The UK, and London especially, is home to Europe’s most expensive housing market after Monaco. For a generation of young people who have watched home ownership slip out of reach, the thought of prices going down significantly is inconceivable.
But in a period of inconceivables – a global pandemic, Christmas turkey shortages, Kanye West releasing his album when he said he would – could house prices be next?
I asked Professor Danny Dorling, social geographer at the University of Oxford.
Is it me or does everyone love saying they bought at the wrong time?
We are British, no one is going to say: “I bought at exactly the right time and made an absolute fortune!”
Someone said that to me last week.
They could be right. There’s a posh, narrow house that can’t be extended on a canal in Amsterdam where the records of every sale have been kept. So we can see how it fluctuates, and whether it’s up from, say, twice the average person’s income, or down. It had its peak nearly 200 years ago. It’s possible that we’re in a peak right now, where prices might not recover for 200 years if there was a crash.
But what if there is no crash?
There will be a fall. There always is.
When? Louder for the millennials at the back, please!
That’s harder to predict. But it will be substantial, because we’ve built prices up so high. The worry for your generation is that if you’ve managed to get yourself on the ladder paying God knows how much and then the big one happens – you’ll have zero wealth. I often wish people would think about that when buying, but then again, what else can they do? Carry on paying a landlord to go on cruises?
Could the government halt – or at least slow – a crash?
It already is. Look at Help to Buy, which helped sustain a demand for the supply. It was only for new-builds because there wouldn’t be enough people to buy those otherwise. And that would spark a price fall.
Is it possible to help a generation stuck in precarious renting without lots of people going into negative equity?
We could reinstate the right for people to stay in rentals for longer, which the government stopped in the 80s. In Germany, they can’t just put the rent up to make a tenant leave; the landlord has to buy out the tenant.
How would rent controls make house prices more affordable?
They reduce the amount of profit that can be made from housing and so the house is worth less to a landlord. The concern is the unpredictability, like if it shot down suddenly. The ideal would be that house prices go down 1% below inflation per year over 40 years, and as people are paying off more with their mortgages they wouldn’t go into negative equity.
That sounds complicated and high risk.
I grew up in Oxford and I remember a time when a mechanic could buy a house in their 20s. It’s possible. And I understand why people fear house prices falling. Someone your age said to me recently that their flat would ensure they could put the heating on in old age. But you only have the money once you sell, and the future twentysomethings won’t have the money to buy from us like this. Ultimately, we’re one of the most unequal countries in Europe. It can’t go on for ever.