Lack of Affordability Is Real Issue with Housing Market; AGENDA Media Coverage of the House Price Slump Is Hiding the Crucial Issue - Lack of Affordable Homes. John Morris and Kevin Gulliver Argue Their Case
The media's fascination with the stalling housing market and what this means for the UK economy is understandable, but not overly replete with sound analysis.
Hardly a day goes by without new statistics showing house price changes or the number of repossessed homes. Yet these statistics are usually circulated by vested interests, like lenders or insurance companies, and provide an incomplete picture; and often a partial one at that.
Equally, media coverage of the economic outlook has frequently conveyed doom and gloom - the economy is certainly slowing in the wake of the sub-prime precipitated credit crunch, the high personal debt 'overhang', rising costs of food and fuel, and higher mortgage rates, although they are still relatively low by historical standards.
Yet the real economy is still growing, though at a lower rate, the number of people employed is at an all-time high, and huge investment in infrastructure is still taking place with the planned refurbishment of New Street station the most recent example.
The UK is now more than twice as prosperous as the early 1990s, with annual wealth creation of pounds 1.4 trillion. Unemployment is a fraction what it used to be, and no longer the blight of a generation. While many more can be helped into employment and training, regions like the West Midlands have an excess of vacancies and are straining to grow further if skills gaps can be bridged.
The UK is the world's fifth largest economy after the US, Japan, Germany and China, all of which have significantly greater populations and land mass. And despite the publicity about the Asian economies, the European Union, in which the UK is a major player, encompasses the world's largest single market with annual wealth creation comparable to the US, China and India combined.
Closer to home, the West Midlands' economy is stronger after 15 years of uninterrupted economic growth. If our region was a country, it would be the 30th largest economy in the world, and placed ahead of the United Arab Emirates, Pakistan, Israel, Hungary and New Zealand. The UK's overall wealth is now pounds 6.5 trillion, of which pounds 4 trillion is wrapped-up in home ownership. The value of West Midlands' homes alone is pounds 350 billion.
The value of our homes has increased by more than mortgage debt in every year in the last decade and is now 3.4 times mortgages owed compared to 3.0 times in 1997. The average home owner has pounds 100,000 in unencumbered housing wealth with even those in the bottom 10 per cent of the market having pounds 13,000.
All of this suggests that the UK economy and housing market are basically sound, and any predicted slowdown is against a backdrop of massive gains in the last decade or so.
Yet scanning the media recently suggests that the housing market is close to collapse. A more careful appraisal shows that house prices actually increased during 2007 by 6.7 per cent and by a massive 168 per cent since 1997; almost six times the rate of inflation, representing an unprecedented return on home owners' investments.
During 2007, Birmingham's house prices increased by 4.2 per cent, with increases ranging from 3.8 to 8.2 per cent in the Black Country. In the Shires, increases were spread from 4.7 to nine per cent. Over the previous decade, Birmingham saw house price growth of 171 per cent; in the Black Country increases varied from 144 per cent to 185 per cent and in the shires from 152 to 181 per cent.
Mortgage repossessions are a worry for many, especially as repossessed families usually turn to local councils and housing associations and adding pressure to waiting lists, but the housing market is a long way from the problems of negative equity and mass evictions seen in the early 1990s.
Media coverage of housing market slowdown is obscuring a deeper problem: that home ownership is effectively out of the reach of even above average income families. …