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BLOG: Let’s look past the housing bubble melodrama

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25/10/2013
Worrying about a UK housing bubble is a tad melodramatic, says Robin Johnson of KFH Chartered Surveyors.
BLOG: Let’s look past the housing bubble melodrama

I recently wrote that a house price bubble is a long way off. A quick trawl through some of the recent indices illustrates that the facts squarely support this view. But the different methodologies of the various reports don’t make it easy.

At first glance, the most recent headlines from the Office for National Statistics (ONS) support the boom theory. On the face of it, UK house prices have risen to a record level, and the average price of a house or flat in the UK is now £247,000, according to the ONS, giving the highest figure since the index was first calculated in 1968.

But look more closely and once again big variations around the UK have been revealed. London price rises in the year to August, at 8.7%, were more than double the next biggest increase of 3.8% in the East Midlands.

Prices across the UK rose by 3.8% in the year to August 2013, up from 3.3% in July. However, excluding London and the South East, prices rose by just 2.1%.

Up against this data are the surveys from the Halifax and Nationwide that indicate house prices are still well below record levels. Halifax reported that the average price of a house was £170,733, nearly £30,000 short of the peak seen in July 2007.

What’s in a methodology? Well the ONS index is calculated on actual transaction prices, whereas the Halifax and Nationwide use mortgage approvals, which will discount the outlier of foreign investors making London cash purchases. The ONS figures mean expensive properties in London get a larger weighting in their calculations. The number of transactions is also well below that seen at the height of the housing boom.

Shelter recently stated that without control of house prices most people in their 20s will stand less than a 50% chance of ever owning a property to live in. This is melodramatic however it does raise an interesting point.

Though there is clearly not a UK-wide boom, the fact that first-time buyers are paying nearly 5% more on average does mean the time may have come to shift the debate from mortgage availability, which has been the focus of fiscal initiatives such as Help to Buy, back to affordability.

Robin Johnson is managing director of KFH Chartered Surveyors

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