House prices still drifting downwards, says Halifax

An article on house prices and no comments? Maybe the world has changed... here's hoping.

Depends what you read - yesterday prices were apparently up and down in the space of just 5 hours! See http://www.ipinglobal.com/ipin-live/380038/uk-property-prices-boom-to-bust-in-5-hours

The downward pressure is growing as the underlying issue of price v earnings is preventing new house sales to 25-35 year olds. Recently I visited a site where Taylor Wimpey had reduced their new 3 bed properties from £185k to £165k and were offering 15% of this as an interest-free deposit for 10 years. First time buyers only had to find 5% if they could fund the mortgage.

If, however, the average new house price is £160k and a deposit of 20% is normally needed to obtain a mortgage, the prospective first time buyer has to find about £35k in fees etc. For a young couple who are both in jobs this represents more than a year's net earnings - an impossible savings requirement when they are already paying for rental accommodation. Without the Taylow-Wimpey largesse it is easy to see why sales of new houses are falling.

But there is a more fundamental issue concerning housing. Building costs are now about £1300 per sq m so a modest house of 100 sq m would cost £130k to build without land costs. Our building methods are therefore far too expensive to start with. Land costs are also absurdly high due to planning restrictions and greedy landowners.

We need to reduce land costs by taxing develoment profits and pumping the money back into public land purchases for individual self-builders. We also need to reduce building costs by changing our outdated construction methods which are basically unchanged for the last 150 years. The Japanese introduced low cost manufacturing to the car industry by using new industrial methods and this has transformed it. We need to do the same in construction by applying 21st Century manufacturing technology.

Hand-built houses using bricks, blocks and mortar (with massive labour input) may look great, but we have to find better ways to build homes much more quickly and cheaply. The old housing stock is badly insulated and frequently poorly maintained because renovation costs can be higher than new-build. They also have old-fashioned, inefficient plumbing, heating and electrical systems. Tens of thousands should be pulled down and rebuilt.

In short, houses are too expensive because land costs are too high and they consume too much labour to construct or renovate. Houses should not be seen as a permanent fixture in the landscape once built. They should be viewed as a product with a limited lifespan that has to be replaced every thirty years or so.

The other problem is that houses are now seen by many people as the only safe haven for their money and represent most of their wealth, so they have a hugely inflated perceived value. Nevertheless prices will continue to fall until better balance is restored with average earnings. This may mean a huge increase in home owners with negative equity and a massive headache for the mortgage and banking industry.

Watch his space!

Cost of land relates surely to demand & supply. I can't see how prices can be 'controlled' with additional taxes on land - these taxes might actually increase the price of land! Neither do I see people's homes being destroyed after 30 years!

The important part of construction is its effectiveness in delivering what people need, especially in terms of heating efficiency ie, insulation, underfloor heating and draught-proofing.

Solar heating, notwithstanding payments for energy produced, makes no sense for great numbers of people who on average move home every 7 years. They will not recover their outlay in this period. I think the sensible thing is for government to legislate and allow the cost of installation of solar panels to be a debt attached to the house and for all who own the house in the future to continue paying that debt - after all, they also will reap the benefits of the solar panels!

But, with the above caveats, efficient housebuilding using modern technology sounds very good - although some new houses have proved disappointing and more badly built than older properties that do have a lot of character which people prize greatly.

Taylor Wimpey's houses with their reductions and interest free period for 10 years sounds very good, although I have never seen these myself and do not know just how good their homes really are - or the locations they have been built in!