As 2011 dawns, the press are somewhat mixed in their opinion for what the year will hold for the UK property markets.
As we saw at the end of 2010, the consensus of opinion was mixed to say the least, although most were predicting further falls in the housing markets. Today however, Housing Minister Grant Shapps has called for "housing market stability".
Shapps has suggested that this might be achieved by changing the way in which people look at property ownership, suggesting that it should be seen as home ownership rather than to invest with intent to make profit. To a point, I would agree. I have often commented on the fact that comparing the house you live in to investment indexes is probably not the wisest of ideas, only furthering the negativity that has engulfed the housing market by finding out your house (which you live in, and have no intent of selling) is worth 1000 pounds less this week than it was last week.
The other key point is his suggestion that people should be more inclined to rent long term rather than obsess towards ownership.
Shapps' idea though, as sensible as it might sound, has no real substance at the time of writing, more a sound-bite if you like to calm the masses demanding lower house prices, with no real or direct suggestion as to what kind of cunning plan should be set out.
The press of course has come up with a few suggestions of their own, most revolving around a political tone, but one is to encourage developers to construct new homes, in a bid to flood the market and bring pricing down through market dilution.
Of course for this to happen, developers need encouragement to go out and develop. No doubt some kind of incentive scheme involving very large carrots could be created, but is this the answer? If you think about it for just a moment, you may well come to the same conclusion as me.
If I was a developer running a business, sure, I would be grateful and encouraged by government incentives for me to build. However, these incentives are designed not to increase the value of an area, nor to up my turnover as a company. These incentives would be solely to reduce house price values to an "affordable level".
Don't get me wrong - I too would like to own a house, and lower house prices have to be a good thing for the most part, but at what cost? No developer in their right mind is going to jump on an incentive bandwagon that only furthers the reduction in value of their end product, and subsequent future products. Aside from that, when you take into account the fact that there are already a phenomenal number of people with negative equity at the moment (which is only set to increase further), a large proportion of home owners will be further alienated too.
Another idea is that the public consider the side of long-term renting (much like the French and Germans do; most French and German nationals don't buy their own home until they approach retirement).
This concept though also has its difficulties. If comments by the public are anything to go by, Buy to Let is not a very popular practice now, primarily due to the lack of regulation surrounding it.
The bottom line though is that whilst Shapps' comments have been well received, the practicality of it isn't all that. Even if the government decides to dig up a field of carrots and wave them at home builders, a few things need to be taken into consideration.
With the greatest will in the world, such a plan will take a while to get through Parliament and even when it does, is it likely to make financial sense to developers? Even if it does (which although admittedly having not done the maths on this, I find it highly unlikely) it will still be a minimum of 12 months before any finished developments hit the market, and more likely 2 or 3 years, by which time who knows where inflation and mortgage rates will be?
The housing markets still need to settle. There are still a large number of repossessed properties to hit the market in the UK. On top of that we have to remember the housing market is a very slow paced business. It simply doesn't leap about the place like a kangaroo on a pogo stick. Look at last year; almost everyone was predicting doom and house price crashes everywhere - the year end result? - flat (this does depend of course on what you read, but for the most part flat.)
What to do?
Nothing different than what you were planning to do already. Any changes that get put forward to Government will take some time to be introduced, and any effects will take even longer to be seen.
- Monday 03 January 2011