According to the latest survey from the Royal Institution of Chartered Surveyors (RICS) house prices are perilously close to falling. But here is a controversial idea for you. Is the housing boom of the last ten years a hidden reason why more people are setting up businesses?
According to RICS, the difference between the percentage number of surveyors who reported a rise in house prices in July compared to those who reported a fall was one – meaning there was just one percentage point in it.
The last time the index was that low was in March 2013.
If the index falls any lower next month, then expect trouble ahead – this index always has been an excellent bellwether of the UK housing market and indeed the UK economy. When it dips below zero, expect the economy to slow a few months later.
The consensus on UK house prices seems to be as follows: with interest rates so low, many people cannot afford the mortgage on a house, but few can find the capital to put down as a deposit. And there is a gross shortage of supply – people have to live somewhere, therefore in the long run, house prices will continue to rise, although if interest rates rise significantly, this may dent that prognosis, but we may see a shift of ownership from owner occupiers to tenants.
But this view is based on a myth. In fact, there is no shortage of housing stock in the UK, it is just that around eight million people live in homes that are bigger than they need – meaning more than one spare bedroom. (And one million live in homes that are considered smaller than required). Okay, people can live in any size home they want to, but it does appear that the main motivation for living in a home which is bigger than you need is that it is seen as an investment. So, we get a catch 22 situation: house prices are seen as a good investment as there is a shortage of supply, but there is only a shortage of supply because people live in homes that are bigger than they need, and they do this as they see housing as a good investment.
This equation could get broken if more people choose to rent – as far fewer people who rent choose to live somewhere with a predominance of spare rooms.
Now let’s move the discussion.
There is some evidence to suggest that mobility of labour is greater when more people within an economy rent as opposed to own a home.
But maybe we are seeing something else at play.
A good illustration of this comes from words spoken by Simon Biltcliffe, a judge at this year’s Great British Entrepreneur Awards when he spoke to Fresh Business Thinking.
Simon put it this way: “I saw a campervan in Australia and it said: ‘less stuff more freedom.’” There is view among the younger generation that we don’t need to own more stuff – people don’t want cars, necessarily, they will share, collaborate, upcycle, recycle, much more freely. For the younger people, rent is the only option, so you become more transient. “They think ‘there is no way I can have a mortgage, so I have freedom.’”
And that suggests Simon is one of the reasons why the UK appears to be becoming more entrepreneurial.
Maybe generation rent, freed up as they are form the shackles of a mortgage, are more likely to take risks.
Or you could see it this way, in the words of Janis Joplin, “Freedom is just another word for nothing left to lose.