From 1999: Another UK housing bubble? No chance!

October 17, 2013

While debate rages on whether or not Britain is heading into a new housing bubble, here’s a Reuters poll from 1999 that asked the same question. The answer then was,  “No, this time is different”, and it featured a lot of the same arguments we’re hearing today.

Here it is, posted in full:

POLL-UK property recovery not a 1980s bubble

By Penny MacRae

LONDON, Aug 18 (Reuters) – Is Britain seeing a rerun of the 1980s property boom?

As buyers scramble to beat rising house prices, it may seem to many as though the roaring 1980s have returned.

But while house prices are going through the roof in trendy London locales like Notting Hill, the recovery differs sharply from the “seller’s playground” it was a decade ago, economists and property specialists surveyed by Reuters say.

For one thing, the 28 participants said the upturn is much patchier and more regional. “The biggest rises have been in the southeast and London,” said Milan Khatri, economist at the Royal Institution of Chartered Surveyors.

“While it has spread out to the rest of the country, the rises are not spectacular and prices still are falling in some areas whereas in the late 1980s no one was reporting any falls.”

For another thing, economists and property specialists say the Bank of England won’t let another inflationary boom happen. The Bank has already said it will monitor house prices closely.

“It’s unlikely to become inflationary unless the monetary policy stance becomes too loose and that’s highly unlikely,” said economist Trevor Williams of Lloyds Bank TSB.

The 1980s boom went bust in October 1989 when the Bank hiked rates to 15 percent to choke inflation. The economy plunged into recession, thousands lost jobs and property prices plunged.

Economists expect the first rate hike in late 1999 or early 2000 with many seeing base rates at 6.25 percent by end 2000. That “should be sufficient to quell potential inflationary pressures,” said Investec economist Philip Shaw.

Other differences with the boom years include the affordability of property. The ratio of prices to salaries, a yardstick of whether houses are overvalued, is now three times average earnings – in line with long-term trends. In the late 1980s, house prices jumped to five times average earnings.

With base rates at a 27-year low of 5.0 percent, prices have gone up by as much as 50 percent in some fashionable areas and million pound houses are becoming commonplace.

“But if you look at the UK as a whole, house prices have only fairly recently passed 1989 in nominal terms,” said John Stewart, economic adviser to the House Builders’ Federation.

“In real terms, they are still 24 percent below what they were at the peak of the boom in the 1989 third quarter.”

According to the survey conducted August 13-17, house prices would rise by 8.0 percent in 1999 and 6.8 percent in 2000, using the median forecast of 23 economists and property specialists.

Another factor making this market different is that turnover is much lower.

“Throughout the 1980s, transactions were around 1.8 million every year and over two million at the peak in 1989,” said Alex Bannister, group economist at Nationwide.

“We expect 1.45 million transactions this year – quite a strong number but still half a million down on the peak.”

Demographics have also made the market distinct from the 1980s with a big decline in under 30s first-time buyers. Economists say memories of the market collapse are still fresh, making people reluctant to overload on debt.

So far, economists believe the recovery poses no big inflationary threat. Inflation is now at a modest 2.2 percent.

“House prices are not that high. While they support consumer spending, it is not to the degree that they are creating a real inflation problem,” said John Calverly of American Express.

Another encouraging sign for inflation, they said, is unlike the 1980s, there are few signs consumers are converting their “paper” property gains into cash to spend on consumer goods.

In the late 1980s, financial deregulation sparked a credit explosion. Households were withdrawing seven percent of income from their housing equity whereas in the current cycle, so-called “equity withdrawal” has just barely turned positive.

“We see the housing situation as much more sustainable,” said Sue Anderson of the Council of Mortgage Lenders.

(c) 1999 Reuters Limited

* Obviously, some of the people who provided views, and indeed the author of this piece, may have moved on from their quoted roles since 1999. 

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see