Monday, February 08, 2010

House prices and the Labour vote

Even the most hardened anti-Labour activists have noticed that Labour has been recovering slowly but surely in the polls. YouGov put us at 24% just before the Labour party conference in September 2009. The latest YouGov poll showed Labour at 31%. That's a shift of some 7 points in six months. Muttering "it's within the margin of error" each time there is a poll doesn't magic away the trend.

So what has caused the move? David Cameron has undoubtedly helped - Cameron's airbrushed vanity plus his evasiveness and flip-flopping have made people nervous about him. The economy recovered slightly in the fourth quarter of 2009 and unemployment has stabalised at 2.45 million. At 7.8% of the workforce, it's roughly where it was when Labour came to power in 1997.

Tories seize on these facts to "prove" that the recovery won't mean a Labour win. Even with unemployment as "low", in Tory terms at least, as 7.8%, and an economy that had been growing for four years, John Major still lost the 1997 election.

This overlooks the fact that voters vote based on how the economy is affecting them, they arn't really swayed by headline figures in the newspapers. GDP growth means nothing. But "my house price has risen and I'm in a job" means something.

There are some 40 million people eligible to vote in the UK, and between 25 million and 30 million actually do. There are also 14.5 million homeowners in England alone, and therefore house prices have the biggest impact on voters, far more than anecdotes about what is happening to other people, or unemployment which affects a smaller percentage of the electorate.

The Labour government has taken a completely different approach to recession than the previous Conservative government. Norman Lamont and co made policy on the grounds that "if it's not hurting it's not working"; their goal was to hurt as many people as possible to wring the inflation that the Lawson boom had caused, out of the system. By contrast the 2008/9 global recession took place in a deflationary environment, and the Labour government's mantra was "we must avoid hurting people, pain impedes the recovery". To this end, all sorts of measures were taken. The bank bailout, and the stimulus are the things most people remember. But there were also a lot of small policies designed to mitigate the effects of the recession on the individual.

For instance, prior to the recession, you only got help with the interest portion of your mortgage if you had been unemployed for 39 weeks. This was promptly changed to 13 weeks. The government decided that it was cheaper to help people stay in their houses than to have to house them elsewhere with full housing benefit. It had a knock-on effect that it put a kibosh on the forced selling of homes that contributes to house price crashes. Trade unions played their part too, arguing for pay-freezes in return for no redundancies - and they found employers willing to listen; they too had memories of the early 90's recession where they made people redundant at great expense and then found themselves having to hire the same people back during the recovery.

And when it finally twigged at the Bank of England that this was a serious crisis, they cut interest rates aggressively, which meant that many of the people who were struggling to meet their mortgage in early 2008 found themselves able to breathe a sigh of relief. Home owners further used the drop in interest rates to overpay their mortgages. The Bank of England reports that mortgage debt fell by £7bn in Q1 2009, £7 bn in Q2 2009 and £4.9bn in Q3 2009. The more people pay down their debt, the less vulnerable they become to forced selling, and the less likely a full blown housing crash becomes.

The sum result of all of the above is that the Halifax reports that house prices have now risen for 7 consecutive months. The average house price according to the Halifax is around £169,777, which is down 15% from it's all-time peak in 2007. Importantly, the trend is up.

This is all in sharp contrast to the situation in 1997. Back in July 2006, I wrote a long post arguing that it wasn't sleeze that did in John Major's government, it was house prices. To illustrate my point, I posted price changes in London between the peak of 1988, and 1995. A full seven years after the peak, house prices were still in the doldrums. In fact house prices didn't recover their 1988 levels till 1999 - two years into a Labour government, whose decision to make the Bank of England independent restored confidence to the housing market.

