The Second Great Fire of London?: UK Housing Market on Fire!

April 30, 2021

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3 min read

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What's going on here?

During a global pandemic, the UK’s housing market has continued to thrive with the average price of housing rising to £238,211 in 2020.

What does this mean?

Unsurprisingly, the UK property market has continued to grow to eye-watering levels, with the average UK house price now sitting at £238,211. For most people this is an unreachable amount, forcing many would-be homeowners into rented accommodation. It was presumed the UK’s stamp duty holiday would suppress UK house prices by removing the tax on house purchases. As such, the price of property ‘in theory’ becomes cheaper, as buyers can use the capital retained through the tax break to put towards a more expensive property. However, with prices rising at an 8.5% rate, the effectiveness of this policy must be questioned. 

The effect of the land boom has been felt hardest by workers whose wages have stagnated, or worse, by workers who have been made redundant during COVID-19. According to the Office of National Statistics, the rate of unemployment for November 2020 to January 2021 was 5%, translating to 1.7m  unemployed people. This is the highest rate of unemployment since 2015. As unemployment rises, fewer people will be able to afford housing, both in terms of purchasing property, and maintaining mortgage payments. A recent study conducted by The Guardian revealed that a median wage of £33,920 is now inadequate to access a mortgage on a median-priced property in almost three-quarters of local authorities nationwide. As a result, many key workers are effectively being ‘priced out’ of London and other big cities.

What's the big picture effect?

This problem is not exclusive to current homeowners but includes first-time buyers. Indeed with the current price of housing, any dreams of owning a property by 23 (the average age of a homeowner in the 1960s) seems a long and distant memory. However, before house prices start to fall, homeowners must face a difficult question. If house prices start to fall then this will also represent a decline in the homeowners’ wealth. This is because a home is often a person’s principal asset, and thus any reductions in its value will also symbolise a decline in the owner’s wealth in real terms. This is unlikely to be problematic, so long as house prices decrease steadily. Nonetheless, house prices only need to drop marginally to resolve the crisis, as a small drop will enable a large majority of workers to re-enter the housing market. 

So how can this be achieved? The simple answer is to build more houses. This would increase the availability of housing in the UK, subsequently having a depressing impact on house prices. However, this is easier said than done. For instance, obtaining planning permission is a complex procedure in itself, and existing households in the vicinity are often reluctant to comply. This is because housing developments will increase the local population, putting pressure on strained public resources like transport and health services. 

However, the housing crisis can also be indirectly tackled through law reform. One way this could be achieved is through stronger employment rights. This would help increase job security, lowering the number of workers that can be made redundant unexpectedly. If this were to occur, more workers would be able to keep up with their mortgage payments, or at the very least, plan in advance to move to cheaper accommodation while in between jobs. On top of this, the law could be used to streamline the current planning permission procedure. This would encourage land-owners and housing developers to apply for permission, helping to increase the UK housing supply.

On the whole, UK house prices have continued to grow, swelling to an average of £238,211 last year. This has unsurprisingly forced many workers to take one foot off of the housing ladder into the private sector. This is especially problematic for the UK economy, as key workers are effectively being ‘priced out’ of London and other major cities. It is now time for the Government to take a more proactive approach instead of endorsing feel-good policies like the UK’s stamp duty holiday. Ultimately, such policies will end up harming the UK economy more than they help it, but does the Government have the stomach to endorse politically dangerous policies off the back of a controversial COVID-19 strategy?

Report written by Luke Cuthbert

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