The credit crunch: short-term UK housing market correction or long-term tipping point?

Abstract

Six years on in 2014, the credit crunch seems more than a short-term housing market cyclical correction to house prices. The boom and bust of the noughties both revealed and exacerbated long-term trends in the housing market in the UK. But is there sufficient evidence to suggest a fundamental change to the housing system? Home ownership has peaked and there has been a dramatic expansion of the private rented sector. Economic prospects have been transformed from persistent growth to long-term stagnation with the prospect of 10 years of fiscal austerity and falling real incomes. At the same time, there is potential regime change in the accessibility of mortgage finance. The tightening of public finances has deflated expectations. The focus of the impact has been the younger generation who face a cluster of disadvantages – in the housing market but also in the labour market and in education debts. Traditional aspirations are being rethought in the face of long-term market constraints. These issues will be discussed within a framework defined by a (macro) demand function for housing and the answer to the question is seen to depend on the nature of ultimate housing policy and supply responses.