Should house prices fall to help young people?

Angus Hanton, IF Co-founder, argues that Kier Starmer is wrong to claim that no homeowner wants to see house price falls

House price falls? Yes please

On 19 June 2023, BBC Radio 4’s Nick Robinson did a long interview with Keir Starmer, MP. Many commentators see him as the Prime Minister-in-waiting (Keir, not Nick) which makes his thoughts particularly significant. All across the country listeners must have been shouting at the radio when they heard him make the claim that no homeowner wants to see lower housing prices. He is wrong: many, many people want exactly that. I do.

For our children

Tens of thousands of owners want to see lower house prices because they have adult children who are struggling to buy. Such people don’t see their home principally as a financial asset but rather as a place to live and they also want their children to be able to afford to buy somewhere big enough to live in.
Even young couples who own a small flat or house will rationally want lower housing prices. They are likely to be net buyers of housing in the next few years, especially if they have children and need extra space for a family. Lower house prices will mean the gap in value between what they own and what they would like to buy will be smaller. Hooray!

Intergenerational tensions

Mostly the people who want higher house prices are the land speculators, the housebuilders and the estate agents. One hopes that if Keir Starmer is taking sides he will be much less on the side of this group and much more on the side of the first-time buyer and the young family. There is a truly intergenerational tension here which is resolved within many families but not yet in Keir Starmer’s mind – higher house prices do help baby boomers but are damaging to their children and grandchildren.

Prices falling anyway

In spite of Starmer’s claim, UK house prices have declined recently. They peaked at an average of £292,000 in August 2022 according to the Halifax Bank and they have been dropping a little since, even just measured in pounds. However, if you take account of inflation the drop in real values has been more significant. It will likely be a 10% fall in real values by the end of August 2023.But many would like to see a further drop in house prices, and policymakers should consider what would achieve that. Increasing new house-building will not do much to reduce house values – which is partly because those in the older generations with the most money will buy many of them – either as second homes or to let out. This would be a way of trying to change prices through the supply of housing.

Slow demand

What makes most sense – and works best – is to influence the demand for housing. That’s particularly the case when the problem is not principally one of an overall shortage but is one of over-consumption of housing by the older generation.  There is a significant number of older people who have found housing so affordable and it has proved such a good investment that they own two second homes.  And many older couples rattle around in family houses. So we need measures that reduce consumption.

Let’s start with taxation

The obvious measure is that pursued by the Europeans and the Americans – the introduction of an annual property tax.  This reduces consumption, encourages downsizing and tends to free up family homes for families. Hopefully if Keir Starmer does become PM he will introduce such a tax to reverse the current hoarding of housing. But first he needs to recognise that lower house prices would be desirable and intergenerationally fairer, as is recognised by property owners who have children.

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