With the average price of a house at £200,000 and residential property making up 53% of household net wealth, whether the housing market is going to crash or otherwise makes regular pub conversation.
It is quite easy, at first, to worry that the market could crash in the next few years.
Recent interest rate rises, a consistent rise in the ratio of house prices to incomes and the end of the buy-to-let "boom" are all cited as reasons to fear the worst (the worst, that is, if you are a homeowner).
However, this ignores the fundamental problem with the housing market in the UK which will prevent a housing market bust: the demand for houses by far exceeds the supply of houses.
This mismatch is caused by a number of factors.
Not enough properties
The UK does not have a large enough stock of houses in their areas where most people want to live. In 2005, 193,000 new houses were built.
This may be the highest in 15 years but it is still only three-quarters of the number that the government's own independent report estimated would be required, in each and every year, to bring house price inflation down to about 1%.
To induce a crash would require far higher levels of construction.
Government planning restrictions and schemes such as key worker housing prevent the construction sector from fully responding to the market's price signal.
More households
Population growth - boosted because more of the world's people want to live in the UK - and an ever smaller household size means that there are more people who need to live in houses than ever before and, also, that more houses are needed per person.
Additionally, when thinking about buying a house, potential house buyers do not compare their income to the price of a house.
Rather, they compare their income to their annual mortgage payments.
With interest rates at about 5% in recent years, mortgages remain affordable when compared with the early 1990s.
Rich investors
The new large and rich countries of the world - oil producing countries and the Asian dragons - remain happy to park their new-found wealth in the world's main financial centres and their property markets.
Looking forward, as long as supply continues to fail to react to the burgeoning demand for housing, it is very unlikely that house prices will crash.
As long as these fundamentals remain unchanged, a housing bust is very much off the cards. |