Paul Cheshire, an emeritus professor at the London School of Economics, says this is a function of the fact that the UK economy is stagnant, real incomes are not rising, and younger buyers are simply unable to pay any more money to buy homes.
“The main driver of housing demand is rising incomes and incomes haven’t been seriously rising in the UK since 2008. People are not getting richer.”
The endless flow of cash into UK property is quietly drying up.
Blow to the wider economy
Fiona and her husband have been struggling to sell their buy-to-let flat in Portsmouth for three years.
They listed the property in 2023 for £95,000, the price they paid for it in 2020, then reduced the price by 16pc. They have still barely had any viewings.
Yet they are still being advised to wait out the market.
“Everyone is telling us that we should keep it and it will appreciate in value. But it’s not appreciating now,” says Fiona, 30, who asked to use a pseudonym instead of her real name.
“We’ve got it on the market for £15,000 less than we bought it for, and it still hasn’t had any interest.”
Their situation shows how a property market slowdown drags on the wider economy. Not only are they unable to release the cash that they have in the property to spend on their own home, but they are losing £1,000 per year by letting it out. They are unable to raise the rent high enough to cover their outgoings after taxes and other costs.
“We do not want the flat at all. We’re stuck with it,” she says.
House price downturns might sound like a great thing for those struggling to get on the property ladder, but they come with a host of nasty side effects.
Aneisha Beveridge, of Hamptons, warns: “Prolonged price declines can be pretty detrimental for existing homeowners and tend to slow the market overall.”
But it is not only the housing market that hurts. “When you have a weak housing market, you have a weak economy, and vice versa. Essentially the two go hand in hand,” says Cook.
House price falls hit growth primarily through three channels: lower consumer spending, lower residential investment and a pullback on lending as banks fear higher than expected losses.
When house prices are rising, there is a “wealth effect”.
Nearly two-thirds of households in England own their own home, and property is the largest store of wealth in the country.
Households hold some £5.5tn in property (after the deduction of mortgage debt). This is 40pc of their total assets and roughly triple what they hold in financial assets (14pc) such as shares and bonds.
When house prices rise, these households feel richer and that gives them the confidence to spend more, which drives growth.
