Why a house price crash would be excellent news
A cracking article today by Faisal Islam, Economics Editor of Channel 4 news, explaining the madness that is Britain's housing market. The saga of the British house is the tale of just about everything that is wrong with this country, and it is clear that unless something dramatic happens fast then things are going to get a whole lot worse.
As Islam says, our 'housing market' is not really a market in houses at all, but a market in debt. We are borrowing from the future to fuel this insane property boom, and sooner or later the future is going to want its money back. Several things happened more or less at once (well, over a period of 30 years or so) to let this happen, including the conversion of the old building societies into investment banks, the sell-off of state housing, the deregulation of the mortgage market and the influx of hyper-wealthy foreigners into London.
The larger (in numbers) influx of mostly young non-wealthy immigrants into the UK in the last ten years has probably contributed something - maybe 5% - to housing prices, but is the availability of debt (can we stop calling it 'credit' please) that is really making things so bad that in a few years no one with an ordinary salaried job will be able to buy a family home within M25.
Say it all went horribly 'wrong', and we had the sort of property crash that gives Middle England nightmares (but shouldn't). Say house prices fell by, say, 70% and stayed at that level for some decades, crawling up only with inflation and reflecting true increases in demand. Say houses cost about as much, in relation to incomes, as they did in 1970. What would happen then?
Well, a lot of young people would be insanely grateful as they could afford to get on the property ladder if they wished. People like teachers and doctors could afford to buy a house in London or central Edinburgh. Imagine it ... real, actual professionals living in places like Chelsea!
There will be fewer potential tenants and so rents will fall too. Existing homeowners will find themselves with negative equity but - and everyone forgets this - unless they find themselves unable to meet their mortgage payments this will not matter in the short term. And this pain will only affect one generation of homeowners, those unlucky enough to have bought at a time (and in parts of Britain) where house prices have become totally unsustainable.
A falling, or even static, housing market benefits many and hurts few. It makes it easier to move and hence loosens up the labour market. If houses are homes rather than surrogate pensions it will encourage people to invest in their futures, as the Germans always have. Falling house prices penalise those hoping to trade down or move to Spain and cash in, but help young singletons, young marrieds, growing families and people moving with their jobs - nearly everynoe else in other words.
Some mad suggestions. Make it illegal to lend more than three times salary. Do something radical about housing benefit, which is no more than a racket in which taxpayers money is diverted to private landlords. Build thousands of council houses in the inner cities. Revive high-rise living, but do it properly this time. Ban interest-only mortgages. Tax buy-to-let. And scrap the help-to-buy scheme, the stupidest government policy in a generation. Yes it will hurt, but unless we do something where on earth are our children going to live?