What The Spending Review Means To The Property Market

At first sight, the massive fall in funding for all kinds of property-related projects – including social housing, building for schools, slashing the Communities and Local Government capital funding by 74% and so on – will most likely have a severe and long-lasting effect on the sector.

Even the Royal Institution of Chartered Surveyors (RICS), normally a quietly sanguine voice of reason, is turning a metaphorical shade of greeny-yellow at the news. Noting that the drastic reduction in funding for social housing will have a ‘wider impact’ on the general housing market, the RICS argues that less supply will meaning lower affordability for first time buyers. In other words, residential property prices may start to rise, as a consequence of these measures.

That would please Daily Mail readers, even as they lose their jobs, pensions and their children turn into drug-addled layabouts.

RICS goes on to attack the general destruction of the construction sector, with the consequent damage to the economy as a whole. “Cutting construction spending will have serious negative impacts including long term unemployment, loss of skills and outdated infrastructure preventing economic growth,” says Mark Goodwin, director of external affairs.

My guess is that the Coalition government feels it can afford to treat the property sector in this manner because there is such a vast amount of slack in it. Average punters, whose salaries are just £30,000 or £40,000 a year, have hundreds of thousands of pounds locked up in their properties, doing nothing much for the economy. People on benefits have been able to claim generous housing allowances for many years, when – if their living conditions were not so feather-bedded - they might concentrate a bit harder on finding work.

Most importantly to the government, they need to get the really bad news out of the way as early in their five year term as possible. I think they may even be playing up how awful and devastating it will be, so that, come 2015, people will be feeling a bit better and may even vote them in again.

Original comment at: Quick House Sale Blog

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