What is putting the brakes on the housing market?

Whenever the property prices are not sky high and the properties are not flying of agents’ books people tend to start studying the market, trying to come up with the “true” answer as to what is happening and why.

The most obvious comment to make about these attempts is that they are all statistically flawed. Some measure only sentiment, not actual transaction prices. Some measure only property bought with a mortgage from a particular lender. There are geographic biases. And they all suffer from the fact that every property is different, it is not an asset class that lends itself to indexation.

But nobody ever says that. Instead, there are various explanations as to why prices are either not going up, or not going up as fast as before, or going up more in some places than others. Lately, there has been a drop in transaction volumes to explain, too.  And quite frankly, most of the theorising does not add up.

Let’s take the so called number one problem: “uncertainty” over Brexit, the general election or both. You might think there might be something in this. Houses are just about the biggest-ticket purchase most people ever make. You wouldn’t want to buy one just as the market turned south.

But more people voted for Brexit than not, so I cannot see why they would regard it as a reason not to move house. And for every know-it-all trying to time the market to perfection, there is a couple with a new baby on the way who need to trade up. Or a bereaved family with a big inheritance tax liability that needs to sell. Or, most likely of all, there is someone living in a tatty flat in an undesirable part of town, handing over half their salary to a landlord each month. I doubt the status of the Brexit negotiations is at the top of their minds. And according to the big housebuilders, the referendum and the general election has had little impact on their activity.

Not far behind in the blame stakes are stamp duty changes. It is no secret that onerous taxation of buy-to-let property has reduced transactions and curbed price growth. Mortgage lending to landlords has fallen. Economic theory expects higher taxes, such as the surcharge now levied on purchases of second homes and investment properties, to be reflected in lower asking prices. The ability to offset mortgage interest payments and maintenance costs against taxable profits is also being restricted. If those profits are lower, then purchase prices also need to be lower for returns to remain the same.

On the other hand, serious landlords who are well organised can structure their affairs to minimise the impact of these levies. Mortgage rates have continued to fall since the changes were announced, while overseas investors get the benefit of a weaker pound.

Most will say that a slower price growth is a temporary problem because there is a “chronic shortage of homes for sale”. There is an alternative explanation for each of the factors above. It is that prices are simply too high. There are properties on agents’ books, they are just not being sold because they are not priced to sell.

Unrealistic asking prices are why property remains stuck on agents’ books. Look in London’s three inner zones — supposedly the epicentre of the nation’s housing crisis — and it is not hard to find properties that have been on the market for a year or more.

So the truth is that the housing market in some parts of the capital is in a Mexican stand-off between buyers and sellers that will end when one side or the other capitulates.

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