We didn’t know it, but it was 2015 not 2008 that changed the housing market forever

Giles Mackay

FOR the housing market, 2015 was probably the most important year in over a hundred years. It was the year the longheld argument of “demand and supply” was won and lost. Supply, which lost the argument, is the governmental model according to which the more homes you build the lower the prices. The demand side is driven by the amount of people who can afford to buy.

Housebuilders like banks had been hit hard during the financial crisis of 2008. A significant majority had required support or gone bust. By 2015 the banks had largely divested themselves of the housebuilders, which were now back in private hands. They learned their lessons - don’t build too much and take on too much debt, and make sure there is an identifiable market for your product.

Aldi has joined the ranks of Asda and Morrisons in limiting the sales of certain fruit and veg such as peppers and tomatoes. There have been shortages as a result of extreme weather in Spain. Waitrose, Tesco and Lidl are yet to follow.

EXPLAINER-IN-BRIEF: MAKING DIGITAL IDENTIFICATION HAPPEN

Yesterday Tony Blair and William Hague urged the government to introduce digital ID cards. It would mean your driving licence, educational qualifications and the right to work, are all in one place - your smartphone. With time, they say, it could make it a lot easier to access benefits and ultimately, all public services. Blair tried to introduce digital ID during his time, but was blocked by the coalition government. It is still controversial today. Its critics are concerned that it would represent a breach of civil liberties. Others point to the appalling record that British governments have on largescale IT projects and database creation.

But according to analysis by McKinsey, countries could “unlock economic value equivalent to between 3 and 13 percent of GDP in 2030 from the implementation of digital ID programs” - so the economic benefits could be substantial.

ELENA SINISCALCO

So why was 2015 a big deal? Looking back to the start of the millennium, when average house prices were £93,000 and average incomes were at £22,000, far more people than today would easily qualify for a mortgage. However, by the time we reached 2015 prices had recovered enough to get back to pre-2008 levels. New mortgage regulations meant stress testsapplied to a mortgage borrower's application to check the borrower's ability to repay their mortgage at a given interest rate - and tighter lending criteria led to disappointment for many would-be buyers. The rest is history. Between 2000 and 2021 house prices rose by 186 per cent but incomes only rose by 76 per cent. 2022 made matters even worse, with inflation and a costof-living crisis only further denting people’s income.

That meant it became effectively im- possible for the “affordability” question to be addressed by building more homes. Why? Because homes would have to have fallen by 20 per cent to be affordable and remain at that affordability level. In 2022 this number would be closer to 30 per cent. Owners would be in negative equity or have significant elements of their net worth wiped out and housebuilders would just not build in any case.

Help to Buy was introduced in 2013. Through the policy, buyers don’t have to pay interest on the top 20 per cent of the cost of the house for up to 5 years. This pushes the cost down below the level at which lenders feel comfortable and thus can lend. By 2015, first time buyers were catching on and by 2022 310,000 transactions had been completed to give families a chance to get onto the housing ladder.

Shared ownership similarly gives affordability because the shared owner only pays 2.75 per cent on the part of the house they do not own. Help to Buy has been phased out now but evidence shows that shared ownership units are being sold at 3 to 4 times the rate that full ownership units are, in the current difficult market conditions.

Builders, including Barratt and Persimmon, have all reported they have cut back on their build programs. They are not going to build if they cannot sell and will not make the same mistake as they did in 2008 when they got left with a lot of inventory.

Demand has won the argument and the only way to increase building rates is to drive more affordability by bringing forward models like shared ownership or policies pushing costs down. Otherwise, those families who can’t afford to buy will be forced to continue to rent.

£ Giles Mackay is a property expert and founder of Outra