The law of unintended consequences may be about to act with unusually capricious and savage force in the case of tuition fees. Could it be that making students pay for their education will devalue every home in Britain?
Well, what we know for sure is that before too long, graduates will leave university burdened with a debt that will run to tens of thousands of pounds. Quite apart from any wider issues of fairness, that will have grave consequences for the property market, at least unless the policy is revised by the next Labour government (joke).
A young person carrying, say, £45,000 in debt during their first years of employment, and having to service that at close to market rates of interest, will find it even more tricky than they do now to save up for a nest egg to buy their first home.
If they earn more than £21,000, they will have to start paying off their student debt, thus reducing their disposable income and making a mortgage less easy to support. If they earn less than that, they are pretty much excluded from the housing scene in any case.
Given that almost 50 per cent of young people now enjoy higher education, that group represents the bulk of potential first-time homebuyers (the unemployed and lower earners being priced out). And a healthy flow of first-time buyer money is what, as any professional in the real-estate world will tell you, supports the entire market. Prices across the range will thus suffer, except perhaps for the £5m-plus "super-prime" bracket. The ugly truth is that we may never get back to the sort of market conditions we saw in the bubble, even if the lenders start to become less cautious, because we will have handicapped every succeeding generation of first-time buyers. Not, surely, what ministers intended.
It gets worse. Even a cursory glance at the labour-market statistics reveals that permanent jobs are becoming rarer as part-time and temporary work becomes more common even among the professional classes. Such work is also less secure than it used to be, so again some young people forced into that kind of work will find it harder to obtain credit. The obvious symptom is the demise of the "self-certificated" mortgage. Admittedly it was a form of convenient semi-fiction for mortgage brokers and sub-prime borrowers during the boom, but it was also genuinely useful for those owning their own business, but who nonetheless wanted to own their own home. A combination of Financial Services Authority rules and lender caution has seen it virtually disappear.
One would not want to overstate this phenomenon: we're talking downtrodden illegals cleaning offices, more than some latte-supping freelance graphic designers working out of Soho or Shoreditch. But, looking from the chilly vantage point of modern journalism, one can well see how the degradation of work has taken place. The real wages of many journalists are drastically reduced when they move from full-time work, through voluntary or compulsory redundancy to a life of fitful commissions and the odd shift. They will not be players in the real-estate merry-go-round.
Which leaves us rummaging around for signs of hope. They are there, at least at the big-picture level. Professional pessimists such as this writer need to admit that the economy is doing better than many dared possible. It has already exceeded consensus estimates for growth this year, with three months to go. The collapses in business and consumer confidence since the spring have not (yet) filtered through to the real world.
Things will certainly slow down next year, but the full effect of the public-sector job losses and cuts won't kick in until closer to 2015. There will be downsides in 2011: higher VAT from January; national insurance up 1 per cent in April; interest rates higher, again making mortgage debts less affordable. Those on the edge could be hit hard by these. But the dreaded double dip looks less realistic. I suspect the Bank of England will say as much on Wednesday when it issues its latest inflation report.
By the way, for George Osborne, it must seem like a lovely dream: a man many in the City thought not up to the job last year may even deliver better-than-forecast borrowing numbers next year. Still, the trends are not tremendously encouraging for homeowners. At which point we have to ask whether that is good or bad news.
For the economy, it probably makes surprisingly little difference, though a slow market does make us all feel poorer and spend a bit less. For people about to downsize and attempt to retire on the equity in their homes, it is also unwelcome.
For those first-time buyers who can find credit and a permanent full-time job, it is pretty much unalloyed good news. Wealthy parents matter more than ever – again an unintended consequence of cutting down on "reckless" lending is that those without a well-capitalised Bank of Mum 'n' Dad won't have the same access to the property market and its wondrously leveraged returns (long term, anyway).
I well recall one of John Major's interviews as an embattled prime minister during the last recession, in about 1991. Asked yet again about the fall in house prices he countered that from the point of view of buyers it was all good – although in those days the banks were still lending. Broadly speaking, rather than the redistribution of wealth from the young to the old that we have seen since the 1990s we may now see some switchback from the old to the young, if only to those who are in a position to take advantage of lower prices.
So there are winners and losers. The one outcome that would be bad for everyone would be if we succumbed to a deflationary psychology – the idea that prices are always bound to fall and, thus, that there is no reason to buy, especially when you might lose your job or interest rates may rise. Even the first-time buyers lose out if their fears become self-fulfilling.
Only one rule is probably worth following: ignore the conventional wisdom. At the end of 2007, the experts said prices in 2008 would be flat; they fell by a fifth. At the end of 2008, they said they'd be down by a fifth; they were up by 5 per cent. Last Christmas a fall of 5 per cent looked on the cards; it now looks as if prices will be flat. Next year? Sometimes it is wise to pass on the trickier questions. Draw your own conclusions!Reuse content