We are all paying the price for losing sight of what moving house is for, says Paul Lewis.
In a recent series on animal migration on BBC radio 4 called World on the Move a biologist revealed what was behind these mass movements of animals, birds, insects, and fish
. The answer was simple – food and sex. Until recently the same was true of humans. We moved house to get food when we changed our job or wanted an easier journey to work. Or for sex – we were starting a relationship or wanted the freedom to do so, we were ending a relationship, or we had children as a result of one. Food and sex drove house sales.But the surge in house sales over the last few years has been about something different – making money. Houses were seen as pensions. Second homes were bought as an investment rather than a weekend retreat. And huge numbers of homes were bought to rent out and make money – not from the rent which often barely covered the costs – but from the capital gain in a market that could only go one way – up.
What made house prices rise? Demand. And what kept demand growing? Easy credit. And what kept credit easy? Rising house prices. At some point it had to end – and it has.
So I wasn’t too sorry for – let’s call him Michael Cotton. Last August he bought a tiny flat in London’s Pimlico area for £175,000
. It is now worth just £80,000. A fall of more than 50%. So confident was Mr Cotton about the state of the property market that he paid £25,000 above the original asking price. He thought it was a good investment and planned to rent it out. But rents in the area have also fallen and now won’t even cover the mortgage he bought it with. ‘It is’ he said ‘like being hit in the stomach’. I guess it depends where you keep your wallet.In a parallel universe another Michael Cotton bought the same flat as a starter home to share with his girlfriend. It was small but it was the only way they could find somewhere to live near where they worked. For them the drop in prices doesn’t matter that much. They own a home. Forget the pounds, it is worth one home. And when they want another home they sell that home and buy another for the same amount – one home. And if they are paying a lot more than they need to time will sort that out. Eventually house prices will recover – they always do and underlying demand is strong – and their tiny Pimlico flat will once more be worth what they are paying their lender.
So while negative equity affects Mr Cotton the investor it would not affect Mr Cotton the owner occupier who bought not for profit, not for investment, not to make money but to find somewhere near to work to live with his girlfriend.
Food and sex. Stick to basics and the housing crisis is not a problem
.
Go back to Paul Lewis front page