Metro - 08 November 2012
House Price Increases
By Jo Eccles
A recent report by the National Housing Federation has predicted that house prices in the South East will increase by 61% over the next 10 years.
This is a tough topic to debate as there are such compelling arguments for and against this prediction. I think one argument most people will agree with, is that the booms we have seen in central London aren’t beneficial for the long-term functioning of the property market. Some argue (and they make a very fair point) that house prices are simply too high. So many people are struggling to get onto the housing ladder because house prices have risen faster than wages, and a lot of home owners have borrowed beyond their means which means they will struggle to move from where they are. Although there are government schemes and lending schemes which help mainly first time buyers get onto the ladder, there is major concern that these schemes are helping people buy into inflated house prices, rather than addressing the underlying issue that house prices are simply too high for the majority to afford.
On the other hand, there are also fairly strong arguments in favour of home ownership and house price rises. At a very basic level, when house prices go up, home owners feel confident, and this can benefit the economy as home owners are more likely to spend money on the high street, leading to increased employment. Or they will move house, generating taxes via stamp duty, and stimulating the construction industry, leading to increased VAT inflows to the government. As long as these tax inflows are spent wisely by the government, they can create a positive and stimulating effect on the economy.
It is worth noting that rising house prices are great for those who already own a home and whose asset is rising in value, but it’s bad news for those who don’t already own a property as it gets even harder to buy in without assistance. If house prices do continue to rise, without others being able to buy, the danger is that the wealth gap will continue to grow which is not good in the long run for the balance of our society.
Regardless of whether you own a home already or not, from a social point of view, increased home ownership is a good thing as it creates social stability; when people own their home, they have a bigger vested interest in their local community.
Because buying a property is a big commitment, there needs to be the expectation that house prices won’t fall. If they do, people are less likely to aspire to owning a property and more will look to the rental market. With only a finite amount of private rented accommodation, more and more would need to turn to the social housing sector, putting pressure on the government to provide this.
This is a hugely complex topic and there are many ways to address it, and we need to see the government playing a firm role in addressing the significant housing market imbalances which are crippling so many would be home owners.