Focus on prices ignores housing needs of the poor: Many pundits predict the fall in the homes market will end in a year's time, and hope for a stop to dramatic cycles. Nicholas Schoon reports

THERE HAVE been false dawns before, but the betting among lenders, housebuilders and most pundits is that the fall in house prices will end in roughly a year's time, give or take a quarter.

Low interest rates, lower prices and the build-up of deferred purchases will turn price decline into stabilisation.

For two years, media coverage of housing has concentrated on home owners with negative equity or mounting arrears.

What has been lost sight of is how expensive, even unaffordable, home ownership remains for much of the population on low and middle incomes, and how little choice people have in finding an alternative.

Seen from this perspective, the sharp fall in house prices is a unique opportunity to start breaking an unhealthily close relationship between the housing market and the economy.

There is a national fixation on owning bricks and mortar, shared by none of our main competitors, that leaves us prey to downswings once a decade.

John Muellbauer of Nuffield College, Oxford, an expert on the linkage, finds similarities between the 1980s house price boom and two earlier bouts of disastrous speculation where boom turned to sudden bust - England's 18th- century South Sea Bubble and the Tulip Mania in the Netherlands in the 17th century.

'Britain's housing market has been absurdly and dangerously volatile,' he said. 'The upside of the fall in prices is that not only is housing more affordable but it is very good for keeping down the inflation rate.'

There was much talk during the Eighties of people 'earning' more from the annual increase in their homes' value than from their salaries, and of selling terraced houses in London to buy mansions in the provinces.

But most home owners do not live in London and three quarters of movers shift less than 10 miles, not to a distant region where houses are much cheaper.

Most house buyers are more interested in gaining shelter than gains from speculation. That part of a home's value which is theirs rather than the mortgager's is seen as a down payment on their next purchase as families grow.

Three years of falling prices and two years of interest rate cuts have left the majority of Britain's 15,500,000 home owners more prosperous and more able to afford bigger, better homes. Their properties are still worth more than when they purchased them. But Glen Bramley, of Bristol University's School of Advanced Urban Studies, estimated in 1990 that only 45 per cent of younger households (aged under 30) in England could afford to buy a house. Only 29 per cent could afford a new house. These proportions will have risen slighly since.

The main alternative to home ownership is renting from the state-subsidised sector. But since 1981 the number of social sector homes being built for rent has fallen by two-thirds and more than a million council homes have been sold to their tenants. And private sector rents are too high for those on low incomes.

Shelter and bodies such as the Institute of Housing say that 100,000 new 'affordable' (that is, subsidised or social sector) homes are needed each year. But despite recent announcements of extra support for housing, the Government remains unwilling to invest the huge sums necessary.

The shortfall is causing homelessness and Shelter estimates that about 8,000 people live on the streets.

BOROUGHS URGE STRATEGY FOR ARREARS

Mortgage lenders should take a more positive and long- term approach to helping households in arrears because simply rescheduling payments is not the answer, the London Boroughs Association today urges. Its report Bleak House recommends:

Lenders should not repossess while an agreed rescheduling of payments is being followed;

The Government should issue guidelines on how much can be lent, depending on income, to stop excessive borrowing;

Judges should be given up-to- date guidance on handling repossession hearings.

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