Ipsos MORI Social Research Institute
Ipsos MORI

The housing economy: boom, bust and consumer sentiment

Ben Marshall

The Housing Economy

Housing is central to health, wellbeing, prosperity and aspirations. There are significant economic, social and political returns to expanding and improving housing stock. Conversely, the housing market can play a destabilising role in the wider economy and disrupt public policy intentions. Recognition of this, and a growing sense of crisis, has seen housing return as a key issue again with consumer sentiment central to its future prospects.

Back in the 1940s Sir William Beveridge identified squalor as one of the five 'giants of want'. But housing's place in the welfare state he created has been described as a 'wobbly pillar'<1> as successive governments have left unchallenged, or have actively encouraged, private sector provision of housing. Owner-occupation has risen since the war and, while currently on a downward trajectory, it is both the majority tenure and the tenure of aspiration for most<2>. These trends have been accompanied by an improvement in housing conditions, and an Ipsos MORI survey last year found Britons satisfied with their home by a margin of 18 to 1<3>.

But, and it is a big but, the housing market is susceptible to boom and bust. This is a worry because it has a profound effect on the wider economy, not least because of the central role of housing in household finances and futures<4>. For example, according to Prudential, a third of people aged 50+ plan to use their home as their pension (this group has been called "Hippies" – Home is Pension). During most of the 2000s confidence in the housing market strengthened and house prices almost doubled in a decade<6>. As a result, 42% of household wealth is wrapped up in property and household debt secured on property6 is at historically high levels. When the price of houses falls, the value of debt secured on them does not.

The last housing boom had positive consequences; dynamism in the house market contributed to the wider economy. Clearly, markets need consumers with confidence, and the housing market is no different. To function effectively, it needs adequate supply and demand, developers to build, consumers to buy and those same consumers to sell. 'Momentum behaviour' plays an important role, impacting on the house market and, thus, the wider economy:

"If an explanation is to be found for recent dramatic house price rises, it is not to be found in the usual supply and demand fundamentals but rather in the behaviour of consumers and banks."
Andrew Farlow
(University of Oxford), 2004

"Housing makes a significant direct contribution to economic output and job creation, and also has a big impact on business and consumer confidence and spending."
John Cridland
(CBI Director-General), 2011

Keen to measure and understand consumer sentiment, and working for the Halifax, Ipsos MORI has surveyed representative samples of British adults periodically since April last year. The House Market Consumer Confidence Tracker is in its infancy and its analytical and predictive capability will grow with longevity, and when we can start to compare consumer expectations of property prices with actual market trends<7>.

In January this year we found that more Britons expect prices to rise rather than fall over the next year (a small swing in opinion since October), although both owner-occupiers and the wider public only expect modest price movements. This is consistent with the real picture in the market; since the onset of recession in 2008-9 the Halifax House Price Index has shown that house prices haven't settled into a consistent trend but have been resilient (in contrast with the slump in the United States)<8>. Mortgage holders have not been tipped into negative equity, in contrast to the recession in the early 1990s. Record low interest rates continue to support the market.

Chiming with other surveys, more of the public, and owner-occupiers, sense the next twelve months is a good time to buy than not – 50% of the former take this view against 35% who think it is a bad time to buy. But our survey goes further and asks respondents whether they think the forthcoming year will be a good time to sell. We have found two things. Firstly, five times fewer think it is a good time to sell than buy (10% against 50% in January). Second, sentiment has hardened significantly since our first measure in April 2011. The imbalance in sentiment in buying and selling betrays an imbalance in the market, and one which is crucial given that many active consumers are selling to buy. In fact, only 6% of adults, and 7% of owner-occupiers, think the next 12 months will be a good time to buy and to sell.

Public attitudes

As is often the case though, headline figures only tell part of the story. For example, price alone isn't driving sentiment about the housing market, which might be because we have not yet seen much consistent movement in prices (there are, of course, many regional and local variations), and/or because wider worries about economic conditions are dominating outlook. Those considering the next 12 months to be a bad time to buy are more likely than those with the opposite view to identify high prices as a barrier but, still, such mentions pale in significance to those related to worries about household finances and the difficulties of raising a deposit.

Those same conditions are squeezing consumers. Mortgage-holders are benefiting from record low interest rates and an Ipsos MORI survey in July 2011 found only 6% of them reporting difficulty paying their mortgage. But an estimated 96% of low-to-middle earners with mortgages stand to lose from a one percent rise in interest rates; 19% losing at least £1,000 a year<9>. Mortgage repayment affordability could become the issue later this year or next if inflationary pressures, or other macro-economic considerations, force a change in Monetary Policy Committee thinking, interest rate policy and lender's rates.

