Today’s surprise Halifax figures showing a slight dip in UK house prices come at a tense moment in the housing debate. Earlier this week, the OECD claimed that the UK housing market was overheating and suggested tightening access to mortgages. Today, a trio of former Chancellors, Lord Lamont, Lord Lawson and Alistair Darling, also warned of a housing bubble and expressed concerns that Help to Buy was contributing to it.
There are questions as to whether the Halifax numbers are a blip or not, potentially connected to new FCA rules coming that will make it harder to access a mortgage. But even the pessimistic Halifax calculations say that UK house prices are 8.5% higher than this time last year. And according to last month’s more “optimistic” (depending on whether you’re already a homeowner or not) Nationwide figures, annual house price growth in the UK is running at 9%. In London, growth is almost double that, running at an annual rate of 18%.
To put this into context, if you are lucky enough to already own an average slice of the London property market (average current house price £363,000), the fastest way to become a millionaire on these rates of house price growth is… to do nothing. In just 7 years’ time, your property would be worth over £1 million, even after taking into account inflation. If you’re a bit less lucky, and only own a smaller slice – say a property currently worth only £250,000, you would have to wait a whole decade. And your property doesn’t have to be in prime central London areas like Kensington and Chelsea. Lambeth, Brent or Hackney would also do pretty well.
Given this it’s unsurprising that the London property market has become a magnet for investors. Where else could you get these sorts of returns? As we know, though, this isn’t great for long-term affordability. To be fair, we may not see a continuation of these growth rates. The FCA’s new rules are forcing lenders to collect more detailed information about those applying for new mortgages, and to make an assessment as to whether they will be able to afford the repayments if interest rates go up. If it becomes harder to get a mortgage, this is likely to dampen house prices growth.
But this just highlights a hard-to-escape conclusion that housing market policy in the UK is all over the place. Whilst the FCA is making it harder to borrow money for a home, the Government is trying to make it easier through its Help to Buy scheme; and the Bank of England is – for the moment – sitting on the side-lines, but assuring us that it is remaining “vigilant”. The trouble with housing, is that all too often, political considerations trump economic and social ones, as the SMF showed in its Politics of Housing.
The justification for Help to Buy – particularly the variant that does not involve encouraging new build – was always built on shaky foundations. The main argument appeared to be that it was important to make it easier to buy a home: but in the long-run, only a boost in house-building will do that, and there are easier and better ways to get more homes built. A secondary argument appeared to be the need to solve short term problems – getting housing market and construction going again after the downturn.
But even this argument is looking weaker now that house price growth is picking up, and not only in London. As is often repeated by its proponents, Help to Buy probably is not the main factor driving house price growth, but the very fact that we have such growth suggests that – at best – it’s a policy with no purpose. At worst, it distracts from the types of policies that really will make housing more affordable – building more homes.