Property: safe as houses

Coronavirus has brought the “Boris bounce” in Britain’s housing market to a screeching halt. Prices fell 1.7 per cent month on month in May, according to lender Nationwide. This is the worst slide since the doldrums of the financial crisis in early 2009. HM Revenue & Customs data show that residential property transactions in April halved. Worse is to come, if borrowing plans are anything to go by. Fewer than 16,000 mortgage applications were approved in April. That is half the levels recorded at the low point of the last crisis, and the lowest since records began a quarter of a century ago.

So far, so rational. Socially distanced, virtual dinner party chatter may wax lyrical about swapping narrow London town houses for a backstreet artist’s cottage in Cornwall. But upping sticks in the midst of a pandemic, and the worst recession in 300 years, is less appealing. Most of these dreamers will, realistically, assume that a return to the workplace and school is on the cards at some point and opt to stay put. The calculation is even more clear cut for those starting out on the housing ladder with shakier job security.

In a perfectly functioning world, that sets the stage for markets’ self-correcting mechanism to kick in and send prices lower until demand steps up. As wannabe homeowners from Sydney to London know, this has a nasty habit of not happening. Take Hong Kong, a convenient midway point between these two cities and one of the priciest housing markets in the world. Prices for homes are down a relatively modest 8 per cent since the near year-ago peak. That takes in a 12-month period when the territory has been battered by protests, coronavirus, and the erosion of its autonomy.

The wild card is supply. Prime areas and capital cities tend not to have enough. UK housebuilders who downed tools during the pandemic have (inadvertently) helped to maintain the skewed imbalance. Real estate group CBRE reckons the hiatus will result in just 15,000 homes being built by private developers in London this year, compared with an average 22,000 in each of the past five years.

Two other factors are key. One is the proportion of pandemic-stalled transactions that end up being broken off. The other is the link between the number of home sales and pricing. The scale of economic collapse makes it tempting to deduce that prices must fall sharply. Precedent, at least in big global capital cities, suggests otherwise.


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