A property price rise in the UK could be the Tories’ last election trump card
Property prices will go back up next year. Not by much. And not by enough for those who chart their wellbeing by the value of their home. In the pantheon of property price recoveries, it will rank among the weaker ones, though the Conservative party will be hoping it provides a lifeline.
That’s the view of some economic forecasters – minus the political implications – who say house prices could exceed general inflation, ending a brief 18-month period when stagnant property values made flats and houses marginally more affordable.
There are several factors at play pushing prices higher next year. Disposable incomes are expected to recover and consumer confidence, badly damaged this month by the prospect of a war in the Middle East, will most likely be on an even keel in 2024.
The jobs market is expected to be stable, and a recession, if it materialises, will be shallow and have only a limited effect on the survival of most businesses. People who live from paycheck to paycheck with no savings, which is generally considered to be the bottom 30% of the income scale, will continue to suffer from government restrictions to benefits and persistent low pay.
However, they are not, in the main, homebuyers. Likewise, millions of younger homeowners will be suffering the effects of higher mortgage bills and steeply rising higher education loan payments, taking them out of the running for an upgrade to a bigger place to live.
It is likely to mean the number of transactions will remain less than half the figure seen at the beginning of 2021, when Rishi Sunak was chancellor and sprayed the property market with billions of pounds of taxpayer cash to keep sales buoyant.
The stimulus programme proved to be spectacular, sending the number of residential transactions above 200,000 in June 2021 as buyers flocked to catch the end of the stamp duty bonanza.
A hangover from this buying frenzy proved severe and long-lasting. In August this year the number of transactions (seasonally adjusted) had dropped to 87,000, less than half the peak and almost 20% down on the same month last year.
Yet crucially, prices are now on a three-month upward trajectory and not far off the pre-pandemic average for August of 100,000.
This upbeat view, put forward by Gabriella Dickens of the consultancy Pantheon Macroeconomics, among others, runs counter to the Office for Budget Responsibility’s (OBR) forecast in March of a 10% fall in values next year.
Anyone reading the Nationwide and Halifax building society lending figures may think the OBR forecast is a nailed-on certainty when the price index from the Halifax, Britain’s biggest mortgage lender, showed prices fell by 4.7% in September, the biggest year-on-year decrease since 2009.
This may seem definitive, except that mortgage buyers account for only half of purchases and are therefore only a partial guide. Cash buyers, who make up the rest, are a powerful underpin of prices that should not be underestimated.
A passion for property is a feature of British daily life. Politically, decade by decade, it has become increasingly important.
For instance, the fault line in the Conservative party between the home counties Tories who want to preserve their privileges, which include the panoramic view of rolling countryside from their bedroom window, and those who want to kickstart economic activity has become a gulf. The cheap and quick solution popular among Conservative free marketeers is a bonfire of planning rules.
Another fissure derived from an obsession with property is the response to the climate crisis and the levelling up agenda. For instance, the homes counties Tory says no pylons in my back yard. Or anywhere near my home, for that matter. They are ugly and devalue a home.
The answer would be to build pylons and all the other paraphernalia of net zero infrastructure somewhere else. There was a chance much of the infrastructure was heading north under ambitious and economically justifiable plans to level up the country. Commitments to build more homes, ones that developers want to fulfil in the south-east, might have have been executed in the Midlands and north, making use of underutilised infrastructure. If population growth had tilted northwards, then some of the huge upgrade needed in the UK’s electricity grid might have gone north too.
Tory managers are understood to believe that if the status quo can be maintained and the warring factions inside the party held to a score draw, property will retain its status as a safe bet.
There may not be the stellar gains of the past, but solid, inflation-protected gains will be enough, and especially if the added bonus of inheritance tax cuts are thrown into the mix as a pre-election giveaway.
The Conservatives are not out of the running yet. With Keir Starmer appearing to side with the developers, safeguarding property rights and house prices could be a trump card.