Wednesday, 12 March 2014

Welcome back to the housing merry-go-round

The news that UK house prices are now rising pretty fast should come as no surprise to anyone. Massive pent-up demand? Check. Crazy government plans to guarantee a vast slice of the country's mortgage debt? Tick: here's looking at you, Help to Buy. Lack of building? Oh yes.

We've seen it all before, each time with another dollop of self-justification and hypocrisy. The secondary banking crash of 1972-73. The run on couples' Mortgage Income Tax Relief that exploded in the government's face between 1988 and 1990. The repercussions of the bank runs and financial crisis of 2007-2008. And now we're just about ready to do it all again - go for a few years of asset-driven borrowing, only to wear hair shirt and eat humble pie in a few years' time.

We've got ourselves into a situation where more than half the nation's wealth is now tied up in property. That's most acute in London, of course. It's now getting to the stage where the merely ordinary rich - journalists such as Rachel Johnson - have for some time been sadly reflecting that they just can't keep up with the super-affluent: the families of unbelievably wealthy New York bankers and the like. Whole neighbourhoods of central London, once notable for their cheek-by-jowl mixed-up-ness, are being hollowed out by their reliance on the sheer weight of money emanating from such sources.

Now that has certain consequences for getting yourself out of the sort of hole we've been in for so long. It means that people can easily be made to feel richer, going out and spending as they feel nominally wealthier. It means that building and construction can be pumped up pretty quickly (once the weather abates) - albeit from a pitifully low base we haven't known in domestic housebuilding since the 1920s. But in the long term, it's just another turn of the screw on young people, the priced-out and the poorer. It's not just the wellsprings of communal life in London that are being poisoned. Property prices in southern English cities such as Oxford are now up to eleven or twelve times residents' incomes. That cannot be sustainable. It cannot be good for labour mobility, long-term income restraint or productivity - but it's a tempting, addictive, high-octane mix that Britain has now proved incapable of weaning itself off for four economic cycles in a row.

The long and the short of it: any historian can tell you that this one will end in tears. Pay down your mortgage as fast as you can while interest rates are low, before any other shocks hit the world economy (there are always some lurking out there, like rocks in the asteroid belt). And don't let anyone - television programmer, boosterish investor, boorish 'expert' - tell you anything different.