Over the last few weeks, some commentators have been saying that the housing market has been cooling. They make the argument that, although prices have gone up, activity is dropping off as buyers are baulking at what they are being asked to stump up. I suspect that this view is being put about by market insiders who are desperate to try and stop the Bank of England taking action to take some of the heat out of the market. Just before the onset of the Great Recession, Chuck Prince, the then Chief Executive of Citigroup, famously said:
When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.
I think mortgage lenders and estate agents in particular are determined to try and keep the music playing for as long as possible. If you believe in capitalism, then why complain? Markets know best after all. Self-regulation is the best form of regulation. Profit maximising companies are the best generators of social value and there will be a lot of social value created when, as the ONS announced today, house prices in the UK went up 9.9% in the year to April 2014, up from 8% in the year to March 2014. London is particularly blessed as prices rose 18.7%.
Meanwhile, back on planet earth, ordinary people wonder where this is all going to end. What do the Very Serious People mean when they talk of a slow-down? If the annual rate of increase in house prices in London falls by 50% this year, will there be no need to worry? Is a rate of growth of 9.4% more sustainable than one of 18.7%, in the way that one bullet between the eyes is less lethal than two? If the market is slowing, no one has told Foxtons. Yesterday we received another letter asking if we wanted to rent out our property as they have 'Corporate tenants urgently seeking properties'.
It's hard to get a sense of how far the world has changed, especially in London, and how far people's life chances have diminished and inequality has risen, by simply looking at house price rises. I think you get a much better idea when you look at the lives of your parents. My Mum and Dad came from Deptford. My Dad left school with no qualifications and was a white collar member of the working class. He worked for about 20 years as an assistant transport manager at Lovell's Wharf in Greenwich. The docks were in decline and pay for the office staff was always poor as, unlike the dockers and drivers, they weren't unionised. Nonetheless he was able to buy a small three-bedroom Victorian terraced house in Crofton Park with, I believe, a mortgage from Lewisham Council (times really have changed!) Just before Lovell's closed for good he managed to get a job at Lloyds Bank because at this time, the late 1960s, they were looking for 'mature men with business experience'. He worked there for just over 20 years when he was forced to take early retirement. He never rose very far, finishing his working life running the section that dealt with staff mortgages at the staff branch at a Head Office centre in London. Yet about 15 years after buying his first house, he was able to buy a 3 bedroom 1930s semi-detached house, with garage and big garden, down the road in Ladywell. When we all lived there our neighbours were a BBC technician and his family, teachers, nurses, the man who ran a small greengrocers in Ladywell village, and the postman.
Sadly Mum and Dad both died. We sold the house just under two years ago for about £350,000. This puts this kind of basic property completely out of the reach of ordinary working people who could afford them with relative ease in the early 1980s when my parents bought their's – I think they paid around £36,000. My parents never had a great deal of money, yet they could live a life of comfort and security in their own good-sized yet modest property, a life unimaginable to many of today's much better educated, professional young people, let alone those on average earnings. Oh, and by the way, a similar house in an adjoining street has just gone on the market for £650,000.
When today's young people, today's Generation Y or Generation Rent, realise that they have no chance of living a life as good as their parents, and that an economic recovery, however robust, won't remedy the situation, I wonder what their response will be.
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