UK House prices to rise?

The UK housing market always provides something to write about. Just when you thought house prices were already too expensive. It looks like the government’s second phase of ‘right to buy’ could push up prices even more.

The scheme  allows buyers to purchase a property under £600,000 with just a 5% deposit. The government have brought forward the scheme. In anticipation traffic to Zoopla, a popular property search website, immediately jumped 17% compared to a week earlier. Whilst demand is rising, the number of properties listed has fallen 14% compared to last year.

Return of Gazumping

The fear is that the surge in demand for limited houses could see a return of the phenomena of ‘gazumping’ This occurs when you’ve nearly bought the house, but someone comes in at the last minute to bid a higher offer. It is a particular weakness of the UK housing market. You are most vulnerable to gazumping when price rises are very high. It can take a long time to complete the paperwork – solicitors, surveyance e.t.c. During this time of getting documents ready, if housing is in a short supply, some may be tempted to offer a higher bid.

Should we help people to buy a house?

From a personal perspective, I was grateful to get a little help from parents to buy a house in 2005. With a deposit, I was able to  get a mortgage that was many times income (I dare not admit how much) It is better than renting for the rest of my life. I can definitely understand the personal aspiration to buy a house rather than rent.

But, from a macro-economic perspective there does seem something very short sighted about a scheme that helps to increase the availability of credit to buy already over-priced houses. The scheme will do little to help improve the availability of supply, it will only increase demand and push prices higher. It may not cause a boom in house prices. At the moment, the economy is still weak. But, it will continue to artificially inflate house prices, and that is damaging for the economy in the long-run. Why should we subsidise home-ownership? Does home ownership have positive externalities for the rest of the economy? No, in fact the reverse.

“As the economist Adam Posen, late of the Bank of England, has often pointed out: subsidising home ownership is not just “a bias towards inflation and housing bubbles”, it leaves less money to help those in real housing need. It distorts the nation’s capital accumulation towards bricks and mortar. It hampers labour mobility, encourages mass commuting, and increases the divide between house inheritors and the poor. Because home ownership is the icon of the centre ground, Labour panders to it as much as the Tories.”

1 thought on “UK House prices to rise?”

  1. >>”The scheme will do little to help improve the availability of supply,”

    Maybe higher prices and, significantly, less concern that prices will fall, will encourage builders to increase output. That will depend greatly on the availability of land in the places houses are needed.

    Adam Posen “…. It distorts the nation’s capital accumulation towards bricks and mortar….” That is very difficult to accept, since we have a serious shortage of houses. (Unless he just means it raises the prices of existing stock but “capital accumulation” implies real investment).

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