Tuesday 12 May 2009

Are lower house prices bad news?

BBC Radio 4's flagship 'Today' programme today discussed the UK economy and indicated that there were signs that the fall in house prices may have ceased and are possibly increasing 'at last'. It seems to be widely assumed that a fall in house prices is a bad thing, mainly because of the risk that some people will fall into negative equity as the value of theiur properties becomes less than the size of their mortgages.

In this sense, housing is possibly unique. If I want to buy something desirable, say a new car, a reduction in prices can be considered a good thing - I pay less and more people can afford the item. In fact, a reduction in prices is widely considered desirable for the development of affluence and the reduction fo poverty.

The reason that housing is considered different is down to two main reasons.First, tax and other financial incentives have encouraged more people to become home owners than tenants, so that approximately 70% of all households currently own their homes in the UK. As a majority has been created, home owners inwevitably represent a powerful voice seeking to protect the value of their assets, creating the impression that a reduction in asset values is bad. Yet for the young or less well off wanting to get on the ladder and join the party, a reduction is prices would be highly attractive. What we are witnessing is the media reflecting the interests of the majority, not the most deserving minority assuming, of course, that home ownership is desirable for all in the first place.

The other reason that makes housing different from other assets is that the price is not related to whether they are new or old. With any other commodity or necessity of life, (perhaps except wine!) new ones tend to be more valuable than old ones. With homes, older ones may actually be considered more desirable than new ones, so that depreciation does not apply.

These two factors encourage the assumption that property price increases are natural and desirable. It would be good to think that the current economic crisis might give cause to revise such assumptions and encourage a view that property prices should not be so important that they are regarded as a barometer of economic wellbeing. It might also serve to remind us that what is bad for some groups, is actually very welcome for others. The media, and particularly the BBC, should perhaps acknowledge this more.

1 comment:

Gprofessionals said...

You can say that decrease in house prices is a good news for buyers but its not at all a good news for sellers and they are the only one who suffered a lot from all sides.
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