The words ‘Housing Crisis’ are bandied about regularly these days. Pre-crash the housing market experienced an long boom latterly sustained by ready credit availability. When the crash hit, house prices plummeted before staging a mini-recovery and now sit around 15% below their peak. A correction but not the on the scale that was, and in some quarters is still, predicted. The current problem – and regional differences must be taken into account - remains unaffordability. Notional demand – the number of people who want to access home-ownership - is high while effective demand – the number who actually can - has plummeted. While the house price affordability ratio – that is house price to salary – remains very high by historic standards, it is now constrained mortgage lending that is creating pain for home-owners and first time buyers alike. There are now fewer lenders remaining in the market and they are offering terms that few first time buyers in particular can match. The average first time buyer in England needs to find almost £40,000 for a deposit (£60,000 in London). Barratt have reacted to this situation by unveiling a product enabling parents who themselves can’t afford the lump sum for a deposit to take out an unsecured personal loan through partners Hitachi to help their children onto the housing ladder. An innovative solution probably welcomed by parents of the two and a half million men and women aged between 20 and 34 who are still living at home, but one that demonstrates the broken housing market we have. The mortgage situation should, of course, be a relatively short term problem. Over the next three years lenders will have refinanced the £230billion of outstanding lending temporarily supported by the Bank of England/government schemes and, we hope, the economy will back on track. Once this has occurred we can expect to see lending return to more “normal” - if not 2007 – levels. The real crisis, the major imbalance in supply and demand in the housing market, will then become visible again. Even during the last boom too few houses were being built and unlike in some other EU countries, the boom did not create an over supply of properties. Every decade over the last fifty years has seen a fall in the number of homes completed – from 300,000 a year in the 1960s down to just 145,000 a year in the ‘noughties’ and last year fewer houses were built than in any peacetime year since 1923. Meanwhile household creation has outstripped house-building, particularly over the last decade. This large supply deficit will create a whole new problem as effective demand grows to meet notional demand putting pressure on the housing market and pushing prices up. This is exactly what the coalition government has said it doesn’t want. Housing Minister Grant Shapps has repeated his wish for flatter growth in house prices and was recently backed up by the Prime Minister at a public event in Leicester.
