Teresa Hunter: Jobs pain will continue until property prices turn around

Published on Saturday 7 February 2009 13:13

IF THE UK economy was a building it would be condemned. Half our banks are bankrupt, companies are falling over faster than the Bank of England can cut interest rates, and manufacturing is grinding to a halt.

Last week's base rate cut, like a greetings card delivered to the wrong address, pleased almost no one.

Yet there was one chink of light: the vertical 10-month downward drop in house prices stopped in January and went into reverse.

Average house prices across the UK increased by nearly 2%, according to the Halifax. This doesn't mean we're out of the woods. Far from it. Prices are still 18% from the peak and likely to bump up and down for the rest of the year. Some areas will see prices slide, while other neighbourhoods will be stable.

But combined with anecdotal reports from estate agents that activity in branches is up, I suspect when we look back on this dreadful time, January 2009 will be seen as a key date.

On numerous blogs, including our own, you find bloggers intent on forcing house prices as low as they can. These financial terrorists, as I like to call them, have an obsession with their destructive vendetta against homeowners.

We can all agree that runaway prices like those of the last bubble have been a disaster. Many of us warned it would all end in tears. But to seek revenge on homeowners by hanging them out to dry entirely misses the point.

Like it or not (and many of us do not), a huge chunk of the economy, our national psyche and wellbeing are tied to the fate of the housing market.

That is why until it stabilises and shows some sign of recovery, there is little hope for an end to rising bankruptcies and job losses.

It won't recover until money starts moving round the system again. We are wasting our breath telling the banks to lend. Like a beat-up boxer, they won't re-enter the ring without a cast-iron guarantee that their aching ribs aren't cracked.

We need other measures and we need them soon.

The extent to which the property cow is milked far and wide was brought home to me when speaking to my young nephew. A lorry driver, for years his ambition has been to own his own wagon. He hauls chemicals out of Teesside and, after saving hard, he bought his own tanker, without a loan, last October.

He had two days' work in December. January has been no better. At first I couldn't understand why a downturn in the housing market should hit the chemical industry.

Until my nephew explained. The chemicals he carries are used to make the foam which goes into furniture. People buy furniture when they move house. No one is moving house, so no one is buying furniture, so there is no demand for the foam and hence his chemicals.

All of which explains why double the number of companies went bust in the last three months of 2008, compared with a year ago, both across the UK and in Scotland, where 163 companies bit the dust, while a further 80 have gone into administration.

Nearly 6,000 individuals in Scotland are now bankrupt, again nearly double that of a year ago.

Unless things are turned around sharpish, these numbers could easily double again. There is a realistic prospect that about 2,000 Scottish firms will get into trouble this year. If property prices continue to fall and unemployment rises, 10,000 could be a modest expectation for personal insolvencies for the last quarter of 2009.

Bankers in the dock

HOW I'd love a ringside seat for the treasury committee's gruelling of our disgraced bankers this week. But wonderful though the theatre will prove, we mustn't allow it to satisfy our appetite for a more serious denouement for those responsible for the misery heading in the direction of thousands of families.

These public whippings achieve little. The MPs on the committee are like First World War orderlies, sent out to count and catalogue the dead.

By all means bay for blood. But if there is any evidence of negligence, surely these matters would be better aired before sober judges in cold courts of law.

We'll all have to pay

IF TWO wrongs don't make a right, let's try a third one seems to be this Government's motto. Many employees are struggling with wage freezes or falling earnings. If we are lucky, in three years' time things might be turning round.

Just at this point, the Government's new compulsory pensions will kick in as taxes are also rising sharply. Where will firms find the money to pay these new contributions?

That's right: from your pay packet. I'd say we can wave goodbye to pay rises for the next five or six years.