The Covid-19 pandemic has forced many British people to look for the first time at their homes in a new light: as a place to live, rather than simply an investment.
The lockdown has served as a time of reflection on their home’s advantages and disadvantages and perhaps a reassessment of priorities.
For instance, the advantage of being close to the City of London would hardly offset, following the pandemic, the disadvantage of not having a garden or at least a park nearby, or a balcony of sorts.
But while ordinary people are beginning to see houses as more than piggy banks, for the government the pandemic does not seem to have sparked new ideas on how to stimulate the economy beyond puffing up house prices.
Chancellor Rishi Sunak is seen by some people as a better alternative than Boris Johnson (who has looked so out of his depth since he became prime minister that watching his televised speeches is increasingly painful) to the position of Prime Minister.
The chancellor has certainly started well, supporting jobs through the first stage of the crisis and boosting investors’ confidence in the UK economy.
However, last week’s summer statement is unlikely to support confidence over the long term. It looked like another big subsidy to prop up house prices, wrapped up in some inconsequential, small giveaways for sectors other than property.
The increase in the stamp duty holiday for properties up to a price of £500,000 (compared with £300,000 for first-time buyers and £125,000 for others) has — at least in the words of one estate agent quoted in the media — set estate agents’ phones “ringing off the hook”.
But this would not necessarily translate in a sharply ascending trajectory for the economy, although conventional wisdom within the ranks of various UK governments has been for a long time that if you stimulate the housing market, everything else in the economy will follow.
Sunak admitted to a similar stance when he said, in his speech: “House prices have fallen for the first time in eight years. And uncertainty abounds in the market – a market we need to be thriving.
We need people feeling confident – confident to buy, sell, renovate, move and improve. That will drive growth. That will create jobs.”
But it is not clear how yet another subsidy to prop up house prices will boost people’s confidence to buy a home. Already, house prices in London and the south-east – where this latest subsidy matters most – are above a lot of people’s means.
The average price of flats in London last year was a little more than £550,000, almost 15x the average London salary of £37,000.
The stamp duty holiday would help a Londoner working for the average wage to afford more easily to pay a deposit of, say, 15% for the flat. But the Londoner would still have to borrow more than £460,000 to buy the home.
Of course, the Bank of England is doing everything it can to keep interest rates low and buy bonds in the markets in order to ensure that inflation, when it finally arrives, chips away at the debt.
However, traditionally mortgages in the UK do not have fixed rates for the whole of their maturity, so the borrowers are still at the mercy of shifts in markets, which can be sudden.
Even if the interest rate were fixed for a long time, job insecurity is high. The would-be homebuyers, if left without a job, could find themselves unable to hold on to their home. Depending on what happens to property prices when they must sell, they could even be forced to sell at a loss.
For ordinary people, therefore, the chancellor’s decision to lift the stamp duty threshold does not seem to have done any favours.
On the contrary, because it was not limited to owner-occupiers, the measure puts would-be first-time buyers in direct competition with buy-to-let landlords, who have deeper pockets and better resources.
Propping up house prices has been, time and again, the short-term solution applied by various governments whenever the economy faltered.
Unfortunately, none of these governments subsequently came up with longer-term measures to ensure the distortions they caused in the housing market did not deepen inequality even more.
Sunak’s youth was giving rise to hopes that he would bring some fresh, out-of-the-box thinking in his policies. Sadly, this summer statement, with its subsidy for house prices, shows that those hopes were unfounded.