Letter: House owners' hope for stability

From Mr James Barty

Sir: Gavyn Davies presents an eloquent argument as to why a significant recovery in real house prices would be a "very bad thing" ("A housing recovery would create new losers", 24 July).

He is, however, addressing yesterday's problem. The slump that followed the late Eighties boom has left the housing market severely scarred, partly through the easily recognisable problems of negative equity and possessions, but also in people's perception of housing as an asset.

This is evident from the fact that house prices are falling some three years after the economy started to recover. As real income growth recovers, probably helped by tax cuts, some stabilisation of the housing market is likely. Until the problems created by the slump are a distant memory, however, the chances of a significant recovery in real house prices are slim.

The best that those, mostly young, people stuck in negative and reduced equity can hope for is that house prices at the end of this parliament are no lower than at the end of the last parliament. I suspect it is this that is motivating the politicians in their desire to boost the housing market.

Yours faithfully,

James Barty

Senior UK Economist

Deutsche Morgan Grenfell

London, EC2

24 July