Rises good, falls bad?

The BBC's 'Property Watch' this week made fairly terrifying viewing, as a succession of BTL investors were wheeled out to explain how they had borrowed millions of pounds at the top of the market, and now found themselves living under cardboard boxes while trying to sidestep the repo men. One remarkably cheerful woman had jacked in her local authority job to become a full-time landlord, borrowing £7.5m to fund 50-odd properties, many arranged as HMOs (houses of multiple occupancy). It's all in the edit, as they say, but if the properties they showed onscreen are representive of her portfolio then even the rats would be packing their bags and leaving. Worryingly, the efferverscent 'investor' said that she was 'just waiting for the upturn' to refloat her financial boat - and that if she could get her hands on some cash she'd be getting back into the market. Arrrgh! There is a not very fine line between property investment and mental illness and I fear this woman had crossed it long ago.

So lots of horror stories of people trapped in negative equity and people struggling to get onto the housing ladder. But 'Property Watch' found itself with the perennial problem of what angle to put on the slide. Rising prices, a buoyant market are good right? We want our investments to grow, we don't want to owe more than the value of our houses. Yet it's just this buoyant market that cuts first-time buyers out - hence the bearish insistence by the likes of 'Money Week' and 'The Guardian' that this collapse is an adjustment or a correction rather than a problem. A fall may be painful, but it brings property prices back to affordable multiples. To hammer home this point we saw James, 27, desperate to get himself into debt so he could 'afford' to buy a £159,000 house on a £12,000 income. I apologise for the rash of quotes here, but irony feels the only recourse when you're viewing this sort of insanity.

Patrick Collinson in 'The Guardian' has no doubts. We've become brainwashed into seeing rising prices as a good thing, when what we need is a drop. He quotes a 'Property Watch' ICM poll which found that 64% of us want prices to stay the same or fall, with younger people wanting a fall. Well yes, and I'd quite like a lifetime's supply of free beer and my own private car lane around London but that doesn't mean I should have them, nor that it would be a good thing for me and the rest of society if I did. Price inflation got out of hand and put property at unaffordable multiples, but that doesn't mean deflation is better.

A growing economy needs a level of controlled inflation - it's a stimulus to further growth as people invest with a reasonable expectation of getting a return - not to see their house as an equity release cash machine, funding holidays and new cars, simply a reasonable return. You can have a deflationary economy if you like but it's also a dead economy - witness Margaret Thatcher's baleful effect on Britain in the early nineties before Nigel Lawson brought in his own bubble to get things moving again. And though young people may want house prices to fall so they can afford them, do they then want them to keep falling, thus finding themselves in negative equity and thus with more expensive mortgages or with a property they are unable to sell when they want to move up to a larger house (as they will). And where is the incentive for professional landlords to buy and invest in improving property when that asset is going to fall in price? To be fair, Patrick hates BTL landlords anyway, but they aren't going away and they do fill a necessary role in the UK housing market - all those people certainly aren't going to get council houses, Mrs Thatcher sold em off remember?

So enjoy the correction if you are trying to buy your first home, you may get a bargain. But don't pray for continuing falls. Ask instead why we don't have a policy in this country of building enough affordable homes (to buy, part buy or rent) for everybody who needs them. That alone would prevent the next property bubble from inflating.