What will it take to actually reduce house prices?
A quarter of the economy has disappeared. Millions of people are out of work. The Government sinks ever deeper into debt. But look on the bright side — at least house prices are holding up! Indeed a report from Hometrack shows that Covid-19 has barely dented the year-on-year rise in the market:
One wonders what it would take to actually reduce prices. If a deadly pandemic won’t do the job, then how about an asteroid strike or a supervolcano going off? But even if something like that could be arranged, I’d have my doubts as to its efficacy — the Martians could nuke London from high orbit and the less radioactive suburbs would still be described as ‘up-and-coming.’
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In any case, apocalyptic events are bad for supply thus creating inflationary pressures. By way of contrast, Hometrack reports that demand is buoyant — despite the virus:
That’s especially true in the northern cities — perhaps a sign that the government’s levelling-up agenda is pushing at an open door.
Right now, ministers are focused on temporary stimulus measures to stop the economy from seizing up altogether. However, looking ahead, deeper reforms are needed to counter the long-term scarring effects of the pandemic.
It’s hard to think of anything that would do more to create new confidence than giving millions of people (especially young people) access to affordable homeownership. Yet, evidently, the conventional housing market will never deliver the necessary fall in prices. Even if there’s a ‘correction’ in 2021 — it will, most likely, be a temporary one. That’s because the big housebuilders still control new supply and have no interest in prices staying low. We saw how price levels recovered after the 2008 banking crisis and there’s no reason think that the same thing won’t happen again.
If the Government wants a different outcome, then it needs a different housing market — indeed a parallel market that works to spread homeownership instead of pushing up its cost.