Business

Why it's time to view our house as a cost instead of an investment

Slates can fall from your roof - but fixing it doesn’t enhance the value of your home
Slates can fall from your roof - but fixing it doesn’t enhance the value of your home Slates can fall from your roof - but fixing it doesn’t enhance the value of your home

HOME owners as opposed to first-time buyers may well have been cheered by the news last month that property values have continued to rise.

The NI House Price Index revealed that the cost of an average home went up by 4.3 per cent over the year to April. That’s not an enormous increase but it comfortably exceeds inflation however you measure it.

But wait a minute. The survey actually showed that in the first quarter of this year house prices fell. They dropped in value by just under 1 per cent. That’s the first quarterly decrease since 2013. More significantly, most of the 4.3 per cent uplift happened more than a year ago.

Since the Brexit vote last June, house prices have gone up by just 0.6 per cent. Are these weak figures and the referendum result connected? I suspect they are but we’ll know for sure soon enough.

For the moment the housing market is pretty much flat. It’s understandable in the circumstances. Aside from uncertainty over Brexit, there are other forces at work. Earnings may have gone up in the last couple of years but that’s after a long period of decline. Over the past decade pay in real terms has gone nowhere. And now inflation is set to eat into current wage increases.

It’s not wise to read too much into a single quarter’s figures but for what it’s worth, the number of homes changing hands is lower than at any time in the past three years. That may be related to a fall last year in total employment. It could be that consumers have just got more nervous. But whatever the various causes and they’re bound to be economic, it looks like the market has entered a sluggish period where buyers are choosing to sit on their hands.

Will all this change any time soon? I suspect not. The Economic Policy Centre of Ulster University is forecasting annual economic growth in the period to the end of 2019 of just over 1 per cent. That won’t fuel any new house price boom. Unless things change in a way none of us currently expects, the housing market is going to continue to go sideways.

But this scenario is not in my view a dreadful outcome. Soaring house prices, as we have seen in London and in other parts of southern England, are condemning young people to rent for the rest of their lives. As the owner of a nice piece of property, you may think you are leaving your children a substantial nest egg but if you survive into your 90s, they may well be pensioners before they can cash in their inheritance. Even if you pop off earlier, they could end up first-time buyers at 50.

It’s really not in anybody’s long term interest for house prices to rise faster than earnings. Here's some inexorable economic logic. If the cost of a home appreciates faster than average salaries, then more and more of the income of first time buyers will be used up paying the bank. That leaves less for everything else including holidays, cars, dining out and the latest electronic gadgets.

Low house prices equal low mortgage payments. What’s not to like? Unless you’re a buy-to-letter hoping that housing costs rise perhaps to justify bigger rents or to secure greater capital appreciation, there’s no major downside to a subdued housing market.

It’s time we stopped viewing a house as an investment and started looking at it as it is: a cost. In fact, if it weren’t for our quaint practice of collectively paying ourselves more and more for the same stock of housing, a home would be regarded as a depreciating asset. After all, as the years go by, you have to spend money just to maintain your property.

Carpets wear out, slates fall from the roof and windows leak. Fixing these things doesn’t enhance the value of your home. You’re running just to stand still. Unless you’ve put on an extension or carried out home improvements, what is the argument for expecting more money for the same asset.

Try flogging your car for more than you bought it and see where you get. Your home is not a piece of art or an antique or a rare first edition novel. It’s a collection of bricks and mortar which can be replicated. Location can justify a premium depending on the siting of the house, but that’s about it.

All this is not to deny that there is a problem with our existing housing market. More homes need to be built. If not enough first time buyers can afford the prices builders have to charge to make a profit, then let the value of development land fall. If existing land prices prove too sticky, then the planning authorities should ensure that sufficient, affordable supplies are available through the zoning process.

In short, fixing the housing market doesn’t require higher prices. In fact, newer, more efficient forms of building should in theory mean a fall in the cost of construction. Everyone should have the choice of owning a home if they wish. We’re not doing them a favour by putting the cost of it further out of their reach.

:: Jamie Delargy (delargyco@btinternet.com) is a freelance business broadcaster and commentator.