Think of the Children
April 2006

If there are lies, damned lies, and statistics, then the British homeowner can be forgiven for not knowing if his or her house is currently built on quicksand. Spring is in the air, bringing blossoming hopes of further appreciation in value of their bricks and morter, which translates into money in the bank for mortgage equity withdrawal or retirement. Estate agents and building societies stand ready to reap the harvest of commissions and interest. Gordon Brown wishes to stay happy in his work collecting stamp duty. The housing ladder makers are doing everything in their power (short of lowering prices) to help first time buyers – supposedly the foundation on which all else rests - onto the first rung. But will they succeed? Or is the market headed for a fall?

The numbers tell a tale: it was the best of times, it was the worst of times. The price tag on the roof over your head has never been dearer. Everybody knows somebody who has made a mint on his semi-detatched castle, profits now safely ploughed into something bigger and better, or at least more expensive. Never has so much money been made by so many with such little effort.

But there is marked subsidence as well. The pool of first time buyers is small and rapidly shrinking. In the opinion of an increasingly vocal minority, the figures have been fixed, the supporting structure hasn’t been properly surveyed, and soon we will all be headed into negative equity (again) - or even total financial meltdown: to paraphrase Henry Ford, what’s bad for the British homeowner is bad for the British economy. Many current buyers weren’t in the market during the last Chernobyl, and have no memory of the unlovely coat of radioactivity when nobody wanted to touch houses and evacuation plans were put on hold for hundreds of thousands who suddenly found themselves living in fallout shelters, waiting for the hard rain of deflation to stop washing their equity down the storm drain.

Of course there’s a website devoted to the cause – if such it is – of the “doom-mongers” who predict apocalypse now (or sometime quite soon): housepricecrash.co.uk. This glass-half-empty crowd has had enough of the gluttonous appetite of ‘vested interests’, i.e., anyone with a house to sell, preferably at a price rapidly approaching beachfront property on the sea of desire. There the seven deadly sins have mostly been boiled down to one: Greed. Name your culprit: buy-to-let landlords, who siphon off the properties which would otherwise sell to first time buyers; estate agents, always eager to promise the moon so they can get a bigger slice of the cheese; the Bank of England, for keeping interest rates artificially low and leaving themselves little room to limbo; the government and local councils, for planning restrictions designed to keep England and, it is accused, the bank balances of current homeowners green; the broadcast media, for hosting shows like Location Location Location, which feed the appetite for great expectations; homeowners themselves, for untethering themselves from the unwelcome reality that there is a sensible limit to the purses of buyers.

In the United States, which has experienced a similar boom and in which tremors are also now being felt by economists with their ear to the ground, there is a saying coined by politicians when they go job-hunting: are you better off now then you were four years ago? Translated to the housing market, one might ask, if you had to re-purchase the house you bought four years ago, could you afford it? If not, would it then be reasonable to ask how you expect anybody else to be able to? Especially when wages haven’t risen at anything like the same rate of inflation, unless you’ve been fortunate enough to see annual double-digit rises in your paypacket over the course of this bull run.

When the family pile is just another investment vehicle, it’s not hard to see why housing inflation is indulgently thought of as the good inflation. But consider the dreams it destroys even as it feathers the nests of homeowners. An entire generation is being locked out, unwilling or unable to beg, borrow or inherit the cash necessary to make the leap from the rental market – often far more affordable in the current climate. To co-opt a phrase popularized by doom-mongers of another stripe, think of the children.