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Building more new houses is the only way to stabilise house prices

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Does anyone out there read Country Life? Well, not so much read it as gaze in awe at its 120 pages of full colour advertisements for manor houses, castles and cottages that are as out of reach for most people as a holiday in an orbiting spacecraft.

These advertisements are wonderfully evocative, desirable and totally politically incorrect. Not one of these houses could be lived in without a fleet of cars and a troop of retainers.Yet only a couple of years ago raised eyebrows would have greeted any priced at £1 million.

Today most are into seven figures and electric gate territory.

Houses in the country are too expensive to buy, but the only reason is that there are too few of them. Because of the 1947 Town and Country Planning Act and all the restrictions on building on agricultural land that have resulted from it, the old axiom about buying land because they don't make it any more has been replaced by a new one about buying houses with land because they don't make them any more.

During the '80s, like a lot of people who should have known better, I believed that Margaret Thatcher knew all there was to know about housing policy.

From 1974, when she became shadow environment minister, until her fall from the premiership in 1990, the drive for home ownership was the keystone of her success.

She was the first political leader to recognise that large numbers of voters could get rich by playing the housing market - which they did from the late 1960s to the early 1990s. Hence right-to-buy and the community charge. The first separated out the cottage estates from the system-built ghettos and impoverished the local authorities. The second promised the most flagrant tax benefit of modern times to homeowners.

In gratitude they would have voted for Margaret Thatcher in perpetuity, but the poll tax collapsed and they never got the chance.

Today the housing market is in a curious state.

Property correspondents predict 20 per cent price increases one minute, and the next issue warnings of renewed repossessions because of 'over borrowing' (or 'over lending', depending on who is seen as being at fault).

The only certain thing about the housing market today is that it doesn't work the way it used to.

House prices rise, but they rise out of reach.Lending by building societies and banks is able to rise to keep pace because interest rates are low by historic standards, yet inflation is more palpable than it ever was.

Because of taxation transaction costs are a serious deterrent to buying and selling, which they never were before.

In this world of claims and counterclaims there is only one way to get at the truth and that is to look at the big picture.

The newspapers got it right when they juxtaposed news items about record mortgage lending in the first quarter of this year with items about the record balance of trade deficit over the same period - the first at £8 billion and the second at £7.7 billion, practically interchangeable figures.

If we exported goods to the value of the money we borrow to buy houses, we should be in fine shape. Unfortunately, we build too few new houses to stabilise house prices and invest too little in exports to stabilise our balance of trade.

In 1988 it was calculated that homeowners held equity worth more than £700 billion. Since then - following a dip in the early 1990s - this figure has doubled. One day the government is going to have to tax this equity in order to put this investment where it should have gone in the first place.

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