IT IS time for an execution. A firing squad is recommended, to ensure that in the hail of bullets there is no question of survival. There is an urgent need to despatch the most accursed measure of our national well-being, one that has consistently deceived us and caused endless grief. Its demise cannot come soon enough.
I refer to the “Average House Price Index”. Its many variants – Halifax or Nationwide, Land Registry or Office for National Statistics – need not detain us, just so long as there is a clean bullet to the head of the idea that there is such a thing as an “average” price and that chasing it, controlling it or seeking to influence it is a worthwhile pursuit of intelligent people.
For years, it has dogged discussion of housing and housing policy. And no better example has been provided of this obfuscation than the response to the latest measure of “average” house prices this week. For most of Tuesday, the BBC led its hourly bulletins with news that, according to the Office for National Statistics, “average” UK property prices have risen by more than 3 per cent over the past year.
Earnest experts, hand-wringing politicians and assorted axe-grinders were wheeled on to opine on this latest threat to our nascent recovery. Which young couple could possibly afford to buy a house now? Were we on the brink of a house price explosion? Could it lead to a house price bubble? Will there not be a bust? Is the government to blame? Should not the Bank of England do something soon?
Barely is the ink dry on new Governor Mark Carney’s “forward guidance” – with its strong implication of no rise in interest rates for the next two years – than Bank watchers now worry that signs of the housing market “overheating” could force the central bank to raise interest rates from their current 0.5 per cent earlier than planned. David Brown at New View Economics said: “The recovery in the UK housing market and rising house price inflation will simply add to the Bank’s concerns that it might need to nip any impending housing bubble smartly in the bud.”
The alarm bells have rung out in stereo. The ONS report, released as a separate survey by the Royal Institution of Chartered Surveyors (Rics), said it saw house prices rise at their fastest pace since their 2006 peak last month.
Experts spoke of a “buzz” in housing market activity following the launch of various government schemes, such as Funding for Lending and Help to Buy, which make it easier to access a mortgage. With the harassed look of a conservation campaigner in front of an oncoming bulldozer, the bearded Jeremy Paxman led an anxious trio of experts on Newsnight to assess whether these government schemes could come back to “bite”. Fears were aired of borrowers overstretching themselves.
For those now convinced that we are heading for a new sub-prime Armageddon, here is the real news. There is no such thing in the real world as an “average” price. There is no such thing as a house price “bubble” across the UK. Indeed, there is even no such thing as a common direction of travel in house prices.
Yet again, we are being panicked by a statistic that is as deeply misleading as it is functionally useless. One might as well discuss the average flight of a bird or the average energy consumption of bicycles and cars. When it comes to discussion of house prices, a simple rule seems to apply: don’t let the facts get in the way of a good panic.
And the facts are plain for those who care to look. Across the UK, not just the percentage change in prices but their very direction are different.
Amid the repeated bombardment of that “average” 3.1 per cent price rise to that “average” £242,000, prices in the north-east and north-west of England saw only fractional rises (0.4 per cent and 0.1 per cent respectively). There were price falls in some areas in the 12 months to June. In Yorkshire and Humberside, they fell by 0.2 per cent. In Scotland, prices fell by 0.9 per cent. In Northern Ireland they fell by 0.4 per cent.
The outlier was London, where prices rose by 8.1 per cent. But even this is an “average” figure, disguising, according to latest data from the Land Registry, big differences between Newham (down by 0.3 per cent) and Kensington & Chelsea (up 9.5 per cent). It is not suffering, as the Old Testament former SNP leader Gordon Wilson would put it, “a cancer” but the consequences that go with being a highly successful global city.
Taking London and the south-east of England out of that “average” UK figure, house price growth over the past 12 months is just 1 per cent – hardly a runaway surge and even less reason to kick-start a panic rush to higher interest rates.
In Scotland, estate agents speak of an upturn in sales, which is wholly welcome. However, house prices outside hotspot areas such as Glasgow’s Bearsden and Edinburgh’s New Town and Morningside remain subdued. Indeed, agents are still having to talk down seller expectations on prices – hardly a bubble indicator.
All this poses problems for policy. There is no case whatever for raising interest rates on the basis of meaningless “average” data, nor is there a case for a regional Balkanisation of the monetary policy committee. It is well supplied with data from Bank agents round the country, including Scotland. There may be a case for an extra stamp duty band at the top end of the London market, but there would be potential losses for the Exchequer as well as gains.
Best for now to allow the pendulum to swing as it has in the past, with companies moving out to other parts of the UK, though relocation to Scotland may have to await the outcome of the independence referendum.
But if you’re worried about a runaway house price bubble, here’s my advice: lie down in a darkened room with the metropolitan BBC switched off until the mood passes.