Don’t bring the house down

Real estate is a load bearing part of the UK economy. Alexander Tziamalis warns how cracks are appearing.

London real estate is in a downward spiral, for the first time since 2009.Anecdotal reports of unwanted luxury flats in the Shardmerge with data showing big drops in asking pricesin the last few months and further drops in the funds supporting that market.

This drop in prices we are witnessing has very little to do with the UK government’s effort to “fix the broken housing market”and increase affordable housing.Government measures have not had any impact in the supply of housing yet and it’s doubtful they will ever have much of an impact: the government offers £45 billion, mostly in incentives, in a market valued at close to £7 trillion. In fact, against the story cultivated by successive UK governments, the limited supply of real estate in London has never been the main culprit for that city’s extraordinary rise in real estate pricesinthe recent years.

But then what is the main mechanism affecting London’s real estate? And what would falling house prices mean for Britain more generally? How might it affect employment, household consumption, investment, the government deficit and, critically, the UK current account – the net measure of cash flows in and out of the economy. Above all, is it something beneficial for the economy in the era of Brexit uncertainty?

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Alex Tziamalis

Alex is an Associate Professor in Economics, at the Sheffield Business School, Sheffield Hallam University. His research interests are in Macroeconomics and Behavioural Economics. Alex champions an “Economics for Everyone” philosophy. …

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