Boris Exposes Tory Thinking on House Prices

HAMISH_MCTAVISH

Watch out, folks, we are about to be hit by a snowstorm of economic data. So put on your goggles and look out for the one big hurtling fact that really matters.

The key point you need to remember during this week's spending announcements is that the population of the UK is set to rise by an incredible 10 million over the next 20 years.

That is more than the population of Greater London crash-landing on a land mass half the size of France.


Not since industrialisation, not since medieval England recovered from the Black Death, has there been anything like it.

Thanks very largely to Labour's deliberate failure to control immigration, and to higher birth rates, the Big Society is about to get very big indeed.


What jobs will we all do? Where will we all live? And what effect will that extra demand have on the cost of housing?

We already have huge waiting lists for social housing. On the private market the average age of a first-time buyer has now soared to 37 (at the height of the 1980s boom it was down to about 23) and we have desperate problems of overcrowding.

In 1998, about the time Labour let the brakes off immigration, the annual growth in population exceeded new housing supply for the first time, and since then the problem has been getting worse.

One answer, I suppose, is to try to create cheaper housing by encouraging existing homes to become more affordable.

Recent pronouncements from the Coalition Government have suggested a new doctrine: that house prices should be flat, or flattish, while earnings rise to meet them.

In other words, the British middle classes are being asked to wean themselves off house price inflation, and become more continental, with a higher proportion of rentals.

And a lot of people will say amen to that. Why do we pump all this money into unresponsive bricks and mortar, when we could be investing our capital in stocks and shares and thereby in the flesh-and-blood businesses that add to the GNP of Britain? They will point out – entirely correctly, that this national addiction to house price inflation has bred a kind of financial illiteracy, an apathy about any other investment except the roof over our heads.

And they will point out that it was the house price bubble – the demented practice of giving vast mortgages to people with no incomes and no assets – that led to the crash.

Better a stagnant housing market, they will say, than another great boom and another great bust.

Which is all very well, in theory.

In practice, it looks as if flattening off the housing market is both risky in the short term, and unachievable in the long term.

The sad truth is that it is still psychologically essential to the British middle classes to have a sense that our principal asset is gently appreciating in value, or at least that it will over the long term.

For months now we as a nation have talked about cuts and nothing but cuts, with the morbid fascination of an Oprah Winfrey discussion of self-harm. We know we have to go through with the operation. But we don't know quite how extensive the slicing is going to be, and we have been kept so long in the waiting room while the surgeon counts his scalpels that the foreboding has been allowed to grow.

That is why it is so vital – as soon as the Comprehensive Spending Review is announced – that we stop droning on about cuts, and start talking about the reasons for these cuts. They are not about shrinking the state. They are about growth, growth, growth – creating the conditions for a sustained economic recovery, and an economic recovery is a function above all of confidence.

People will accept that higher-rate taxpayers should not receive child benefit – a point this column has been making for years.

They can see that it is necessary to reform university finance.

But if you tell them it is a matter of government policy that their house should effectively fall in value, then you will punch that confidence in the solar plexus – and you will make them less likely to invest, to take on new ventures and new staff.

We are already seeing renewed falls in property values in areas outside London, and the real wobbliness of the market may be concealed by the comparative lack of activity. There are normally about 1 million housing transactions a year in this country. That is now down to 600,000, and if the market falls much further there could be big knock-on effects for the whole system.

The notional assets of banks still depend on housing stocks whose value has yet to be tested, and if the housing market tanks, then the financial system tanks, too. People will be unable to get the mortgages to buy new homes, and developers will be unable to get the finance to build them, and the problem of supply will get even worse.

The last year of the Labour government was the worst for building new housing for 40 years. And when the economy takes off again, as it undoubtedly will, that shortage of new homes will combine with a growing population to produce the most almighty spike in prices – and young people will be less able than ever to buy a home.

Which is why the best way to help those millions in search of an affordable home is not to try vainly to ensure that the present stock of housing becomes more affordable – ie falls in value – but to increase the supply of affordable homes.

That is what we have done in London, and that is why housing minister Grant Shapps is right to bring forward his new homes bonus, to give communities an incentive to champion new housing.

