Peter Williams, Executive Director, IMLA and University of Cambridge

The economy and the housing market post the General Election

My presentation

• Focus on the latter and on England! • Complex dynamics at work• Many unknowns! • Conclusions

The Economy

Many positives; • Certainty• Low inflation/falling prices• Strong Pound• Low interest rates and for longer? • Strong employment/falling unemployment• Rising real wages

The Economy

• The MPC now suggest lower growth (2.5% not 2.9 in 2015 and lower going forward)

• Inflation expected to rise by end of 2016• Potential interest rate rises in 2016• Household spending still a key variable• Productivity still low• The Bank’s record!

• Commitment to reduce borrowing, intervention and regulation

• Positives and negatives as GE highlighted• Uncertainty re EU referendum• Uncertainty re Scotland• Plus Greece, Ukraine• Concern re Current Account deficit (£98bn - 6% of GDP)

and impact on sterling• The impact of cuts – on people, sectors and local

government

The Economy

Outlook

• Positive/negative• Many unknowns• Still unwinding interventions –QE, low

interest rates, Bank ownership etc• Process will be gradual• Responses not known

Housing and the housing market

• Short term positive• Removal of threats re Mansion Tax and

PRS regulation• Confidence and sentiment• Though chaos re who is Minister –

Francois or Lewis –seems to be latter!

Housing and the housing market

• Longer term less certain• Price inflation –manifesto big on demand,

weak on supply? • Cuts to local government reduce supply? • No real evidence supply challenge will be

met• Thus further price inflation/volatility

The Context

• Housing supply not increased in response to a sharp increase in population

• Population grew by 7% to 60.4 million in the 30 years to 2005,

• The UK’s population increased by another 8% to 64.1 million in 8 years to 2013.

• Housing starts had only edged up from 139,000 in 2010 to 149,000 in 2013

The Conservative Manifesto

• Our commitment to you:• The chance to own your own home should be available to

everyone who works hard. We will:• help to keep mortgage rates lower by continuing to work

through our long-term economic plan• build more homes that people can afford, including 200,000 new

Starter Homes exclusively for first-time buyers under 40 • extend the Help to Buy Equity Loan scheme to 2020 to help

more people onto and up the housing ladder, and introduce a new Help to Buy ISA to support people saving for a deposit

• give more people the chance to own their home by extending the Right to Buy to tenants of Housing Associations and create a Brownfield Fund to unlock homes on brownfield land

• ensure local people have more control over planning and protect the Green Belt

The Conservative Manifesto

• No clear numbers on housing supply• Starter homes have issues• Right to Buy brings private borrowing of

£69bn into public debt• Help to Buy evaluation? • Green Belt protected yet…? • Nothing about PRS or Social housing

CML Forecast December 2014

IMLA Forecasts

Housing Loans after the onset of recessions : 1980 to date

The numbers of home mover loans since the onset of recession 1980-to date

-80.00%

-60.00%

-40.00%

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

quarters since recession

% ch

ange

1980;s 1990's 2008

The number of FTB and RTB loans made since the onset of recessions 1980 to date

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

quarters since recession

% c

hang

e

1980 1990's 2008

The Right to Buy Surge

First Time (inc RTB) Buyers Home Movers( 2nd or higher time buyers)

Conclusions

• Overall outlook positive in short term for both economy and housing market

• Lots of possible threats –EU etc• But longer term both economy and housing

look more vulnerable• Housing issues unresolved and tensions

growing around prices/affordability and availability

• Meeting aspirations re owning/renting