Housing market crisis in the United Kingdom (2008)

Housing market crisis in the United Kingdom (2008)

The housing crisis

The housing crisis has caused the British Government to launch two reviews of the housing market, due to dramatic market failure (only 134,000 new builds for more than 230,000 household formations per year, and rising), the Barker Report (supply issues and what can be done to increase flexibility in the market) and the Miles Report (the UK mortgage industry and how it can be made more long-term).

The figure of 134,000 built in 2002 is contradicted by the National House-Builder Council [PDFlink|http://www.nhbc.co.uk/Newscentre/Library/filedownload,28930,en.pdf|6.60 KiB ] which quotes there were 160,800 houses built in 2002. In 2006 they quote 185,000, which is above the original Barker report estimate of 179,000 household formations a year. For example, in the 1990s, an average of 158,910 houses were built each year (NHBC figures) against 172,000 for each of the five years to 2006. Prices at the end of the 1990s, when adjusted for inflation, were less than at the start of 1990, whereas prices between Q4 2001 and Q4 2006 increased 60%, again when adjusted for inflation (figures from the Nationwide Building Society's house price data: [XLSlink|http://www.nationwide.co.uk/hpi/downloads/UK_house_prices_adjusted_for_inflation.xls] ). House prices at the end of 2006 were 35% above the trend prices of the last 30 years.

Increased divorce rate is another often quoted reason for increasing house prices, but this metric peaked in 1993 [ [http://www.statistics.gov.uk/cci/nugget.asp?id=170 National Statistics Online ] ] - a year of static or falling prices.

There is more evidence that Buy-to-Let has created a shortage in houses to buy than there is for high levels of homelessness. In 1990s Buy-to-Let accounted for about 1% of loans taken out for the purposes of buying a house. In 2006, the 330,000 buy-to-let mortgages that were taken out accounted for 9% of outstanding home loans (Council of Mortgage Lenders [ [http://www.cml.org.uk/cml/media/press/1112 Growth in buy-to-let faster than market as whole, says CML ] ] ).

The Solution

Barker Report

The Barker Report [http://www.hm-treasury.gov.uk/consultations_and_legislation/barker/consult_barker_index.cfm/] proposed solution to the problems faced in 2006 is to :

* dramatically increase housebuilding to clear the backlog of 2-3 million missing houses in late 2006.while proposed mechanisms to achieve this include
* abolishing planning departments and greenbelt designations,
* re-introducing controls on immigration to bring net immigration down to as low as possible (ideally ensuring no more population increase in the UK).It has been stated that 2 million new houses are needed over the 5 years to 2012 just to clear most of the existing shortage of houses.

Affordability ratios

A number of ratios have been developed to judge the sustainability of house prices.

* Proportion of Average Income.


Reports after the sub-prime crisis show prices falling. [ [http://www.thisismoney.co.uk/mortgages/house-prices/article.html?in_article_id=425220&in_page_id=57&ct=5 Shock report shows steep house price fall | This is Money ] ]

Houses worth more than £1 million

Halifax estimates that in 2007 there are 88,000 houses valued at more than £1 million in England and Wales, up from 30,000 in 2002. In London, million pound sales are centred on Kensington and Chelsea. There are other clusters around Cobham, Esher and Weybridge in Surrey and around Altrincham, Macclesfield and Wilmslow in Cheshire.cite news | first= | last= | coauthors= | title=Number of £1 million homes 'has trebled in five years' | date= | publisher= | url =http://www.24dash.com/news/1/27828/index.htm | work = | pages = | accessdate = 2007-10-01 | language = ]

Highest value streets

Zoopla's [http://www.zoopla.co.uk/property/richlist/england/ Property Richlist] lists Kensington Palace Gardens as the most expensive street in the UK, with an average property value of over £41 million. The top 20 streets in England are all in London, with the most in W8 and SW3.


ee also

* Gazumping
* Gazundering
* Real estate economics
* Home Information Pack
* Stamp duty land tax

External links

Government Reports/Responses

* [http://www.hm-treasury.gov.uk/consultations_and_legislation/barker/consult_barker_index.cfm/ Barker Review of Housebuilding Supply] – March 2004
* [http://www.hm-treasury.gov.uk/independent_reviews/barker_review_land_use_planning/barkerreview_land_use_planning_index.cfm/ Barker Review of Land Use Planning] – late 2006
* [http://www.callcuttreview.co.uk/ Callcutt Review of Housebuilding Delivery] – due to report in November 2007
* [http://www.oft.gov.uk/news/press/2007/90-07/ Office of Fair Trading market study into housebuilding in the UK] due to report Summer 2008


* [http://www.nationwide.co.uk/hpi/downloads/UK_house_price_since_1952.xls UK House prices since 1952] – Spreadsheet file from Nationwide Building Society

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