Viewpoints: Is the UK housing market broken?

Derelict house House prices have risen sharply in the past year; good for homeowners, bad for those looking to buy

Bank of England governor Mark Carney has proposed a cap on the proportion of home loans that can be lent at high multiples of income.

Under the proposal, lenders will not be allowed to lend any more than 15% of residential mortgages at more than 4.5 times a borrower's income. Affordability checks on borrowers will also be strengthened.

The measures seek to address what some commentators view as a dangerous housing market bubble.

According to the latest figures from the Office for National Statistics, UK house prices rose by almost 10% in the year to April, while those in London rose almost 19%.

Some argue these kinds of rises are simply unsustainable and make home ownership unaffordable for too many working people.

But just how deep-rooted is the problem?

The BBC has asked a number of experts what they think.

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Kathleen Scanlon

London's status means the whole city acts as a massive 'centre', not only at metropolitan level but nationally and even globally”

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Kath Scanlon, Research Fellow, London School of Economics

The UK market isn't broken, but London's is.

Or to be more accurate, London's housing system is broken - because the market is working as markets do. One of the fundamentals of urban economics is the relationship between the cost of land (or housing) and its location - housing space close to the centre of an urban area costs more than space at the periphery.

London's status means the whole city acts as a massive 'centre', not only at metropolitan level but nationally and even globally. This dynamic, plus the fact that housing supply in London is basically static, means that prices have risen far more in London than elsewhere in the UK.

But we want a city with social mix at neighbourhood level, affordable housing for key workers and stable accommodation for families, which the market won't necessarily produce.

How to achieve these? Unfortunately there's no single answer, but incremental and piecemeal changes can have an effect over time. Here are three ideas:

Kath Scanlon

  • A social-science researcher who writes on a range of subjects related to housing, planning and the role of government
  • She has looked at housing markets and policy in Germany, Denmark, Spain and the US as well as in the UK, and has advised government departments, international organisations and development banks
  1. Reinstitute a property tax based on house values and do away with stamp duty. This would create an incentive for 'over-occupiers' to downsize and remove the financial penalty that currently deters transactions.
  2. Limit the size of mortgage loans by capping loan-to-value or loan-to-income ratios, which would reduce effective demand.
  3. Give the Mayor greater control over planning permissions for new housing, as local opposition to new development can be hard for borough politicians to counter.

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Campbell Robb

Solving the housing shortage is possible, but sticking plaster solutions like Help to Buy or tweaks to planning rules just won't cut it”

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Campbell Robb, chief executive, Shelter

Our housing market is broken. Successive governments have failed to build the number of homes we need and now we're reaching boiling point.

Every day, we hear from those bearing the brunt of our housing shortage - from hard-working young people watching their dream of owning a home slip away, to families left with little choice but to bring up children in overcrowded or poor conditions.

Year after year we've built at least 100,000 fewer homes than we need, and the result is not just a lack of affordable homes, but a full-blown drought.

Research by Shelter and KPMG has shown that, if current trends continue, half of all adults under the age of 35 will be stuck living in their parents' home within a generation.

And a report we launched this week shows that a staggering 80% of homes on the market in England are unaffordable for the average working family looking to buy their first home.

Campbell Robb

  • Started as chief executive of Shelter in January 2010
  • Before that he was the first Director General of the Office of the Third Sector in the Cabinet Office

Solving the housing shortage is possible, but sticking plaster solutions like Help to Buy or tweaks to planning rules just won't cut it, and risk making the problem even worse.

We need to be boosting small builders with government guarantees and getting land into the hands of those who can build the homes we need.

We need New Home Zones to free up the right land at the right price, to help build a new generation of homes for sale and social or part-rent, part-buy homes that those of us on low and middle incomes can afford.

Without real solutions like these, homelessness, house prices and our benefit bill will continue to rise out of control. Bringing a stable home back within reach for this generation and the next is possible, but only if politicians roll up their sleeves and commit to the solutions that will finally fill the gap between the homes we have and the homes we need.

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Andrew Regan

The property stock in our area represents good value for money in relation to people's earnings”

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Andrew Regan, partner, Regan and Hallworth estate agents

The property market is not broken in Wigan, it is working just fine, as I suspect it is in most parts of the UK.

For the market to boom again there needs to be an imbalance between supply and demand. There is no imbalance.

First-time buyers are being helped with the government-backed Help to Buy scheme, mortgage lenders are offering 95% mortgages to certain buyers with good credit scores, mortgage surveyors are being realistic with their valuations, house builders are building and there is no shortage of supply - there are currently around 2,000 local properties on the market, and the local council has allowed plenty of planning for new housing developments.

The property stock in our area represents good value for money in relation to people's earnings.

Andrew Regan

  • Twenty-five years experience in the housing market, having started his estate agency career in 1989 with the Abbey National
  • Opened his own estate agency 1996
  • Sells around 800 properties a year in the Wigan area

In my opinion, the property market is driven by the mortgage lenders, and they have a duty to act responsibly and lend with sensible income multiples, then house prices will only rise in line with inflation. I really do think it is that simple.

This is not London - we do not have thousands of multinational buyers seeking to invest in our property market.

The media is obsessed with the so-called "property bubble" and is disproportionately reporting the market. This makes our life more difficult when pricing clients' property to sell, because we have to report how the market is performing locally in reality, not how it's reported by the media.

Yes there is pent up demand because the market has suffered a terrible crash and is recovering, however there is no "bubble" in Wigan to burst.

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Bernard Clarke

The problem of housing affordability is rooted in the failure for more than three decades to ensure that we build enough homes”

End Quote
Bernard Clarke, Council of Mortgage Lenders

It really depends on which part of the housing market you are talking about.

For some time, we have pointed to differences in market conditions in different parts of the UK. In London, the headlines are about a booming market. But that description is unrecognisable to people living in much of the rest of the UK. We do not have a national housing market, so much as a fragmented one.

Bernard Clarke

  • Has been a spokesman for the Council of Mortgage Lenders (CML) for 15 years
  • He has written widely about housing and mortgage markets, and edits a fortnightly newsletter about housing finance

You could argue that the market is working - but reflects a long-standing divergence between demand and supply. Overall, the problem of housing affordability is rooted in the failure for more than three decades to build enough homes to keep up with demand.

But the problems are felt most acutely in London, where population growth, cash buyers and an influx of wealthy foreign purchasers have fuelled demand, while supply has been particularly unresponsive.

In the aftermath of the credit crunch, the mortgage market is now functioning more effectively - the availability of funding has improved, and there is greater competition, choice and access for mortgage customers.

Finally, we have to consider housing in different tenures.

Buy-to-let has contributed to a rapid expansion of the private rented market, which is generally functioning well. Owner-occupation has declined against people's wishes, partly because of a shortage of supply. But the social housing sector has seen the biggest decline of all over the past three decades or so.

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