Jobs key to housing prices

I make no apology for a return to my home country in this, my final column, as it is the most international residential property market in the world – and it is a barometer, too. What happens in the UK now happens in many other Western countries soon after.

Therefore, the next six months of the property market must be seen through the prism of the broader national economy, chiefly forthcoming cuts in public sector employment.

There are 6.1 million public sector workers, the majority of which work in areas of public spending vulnerable to cuts. The UK's Chartered Institute of Personnel and Development (CIPD) predicts 50,000 job losses to meet the government's first phase of £6.2 billion (Dh34.31bn) of cuts; Manchester Business School puts the figure even higher, at 100,000.

This is before the later and larger phases of public spending cuts to occur in the coming four years, which could lead to 750,000 job losses, according to the CIPD.

Independent housing analyst Simon Morton, based in Oxford, says: "Some 65 per cent of public sector workers are homeowners, representing 25 per cent of the UK's total. Buying and selling will be a low priority in the next few years if their jobs are vulnerable and their pay frozen or cut."

The effects will be acute in northern England, Scotland and Wales, where the public sector forms a large proportion of the workforce, and to which the former Labour government devolved several departments.

David Adams – a familiar name to foreign investors who use Chesterton Humberts estate agency – warns: "Redundancies will increase the supply of homes to the market, as those who relocated north move back south for private sector jobs. With demand still at 50 per cent below peak levels, this will have an impact on prices. There will also be an impact in areas where there are companies with large government contracts."

There is a growing north-south gap in house price movements, which some analysts link to regional imbalances in public sector workforces.

Separate reports from the Land Registry and Centre for Cities, an urban research group, suggest most places with growing private workforces have enjoyed larger house price rises than those with big public sectors. Prices in 10 urban areas where the private workforce expanded most between 1998 and 2008 have grown an average of nine per cent in the past year. The 10 where the private sector shrunk most, saw recent rises of just four per cent.

Savills, the estate agency, whose research team has been strikingly accurate over the past three years, has revised its forecast for the mainstream housing market for the rest of 2010. Instead of small rises, it now predicts falls – between 2.8 per cent and 4.1 per cent in southern England and London, about five per cent in the Midlands and seven per cent in parts of northern England. Of the homes it sells – typically between £250,000 and £4m – about 15 per cent are bought by public sector staff.

Particularly dramatic are its regional figures. These show that in high-priced areas – London and the south-east – even well-paid public sector staff are priced out of the top end of the market. Elsewhere, chiefly in the north of England, where public sector staff are relatively well paid compared with other locals, the reverse is the case.

So while in London and nearby areas only eight per cent of Savills's sales are to public sector staff, that soars to 24 per cent in northern England and 20 per cent in Scotland. In the far south-west of England, also unusually dense with public sector staff, it is 23 per cent.

The mainstream housing market's much-vaunted recovery is already slowing. The Hometrack consultancy says prices are rising only in 20 per cent of UK postcodes and that low transaction numbers have fallen further recently.

Now the UK's Royal Institution of Chartered Surveyors says there will be more "distressed sales" after the summer, especially if late-year interest rate rises make buy-to-let too expensive for some landlords.

Ironically, given its recent troubles, the buy-to-let sector is the only property niche likely to perform well (see separate piece). Otherwise, it's likely to be a difficult six months – and possibly a difficult next few years, too.

But don't lose faith in real estate, in the UK and worldwide, as a force for freedom for individuals and prosperity for investors. History shows it works well on both counts.

And with that, farewell – and thanks for reading these columns.

- The writer is property correspondent of The Observer. The views expressed are his own

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