Good news. It’s time to get back into the British housing market. Or so the government reckons at least. Despite the fact that we’re in what most people now acknowledge is shaping up to be the worst recession since World War II, and despite the fact that unemployment is set to soar, housing minister Margaret Beckett reckons now is the ideal time to buy a property. In an interview with The Sunday Times this week, Ms Beckett reasoned that the collapse in the construction industry means that we’ll run short of houses. So first-time buyers shouldn’t wait for further price falls, because “when the upturn comes, there will probably be a mad rush”.
It’s an interesting theory. It’s also nonsense. For a start, the current slump has shown very clearly that we don’t have a shortage of property in this country. People need a roof over their heads – they can rent one, or they can buy one, but they have to have one. So given that people have stopped buying houses, you would expect demand for rental property to soar, which would in turn push up rental payments. But in fact, there’s a glut of rental property on the market, enough to push prices down.
And another thing, houses aren’t penny stocks – their prices don’t double overnight. For house prices to rise, several things have to happen. Banks relaxing credit restrictions, employers hiring rather than firing, the economy stopping its headlong descent into depression, are just a few of them. So if you felt even a twinge of panic on reading Ms Beckett’s advice, rest assured, the last thing you need to worry about now is rising house prices.
Ms Beckett seems to be one of these people who believes in what I call the “Happy Talk” theory. This is the idea that any problem can be made to go away simply by pretending it’s not happening. In Prime Minister’s Questions this week, she said it was no surprise confidence in the economy was being shaken, as the media only wants to look at bad news.
Again, I’m not convinced. I suspect the problem with confidence might have something to do with the fact that unemployment is soaring, banks are going bust, and no one in power seems to have a clue as to what to do about it, except to try to pull the wool over the electorate’s eyes.
The good news is that most first-time buyers won’t follow Ms Beckett’s advice, even if they wanted to – because banks aren’t willing to lend to anyone but the safest prospects. The fact that lenders are asking for deposits of 20%-40% to secure their best mortgage rates gives you a rough idea of how much faith they have in the housing market right now. Banks may have got a lot of things wrong in the past ten years – but I’d have more faith in their forecasts for house prices than Ms Beckett’s.