From the TUC

House Prices: it’s good that inflation is coming down, but what does that say about demand?

16 Nov 2010, by in Economics

Today’s figures for the Communities and Local Government House Price Index in September show that the average house price is £211,815 and that house price inflation in the year to September was 6.1 per cent. This is down from 8.3 per cent in the previous month and substantially below the forecasts of around 9 per cent.

This slowing down is good news. House price inflation is still over twice the rate for most pay deals and the current ratio of average house prices to average earnings (4.5 to 1) is still above the long-term (since 1983) average of 4:1. House prices may not be picked up by the government’s preferred Consumer Price Index, but they still raise workers’ cost of living and it’s a good thing that the rate of increase is coming down.

But it is hard not to worry that that this shift doesn’t reflect a saner property market. If you look at house price inflation over recent years it seems far more likely to be an indicator of very subdued household demand:

House Price Inflation since 1983

It’s yet another indicator that has me worried about where we’re going to find the demand to maintain the recovery.

One Response to House Prices: it’s good that inflation is coming down, but what does that say about demand?

  1. The Squeeze
    Nov 16th 2010, 10:22 pm

    All pyramid schemes run out of participants and collapse.

    I’ve just started a new £21.5k job in the south east and I can’t even afford to rent a 1 bed flat where I work.

    Consumer demand would be freed up if we ‘concreted over the south east’ and ‘ruined the skyline’ thus lowering rents and freeing up purchasing power.

    Trying to prop up the ponzi house price bubble will inevitably lower growth to a big fat zero (probably for 10 years or more).

    The current Lab/Con/Lib and TUC policy of making housing and household bills more expensive is actually very stupid.