The Open University’s Alan Shipman, Lecturer in Economics, takes a look ahead to how the housing market will fare in the coming year.
House price forecasts remain relatively optimistic for 2020, for those who regard their four walls as an investment and not just a place to live. After an average increase of just 0.7% in 2019, with prices actually falling in the south-east and north-east, the Halifax reported a pick-up to 2.1% growth in the year to November. Property website Rightmove expects this pace to be maintained in 2020.
This property market revival contrasts with the general state of the economy, which ground to a halt in the turbulent run-up to December’s general election
But the contrast is expected to continue, with home-owners in most regions making further gains in the next year even if the wider economy stays flat, or stumbles into recession.
Economic slowdown does as much to hold back the supply of new and renovated housing as to dampen the demand. The times when a financial squeeze forces hard-pressed owners to sell – like the ‘credit crunch’ of 2007-8 – are also times when it gets harder to buy, because lenders raise deposit requirements and make fewer mortgages available.
The downturn that followed the credit crunch did lasting damage to the UK’s already overstretched supply of housing, with new-build completions falling precipitately in 2009-10 and still not back to their 2007 peak.
A consequence of this is that the cost of renting in 2020 is likely to rise as fast as the cost of buying, or even faster because of regulatory changes that have lowered the financial rewards of renting property out.
Generation Rent vs Generation Bought
In his former role as housing minister, Chancellor Sajid Javid spoke frankly about Britain’s ‘broken’ housing market and set out a range of measures to tackle it from the supply side. These included easier rules for planning permission, new sources of finance for smaller house builders, and possible penalties for owners of land who did not make it available for development.
But the manifesto that won December’s election proposes to ease would-be homeowners’ plight mainly by helping them purchase at existing prices, rather than bringing those prices down. Government plans for ‘Helping people buy and rent’ – notably left to page 29 – focus on mobilising a new range of mortgages, extending the ‘Help to Buy’ subsides loan scheme to 2023, and continuing to help tenants buy their existing council homes.
The net effect of such measures, in boosting demand for the existing scarce housing stock, is one reason for estate agents’ optimism heading into the new year. It reflects political priorities which, in the UK, are currently driven not just by the 52% of those voting who backed Brexit in 2016, but the 53% of families who own their own home.
“First rung of the ladder – tantalisingly out of reach”
Because renters are a minority, many of whom aspire to be buyers in later life, governments seeking a majority are always drawn to favour the interests of owner-occupiers, however much relief they promise to tenants and to the escalating numbers who can’t afford a home of any type.
It is not just home-owners’ electoral majority that makes politicians scared to let them (or their re-sale prospects) down. Although more than half of English owner-occupiers now own their homes outright, almost as many are still repaying a mortgage; and the last housing-market crash shows how far the whole economy gets dragged down when shrunken security forces households to curb their consumption.
This housing-tenure divide is reflected in the age profile of support for elected UK governments, whatever their political stripe. The winning side’s votes invariably come largely from people over 40, the two generations that have made big gains from buying property young and seeing its price outgrow almost everything else that’s for sale.
For many of these home-owners, who typically bought while still in their twenties or early thirties, a home doubles as the major retirement asset in an era of low interest rates and expensive annuities.
Younger people’s votes, mostly cast for parties that pledged more affordable housing, could not swing policy in this direction in 2019, any more than they could halt the march towards Brexit – support for which is also concentrated among those old enough to own a home.
Getting Brexit done won’t get first-time-buyer barriers down.
Brexit’s appeal was built, in part, on the perception that EU membership had fuelled immigration, and that this raised housing costs by bringing more prospective purchasers than builders. But the parts of the UK where affordable housing is most scarce tend to have plenty of empty houses, they just lack the funds and renovation skills to bring them back into service.
This does not mean that a problematic Brexit could take the heat out of the housing market and make it safe to look again into estate agents’ windows. The past year’s slowdown has already reduced net immigration to a 15-year low.
And a downturn caused by new trade barriers and business uncertainties might knock some wealthier buyers out of the market, especially overseas investors who anticipate less value in UK properties which other Europeans might not be able to visit so easily in future.
But recessions tend to bring a matching fall in mortgage availability and rise in deposit requirements. With the average house price almost eight times average full-time earnings and a far higher multiple in the cities where most jobs are, many will continue to find the first rung in the housing ladder tantalisingly beyond reach.