Housing: Reacting without Thinking

http://www.thisisjersey.com/2008/12/06/housing-quallies-reduced-further/

JERSEY'S property market has stalled and an emergency measure will be taken to reduce housing qualifications by two years. Housing Minister Terry Le Main has confirmed to the JEP that he intends to ask the States to bring down the wait for housing qualifications from 12 to ten years after Christmas. Earlier this year the scheduled one-year drop in the waiting period for housing qualifications was frozen because of fears that the property market could not cope with an extra 300-400 buyers. But Senator Le Main revealed that the time is now right to reduce the qualifying period because the housing market had virtually come to a halt. 'The housing market has stalled at the moment because the lenders and banks are not lending like they were in the past with the 100% mortgages. They are not lending so willingly and freely,' he said.

Of course, the unintended side effect will be that a lot more people will be able to apply for States Social Housing. This is not necessarily a bad thing from the point of view of fairness, and treating tax paying citizen's alike (rather than treating some as second class) would seem to be a positive step, but it seems (from the JEP report) that this consequence is something that has not been considered by Terry Le Main.

Questions that come to mind: What would the extra demand be on Social Housing? What is the waiting list now, and by how much might it be increased? Can the Housing Department cope with both the provision, and providing for the rent rebate scheme of those qualified but unable to rent anywhere except the private sector? These are questions which need to be addressed and answered. At the moment, they do not even seem to have been considered.

The assumption that reducing the qualification period will let more of the island's richer residents into the property market, and this will therefore bring down prices is also questionable. Given the restrictions on bank lending at the present time, and the loss of Jersey Home Loans for new mortgages (which is I suspect already having an impact, as their rates were lowest), can we be sure that this strategy will work?

It seems more likely that, as in England, the property market is being hit by the credit crunch, and the only way for the market to get moving once more is for the rate at which property prices are inflated to fall.  That does not necessarily mean that prices will fall as in England, but it does mean that the differential between the cost of a property to the seller, and the sale value to a potential buyer will have to fall.

Of course, the slump in the market will mean that speculative house selling, which is inflationary, will decline. People who have a house will be more inclined to make do, and keep what they have.

The same can be seen in the car market, where sales of new cars have also declined significantly, but there a principle of non-intervention in the market is seen as basic. No States members are clamouring to intervene in the motor trade, yet in a property market - where most people are priced out even from first time buying - they seem prepared to intervene to maintain market distortions, and keep property inflation high.