What determines house prices? Most people would say ‘supply and demand’ – but what about interest rates, wages, and employment?
And what about immigration, which current housing minister Dominic Raab controversially claimed was responsible for house price rises.
It turned out that he had been given the information by civil servants, based on what critics described as ‘back of fag packet’ estimates by a now defunct quango.
Well, now you can see for yourself what actually has been said about house prices – and immigration.
Back in 2007 and 2008, the National Housing and Planning Advice Unit (NHPAU) published two reports about affordability. The body was abolished in 2010, after three short years, in the bonfire of the quangos.
Its reports were written around a University of Reading model which estimates the relationship between housing supply and affordability with demographic trends, incomes, the labour market and the housing market.
The NHPAU reports concluded:
- If the overall number of households rises by 1%, house prices would go up by 2%
- A 1% rise in incomes would increase house prices by 2%
- If interest rates go up by 1%, house prices would fall by 3%
- If housing supply rises by 1%, house prices would fall by around 2%
The Ministry of Housing, Communities and Local Government has applied these figures to house prices over a 25-year period from 1991 to 2016.
In that time the number of households in England has gone up by 4.8m – or 16% – theoretically causing a 32% increase in house prices.
Most of the rise in the number of households was due to immigration, says the ministry. During the same period the non-UK born population of England rose by 4.8m from 3.5m to 8.4m. This theoretically contributed a 21% rise in house prices.
What about earnings? Between 1991 and 2016, household incomes shot up by 75%, leading to a 150% rise in house prices.
A tricky one, because interest rates have actually fallen. The Bank of England’s base rate has declined 11% over the period. In 1991, mortgage rates averaged 7.6%; in January 2016, they averaged 4.2%.
Unsurprisingly, the Ministry of Housing therefore concludes that rises in interest rates currently aren’t much use in predicting house price movements.
Housing supply has risen 20.6% over the period, which theoretically should have led to house prices reducing by 40%.
Which, when we last looked, they hadn’t.
So it does make you wonder whether building the hundreds of thousands more houses that everyone says are needed to solve the housing crisis will actually solve anything at all.
The report was published on Friday, meaning that in the weekend papers, the row about Raab and what he said about immigration and house prices rumbled on.