Safe as houses?
Catherine Coley
EVERY so often, an estate agent comes out with an alarmist prediction of how high house prices are going to rise. Earlier this year, Knight Frank calculated that prices in Chelsea had gone up by 72,125 per cent since the Queen's succession in 1952: if they rose by a mere 25,000 per cent in the next 50 years, a house that cost £3 million now would fetch £753 million in 2052. An only slightly tongue-in-cheek presentation by Sayills at the Ritz calculated that the average Glasgow semi would cost £1 million by 2009. Of course, this is all music to estate agents' ears, if bad news for our children and grandchildren. You wouldn't advise your daughter to go on the stage, Mrs Worthington, let alone to become an impecunious teacher, nurse — or journalist, for that matter. But when a respectable think-tank comes up with a sober, highly researched and judicious report that reaches the same conclusion, then it's time to worry.
According to the Centre for Economics and Business Research, a consultancy which advises Siemens and Canary Wharf among others, the value of the average dwelling in London will rise from £183,262 now to £595,164 in 2020, an annual growth rate of nearly 7 per cent. Nor is London the only region affected, as the CEBR's newly published report, Housing Futures 2012, makes clear, Prices are forecast to rise most in the east of England, from an average of £109,166 now to £368,058 in 2020, That is way above the rate of inflation and the predicted rise in average earnings. So if you thought it was hard to buy a house or flat in London or the Home Counties now, it will be vastly more difficult by 2020, particularly if you are unfortunate enough to be a lowpaid public-sector worker or a first-time buyer. The only areas that may see less dramatic price increases are Scotland, Wales and the North-East, although even here house prices are expected to rise above the rate of inflation.
It is difficult to argue with the CEBR's logic. It believes that by 2020 there will be a serious shortage of housing caused by rapid population growth and the failure of planners to provide more dwellings for smaller households — hence the steep price-rises. The Government Actuary's Department has predicted that the population of the UK will be 64 million by 2021, 463,000 more than was previously predicted, mainly as a result of immigration.
As for the planners, a Green Paper released by the government last December was acidic about their shortcomings: the planning process is too often perceived to be a set of rules aimed at preventing development rather than ensuring that good development goes ahead. The Office for National Statistics predicts that the number of households will increase by 16.8 per cent between now and 2020. This is the result of a rather
bleak catalogue of social changes: people are staying single for longer, yet choose not to live with their parents; they have fewer children, a series of relationships that break down, and spend longer living alone when they are older. There simply will not be enough affordable homes for all these small households.
'All the problems of the housing market occur because supply is so limited,' says Richard Donnell, head of research at FPD Savills. 'Enough land has been identified for the housing that is needed, but no one has considered who is going to make the development happen.' Private developers are largely responsible for growth in housing, but their motive is profit rather than paternalism. 'It is easy to build and sell houses on green land,' Mr Donnell explains, 'but far riskier to build 250 high-density flats in a mixed-use development; and not all housebuilders have the necessary skills or the bal ance sheet.' Another problem is that our current housing stock is inadequate. Everywhere in the UK, apart from London, there are far more family-sized homes than are needed, but they may soon be too expensive and cumbersome for oneand two-person households.
There may be one crumb of comfort if you are already working out how much you need to earn to qualify for a £595,164 mortgage to buy your two-bedroom flat in Kensal Rise. We're all going to get richer, says the CEBR, as average earnings are likely to be 46 per cent higher in 2020 than in 2000, 'Values in London aren't as overcooked as they're sometimes made out to be,' Mr Donnell says. 'There is a limit to how high prices will rise, because people aren't prepared to spend as much on housing as they did in the 1980s. But a 75 per cent growth in house prices is perfectly manageable.' He believes that house prices in London will rise by between a third and a half in the next six years.
Overall in the UK, prices are still relatively affordable if you compare average house prices to average household income. At present, house prices are 3.69 times income; they reached a high of 3.87 in 1989. This masks the facts that prices in London and the SouthEast are many times higher than average income, and that household income has been necessarily boosted throughout the UK because most women now go out to work.
What will probably happen is that we will no longer be able to aspire to have our own homes. At present, nearly 70 per cent of us have bought a house — in 1981, it was just over 55 per cent — but many think owneroccupancy has now peaked. 'People need to save for longer periods of time, and so they are choosing to rent,' says David Moulton, head of research at Knight Frank. 'Private renting is set to grow by 50 to 60 per cent in the next decade.' He also claims that housing associations will benefit. 'They will provide shared-ownership schemes, key-worker housing and market rentals, and, although they're aggressive and progressive property providers, they'll get away with it by subsidising affordable housing.'
Of course, none of this may come to pass, and few people will be checking whether forecasts made in 2002 are accurate in 2020. As the CEBR itself admits, prediction is as much art as science, and perhaps the biggest spur — or curb — to house prices is the psychological state of those who are buying and selling houses. If they are confident that their jobs are secure and that the economy is thriving, then they'll move house at will, and prices will go up. If recession looms, entry into the euro proves disastrous and the third world war starts in the Middle East, then prices will fall. Just make sure that you sell your £595,164 one-bedroom flat in Fulham before the crash comes.
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