Hangover of housing boom

THE hangover from the housing boom could take many years to recover from as the industry faces a perfect storm of low construction, tight restrictions on lending and high rent and purchase prices. The Government’s efforts to breath new life into a stagnant market show good positive intentions to try and start the cycle of money flowing again.

The offer to underwrite mortgages should help those battling the banks which are demanding huge deposits before they risk handing over the necessary funds.

And the investment into stalled housing projects should also boost sales which are currently desperately slow. The website Rightmove has revealed sellers have dropped their average asking prices by the largest cash amount for almost four years.

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Yet while the Government’s move to address these issues is to be welcomed, many have questioned whether it goes far enough. The market is so stagnant – constructions levels at their lowest since the Second World War – that £400m of investment is much like trying to get a river of tar flowing with a teaspoon. Last year Chancellor George Osborne cut £4bn from housing spending. And offering to boost the lending market may also be missing a key economic point. Alex Morton, research fellow at think-tank Policy Exchange, warned the way to solve the problem of overpriced housing is not to encourage greater lending, but to reform the system so more houses are built to meet demand.

The policy also makes the mistake of focusing purely on first time buyers. Movement in the housing market has many knock on benefits for the wider economy and there are huge numbers of upwardly mobile people looking to move to improve their careers who cannot because they have little or negative equity.

And if they cannot sell, the mortgage rates should homeowners with less than 25 per cent equity choose to rent are astronomical, forcing many to stay put, anchoring the jobs market.

Clearly the funding boost is a timely intervention as the housing market faces a barren winter, but as well as trying to make the “dream of home ownership” a reality for more people, the Government should also help those for whom the dream turned into a nightmare when the market suffered its biggest collapse in living memory.