Just to underline the difference, I'm going to repost the figures:

Average Price

          1988            1995                     
E1 £111,855 £ 72,010 -36% Steepney
E2 £ 80,658 £ 70,133 -13% Bethnal green
E3 £ 88,481 £ 86,269 -2% Bow
E4 £ 89,347 £ 77,110 -14% Chingford
E5 £ 79,244 £ 67,454 -15% Clapton
E6 £ 71,728 £ 51,666 -28% East Ham
E7 £ 69,497 £ 51,441 -26% Forest gate
E8 £ 96,424 £ 65,137 -32% Hackney
E9 £ 79,834 £ 65,071 -18% Homerton
E10 £ 64,831 £ 51,960 -20% Leyton
E11 £ 74,805 £ 66,005 -12% Leystone
E12 £ 72,743 £ 60,835 -16% Manor Park
E13 £ 63,935 £ 45,875 -28% Plalstow
E14 £121,729 £ 76,965 -37% Poplar
E15 £ 66,949 £ 47,655 -29% Stratford
E16 £ 71,207 £ 44,701 -37% North Woolich
E17 £ 66,885 £ 56,229 -16% Walthmanstow
E18 £ 89,053 £ 74,760 -16% Woodforrd
SE1 £ 84,712 £ 86,777 2% Southwark
SE2 £ 60,705 £ 51,552 -15% Abbey wook
SE3 £110,009 £ 91,978 -16% Blackheath
SE4 £ 71,175 £ 58,508 -18% Brockerly
SE5 £ 91,696 £ 95,027 4% Camberwell
SE6 £ 73,931 £ 63,182 -15% Catfrod
SE7 £ 72,669 £ 69,859 -4% Charlton
SE8 £ 70,171 £ 56,656 -19% Depford
SE9 £ 88,586 £ 72,842 -18% Eltham
SE10 £109,023 £ 90,617 -17% Greenwich
SE11 £107,695 £ 89,279 -17% Kenington
SE12 £ 78,779 £ 70,014 -11% Lee
SE13 £ 71,095 £ 61,565 -13% Lewisham
SE14 £ 75,195 £ 56,585 -25% New Cross
SE15 £ 74,480 £ 57,896 -22% Peckham
SE16 £ 90,481 £ 77,725 -14% Rotherhyde
SE17 £ 81,681 £ 66,449 -19% Walworth
SE18 £ 64,781 £ 53,108 -18% Woolwich
SE19 £ 71,505 £ 59,180 -17% Norwood
SE20 £ 65,283 £ 57,741 -12% Anerly
SE21 £ 88,365 £113,095 28% Dulwich
SE22 £ 74,459 £ 72,835 -2% East Dulwich
SE23 £ 74,539 £ 65,878 -12% Forest Hill
SE24 £ 91,261 £107,809 18% Herne Hill
SE25 £ 66,173 £ 52,403 -21% South Norwood
SE26 £ 72,065 £ 59,202 -18% Sydenham
SE27 £ 74,806 £ 64,903 -13% West Norwood
SE28 £ 59,946 £ 41,740 -30% Thamesmead
SW1 £155,444 £143,949 -7% Pimlico
SW2 £ 73,355 £ 75,317 3% Brixton
SW3 £179,108 £286,283 60% Chelsea
SW4 £104,969 £101,298 -3% Clapham
SW5 £123,264 £150,934 22% Earls Court
SW6 £125,794 £154,992 23% Fulham
SW7 £202,467 £309,205 53% South Kensington
SW8 £ 79,711 £ 75,780 -5% South Lambeth
SW9 £ 79,461 £ 78,125 -2% Stockwell
SW10 £138,141 £149,483 8% West Brompton
SW11 £112,650 £122,419 9% Battersea
SW12 £ 94,880 £101,541 7% Balhan
SW13 £151,440 £213,998 41% Barns
SW14 £145,167 £160,891 11% Mortlake
SW15 £116,233 £133,784 15% Putney
SW16 £ 78,829 £ 71,502 -9% Streatham
SW17 £ 78,376 £ 81,292 4% Tooting
SW18 £ 99,452 £ 93,966 -6% Wandwoth
SW19 £ 94,504 £104,880 11% Wimbledon
SW20 £119,287 £123,355 3% West Wimbledon
W1 £186,261 £160,324 -14% West End
W2 £141,258 £137,045 -3% Bayswater
W3 £ 99,658 £ 92,276 -7% Acton
W4 £112,954 £141,164 25% Chiswick
W5 £119,393 £104,85 -12% Ealing
W6 £113,409 £106,397 -6% Hammersmith
W7 £ 86,619 £ 82,690 -5% Hanwell
W8 £178,362 £252,656 42% Kensington
W9 £113,235 £129,276 14% Maida Hill
W10 £ 99,949 £102,227 2% North Kensington
W11 £147,168 £202,748 38% Notting Hill
W12 £ 96,080 £107,936 12% Shepards Bush
W13 £104,843 £108,235 3% West Ealing
W14 £103,523 £115,983 12% West Kensington
NW1 £128,027 £118,038 -8% Camden
NW2 £ 94,768 £ 82,839 -13% Criklewood
NW3 £136,916 £162,687 19% Hampstead
NW4 £112,462 £ 97,307 -13% Hendon
NW5 £111,719 £137,997 24% Kenish Town
NW6 £103,487 £100,780 -3% Kilbourn
NW7 £114,286 £ 91,416 -20% Mill Hill
NW8 £130,556 £164,265 26% St Johns Wood
NW9 £ 90,753 £ 73,471 -19% The Hyde
NW10 £ 81,750 £ 69,790 -15% Willesdon
NW11 £152,377 £144,263 -5% Golders Green
N1 £126,169 £118,018 -6% Islington
N2 £115,475 £130,491 13% East Finchley
N3 £113,428 £109,560 -3% Finchley
N4 £ 83,772 £ 86,198 3% Finsbury Park
N5 £116,772 £109,871 -6% Highbury
N6 £128,605 £169,553 32% Highgate
N7 £ 97,678 £ 86,880 -11% Holloway
N8 £ 92,203 £101,196 10% Hornsey
N9 £ 75,355 £ 58,552 -22% Edmonton
N10 £108,290 £106,685 -1% Muswell Hill
N11 £ 89,087 £ 80,152 -10% New Southgate
N12 £104,052 £ 95,928 -8% North Finchley
N13 £ 92,338 £ 70,766 -23% Palmer green
N14 £131,327 £112,201 -15% Southgate
N15 £ 73,075 £ 55,931 -23% South Tooting
N16 £ 82,812 £ 81,106 -2% Stoke Newington
N17 £ 72,228 £ 54,282 -25% Tottenham
N18 £ 78,221 £ 56,145 -28% Upper Edmonton
N19 £102,708 £ 98,869 -4% Upper Holloway
N20 £130,108 £117,172 -10% Whetstone
N21 £127,239 £114,728 -10% Winchmore Hill
N22 £ 80,880 £ 72,934 -10% Wood Green

