Leading article: Here's hoping for a saner property market in 2010

Expensive housing is socially divisive and economically inefficient

Of all the statistics upon which to end 2009, the news of buoyant house prices would have been among the least expected this time last year. But there it is in black and white. According to the Nationwide Building Society, home prices rose by 5.9 per cent over the year. And this fits with figures released earlier this week by the Land Registry. Most analysts had predicted that the 15.9 per cent fall in prices registered in 2008 would continue. Many expected a further double digit decline.

So is the trend of rising prices some good news with which we can toast the New Year? Does it presage better economic times in 2010? Sadly, this is an economic statistic that needs to be handled with caution. A large part of the explanation for what has happened to house prices lies in what has not happened in the broader economy. Unemployment has not hit the levels feared. The welcome result has been fewer mortgage defaults and repossessions. The banks have also been slower to repossess the homes of those struggling to keep up with repayments than in previous downturns. They are in such a feeble state that they fear crystallising losses on their loan books. This has helped stem the panic selling normally associated with a bursting property bubble. There have also been some opportunistic house buyers with cash to hand who have propped up demand.

But the figures are misleading because the volume of transactions is considerably down. Far fewer homes are changing hands than at the height of the boom. Tens of thousands of people who would normally have put their home on the market have refrained from doing so. And while mansions in the capital might be meeting their asking price, it is a very different story for all those newly built apartments in Northern metropolises. These figures are a snapshot of an abnormal market. Reality is likely to reassert itself. It would be surprising if house prices were to maintain their upward momentum over the coming year. The supply of cash buyers will probably dwindle. And there are other impediments on the horizon. The end of the stamp duty holiday on properties on sale for less than £175,000 from today is likely to be a deterrent to new buyers.

The Bank of England will have to raise interest rates, probably not in the near term, but sooner than many realise. This will make it more difficult to finance a mortgage, driving up defaults. And then there is the lingering psychological damage from the crash. With many households frantically paying off their principal mortgage debt, the last thing they will want to do is borrow more to buy a bigger home.

Homes are still beyond the reach of many prospective first-time buyers and the banks remain unwilling to lend to those who lack a significant chunk of capital. Prices might not decline, but it is hard to see what is likely to drive sustained further rises over 2010.

So what does this mean for the wider economy? In the immediate term, it is depressing. For millions of people their home is their most valuable asset. If the value of that asset remains flat, economic confidence is likely to be fragile. Yet, in the longer term, there are benefits. Expensive housing is socially divisive and economically inefficient. It penalises the young and gives vast windfalls to those who are already on the property ladder. And, as we have seen, it gives a dangerous illusion of national prosperity. It might seem a strange wish for the New Year, but an unexciting housing market could be exactly what Britain needs over the coming decade.