It's A New Dawn, But Same Day

Another month and another indicator that the British economy is slowly lurching out of recession. The Halifax have announced that house prices in Britain have risen by 1.2% in October and which represents a slight fall of 1.5% compared to a year ago, which is the smallest decline in the year on year statistic since this credit crunch began.

This, as a simplistic statistic, can appear to be encouraging news for the economy, demand increasing which implies that more people have renewed faith in their economic futures. Also the access to credit is becoming more freely available, so good news all around...

Not quite. Beneath the encouraging facade of these statistic, lays an uncomfortable truth; the rise in house prices might indicate economic recovery, but they almost definitely indicate a huge shortage of new houses. This short fall distorts the simple concepts of supply and demand, in which demand is relativity constant and supply is so small that drives up the price to the extent that it matches demand.

Until recently, people in the UK needed relatively easy access to credit in order to purchase a modest property, this can be seen in the incredibly dangerous mortgage deals that allowed people to borrow at six times their own salary. The result was this only masked the housing short fall, but did not attempt to solve the underlying issues.

Furthermore, the low interest rates that mortgage holders are currently enjoying are further masking this most serious of problems. The Government has lacked a coherent housing policy since 1997, arguments between government and councils are common place, but it is the government that should display effective leadership on the matter.

If the government does not address the serious issues in their housing policy Britain is doomed to repeat the simple mistakes of the past...

Fool Me Twice, Shame on Me...

In many respects the housing crisis was a significant contributing factor in the recent recession; the over inflated price of property was considered an investment rather than a short fall in supply, which led to many people feeling pressured into burdening themselves with an unrealistic mortgage just to get on the property ladder before it was to late. It is well documented that these toxic debts on both sides of the Atlantic were partly responsible for the near collapse of the financial sector.

It has seemed for many years that the simple concepts of supply and demand did not apply within the housing sector, with property being considered a guaranteed investment that would return 5% a year. But as population increases at a higher rate than housing capacity, the property price will inevitably rise and demand will consequently outstrip supply. It seems a logical argument, it obeys all the economic laws by which our economy is determined, so why has it been ignored for so long...

It is due in part to the trust Margaret Thatcher placed in the marketplace to reach equilibrium and to the culture of home ownership that she encouraged. This has been further reinforced by the considerable amount of vacuous property programmes on TV that facilitated the myth that property prices do not obey the laws of economics. It is these programmes that would have claimed that Newton's Apple did not obey the laws of physics and therefore was of higher value than other fruit.

Therefore, it is unforgivable that governments, both Conservative and Labour, has consistently ignored demands for more new homes to be built. Also, there is a perverse sense of relief that is expressed by many that house prices are increasing again after the credit crunch.

It is an economic imperative that the government begin to increase the stock of new build houses in the UK if another recession is to be avoided in the near future. The 2,000 new council houses announced today is a small start, but more needs to be done to encourage private and public investors in the housing market.