Staggering, isn't it? That's the reason the Conservatives lost the 1997 election. Nearly nine years after the housing peak, house prices were in the doldrums, affecting most homeowners in the land - a vast number of people, and after all that time people simply lost patience and thumped the Conservatives in the general election as hard as they could. It wasn't just that the Conservatives lost a lot of people a lot of money (which is pretty bad). They caused social grief too. Loads of unmarried couples had been encouraged by Nigel Lawson to buy properties together to take advantage of double mortgage tax relief - when they split up they found they couldn't sell, and had to endure the hell of co-habiting with an ex. People who had started families in small flats found they couldn't trade up, had to endure the pressure of bringing up small children in very cramped conditions. The Major years record the highest divorce rates ever, as the pain gleefully unleashed by Lamont and co, tore families apart.

By contrast, the Labour government's more protective family-centric policies are holding people and the economy together.

If you are wondering why Labour has been rising in the polls these last six months, look to the similar rise in house prices in the last seven months. People who don't own property tend to be dismissive about property value. You have to live somewhere, they say, why the obsession with price. But most people who own property are long-term dwellers. They have no intention of moving. But they like the idea that they have the option of moving if they need to. And nobody likes the idea of taking losses, even if they are paper ones.

If the economy continues to recover, and houseprices continue to recover, then there is the possibility that Labour can make the final push to the 35% of the the vote that we need to win. If we can stage a full recovery just three years after the peak, we deserve victory. The Tories can do what they've been trying to do all last year - talk the economy down in the hopes of panicking people and inducing a crash. But they failed at this doom-mongering when the economic danger was most acute. Things will get more difficult for them from now on.


Hughes Views said...

Interesting analysis.

The sad thing, especially for a compassionate and slightly woolly aging left of centre person, is that it appears to be in nearly everyone's interest for house prices to be crazily high and that, in a free(ish) market, this relies to a large extent on there being a shortage of decent housing.

