Forget Covid-19 and Brexit. The question to which most people in the UK would want an uncertain answer is what will happen to house prices in 2021.
As residential property prices keep defying gloomy predictions (and circumstances) posting increases year after year, an upward trend is now almost taken as a sacred right by many people.
Homeowners in the UK capital and the surrounding areas have seen the best returns on what many have come to call their “investment” when they talk about their home.
In London, home prices have grown at a compound annual rate of around 8% in the past quarter of a century, according to data from the Bank of International Settlements.
Even in 2020, the year of the Covid-19 pandemic, house prices in the UK increased by 7.3% to the highest level in six years, according to data from mortgage lender Nationwide.
Many analysts have put this spectacular performance down to Chancellor Rishi Sunak’s temporary cut in stamp duty tax last July, which will see no tax paid on properties priced below £500,000.
This tax holiday was meant to kick-start the property market after the spring 2020 lockdown due to the Covid-19 pandemic brought transactions to a halt, but it acted as oil poured on the flame of an already hot market.
Now, the voices calling for its continuation beyond the 31 March 2021 deadline are getting louder, but if the chancellor yields, he would be making a mistake.
The prices of residential property have already contributed to the deep inequality plaguing the UK economy, with young people increasingly priced out of the market.
And this is not necessarily because of shortages of housing, as various property developers keep saying, keen to benefit from another government subsidy, Help to Buy.
Covid-19 and Brexit catalysts
In London, £35.58 billion worth of residential property is sitting empty, according to research by estate agent Benham and Reeves quoted by Yahoo Finance. This represents almost 21% of the total worth of the vacant residential properties in the UK.
In terms of volumes, the highest number of empty properties can be found in the north-west (104,738), followed by the south east (96,128).
This shows that investing in residential property does not always contribute to increasing prosperity. There are at least some investors who speculatively hoard homes in the hope that the government will grant another subsidy to push prices even higher still.
The Covid-19 pandemic and Brexit could act as catalysts for a radical shift in the drivers of economic growth in Britain.
Brexit, more specifically, shifts the responsibility of reshaping the economy to “level up” — as Prime Minister Boris Johnson likes to say — entirely on him and his government.
Therefore, Rishi Sunak should turn his stimulus power towards productive areas such as sustainable manufacturing and agriculture, and stop throwing money at a sector that adds very little long-term value to the economy and where subsidies help people who are already well-off.
It remains to be seen if Boris Johnson and his government have the political courage and the competence to carry out such economic revolution. One thing is sure: they will no longer be able to blame the European Union if their efforts fail.