The Sustainability of High House Prices and Rents Post-Brexit

It's a common myth that Brexit would cause a house price crash. In reality, despite the lack of such a crash, the ongoing rise in house prices and rents has not been without its critics. Some argue that these high prices are unsustainable, while others maintain that they reflect fundamental economic realities. This article explores the factors behind these trends and assesses their future sustainability.

Dispelling the Myth of a Price Crash

The idea that Brexit would lead to a house price plummet has been widely debunked. House prices have continued to rise, and rents have also been on the up. Critics of these trends see these increases as unsustainable, but the reality is more nuanced. Factors such as location, desirability, and accessibility play critical roles in determining both sales prices and rental values. Additionally, wage increases and inflationary pressures contribute to the overall economic backdrop.

Sales price and achievable rent are often not directly connected, except in the most generalized sense. Sales are influenced by location, desirability, and the desirability of the property itself. Rents, on the other hand, are more influenced by accessibility to jobs and transport links, as well as the dwelling capacity of the property. The level of the Local Allowance Area (LAA) also plays a role. This complexity makes it difficult to directly correlate sales prices with rental values across the board.

The Role of Taxation and Inflation

With ongoing tax rises and moderate levels of inflation, the current situation can be seen as part of a broader economic narrative. While some may argue that increasing taxes are detrimental, it's important to note that these increases are relatively small compared to historical standards. Inflation is not rampant, and it tends to bring about wage increases that offset these inflationary pressures.

One of the most significant benefits of Brexit has been the end of the detrimental effects of Freedom of Movement. This policy, which has been in place since the early 2000s, depresses wages and creates a labor market that is less favorable to workers. With this policy gone, the economy is poised for substantial improvement, which can be reflected in more stable and sustainable house prices and rents.

Challenges and Future Outlook

Rising housing prices themselves are closely tied to inflation. If inflation persists, it would be highly unusual for housing prices to reverse course. A decline in prices could indicate that inflation is abating, which may not be desirable for homeowners. However, a decline in housing prices does not necessarily mean a decline in living standards; after all, a lower price is just as beneficial for buyers as it is detrimental to sellers.

Looking ahead, the British economy presents a mixed picture. On the one hand, the outlook is generally positive, with the economy performing better than in many other regions. Inflation remains a significant risk, and it's crucial to monitor its trends. Changes in fiscal policy and international trade conditions may also impact the housing market.

Moreover, it's important to acknowledge that the housing market is not simply a reflection of government actions. The market is driven by complex economic factors, including consumer behavior, supply and demand, and broader macroeconomic trends. While Parliament and the government may have a role in shaping these factors, they are ultimately driven by market dynamics.

Conclusion

High house prices and rents in post-Brexit Britain are not inherently unsustainable. These trends reflect a combination of economic factors, including supply and demand, inflation, and wage levels. While challenges exist, the market is capable of adjusting to these factors. Ultimately, the sustainability of these prices and rents will depend on how these broader economic factors evolve in the future.