends, it won't be long before only one in four couples will be able to afford a home. Three-quarters will be forced to rent (or as one particularly disingenuous buy-to-let lender called it last week, the new "tenure of choice" for young adults).

The property-owning democracy is turning into a rotten borough, said the report's author, Professor Mark Stephens of the University of Glasgow. The only ones able to afford the deposit on a home will be those who can turn to rich parents for a leg-up, which will "increasingly entrench the economic privilege of the children of the better off."

The report calls for radical action, although its proposals are couched so as not to scare the type of chumps who lost all sanity over inheritance tax and who in turn voted for yet another tax break for the super-rich.

One proposal is for a steep increase in house building. A big increase in new-build, in areas of excess demand (which must mean building on the green belt), will help quell UK prices. But we also have to recognise that in Ireland new-build was almost entirely unconstrained, yet the housing market there went as bonkers as ours.

The real lesson of the disastrous housing booms around the world (viz Britain, Ireland, the US, and currently the worst, Australia and New Zealand) is that house prices are purely a function of the amount of finance that can be raised against a property. The crippling cycle of boom and bust is a consequence of financial deregulation, so beloved of Anglo Saxon economies and so destructive. Forget supply and demand. Hose money over the housing market and prices will go up; turn the hose off and prices will come down.

We have seen in recent weeks an easing of mortgage availability, with an upward creep in the number of 90% loans. But, in reality, banks' total lending will remain constrained for years to come, while young adults who put themselves through strict new "affordability" criteria will find they don't qualify for a mortgage, even at 90%.

The result? With less money lent against property, prices will gradually fall in real terms. But, while that happens, there will be a lost and increasingly angry generation of thwarted buyers.

Source: ' Guardian '

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