In the UK these are flat-lining, though in London they are growing again, but this is due to the concentration of financial and service jobs, many with international dimensions, in the capital. In the US they are falling again and the authorities have confirmed there is now a homeprice double dip. Yet American consumer spending is once again on the rise. By and large what happens in America eventually happens here.
This house price correction, which will go on until homes become readily affordable to the people who want to live in them, i.e the average house price by area is not more than three times the average income, is an absolutely indispensable condition for sound economic recovery. It is also necessary to keep deposits high and lending under control, since far too much cash previously ended up in property, when it should have financed business and exports. Such a regime gives rise to claims that young people will never be able to get on the housing ladder. This may not be a bad thing.
It was the Thatcherite Tory party which promoted the notion that everyone should own their own home. The sale of council houses to tenants at a big discount kick started the stampede. The requirement for the proceeds to go to the Treasury and not the local authorities to maintain house building for rent, ensured there was no alternative to ownership, even for those who could not afford it. So everyone had to borrow well beyond their realistic means. This happened in America as well, but not in France and Germany, where the impact of the global crash was a good deal less.
Home ownership is not really the good idea it is said to be as it encourages borrowing, inhibits saving other than in property and significantly hinders flexibility of employment by restricting easy mobility of the workforce. This is not to say that people should not own a home, but rather, they should have a choice and that renting should be a good and secure alternative.
The problem with renting is that too many private landlords are simply speculators, strapped for cash, behind in mortgage payments, giving their tenants a rotten deal. In the past there were large and reliable institutional landlords, including local authorities, who looked after their tenants, gave a square deal and in return enjoyed a good yield on their capital. We need, as a nation, to get back there and this government needs urgently to think up incentives for insurance companies, pension funds and others to build lots of decent homes to rent and to maintain them in pristine order. Not only will that encourage the construction sector, but it will underpin the economic recovery, by creating a more broadly based economy which can stand the cycles and shocks that in the real world will always be there. It will also help the UK to climb out of the peculiar distinction of being, per capita, the most indebted developed nation on earth.
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