Re-possessions a lower proportion of all home loans

Despite the recession in the economy as a whole and the sharp fall in activity in the housing market, the number of re-possessions has increased at a slower rate than in the previous recession in the early 1990s.

From a peak of 0.8% of all loans in 1991, re-possessions fell to just 0.07% in 2002 and 2003, the lowest figure for well over 20 years. It has been edging up since then but in 2008 was still only 0.34%.

Arrears low in spite of bigger mortgages

The number of households more than 12 months in arrears with their mortgages, moreover, was only 29,500 in 2008, compared with 151,800 in 1993. The 2008 total was equivalent to just 0.62% of all loans (it was 1.5% in 1993). This is in spite of the much bigger mortgages and earnings multiples that borrowers have been taking on.

The government attempts to stem overheating

The government has removed the traditional tax incentives associated with home ownership (relief on the interest element of the mortgage) which was a subsidy to house buyers. In addition, in an attempt to stop the market from overheating, stamp duty has been introduced on transactions above certain levels, £125,000, £250,000, and £500,000.

This will affect areas like London more than the north and is seen as a fairer way of keeping the lid on prices than using interest rates.

Despite the current uncertainty, the fundamentals of the housing market suggest that buyers are likely to pause for breath until mortgage funds start to flow again and employment prospects stabilise.

Market set to recapture some lost ground

A growing labour market, historically cheap money, the competitive nature of the financial services sector, the cumulative shortfall in the number of houses and the continuing preference for owner occupation should ensure that the market recaptures some of the ground lost in 2007-08, particularly in terms of transactions.

Help for key workers

A key problem that still exercise the policymakers are to find ways of helping ‘key’ workers (often relatively lowly paid in the public sector) to get on to the housing ladder without distorting the market and forcing prices up even further.

There is also a need to find a methodology for containing asset price bubbles (such as house prices) within an inflation targeting policy framework.

Into the medium and long term, the authorities will have to address some important strategic issues.

Problem: where to build new homes?

The most acute problem is where to build the projected 21% of additional homes in the South East by 2021.

It has been a policy objective to build 60% of all new houses on ‘brownfield’ sites, that is land that was formerly used for industrial purposes. This has so far proved to be difficult to implement because of the extra costs and perceived risks of using contaminated land for housing.

Table 14.4: Household Project by Regions

This leaves land currently designated Green Belt territory as the most obvious source of new building land in the south east. There may be some farmland that will be uneconomic after the recent traumas in agriculture which will be used for housing but the Green Belt looks the most likely source.

A choice between jobs and homes on the one hand and the environment on the other can only be settled at the highest political level and it looks likely to be a bone of contention between local and central government.

Housing shortage underpins house price increases

It is the accumulating housing deficit (the excess of new households over the number of new homes) that is underpinning house price increases. The former Deputy Prime Minister, John Prescott, promised two major changes to increase housing supply:

• to designate certain areas as priority for new building and
• to ease planning restrictions and speed up the approval process.

It will be years before either of these measures takes effect.

Shift in the type of property required

For builders, the issue that has to be addressed is a significant shift in the type of property required. The growth of households out to 2021 assumes a disproportionately large increase in the number of small households, single person, one parent families, etc. For much of the last quarter of the 20^th century, construction companies were looking to build trading-up properties for the typical family, two adults and two children.

This is expected to change in the first decade of this century, with more divorcees, widows, later marriages and single parents. Owner-occupation will, however, remain the preferred form of tenancy.