A fall in house prices is bad news – especially for the Conservative Party

It is a common fallacy, in any discussion of how “ridiculous”, “absurd” or “insane” house prices are, to assume that life would be better if housing were cheaper. Unfortunately, given that homes cannot become cheaper by magic but only by the interaction of supply and demand, a fall in house prices is not good news.

The reason British house prices are falling is that interest rates are going up, which means that people are finding it harder to buy. As with any shock to the economy, the end of cheap money produces winners and losers.

There will be some individuals, who have finance already arranged or are paying in cash, who will find that previously unobtainable properties are suddenly within reach. But there will be more who will find that they are struggling to pay their existing mortgage, or that mortgage deals they thought were available have become unaffordable. It is no use to most first-time buyers that prices are falling if the cost of having a mortgage has at the same time escalated beyond their budget.

That is not necessarily a failure of policy. One of the reasons that the independent Bank of England has raised interest rates is to try to bring inflation down, as it is bound by law to do. That works by sucking money out of the economy – in the form of higher mortgage payments – so that people have less money to spend on other things, reducing the upward pressure on prices.

There are other ways of achieving similar effects. The government could put up taxes, which would not only take money out of the economy but would also allow public borrowing to be cut, or public investment to be increased. The Independent would prefer taxes to take more of the strain from interest rates, but recognises that this is politically unthinkable with the tax burden already at a post-war high. The Labour opposition is calling for lower taxes almost as loudly as is the median Conservative backbencher.

There is also a debate about how quickly and how much further interest rates should rise, with Andy Haldane, the former chief economist at the Bank, arguing for a “pause” while we assess the damage done so far. Given that we suspect that the Bank is psychologically overcompensating for its slowness in starting to raise interest rates last year, The Independent is inclined to agree with him.

However, the rise in interest rates cannot be avoided altogether, because rates are rising around the world. Therefore, the question that matters is how the hardship will be distributed. Professor Abhinay Muthoo, a fellow at the National Institute of Economic and Social Research, told The Independent: “People who are already suffering right now will suffer more.” He is right, except that each month a new batch of fixed-rate mortgage deals expires and a new cohort of borrowers faces a sharp rise in costs.

What Rishi Sunak and Jeremy Hunt need to recognise is that the pain of this adjustment falls disproportionately on the young. Older people who have paid off their mortgages may not be happy about a fall in the value of their homes, but they are in a far better position than young people, whether renters or would-be buyers, who find it harder than ever to afford a good place to live. This injustice ought to be ameliorated in the next Budget, but the brutal political reality is that no one is happy and no one can be bought off in time for the election.

A fall in house prices is especially bad for Mr Sunak’s prospects at the election, as millions of voters feel – and indeed are – suddenly poorer.