The real reason for housing market issues
YOUR correspondent, Charles McHugh, seems very struck on the million pound capital gain he thinks I have made on my cottage (Open Lines, 3 October). So much so that he mentions it four times. What a pity then that he failed to notice that the figures I quoted were adjusted for inflation, whereas KPMG are basing their 8% compound annual growth on the cash sum paid. In our case that was £18,000, which gives a rather less impressive, but still worthwhile, £290,000 or so.
He also appears to have missed my reference to the high rates of interest in 1980 and events that followed. To make things completely clear, the ‘normality’ to which I was referring was the end of WW2 to 1970, when inflation was low and the only chance most families had of buying a better home was the husband getting a good promotion.
It is understandable that someone in the property business would want to carry on ‘kicking the can down the road’ in the hope of being out of the firing line when it all goes wrong. However, wishful thinking will not alter three basic facts.
First, many homes today, particularly the newer ones, offer little scope to build equity via improvement.
Second, if your income is rising slowly you can’t take out a much larger mortgage every couple of years. I’ll get back to point three later.
The KPMG report states that ‘New purchasers are critical to unlocking the housing market’ and ‘The nature of the housing ladder dictates that new purchasers must be active’.
Encouraging new entrants by, in effect, enabling them to take on a higher loan to value may help the market. It might help people who are currently ‘stuck’ to move on, but will it be of long-term benefit to the newcomers?
Mr McHugh asks readers to think of people, like me, who have ‘lost’ 14% of the value of their home. That’s very good of him, but I really don’t care what it’s worth. The people I have sympathy for are those who thought prices could only go up and now need to move, or are unable to keep up payments, and are stuck because they are in negative equity. Even so it can hardly be ethical to bail them out at the expense of the next tranche of buyers whose risk of negative equity would be even higher.
This brings me on to point three: numbers.
Here I am using the 2016 E-Census report, table 4.3.1: Age and gender distribution (at 31 March). This divides the population into bands according to age, i.e. 0-4, 5-9 and so on, and includes 2011 for comparison. I will acknowledge that this is only a snapshot but it still makes interesting reading.
In 2016 there were around 7% fewer 20-49 year olds than in 2011. The 9,928 people of 45-54 were followed by only 7,907 35-44-year-olds, 7,898 25-34, 7,356 15-24 and 6,211 5-14. Finally, if you make an offset comparison (the 0-4 group in 2011 becomes the 5-9s in 2016), then every band from the people who were 20-24 in 2011 or older had diminished five years later. It is reasonable to assume therefore that the downturn in the market is at least in part caused by a diminishing population of young people. If that is the case then the only long-term way of ‘boosting the market’ is through sustained immigration, but that’s another story.
LAWRENCE HARDING,
Rougeval,
Torteval.