Don’t confuse a rise in house prices and mortgage lending with an increase in supply. The figures tell a different story.
Media watchers who saw the housing market “bursting back into life” or newspapers offering “positive house price news” last week will have been heartened that not only are prices going up but that we are also enjoying a “housebuilding boom”.
Of course when other commodities go up in price – food, fuel and rail fares – the reaction is very different. But accepting that the press will always treat property prices differently from other consumer purchases, we ought still to be sceptical of any claimed housing boom. Whichever way you describe a boom, this one does seem to be extraordinarily weak.
House prices last reached a peak in January 2008 before sales were hit by the credit crunch. The average UK house price then stood at £221,000. Prices then slumped, only to start to climb falteringly over the past 18 months. They reached a new peak of £242,000 in June, which means it has taken over five years to record an increase of just under 10%.
But the increases have resulted almost entirely from the inflated market in London and (to some extent) other parts of the south. Average prices in London rose from £350,000 to £425,000 over the period. If we knock out London and the southeast, average prices since early 2008 have hardly moved in the rest of the UK (from £186,000 to just £190,000). In four regions in the north and Midlands, prices have still to reach their pre-credit crunch levels.
Furthermore, as the Chartered Institute of Housing showed in June, the official figures don’t give a proper comparison over a series of years. Using a consistent sample of properties shows that, by the end of 2012, prices had barely moved or fallen sharply in every part of the UK except London since 2007.
A resurgent market would show a surge in mortgage advances. Yet, while there is an upward trend, it is hardly remarkable. In the year ending in June, the Council of Mortgage Lenders reported just over £150bn worth of advances; this compares with just over £140bn in both 2011 and 2012. In pre-crunch 2007 mortgage advances were more than £350bn.
The recent increase in mortgages for first-time buyers could be good news. It suggests that reports of a more sluggish private rental market may have some truth, but may mean demand is switching between sectors and not actually stimulating new building.
Ministers have said that 319,000 homes were added to supply in the two years after the June 2010 budget – but these figures based on the new homes bonus are not the same as houses actually built. The official figures on new construction show just 334,000 houses completed in England in the three years since the 2010 budget. In the three years before that, there were 415,000 completions. The sharp rise in completions in the latest quarter only appeared so large because the previous quarter’s figure was the lowest in over 35 years.
If year-on-year completions fell in June to 106,820 compared with 117,650 the year before, this can hardly be good news. The news is even worse if house prices are also starting to rise more quickly, however modest the trend. Behind the hype there is one small crumb of comfort: private sector starts were higher in April-June this year than at any point since early 2008. That’s good – but it’s not a boom.