This week RICS reported a further drop in the number of people putting their homes up for sale; new instructions fell at their fastest rate since May 2009.
In contrast, the number of inquiries from potential buyers remained unchanged. Of course the election can take some credit for this. With housing reaching an unprecedented position in the top ten election talking points, caution was inevitable.
The majority outcome to the election takes a number of potential housing policy initiatives off the table and as a result will encourage an upturn in sales instructions. This will not just occur in prime markets, which cowered beneath the threatening clouds of Mansion Tax. It will also, of course, embolden potential buyers to make the leap to purchase. The overall impact on the continued upward trajectory of house prices is therefore probably limited. Nationwide report prices rose by 5.2% over the last twelve months, with a 1% uplift in April alone.
It is probably unrealistic to expect the new Government to sort out the desperate shortage in the pipeline supply of new homes in their first week in office, but it does need to come to the table very soon, ideally next week. Housing is of course emotive amongst politicians and voters. It is fundamental to a sense of security and wellbeing. However it is also fundamental to the wellbeing of the economy. It has been noted as a risk to the UK economy by the great and the good of the economic elite: the International Monetary Fund, The World Bank, European commission and our own Governor of the Bank of England.
Why? House prices rise due to a lack of supply, as reported by RICS, and as a result, homebuyers need to find more money to access the market. As a nation we have become good at this. We take on more debt and where possible cadge money from capital rich (and not so rich) family who had the fortitude to enter the housing market during a far more civilised era when loan to income ratios made rational economic sense. Our indebtedness magnifies our vulnerability to financial crises or even just a base rate rise, which will eventually happen.
However the economic impact does not of course stop there. In order to make that first wrung on an increasingly malformed ladder, we cut back on other spending to save for ‘THE DEPOSIT’. Once we have managed to buy, we then spend more than we should on our monthly mortgage. All areas of the economy feel the impact: retail, service sector, manufacturing, tourism and the list goes on.
Added to this, the business community seeking to recruit and retain skilled staff face the challenge of attracting said staff to an area where a large proportion of their salary will inevitably be lost to housing. There are many studies that underline the potential damage of this issue to the UK economy. In one such study, published by Cluttons in 2012, Professor Ball noted, “If the homes do not exist, the labour market fails to function as effectively as it could and vital growth is lost.”
Housing is acknowledged to be fundamental to our national economic health as well as our personal wellbeing. We must therefore wonder, with some despair, why it does not merit a full position in the cabinet? Rather than shuffling in the shadows at the back of the room, the Housing Minister, whoever is in post, surely deserves their very own seat? Or even better perhaps, the portfolio could be added to the Chancellors’ growing list of responsibilities? After all, if the IMF, World Bank, European commission and Governor of the Bank of England feel housing merits attention we should rather hope our own Chancellor will feel the same.
*Sue Foxley is Research Director of ThinkBarn