It's a cruel politician, one might think, who would attempt to still the most popular of all middle-class dinner-table conversations. Yet when that topic is the ineffably boring one of who around the table has made how much out of the rise in property prices, we should all be grateful for a change of subject. Schools, the weather, or even a period of reflective silence would be a welcome alternative. For this desirable development would be the consequence if the Housing minister, Grant Shapps, has his way.
At the weekend Mr Shapps declared that his priority would be to see "house-price stability" and an end to the rapid rises which had characterised the market during the 10 years leading up to the credit crunch. Actually, given that the minister went on at some length to bemoan that it was now all but impossible for would-be first-time buyers without parental assistance to acquire a home, it's clear that what he is really advocating is a prolonged period of stagnation in property prices – that is, substantial falls in real terms; but stability is a much more politically appealing word than stagnation.
As it happens, Mr Shapps is calling for something which is happening anyway; since 2007 British residential property has lost 20 per cent of its value in real terms. Unfortunately for the first-time buyer, the banks and building societies have become much more careful about their lending; gone are the 100-plus per cent mortgages, so even though property has become more affordable it has simultaneously become less attainable.
This is yet another reason for the banks' present unpopularity. I have some sympathy for their predicament, however: they have been criticised (rightly in many cases) for their improvident lending during the credit bubble, and told both to build up their own equity base and to tighten their lending criteria in the property market. Now they are being criticised for complying with these desiderata. Their real point is that when the conventional view was that residential property prices would always rise in real terms, it made sense to them to lend 100 per cent of the value, because even if the borrower were to default in a few years' time, the banks could get their money back by foreclosing and selling the property.
Yet if Mr Shapps has his way, and there is a prolonged period of property losing value in real terms, then the banks can no longer have that confidence as the ultimate owner, and will require a much higher contribution to the original purchase price on the part of the borrower. To this extent, the Housing minister's aspirations are in direct conflict with each other.
Something else that he said made better sense, however: Shapps suggested that young people should break with their parents' generation's obsession with property as an investment, and see it just as "something to live in". If that is his aim, then he should worry less about the ability of young people to get on the housing acquisition ladder: rent alone gives you "somewhere to live", without the need to drum up sufficient cash to impress a building society.
Historically, however, the Conservative Party has been profoundly associated with the idea of turning people from tenants into owners, starting with Benjamin Disraeli, who saw his party's future as inexorably tied to the creation of what he called "a property-owning democracy". This, of course, was during the era when ownership of property was linked to the right to vote. Yet the basic argument – that people with the responsibilities of ownership would be more likely sympathisers with a political party linked to capital rather than labour – was also the inspiration for Margaret Thatcher's "right to buy" policy, not to mention her enthusiasm for tax relief on mortgage interest repayments.
New Labour desperately wanted to seize back this political territory, which helps to explain why Gordon Brown as Chancellor did nothing whatever to discourage the house price boom, and denounced Vince Cable when the then Liberal Democrat Treasury spokesman warned on the floor of the House of Commons that it was both unwise and unsustainable.
To be fair to Mr Brown, the global financial tsunami of the credit crunch was caused not by what went on in our own housing market, but in the United States. That, in turn, had indeed been a direct result of government policies. The Democratic Party in particular had promulgated regulations that demanded the banks lend in ever greater proportions to the least well off. For example in 1996 the Housing and Urban Development Agency instructed the two federal-backed mortgage firms, Fannie Mae and Freddie Mac, to make at least 52 per cent of their loans to borrowers with below-average incomes. The result was that by the end of 2007 Fannie Mae alone was guaranteeing no less than $56bn in sub-prime mortgages.
Seen in this context, the sub-prime implosion was not just a fiasco for banks, but also one for government intervention in the housing market, albeit with the apparently uncontroversial objective of spreading home ownership to groups in society which hitherto had been excluded from the "property-owning democracy".
The strange thing, in this country at least, is that it was in any case far from certain that owning property rather than renting had been the sure-fire winner of popular belief. A fascinating investigation conducted jointly by MoneyWeek magazine and the BBC's Money Programme in 2008 suggested that over the period from 1980 to 2000, a person who rented rather than bought property (and put into an equity fund the money saved through lower housing costs) would actually have been better off than his property-owning neighbour. Those of us who lost substantial sums in the property slump of the early 1990s would not need reminding of that; and an earlier generation would have regarded the idea of staking one's entire financial security on dividend-free investments in bricks and mortar as quite perverse.
My paternal grandfather, for example, lived and died without ever having owned any property; today it would seem very odd for a member of the prosperous middle classes to remain a tenant all his days. Yet he was a businessman who felt that any spare cash he had should be invested in his own little company, where, he hoped, it would grow more quickly in value and possibilities than anything so inert as a mere dwelling.
Moreover, although his motives were not primarily to benefit the country as a whole, there can be little doubt that if more money were diverted away from property and into productive enterprises, we would almost certainly have a more dynamic economy: as Adam Smith observed well over two centuries ago, a dwelling is a fine thing for its inhabitant, but contributes nothing to anybody's revenue, including (unless he rents it out) his own.
Unfortunately, the notion of property ownership as the key to personal financial self-fulfilment is by now so deeply ingrained in popular consciousness that it will take a generation ofdepressed house prices for that received opinion to weaken its grip on the middle-class imagination. On the other hand, it could indeed be that we are in for a very long period of exactly such stagnation: in which case Mr Grant Shapps can announce that everything has gone according to plan.Reuse content