“There could be a World War,” says David Cameron. “Or even worse, house prices might fall”, George Osborne replies This imaginary conversation, shown in speech bubbles and under the headline “Project Fear Brexit goes Nuclear”, appeared on the front of Private Eye last month. The cover worked, as good satire always does, because it contained a strong element of truth.
A high proportion of voters do believe, after all, that the government has taken “Project Fear” to absurd “nuclear” levels. Those of us who want to leave the European Union, having been dubbed “economically illiterate” by the Chancellor, have since been told by our Prime Minister that we’re “quitters” who are making Islamic extremists “happy” and “threatening peace and stability across Europe”.
As if that wasn’t enough, were the UK to quit EU, house prices might even come down, the government says. And for our property-obsessed nation – or, at least, the vast swathe of Middle England home-owners who generally back the Tories – lower house prices would be unthinkable. As in, “even worse” than “World War”. Boom! Boom!
When I first heard Osborne bring “falling house prices” into the “cocktail of risks” posed by Brexit last month, I remember thinking his tactics could backfire. Much of the British public is irritated by government’s endless finger-wagging about the risk of leaving. Grown-ups generally know when they’re being sold a line – and often resent it. That’s why, despite the barrage of government-backed anti-Brexit “studies” presenting economic meltdown as “fact”, opinion polls remain neck-and-neck.
Specifically suggesting that house prices could fall, though, is doubly dangerous – as many of the younger voters Remain wants to mobilize desperately want prices to fall, of course. Not knowing that, or failing to appreciate the extent to which “generation rent” is suffering, sent loopy by endlessly rising house prices as they struggle to amass an ever larger deposit, is to risk being seen as desperately out of touch.
Now, the fear-mongering appears to be a self-fulfilling prophecy – at least for a while. House prices are set to drop for the first time since 2012, claimed a study last week from the Royal Institute of Chartered Surveyors, as demand for property falls at its fastest rate in eight years, in part due to uncertainty surrounding the referendum. I partly accept that. I’d also argue demand faces a lull because, earlier this year, the Chancellor caused an almighty buying rush ahead of the 3pc stamp duty rise on homes bought for rental, announced in his March budget and introduced in April.
The truth is that Brexit uncertainty does absolutely nothing to alter the underlying fundamentals of the UK housing market – on-going strong demand and a chronic lack of supply. An even bigger truth is that our housing market is broken. The shortage of homes, and the cynical failure to build more, has driven prices in many parts of the country way beyond “ordinary people”. And, as they spiral ever upward, despite any pre-Brexit lull which RICS anyways says will be “short-lived”, more and more youngsters are bitterly concluding they’ll never own a home – finding themselves, despite working and saving hard, on the wrong side of an ever-widening chasm between property haves and have-nots.
“We need a national crusade to get homes built,” said the Prime Minister at the Conservative party conference last autumn. In March, house-building slowed to its weakest rate in three years The number of new homes built in the UK annually – around 143,500 – remains nowhere near the 250,000 needed even before the reckon spike in immigration. Since 2005, as prices have soared across much of the country, home ownership has dropped 71pc to 61pc of all households. Among the crucial family-forming age group of 25- to 34-year-olds, though, it has plunged – from 68pc ten years ago to just 39pc today.
There has been a huge 100,000-plus house-building shortfall every year for the past decade. That’s on top of significant under-provision the decade before. The result is sky-rocketing prices, condemning millions to permanent rental status unless they have access to “the bank of Mum & Dad”. In the early
1990s, low- and middle-income workers needed to save 5pc of their wages for 3 years to build a deposit for a first-time property. Today, they need 24 years of such savings. Even professional youngsters struggle to buy anything at all – let alone a property like their childhood home. Survey evidence suggests over half of first-time buyers in 2015 had to rely on financial assistance from their parents, rising to two-thirds in London and the South East. The UK housing market is giving capitalism a bad name. We are no longer a progressive, meritocratic society.
Research from the Bank of England shows half of non-property-owners – around 5m households – have given up all hope of owner-occupation. With prices rising far faster than earnings in two-thirds of British regions, the rental sector continues to expand – and will comprise 7.2m homes by 2025. By then, just 26pc of 25- to 34-year-olds will own their own home. Traditionally a source of social mobility, security and contentment, then, our housing market is now fuelling social immobility, resentment and rancor. For decades, even relatively low-income families who worked could buy a reasonable home – gaining freedom from landlords, physical security and a “stake” in an increasingly wealthy society.
No longer. More and more Brits are now “locked out” of the property market, while owners accumulate ever more unearned wealth and claims on society’s resources. Far more than zero-hour contracts, fat-cat, pay or bankers’ bonuses, the true driver of rising UK inequality is our chronically dysfunctional residential property market.
Why is this happening? Why is our apparently mighty private sector not building more homes? A commonly cited reason is planning controls. The evidence shows, though, that planning permission is increasingly being granted – and still the homes aren’t materializing, with the time taken between permissions and completions rising from 21 months in 2007/8 to 32 months now – a 52pc rise.
The UK house-building sector is a classic oligopoly – with the top-10 developers controlling, directly or indirectly, more than two-thirds of the market. There is strong evidence these companies boost profit margins by restricting competition and dragging their feet when it comes to increasing supply.
It’s also true that home-owners vote in large numbers and are still a majority – despite the ever-growing ranks of renters. Politicians know higher house prices and the related “feel-good factor” garner support from the middle-income swing-voters who decide general elections. As anger at the UK’s property apartheid rises, especially among youngsters, the political geometry is slowing shifting. But, for now, rising house prices still make electoral sense – which is why, despite all the rhetoric to the contrary, government policies such as help-to-buy and stamp duty hikes do nothing to push the private sector into raising supply.
Every UK recovery from recession over the last century has been associated with a significant rise in house building and a construction boom that spreads to the broader economy. Since the 2008 collapse, house-building has been extremely subdued – and we’ve seen the weakest economic recovery in recorded UK history.
This is what senior ministers should be devoting their attention to – facing down vested interests, penalizing unjustifiable building delays and making sure enough homes are built to give everyone a fair crack of the whip. Instead, our government spends its time and energy trying to scare us into remaining in the EU.