THE HOUSING MARKET
Will recent house price falls solve the problem of housing affordability?
Falls in house prices have not increased affordability for many buyers. For many people affordability has got worse, as a result of more expensive mortgages and requirements for larger deposits. The National House Building Council reported a 56 per cent drop in private sector starts in May 2008 compared to May 2007. This impacts on both market housing and affordable housing, because 60 per cent of affordable homes are delivered as part of requirements imposed on open market developments. The same survey reported the number of public sector homes being built declining.
On 4th June 2008 new research by Hometrack showed that as a result of the credit crunch average mortgage costs for a first-time buyer had risen by 13 per cent over 2007. The mortgage cost to earnings ratio for a first-time buyer exceeded the previous peak in 1990.
Whatever happens over the coming months, forecasts do not suggest there will be house price falls on a scale that would eliminate affordability issues in rural communities, and all forecasts show house prices recovering in the longer term. This is because over time the fundamental issues still apply. With the number of people wanting a home growing faster than the number of homes being built long term housing affordability will continue to worsen, especially if in the mean time house building falls back.
As the National Housing and Planning Advice Unit (NHPAU) stated, “A cooling housing market in the short run does not provide a solution for our affordability problem in the long run” (Affordability Matters, 2007).Rather than solving the problem, the danger is that short-term falls in the housing market will hamper delivery of the solutions to the long-term problems of housing supply and economic growth in rural communities, and prevent necessary reforms.
