April traditionally marks the start of Britain’s house-buying season. Once the daffodils come out estate agents ready themselves for a rush of prospective buyers.
Not this year, though. The body that represents estate agents, the Royal Institution of Chartered Surveyors, says demand for housing has now fallen for 12 months. New buyer inquiries are down and that is having a knock-on effect in the mortgage market. A survey by the Bank of England of lenders shows a balance of 29% reporting a fall in demand for loans secured against property.
Inevitably, a lack of activity means that house prices have stopped rising across the UK as a whole and in some parts of the country are actually falling. In London, the quarterly drop of almost 4% in the first three months of 2018 was the biggest since 2010.
Just to be clear, this is not a national disaster: rather, the recent developments in the property market are inevitable and good. They show that even in the weird world of the UK property market – where demand is encouraged and supply restricted – the basic laws of economics sometimes operate.
Demand for property is falling because asking prices are too high for buyers – even with interest rates at exceptionally low levels. Prices have been rising far faster than earnings and that has made it harder and harder for young people to get on to the property ladder.
The house-price-to-earnings ratio needs to come down, and a period of falling house prices makes that happen. That process is now under way as a result of squeezed living standards, less generous tax treatment for buy-to-let purchases and the prospect of higher interest rates are all helping to prevent the cost of a home rising. For London specifically, there is also a Brexit effect.
To be sure, estate agents are none too keen on the current state of affairs. Philip Hammond would probably like to see stronger housing market activity as well, since it would mean higher tax receipts. But the recurrent house price bubbles of the past four decades have not been good news for the economy. They have caused financial instability, distorted investment decisions and created intergenerational unfairness. Nobody in generation rent struggling to buy their first flat would think for a second that a period of falling prices was bad news.
For Penny Mordaunt, it’s a case of use it or lose it
Penny Mordaunt has the easiest job in the cabinet – and the hardest. As the international development secretary, she doesn’t have to worry about money because her department has been ring-fenced against cuts since 2010 and Britain is one of only a handful of countries to devote the UN-recommended 0.7% of national income to aid. That’s the easy bit.
The difficult bit is that there is a sizeable – and vociferous – lobby that is opposed to Britain protecting aid spending when at home libraries are being closed, child benefit is being made less generous and the number of bobbies on the beat is dwindling. The rightwing press has long been calling for the Department for International Development (DfID) budget to be cut, and it has been emboldened in recent weeks by the Haitian sex scandal that has engulfed Oxfam.
Mordaunt knows that her department is under pressure to justify its spending as never before. In a speech on Thursday, she said voters needed to be convinced that the 0.7% of GDP could “not be better spent”. Her plan involves using the aid budget to leverage in private sector investment into poor countries, with a particular focus on providing opportunities for British firms. Mordaunt wants UK pension funds to invest in Africa. There will also be greater collaboration between the DfID and other Whitehall departments.
Inevitably, this led to a few raised eyebrows. It would certainly be a retrograde step were aid to be used primarily for Britain’s own economic or defence ends, which is what some in the development community fear.
There is no reason why this has to be the case. Private-sector money is certainly going to be needed to finance Africa’s immense infrastructure requirements. The DfID guarantees that enable ports to be built would be a good use of public money. And if the aid budget can facilitate exports of UK-built wind turbines to Ethiopia, both sides gain.
The harsh truth is that there is no viable alternative to Mordaunt’s approach. She can either protect her budget by giving it more of a British flavour or it will be whittled away. In the current difficult circumstances, that’s the choice.