If there were any question as to the vitality of the property market, it has surely now been answered. Indeed, it is testament to the extent to which rocketing prices have become the norm that last month’s 9.5 per cent annual increase represents a moderation of the upward trend.
The picture is not altogether simple. In parts of the country, prices did briefly stagnate in the aftermath of the financial crisis. But the long-term disconnect between demand (shooting up) and supply (barely growing at all) has fuelled a steady inflation far out of kilter with the rest of the economy. And even if prices are now rising at a marginally slower rate than they were, the trajectory remains resolutely skywards. March’s average price of £180,000-plus was the highest since January 2008, and in the South-east the distortion is more pronounced still. Not only is the London average now an often unaffordable £360,000-plus, but the gulf with the rest of the country is the widest since records began.
No wonder that warnings of another bubble are becoming common currency. Nor have the risks entirely escaped the notice of policymakers. In an interview with The Independent, Vince Cable acknowledges that “a family on an average income is nowhere near able to afford a house at the average price”. How right he is. In the mid-1990s, the average home cost around three times the average income. Now, the ratio is five-and-a-half times, not far off that when Northern Rock was lending with what proved to be such dangerous munificence.
Bound as he is by collective cabinet responsibility, the Business Secretary is wary enough of the term “bubble”, let alone of any suggestion that the Coalition is doing its share of pumping. It most certainly is, though. The Chancellor’s Help to Buy scheme is not entirely without merit. Efforts to encourage house-building by providing cheap loans to buyers has some logic. The second phase, however, which offers partial mortgage guarantees for any property, merely fuels already overheating demand.
Notwithstanding the breathtaking cynicism of creating an illusory economic recovery, based on consumer debt, in the run-up to a general election, Help to Buy is, in fact, not the sole villain here. But with the root of the matter still not addressed, it is exacerbating the problem.
Although Britain builds roughly 100,000 new houses each year, it needs 250,000. After years of underinvestment, the shortfall is vast, and some estimate that as many as 1.5 million homes must be built by 2020. The Coalition has made some attempts to reform the planning system, but Nimbyism still reigns supreme. Meanwhile, the redevelopment of brownfield sites is not progressing at anything like the necessary pace, and restrictions on local authority borrowing are putting a crimp on the expansion of social housing. Even George Osborne’s recent trumpeting of plans for a whole new town in Kent, while welcome, is undermined by the sad fact that Ebbsfleet Garden City has been promised before. Until there is more than rhetoric, it is hard to be convinced of the scheme’s reality.
Mr Cable is right that the housing market is way out of balance. And right that the solution is to do a lot more building. His challenge is to compel the Government of which he is a part to stop talking and make it happen.