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Why House Price Stagnation Is A Good Thing

05-13-2011 05:10 PM CET | Business, Economy, Finances, Banking & Insurance

Press release from: Propacea Limited

News from the Land Registry that average property prices fell by 1.1 per cent in March to £160,996, with other surveys painting a similar picture of tiny falls, or tiny rises, has caused commentators and property experts to bemoan the ‘stagnation’ of the market.

Certainly from one point of view, stagnation is a bad sign, since the livelihoods of estate agents, surveyors, mortgage advisors and many others depends on a flow of market transactions.

But from another point of view, the widening gulf between home owners and those renting or living with relatives means that the UK is becoming a more stressful place to live. Low paid workers cannot hope to buy a property, so they are becoming demoralised and the services they perform are suffering. Look at the threats from teachers to go on strike – supposedly in response to pensions conditions, but perhaps more from a sense that their status is being undermined by the distance they now inhabit from property security.

The economic circumstance that would suit this class of worker is high inflation. Their wages would rise a quickly, while the cost of property would continue to stagnate (if not fall) and within a few years, home ownership would once more be within their grasp.

With oil and food prices continuing to increase, there remains the possibility of higher inflation, but for the moment this has been dampened by public sector cuts and the tail end of the recession, along with the continuing effects of the credit crisis, severely limiting mortgage availability.

Let’s hope that, just as the government of Edward Heath in the 1970s led to industrial unrest and inflation in the mid-teens, David Cameron can pull off the same trick and do us all a favour.

Original comment can be found at The House Prices Advisory

News from the Land Registry that average property prices fell by 1.1 per cent in March to £160,996, with other surveys painting a similar picture of tiny falls, or tiny rises, has caused commentators and property experts to bemoan the ‘stagnation’ of the market.

Certainly from one point of view, stagnation is a bad sign, since the livelihoods of estate agents, surveyors, mortgage advisors and many others depends on a flow of market transactions.

But from another point of view, the widening gulf between home owners and those renting or living with relatives means that the UK is becoming a more stressful place to live. Low paid workers cannot hope to buy a property, so they are becoming demoralised and the services they perform are suffering. Look at the threats from teachers to go on strike – supposedly in response to pensions conditions, but perhaps more from a sense that their status is being undermined by the distance they now inhabit from property security.

The economic circumstance that would suit this class of worker is high inflation. Their wages would rise a quickly, while the cost of property would continue to stagnate (if not fall) and within a few years, home ownership would once more be within their grasp.

With oil and food prices continuing to increase, there remains the possibility of higher inflation, but for the moment this has been dampened by public sector cuts and the tail end of the recession, along with the continuing effects of the credit crisis, severely limiting mortgage availability.

Let’s hope that, just as the government of Edward Heath in the 1970s led to industrial unrest and inflation in the mid-teens, David Cameron can pull off the same trick and do us all a favour.

Original comment can be found at The House Prices Advisory

Ashton House, Cornwall Avenue, London, N3 1LF

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