Homeowners feel that they're richer (although this is an illusion, the only real way they can realise this "wealth" is to die), government ministers are happy because most of the electorate who vote are homeowners, developers are happy because they get more for the homes they build and the value of their land-holdings increases, planners and local councillors are happy because they don't have to give permission to build on the muddy fields and low-grade countryside (known to nimbys as Green Belt and/or environmentally precious areas) that surround most towns and cities.

The only losers are the couple of million or so people who live in sub-standard housing and those trying to get onto the proverbial property ladder.

Whilst we still have elections, I can see no solution alas...

DevonChap said...

An interesting assement but it is a pretty big assertion that the Tories are talking the economy down to cause a crash. Makes no sense since a crashed economy would be harder to run than a sickly one. Not withstanding the fact that most Conservatives would lose money in the event of a crash.

An unproven assertion based on predjudice.

DevonChap said...

I've been checking and looking at the Halifax All House buyers seasonally adjusted Quarterly Data and your thesis doesn't stand up so well.

Q1 1988 the average Greater London house prices was £90374. In Q1 1992 (so the figure out before John Major won in re-election) it was £83349 (8% down).

You use 1995 figures for your comparison which but by Q1 1997 the average house price in London was £92971, nearly 3% higher than 1988.

And if you thesis is right it is terrible news for Labour as house prices in Q4 2009 in London were 26$ down on the peak in Q3 2007. Moving upwards didn't help the Tories, why should it help Labour now?

Cantab83 said...

I don't know whether to feel optimistic or depressed about your post Snowflake? There is a horrible irony that the housing market that predominantly caused this financial mess (yes, I do indeed blame poor housing policy and unregulated bank lending for causing most of this mess far more than I blame the City traders) could now be coming to Labour's rescue.

I just hope that this doesn't mean that a future Labour government will fail to heed the lessons of the last three years and not sort out the disaster that is housing policy in this country. Unfortunately, I fear it may instead herald a return to business as usual, at least as far as mortgage lending goes.

One point you failed to highlight, Snowflake: the current seven-month rise in house prices correlates with the increased availability of low deposit (5%) mortgages, rather than low interest rates. The housing crash of 2008/9 was caused by the withdrawal of those same said mortgage products, rather than rising interest rates or unemployment. So, therein lies the solution to controlling house price inflation in the future, for those that are interested.

DevonChap said...

Someone lese has been reviewing the house prices in the post 1989 crash and now. Not so good for Labour as you portray.

snowflake5 said...

Devon Chap - you are averaging Greater London prices from 1988 to 1992. Greater London is a massive place.

The reason I listed prices per postcode was to show that where prices were depressed, Labour won, and where prices were high (eg Kensington and Chelsea) Tories won in 1997. It's no good using averages and pretending everywhere has a Kensington-type house price. People in Lewisham will be voting based on Lewisham prices, not prices north of the river.

Cantab - people simple want house prices to be stable - either steady or rising gently in line with inflation (2% per annum). Your thesis that there are just two options for house prices - either soaring at 20% per year or falling at 20% per year, is false. There was a massive crash in the 90's, that took forever to sort out. In many places outside London, the price didn't recover till 2001. The "soaring" that took place at the start of this century was a catch-up in reality. Hopefully from now on in, they'll simply hold their value or rise gently.

Cantab83 said...

Snowflake, it is not my thesis (as you call it) that house prices can only go up at 20% pa or down at 20% pa. It is merely an observation that that is what has happened for most of the last thirty years. If I have a thesis, it is that stable house prices will not happen accidentally, or by themselves. You need a macro-economic lever to pull to control them. That lever, as I pointed out on my blog a few months ago, is to control mortgage lending with variable limits on loan-to-value ratios and loan-to-income ratios.

I agree that we need, and most people would want and benefit from, house prices that rise in line with incomes. The unstable nature of the housing market precludes this from happening, though, due to the strong positive feedback forces that are usually at play due to speculative behaviour and large imbalances between supply and demand. This leads to boom and bust cycles. These large oscillations in prices can only be dampened by a negative feedback mechanism. That is what my proposal with regard to mortgage lending limits is designed to do.

The effectiveness of this policy tool has already been proved by recent falls and then rises in house prices as the mortgage deposits demanded by banks first rose rapidly at the start of the credit crunch, and then fell back again last year. The policy just needs the political will to carry it through.