Volatility and faltering confidence create challenges for our "property-owning democracy" and for governments keen to harness aspirations and build social mobility. The genesis of a priced-out 'Generation Rent' has been well documented – 59% of renters believe that they will never be able to afford to buy and rents have risen – and Shelter's recent briefing, "Held-back households" brought together a range of evidence to show that housing costs are squeezing low/middle earners and inhibiting life choices. For example, over a fifth of 18- to 44-year olds without children admit they are delaying starting a family because of a lack of affordable housing and, with implications for the economy, an estimated 5.6 million people are unable to move for work because of housing costs. According to an ESRC study, between 2009 and 2010 only 10% to 14% of people who wished to move actually did<10>.

What does government do next?

More pertinently, what can it do next? A sector which is part-free market, part-publicly owned – the wobbly pillar – is hard to control. In one very high profile way, the government is attempting to exercise control in the private rented sector by reforming housing benefit, capping benefit and pegging subsidies to a lower percentile of the local housing market. Earlier this year the Prime Minister claimed that these reforms were suppressing rent levels, a claim which was hotly disputed<11>.

Much of the crisis talk last year was couched in terms of supply, and this is undeniably important. Some want to see house-building used as economic stimulus, and the Prime Minister used his party conference speech last autumn to hail a "Tory housing revolution". The government's Housing Strategy is an important step forward and the sector has welcomed boosts for house building, keen to see them realised quickly and effectively. This sentiment is shared by the public who sense a housing crisis in Britain and attach top priority to house building<12>.

On the supply-side, the Government's National Planning Policy Framework will see local authorities and communities exercising greater influence, and responsibility, for what happens where. Here, again, consumer sentiment will be crucial and the LGA and HCA are among those urging local authorities to update their local plans and engage with communities on planning and development<13>. But are we all NIMBYs now? Yes and no. We have recently polled in one district authority area in England and, as the chart shows, the findings underline those of previous surveys; opinion in respect of building new homes is conditional<14>. Taking specific projects forward will require careful attention to local sentiment and clarity about the benefits of building plus mitigation of perceived and actual adverse impacts.

Housing outlook

Housing is important because it is strongly linked to the wider economy, to society and its aspirations. Right now, the UK housing economy is neither in boom, nor bust territory. Consumer sentiment is circumspect about price movements. It is also strongly negative about the prospects for selling and needs convincing on building homes on the scale Britain needs. Such sentiments are going to be crucial. So too is aspiration, as the Prime Minister himself knows:

"It's not just about the economy, it's also about people's hopes and dreams…You always remember that moment, if you've done it, when you get that key and walk into your first flat…It's a moment I want everyone in this country to have." David Cameron, 2011

  1. Peter Malpass, Housing and the Welfare State (2005).
  2. DCLG, Public attitudes to housing in England (2011).
  3. Ipsos MORI for Channel 4, 1,006 British adults aged 16+, 11-17 November 2011.
  4. See ippr Forever blowing bubbles? Housing's role in the UK economy (2011).
  5. Analysis by Halifax http://www.guardian.co.uk/money/blog.
  6. DCLG, New Horizons Research Programme. Social Mobility and Homeownership: A Risk Assessment (2007).
  7. Our question asks 'Do you think the average property price in the UK will be higher or lower in 12 months time, or will it be the same?'. From April we will be able to compare consumer expectations for the next 12 months with actual market trends.
  8. Commenting on Halifax's January House Price Index, Martin Ellis (Housing Economist) said "Notwithstanding monthly fluctuations, the average UK house price is very close to where it was eight months' ago, at around £161,000."
  9. Vidhya Alakeson in Homes for Citizens, James Gregory (ed.), Fabian Society, 2011
  10. Shelter, Held-back households (2012) and http://www.esrc.ac.uk/news-and-events.
  11. http://www.insidehousing.co.uk/tenancies.
  12. Three-quarters (76%) agree that "There is a housing crisis in Britain". Source: Ipsos MORI for Channel 4 (as before).
  13. LGA and HCA, Meeting local housing demand: a guide for elected members (2011). 'Councils urged to recognise housing need', Inside Housing, 27.3.12.
  14. See, for example, Glen Bramley 'Housing: homes, planning and changing policies' in British Social Attitudes 28 (2011).