We see it in the papers nearly every week: “house prices on the up” or “property prices booming” or something else of that ilk. And if you’re a homeowner this might sound good news. Your house is increasing in value therefore you’re probably sitting on a profit right now if you decided to sell up and move on. But doesn’t all this sound very familiar? Weren’t we in the midst of a housing boom right up until the crash in 2008? In fact wasn’t it that sub-prime mortgage collapse over in the US that started the devastating chain of events that we are all now only just starting to recover from?
Running Out Of Control
That’s right, house prices in the UK are going up in all areas, with London and the southern half of England rising at the fastest rates. And it’s something that has got the Bank of England and our Government slightly concerned. Quite regularly the BoE report that the UK is at risk of creating a massive housing bubble that could quite easily burst in the event of even a mild shock to the UK economy’s confidence.
And this is something we should all be probably concerned about. Our economy is linked heavily to the performance of the housing market. When that slumps, other areas slump, and that puts it’s own pressures on our humble industry. Still don’t see the problem? Well the problem is a backlog. To put it simply, there is simply not enough houses being built at the moment to sustain demand. So whilst many people either struggle to save up for a deposit or are stuck in the renting cycle and can’t get out, house prices are going up faster than they can catch up with. This then makes it even more difficult for the younger generation to get on the housing ladder, and they risk being left behind altogether.
To give you some figures, the UK is building 133,650 houses right now. According to a former Government advisory body, we need to be building at least 300,000 homes a year up to 2031 in order to satisfy demand. Clearly we are way off target. So while prices continue to sky rocket, we are leaving a generation behind that are either going to be forced to stay at home, or pay over the odds for a rented house or apartment in which at the end of their tenancy they will own zero for they money they have shelled out.
Why Should This Matter To Us?
It matters for two reasons. Firstly, the general state of the economy. If the bubble the UK has created suddenly pops, we can all look forward to negative equity, fluctuating interest rates, massive drops in spending and a possible dip back into recession. And after all the hard work we have put in, that is the last thing we want to do. But secondly, and more specifically, it traps a new generations of spenders into being prevented from purchasing big ticket items for their first homes.
We stop potential new homeowners from buying new things like windows, doors, boilers, white good etc. It is new purchases like these which do provide a tangible boost to our industry. But we risk losing that boost if house prices become too expensive for a whole generation.
Whilst much of the news remains positive about our economy, the looming housing bubble is causing increasing concern. The Bank of England and the Government need to start thinking about cooling it now before it’s too late. Remember, we need a steady and strong economy in all areas, not one which grows beyond it’s means too quickly then collapses in on itself.
Having worked in the construction products and built environment sector for a number of years, this holy grail of increased housing output was never reached and in my view never will be. Sir John Egan’s report, rethinking construction, first published in 1998, predicted the need for new housing numbers to nudge 300,000 per annum for years to come to meet the demands of a growing population with a more diverse demographic than ever before. The modern day peak in housing starts was c.234,000 achieved in 2005-6. Since then we have seen a decline with a modern day low of c119,000… Read more »
Joe makes many valid points. I worked for a brief time as a Housing Economist at the House Builders Federation and latterly in building product companies in the brick and roof tile sectors. The E gan report ( remember he turned around Jaguar cars from a basket case ) was welcomed by the building sector and was supposed to make the sector adopt more off site methods. Kate barker – an economist who was on the Monetary Policy Committe at the Bank of England, was commissioned by the last labour Government to see how the housing industry could be improved.… Read more »