Why the liberals have got it wrong - Emirates24|7

Why the liberals have got it wrong

Outside of business circles it is now fashionable to say falls in house and commercial property prices, plus the dramatic slump in transaction volumes, are good things. This naïve 'liberal' view suggests escalating property prices are in some way immoral and that most brokers, agents and lenders deserve what comes their way. They benefited in good times, so the belief goes, so should suffer in the bad ones.

The theory behind the liberal view is understandable but simplistic. It says high house prices are good for older existing owners (who can enjoy the long-term appreciation when they sell, re-mortgage or downsize) at the expense of young would-be owners (who can't afford to buy). It says a commercial property market boom helps existing REITs or shareholders while denying would-be investors a slice of this good fortune.

But such a theory conveniently avoids thinking of the millions who, indirectly, are worse off because of the current property market traumas in developed countries.

In Britain, for example, the house contents removals industry – a labour-intensive sector giving jobs to unskilled staff who may find difficulty getting work elsewhere – is suffering badly as a result of a slump in the number of homes bought and sold.

Dave Tiwary, who owns The Removal Man business in Northampton in the industrial Midlands region, says: "Business has definitely dropped by half. The last few months have been a nightmare. Since April the amount of calls has just died."

Hayley Rilings of Handy Moves, a firm based nearby says: "It's been dreadful. This is the worst year ever and I have been trading for eight years." The same applies across thousands of small removal companies similar affected.

In the United States the home improvement, furniture and fittings sectors have been hammered by a year-long housing slump. This is not just a case of shareholders losing out temporarily – when Home Depot's net income for the first quarter of 2008 plummets 66%, the fall-out means low paid store staff are thrown out of work. These are often low-skilled workers who are frequently older than those employed elsewhere in the retail sector so they will find it hard to secure new jobs.

Look at the construction industry in Spain. Around 10 per cent of the Spanish population consists of migrants who entered the country in the past decade, selecting it because of its high-value economy; they send billions of Euros overseas each month to their families elsewhere in the world, distributing wealth from the relatively rich to the relatively less-rich. But with both the commercial and housing markets in Spain in trauma, far fewer migrants are employed and that redistribution comes to and end.

Now none of my hand-wringing over these people losing their jobs should be interpreted as an excuse of any kind.

It is not intended to cover up the absurd, promiscuous over-lending by mortgage companies, nor to excuse the greedy developers who have cashed in on house buying frenzies by owner-occupiers or small-time landlords in cities around the world.

It certainly is not a justification for the activities of badly-trained on-the-make estate agents seen in many of the countries now suffering the biggest housing market falls.

But it does show that a slump of the kind seen in many markets in 2008 has more than one effect. When house prices fall and developers stop building, it is not just one set of shareholders or employees who suffer, nor are the problems restricted to one country. The removal man's woes in Britain are problems for the world, too.

As a global society we have, over the past decade, entered into a form of contract with bricks and mortar.

In the 1980s and 1990s most developed countries sought to encourage home ownership and spread share ownership; as a result, more of us own flats and houses, have shares in commercial and residential builders, or have pensions that are directly affected by the travails of the property markets.

Emerging countries have all, without exception from where I stand, entered into a similar kind of contract with bricks and mortar.

Dubai's authorities see property as long-term security for their residents against the eventual demise of oil. Caribbean islands that have lost their sugar industries to the EU and Latin America, see tourists and holiday home owners as their long-term security. Eastern European countries like Bulgaria have emerged from communism and adopted property – from ski lodges to distribution sheds – as a way forward.

So when some people espouse a 'liberal' view welcoming market problems, they should remember that their own personal hate figures – agents, developers, lenders – are not the only ones who suffer.

Those who will suffer most, perhaps, have no direct involvement in property at all. They merely want to improve their lives in an inter-connected world.

GRAHAM NORWOOD is property correspondent for the Observer

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