The Coalition has done well to get to grips with immigration. But we need to cope with the demographic changes that are now inevitable, and that means investing in houses and other vital infrastructure.

Otherwise house prices may continue to slide in the recession, but spike more viciously than ever in the recovery.

http://www.telegraph.co.uk/comment/columnists/borisjohnson/8070153/The-Coalition-must-tackle-the-shortage-of-new-homes.html

Interesting article.

Points out what many of us have been saying for some time now.

ultrawomble

What a very parochial view - one to be expected from the Mayor of London Village.

I do wonder what effect the demographic changes that are now inevitable, i.e. migration to the South East, will have upon house prices in the far flung North....

drc

Why don't they just cut immigration, that would solve the problem very quickly?

Rainmaker_uk

For the last 50 years house prices have doubled every 7-10 years.

There is no reason to believe this will not continue.

robin_banks

drc wrote: »

Why don't they just cut immigration, that would solve the problem very quickly?

Because they can't, and the Tories know full they won't be able to.

dopester

Urggh. London's Evening Standard reports him also peddling this filth.

Free markets can go to hell if it means we have to give up any of our x3 gains in house prices over the last 10 years.

FTBs suffer in silence you pathetic scum, or borrow your heads off for the priviledge of being among the dirty home-owning elite who want markets cheated to protect us against loss. Aside from this, I briefly read a story yesterday that Boris is living in a flat across the road from his main house - something about giving his wife peace and quiet becuase of all his work.. presumably including wisdom such as this.

Squash house prices at your peril, Boris Johnson tells the coalition
Pippa Crerar, City Hall Editor Pippa Crerar, City Hall Editor
18.10.10

Boris Johnson today urged the coalition to leave London's rising house prices alone or risk worsening the housing crisis.

He warned the Government that proposals to deliberately "flatten" the market could lead to a sharp spike in prices as the economy improved.

http://www.thisislondon.co.uk/standard/article-23888784-squash-house-prices-at-your-peril-boris-johnson-tells-the-coalition.do

dopester

Boris rents a flat just 100 yards from his family home 'to give his wife some space'

By Neil Sears and Eleanor Harding
Last updated at 8:45 AM on 18th October 2010

So it is perhaps possible to hazard a guess as to why Mr Johnson seems to have moved out of his £2.3million marital home to live in a rented flat.

Read more: http://www.dailymail.co.uk/news/article-1321351/Boris-Johnson-rents-flat-100-yards-home-wife-space.html#ixzz12if459jA

Toffs and all the house owners who've enjoyed (that Telegraph journalist who I despise) irresponsible borrowing that has fueled massive hpi... don't want to give a penny back. Boris hasn't a clue why values need to fall back having not having to endure or experience any of the difficulty younger people face in buying even a starter home down London way.

Blacklight

dopester wrote: »

*whine*

Or perhaps he knows that property prices reducing by 50% will leave most people either unable to sell if they want to, or bankrupt if they do. A potentially lethal position for most lenders.

To not want the UK economy to collapse seems like a fairly sensible view to me.

wymondham

robin_banks wrote: »

Because they can't, and the Tories know full they won't be able to.

it's our country, surely ultimately we (the govt) have the ultimate say??

amcluesent

Basic model is that HMO allows 10 or so EEs to live in a 3-bed, with 'hot bunking' as they take min.wage McJobs on shifts. That way they can afford London rent of £1750/month, send ££ home while living on pickled cabbage. After 5 years, return home much wealthier.

We could easily build 'capsule' flats of 35sqm for two EEs to rent, with 400 such flats per block.

FTBFun

amcluesent wrote: »

Basic model is that HMO allows 10 or so EEs to live in a 3-bed, with 'hot bunking' as they take min.wage McJobs on shifts. That way they can afford London rent of £1750/month, send ££ home while living on pickled cabbage. After 5 years, return home much wealthier.

We could easily build 'capsule' flats of 35sqm for two EEs to rent, with 400 such flats per block.

Bit expensive for a 3 bed. I used to rent in a 3 bed in West Hampstead roughly 3/4 years ago and the total rent was less than that.

Methinks you are making this up.