The Property Boom Bust Cycle – On Yer Bike

It’s beginning to feel a bit like 2007 again.

Or 2001. Or 1997. Or 1988. . . .

Or indeed any one of the dozen or so times in the last 50 years when the talk in the press, outside the school gates, at dinner parties and in staff canteens has been of house prices.

Estate Agent Boards

From “things are bad, property has had it’s day” to “this property boom is out of control, it’s never going to stop” within months of each-other.

Currently we are in the latter where even The Royal Institute of Chartered Surveyors have waded in to the debate suggesting that a series of measures should cap house price inflation at 5%.

Their report released last week ironically added further to the feeling of panic buyers are experiencing fearing that they must buy now or forever miss out.

So why has the market so suddenly – and unexpectedly – taken off?

Well in a way, it hasn’t. Most of our politicians and media inhabit London and the South East and there has indeed been a dramatic rise in demand and prices.

This is not the case elsewhere in the country but that aside, here are the main well reported reasons:

  • Foreign Investment. 80% of luxury new build in London sells to overseas investors due to the integrity of our legal system. Prices can rise or fall but nobody can take the property away from you.
  • Low interest rates and a gradual willingness by lenders to actually lend.
  • Supply and Demand. A growing population on a small island. New building does not keep pace.
  • The Pack Instinct. When others have something, we want it too. It’s a spiral upwards at present but the same can happen downward.

So could price control or tight mortgage lending be the answer?

I think not.

The UK Property Market

Property Market

Direct state or Bank of England interference in the UK market would be unsettling and would take away the dynamic that we all know and understand, albeit a Marmite Market.

But there are other things to be looked at before hard working families are told they cannot have a mortgage because a certain threshold has been reached.

Landlords have driven up prices, for a time they had a virtual monopoly when First Timers couldn’t borrow. Here’s something that would sort three problems in one. Allow longer term letting and a tax break such as zero stamp duty for long term BTL if a landlord agrees to a long let, say 5 years plus.

Rent could be index linked allowing:

  • Landlords a virtually guaranteed income
  • Tenants a long term home safe from eviction and the numerous agent’s fees so unpopular at the moment
  • The need to buy would lessen with tenants feeling secure for longer periods – decreasing pressure on prices

Much of the supposed bubble is caused by lack of supply so it’s time for the government to speculate to accumulate.

Generous time limited incentives are needed to turn unused storerooms behind and above shops into residential having numerous benefits:

  • Improved supply of property
  • Regenerate the building trade
  • Breathe new life into Town Centres
  • Increase Council Tax revenues by swapping low rated back rooms for higher rated homes

Build More Property!

The percentage of the UK that is built on, including roads, paths, housing, factories, everything – is just 2.27%. So imagine how many homes could be built if we freed up just 0.27% more. With an aging and growing population, it’s going to happen one day, so lets get started now and actually plan for the future rather than getting around to it when it’s already become a problem.

And if none of these suit you there is one more thing you can do if you think house prices are increasing too quickly.

And that’s just wait.

A downturn is not an if, but a when. And the quicker we realise that, the quicker and less painful the slowdown will be.

I would love to hear your thoughts and comments on this matter! Please leave them below.

Jonathan Rolande

Jonathan Rolande

Jonathan Rolande began in the property industry in 1987 and has extensive knowledge of the property buying sector. Jonathan is also an avid supporter of greater regulation in the industry. Founding the National Association of Property Buyers to offer essential information to property sellers.