Buying before the boom?

by Christopher Evans

This week's house price statistics told a familiar story - they were down again. Halifax recorded a 1.7 per cent drop in the average home sale value to £154,716, down 17.7 per cent in a year and 1.7 per cent in April. 

The only hint that this was anything other than a continuation of a long-running trend was the slight slowdown in the fall from 1.9 per cent in March.

For those investing in property, now may not seem much of a time to be thinking through the implications of a new major price boom. 

For one thing, Halifax chief economist Martin Ellis warned that there will be more price falls to come due to low levels of consumer confidence, a continued lack of credit and high unemployment. Moreover, any initial recovery may be slow due to the state of the wider economy.

However, investors may be concerned at the potentially destabilising effects of another boom, one which many believe was partly influenced by a lack of supply, including the government as it pledged to build another three million homes by 2020.

Fearing that any improvements in affordability may be limited due to the lack of new building, pressure group PricedOut.org.uk has expressed a desire that the government should not drop this idea.

Spokesperson Katy John stated: "The government needs to remember its pledge to build three million new homes by 2020. Ceasing building and therefore restricting the number of available properties will always keep house prices high."

Ms John suggested that to meet this target may require taking some hard decisions - like building on the greenbelt - rather than trying to prompt people to move to areas with more affordable housing but perhaps less jobs. 

She stated: "In reality, particularly at the moment, people need to stay where the jobs are. As such, a more practical solution would be to build more houses where the jobs are. For instance, freeing up space to build houses on the greenbelt would enable this."

Doing this could be hard, but making planning regulations more favourable to builders is one way forward, Bank of England monetary policy committee member Kate Barker suggested last month. 

However, she noted, the affordability problem produced by a lack of new builds is not likely to go away, commenting: "The existing target of 240,000 new homes per year by 2016 is difficult, if not impossible, to meet. When the housing industry was booming, we still only achieved 200,000 new homes in one year, which raises the prospect of prices rising sharply again in the future."

For investors, this could produce some very good news in two ways. Firstly, high price rises could produce good capital gains, though it may be hoped that this does not go too far so as to create a boom and bust situation. 

The other feature of the future may be a larger role for the rental sector, something Ms Barker advocated. 

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Published on: May 8, 2009

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