House price "hope"—for whom?

The have-nots don't get a word in.

As if to underscore the message of Through the keyhole, our week of themed posts on Britain's housing crisis, YouGov has released its Household Economic Activity Tracker for February, which reports an improvement in economic optimism of 3.5 points to 98 (where 100 on the index is neither optimistic nor pessimistic).

The report states:

YouGov’s data suggest the driving force in this improvement is a growing belief among home owners that the property market has stopped falling and has actually strengthened – especially in London. One in three (29%) people in the capital believe house prices rose in February compared with just 7% who think they fell. In the UK as a whole, just 14% of respondents in February thought their home decreased in value during the previous month, down from 18% in January and 27% in August 2012.

For the first time since mid-2010, the average homeowner expects prices to rise over the coming year. Almost a third (31%) of respondents expect house prices to be higher a year from now, more than double the percentage (14%) who think they will be lower. Survey respondents are looking for a 0.6% rise in home prices on average over the coming year, compared with the 0.1% decrease they expected last month.

This property bounce appears to be having a positive effect on the homeowners’ household finances, with fewer households reported a deteriorating financial situation compared to last month. Those who believe the value of their house increased during February were twice as likely to think their overall financial situation had improved compared to those who thought their property’s value had stagnated or declined (9.2% to 4.6%).

It's only a measure of expectations, so shouldn't be taken as any sort of valid prediction of the future of the housing market. But what interested me, in the context of our housing week, is the apparently unthinking tone taken in the release, which is even headed House price hope sees economic optimism reach two year high. Owner-occupiers are still the most common type of households in Britain, making up 65 per cent of the total according to government statistics, but that's been on a downward trend since it peaked in 2003 at 71 per cent. For 35 per cent of the nation, the fact that house prices are rising again does not represent "hope" at all — it pushes the chance of ever owning a home further into the distance, and is likely to feed through to higher rents in the future.

That gap, between owner-occupiers and others, is largely a generational divide, and there are some who will be able to look to parents for the nest-egg they need when they feel the time is right. But that just strengthens the other divide, between the haves and have-nots. And this report highlights that mostly, when we speak of the "health" of the housing market, the have-nots don't get a word in.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images
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There are risks as well as opportunities ahead for George Osborne

The Chancellor is in a tight spot, but expect his political wiles to be on full display, says Spencer Thompson.

The most significant fiscal event of this parliament will take place in late November, when the Chancellor presents the spending review setting out his plans for funding government departments over the next four years. This week, across Whitehall and up and down the country, ministers, lobbyists, advocacy groups and town halls are busily finalising their pitches ahead of Friday’s deadline for submissions to the review

It is difficult to overstate the challenge faced by the Chancellor. Under his current spending forecast and planned protections for the NHS, schools, defence and international aid spending, other areas of government will need to be cut by 16.4 per cent in real terms between 2015/16 and 2019/20. Focusing on services spending outside of protected areas, the cumulative cut will reach 26.5 per cent. Despite this, the Chancellor nonetheless has significant room for manoeuvre.

Firstly, under plans unveiled at the budget, the government intends to expand capital investment significantly in both 2018-19 and 2019-20. Over the last parliament capital spending was cut by around a quarter, but between now and 2019-20 it will grow by almost 20 per cent. How this growth in spending should be distributed across departments and between investment projects should be at the heart of the spending review.

In a paper published on Monday, we highlighted three urgent priorities for any additional capital spending: re-balancing transport investment away from London and the greater South East towards the North of England, a £2bn per year boost in public spending on housebuilding, and £1bn of extra investment per year in energy efficiency improvements for fuel-poor households.

Secondly, despite the tough fiscal environment, the Chancellor has the scope to fund a range of areas of policy in dire need of extra resources. These include social care, where rising costs at a time of falling resources are set to generate a severe funding squeeze for local government, 16-19 education, where many 6th-form and FE colleges are at risk of great financial difficulty, and funding a guaranteed paid job for young people in long-term unemployment. Our paper suggests a range of options for how to put these and other areas of policy on a sustainable funding footing.

There is a political angle to this as well. The Conservatives are keen to be seen as a party representing all working people, as shown by the "blue-collar Conservatism" agenda. In addition, the spending review offers the Conservative party the opportunity to return to ‘Compassionate Conservatism’ as a going concern.  If they are truly serious about being seen in this light, this should be reflected in a social investment agenda pursued through the spending review that promotes employment and secures a future for public services outside the NHS and schools.

This will come at a cost, however. In our paper, we show how the Chancellor could fund our package of proposed policies without increasing the pain on other areas of government, while remaining consistent with the government’s fiscal rules that require him to reach a surplus on overall government borrowing by 2019-20. We do not agree that the Government needs to reach a surplus in that year. But given this target wont be scrapped ahead of the spending review, we suggest that he should target a slightly lower surplus in 2019/20 of £7bn, with the deficit the year before being £2bn higher. In addition, we propose several revenue-raising measures in line with recent government tax policy that together would unlock an additional £5bn of resource for government departments.

Make no mistake, this will be a tough settlement for government departments and for public services. But the Chancellor does have a range of options open as he plans the upcoming spending review. Expect his reputation as a highly political Chancellor to be on full display.

Spencer Thompson is economic analyst at IPPR