Post by R. Mark Clayton Post by Phi
Britain is locked in a seemingly constant battle with the burden of its
overheated housing market. Theresa May has announced measures at the
Conservative Party conference designed, at the very least, to dampen
criticism over a lack of housing and ever-increasing prices.
It is unclear for now just what impact May's announcement for land releases
and an extra £2m for affordable housing may have. After all, the UK's
housing stock is valued at close to £7 trillion. But her announcement comes
after London real estate prices registered their biggest fall in a decade,
stoking expectations for further drops in real estate prices.
But what would falling house prices mean for Britain? How might it affect
employment, household consumption, investment, the Government deficit and,
critically, the UK current account - the net measure of cash flows in and
out of the economy.
The UK has and will almost certainly again cope with a fall in house prices: -
Early 80's - major recession and highish interest rates cause the real
price of house to a record low against wages (which is when and why I
Early 90's - minor recession, unwinding MIRAS and multiple reliefs and
increased interest rates caused a substantial fall.
What about the future: -
1. Market overheating - people have been paying record multiples of income.
2. Low interest rates - post crash and Leave vote - can't continue for
ever - rates are bound to rise.
3. High stamp duty on buy to let and increase compliance: -
This and higher interest rates will cause a large part of this market to unwind.
4. Brexit - will cause a localised slip in GDP in the UK of 6 - 9%
depending on how severe the break with the EU is. It will also cause an
exodus of high rollers, increasing supply at the top of the market and so
dragging down prices (already visible to a certain extent).
5. Likely reform of local taxation. Currently there are council tax bands
based on a generation old valuation. A more simple percentage of value
tax (as in USA and many other countries) will also pull down top values
and discourage over investment in residential property.
Best time to sell - probably just before the 2017 general election was announced.
This does not factor in the possibility of a Labour government - kiss
goodbye to stored value in anything if that happens.