In Sam Bowman’s article http://www.adamsmith.org/blog/tax-and-economy/time-to-let-the-housing-bubble-burst/ he makes a number of claims about the housing market which if not tongue in cheek must, surely, be intentionally provocative.
Mr Bowman’s main thrust appears to be that the housing market has been kept artificially high by successive governments who are too scared to allow the market to fall to what he believes are its true levels. Citing a graph from the, hardly unbiased, folks at housepricecrash.co.uk, Sam asserts that ” there has been a steady rise in the real cost of a home over the past fifteen years”. A quick look at the graph shows that this has been anything but steady and, if you were to extend that graph back another thirty or forty years, you would see a market that has bounced its way up, doubling in value in value on a very rough 10 year cycle. This is not News.
This bumpy increase in prices has nothing to do with government conspiracy, quite the opposite in fact as Mr B’ acknowledges later on in his article. In fact, successive governments have tried to relax planning restrictions to encourage more house building (failing abysmally, it has to be said, usually due to local planning officers and local home owners, protesting about greater development of green belt etc). Democratic government and the people, us, therefore, are to blame he argues. Perhaps Mr Bowerman is advocating a ‘Nacht der langen Messer‘ against planning officials and local planning pressure groups? My previous comment is said firmly with tongue in cheek but, taken at face value; Sam’s comments do not match my understanding of a free society that the Adam Smith Institute, for which he works, claims it supports.
Having entered agency just as the last major crash hit the market (May the 15th 1989 to be precise), and worked, consulted and advised in the business at every level from first time buyers to Governmental and corporate investor, I like to think I have a good understanding of what makes the housing market tick. It is not, I humbly submit, a Government conspiracy (all that I have met in Government lacked the simple knowledge of who an agent worked for let alone the ability to conspire to affect National house prices), it is a simple fact of supply and demand. InBritain, we live on an island. Land, then, is always and will always be at a premium for as long as we have an expanding population/ or households. As one of my developer clients reminds me on occasions “I buy land because they don’t make it any more!”
What do I see for the near future? Currently we have a massive level of demand coupled with a shortage of lending (although there are signs that this is easing) and a 1.6 million shortfall in housing stock. To fill the lending vacuum and demand for a place to live by those who cannot obtain finance, private landlords are stepping into the market. Consequently, there is a demand for property from a group of people who have access to funds who can see yields of 6% plus per annum as well as long term capital growth; far better than they can get in the bank or most other investments at the moment. Certainly, volume sales are down but prices have remained relatively stable (varying across theUK). With the current economic climate, I do not believe that we are likely to see any major changes to this situation for the next 18 months or so but; I am sure, like many landlords and other funded buyers out there, that the market is not heading for a crash.