House price inflation will continue for now, hitting young people and low wages | Larry Elliott
When house prices started to rise in the summer of 2020, the explanation was simple. Potential buyers, it was said, had been put off by the tight lockdown imposed when the Covid crisis erupted and so there was an explosion in pent-up demand when restrictions were relaxed.
When real estate inflation continued through the fall and winter, it was blamed on Rishi Sunak’s stamp duty holiday for all properties up to £ 500,000. But pent-up demand no longer seems a compelling reason for the 10.9% house price inflation reported by the Nationwide Building Society, and anyone trying to take advantage of the Chancellor’s tax break should have had an offer accepted. before now.
The stamp duty holiday gets less generous at the end of this month and ends completely at the end of September, but Nationwide believes the housing market will continue to buzz for quite some time to come, and that’s almost certainly true.
Three major factors are currently supporting the market. The first is the space race, a pandemic-induced desire to find a property that has a garden and a room from which it is possible to work from home. The supply of this type of house is limited and in a seller’s market, prices are only going in one direction: up.
The second factor is that borrowing money is cheap and probably will be. Dave Ramsden, one of the Bank of England’s deputy governors, said Threadneedle Street is closely monitoring house prices for signs of a more widespread inflationary threat, but there is no immediate prospect increase in borrowing costs.
With official interest rates at an all-time high of 0.1%, lenders have tempting offers for potential buyers. It is not difficult to find mortgages at 60% over three years, just below the current inflation rate of 1.5%, which means that people who move to a bigger house are effectively borrowing for nothing. .
The last factor helping to support prices is the decrease in the threat of unemployment. Unemployment is expected to peak between 5% and 6% later this year, but this is considerably lower than the forecast produced at this time last year. People who are looking to sell in London for a bigger place in the country are not the most at risk of losing their jobs.
Rather, it is young people and low wages who face a double whammy: a higher risk of being made redundant and forced to continue renting as inflation in house prices makes it impossible to get a foot on the ladder. real estate.
Ultimately, the lack of first-time buyers will slow down the market, but not yet. House price inflation will rise further before it starts to fall.
An ideologically driven TfL funding deal
The government’s latest £ 1bn bailout for Transport for London comes with many conditions. Ministers demanded that TfL agree to start work on driverless metro trains and cut pensions in exchange for a six-month cash injection. The demand to save money and increase revenues will inevitably lead to price increases.
With Whitehall in control of the purse strings, perhaps it was inevitable that Transportation Secretary Grant Shapps would make a tough deal. It’s hard not to feel sympathy for the Mayor of London Sadiq Khan as this is a short-term fix for a long-term problem.
TfL’s financial woes reflect how hard London has been hit by Covid. Office workers are still thin in the field, as are visitors from overseas. Londoners have heeded government advice to minimize the use of public transport where possible.
Ignoring all of this, Shapps argues that TfL’s financial troubles predate Covid and that there must be changes in return for the £ 4bn of taxpayer money that will have been spent by the end of the year. ‘year. Yet the new funding deal appears to be driven by ideology, Whitehall’s hostility to delegation of power and a desire to punish London for voting for Labor.
The government is well aware of the importance of London to the UK economy at large. Shapps says he wants a modern, viable and efficient London transport network. If so, he has a weird way of going about it.