More prudent, less obsessed

BRICKS and mortar are a peculiarly British obsession. An Englishman's home has always been his castle, but in the past 25 years it has also come to be seen as the chief repository of personal wealth. For the post-war generations, the purchase of a first house or flat has been a rite of passage, a step on to the ladder of middle-class prosperity.

But not any more. Mortgage lending figures out last Friday showing a drop in demand for home loans suggest that, despite unequivocal signs of recovery in other sectors of the economy, the housing market is locked in recession. Something fundamental seemsto have changed out there, in social attitudes towards property ownership. We are beginning to realise that a house is not a good luck charm that will render other forms of saving and investment peripheral; it is, we are discovering, no more than a roofover our heads.

Despite this week's quarter-point rise in mortgage rates, the likelihood of further increases in 1995-96, and the scaling back of mortgage interest tax relief, the property market ought to have brightened up by now. Most specifically, the affordability

of property (measured by comparing average mortgage costs against take-home earnings) has for some time been at an all-time high, in some instances three times more attractive than it was five years ago.

And yet the number of house sales reported by large estate agents was lower every month of last year than in the corresponding month of 1993. Why are home-buyers behaving not as though mortgage costs have just started to move up from a relatively low base, but as though interest rates were still crippling them at 15 per cent? Why have so many simply lost interest in buying or selling?

Clearly there is a reluctance to take on high levels of personal debt after the painful experience of the past five years. That new-found prudence is coupled with the refusal of the British public - as individuals rather than businessmen - to "feel good". Gallup reported last November that, on the subject of household finances, there were still 27 pessimists for every 19 optimists. Asked about the risk of unemployment, the doomsters defied the evidence of statistics and out-voted the cheerful by nine tofour.

Those respondents may have been too gloomy about their short-term job prospects, but they were right to be apprehensive about property buying. The concept of lifetime employment, whether in the Civil Service or in large companies, is a thing of the past,which makes commitment to a hefty mortgage, and a property which may not easily sell, all the more unattractive, particularly for those in the early years of their careers. It makes much more sense for young people to live in rented accommodation until,say, their early thirties or the birth of their first child, rather than buying flats in their mid-twenties before they can even afford a kettle.

And having once bought a family home, the sensible late-90s couple may move house only once more for the rest of their lives, and then only for practical reasons of space or location, rather than that fatal attraction of the 1980s - "trading up", a majorcontributory factor to the extremities of boom and bust in the wider economy. Because mortgage lenders were so promiscuous with their money, it was possible for the borrower to trade up to a more expensive property and to withdraw a portion of his capital to spend elsewhere: more than 7 per cent of personal disposal income in 1988 consisted of "mortgage equity withdrawal", a flow of ready cash which had evaporated completely by 1992. Without that incentive, and without the liquidity in property sales which it helped to create, the frequency with which homeowners buy and sell has already shifted from six years to eight, and may well extend to ten.

As these new attitudes take root, the stagnation of property sales feeds upon itself. The modern buyer looks for a place to live rather than a financial asset which can readily be swapped if it proves unsatisfactory. As a result there is relatively greater interest in buying new houses, finished to the buyers' specification, rather than second-hand ones with dodgy roofs, bad bathrooms and hideous decor.

The number of property transactions in England and Wales in 1994 was not much more than half that of the peak year, 1988, when 2.15 million were recorded. Not even the wildest optimists of the estate agency world predict more than 1.4 million a year for the foreseeable future. In addition, a series of demographic factors will depress both the level of activity and the recovery of prices. The 1950s baby boom put 850,000 eager first-time buyers on the market in the 1980s; there will be a million fewer in that age group in the late 1990s. At the other end of the age scale there will be an increasing number of "last-time sellers", those who have inherited property which they do not need to live in, or are selling in order to raise cash to cover healthcare needs in old age, and will not be buying again.

All of this points to a new world in which, as far ahead as any commentator can see, there will be no more booms and busts in British house prices. There will be fluctuations, but property values should do no more than track the rate of real earnings growth. To buy will be a serious commitment, never lightly undertaken; to sell, in a permanently sluggish market, will be long drawn out and tiresome.

Our housing market will become as placid as that of Germany, where 40 per cent is owner-occupied compared with 66 per cent in Britain, and 40 per cent is privately rented; German first-time buyers tend to be older and to borrow a smaller proportion of the purchase price, having set aside more savings towards their equity contribution. And the German habit of saving, and not speculating on real estate, has meant a steadier flow of investment in industry and, thereby, a far stronger economy.

Since the new generation of British homeowners will not have bought in the expectation of making spectacular gains, and will not be selling for a long time, they will gradually shed the obsession, inherited from the previous generation, with bricks and mortar as the essential form of tangible wealth and as a fabulous opportunity, every few years, to get rich quick. When the economic history of the Eighties is taught to our grandchildren, they will be amazed at how we could have been so utterly misled.

The writer is an associate editor of the `Spectator'.