‘We are due a significant correction in house prices’, claim academics

Two LSE Professors warn that the market could soon crash like the 1990s

An academic from the London School of Economics has told the Mail on Sunday that “We are due a significant correction in house prices”, prompting the newspaper to announce, in its own nuanced fashion, that “Britain ‘is on the brink of the worst house price collapse since 1990s’: Experts predict property costs could plunge by FORTY PER CENT”.

Professor Paul Cheshire told the MoS: “We are due a significant correction in house prices. I think we are beginning to see signs that correction may be starting. Historically, trends seem always to start in London and then move out across the rest of the country. In the capital, you are already seeing house prices rising less rapidly than in other parts of Britain.”

He goes on to argue that property prices could fall by nearly 40%; a similar crash to that seen in 1990s, when values tanked by 37% over six years.

Falling real incomes (inflation was at 2.9% in June, while the average income rose by 2.1% over the same period) are likely to be “the spark for a fall in house prices”.

Professor Christian Hilber, also of the LSE, also weighed-in, warning that: “If Brexit leads to a recession and/or sluggish growth for extended periods, then an extended and severe downturn is more likely than a short-lived and mild one.”

  • Paul Cheshire, Professor of Economic Geography at the London School of Economics, is a past winner of the Donald Robertson Memorial Prize, the Royal Economic Society’s prize for Best Paper in the Economic Journal (2004) and the Grosvenor Prize for best paper on Development (2007). He has recently held a Leverhulme Research Fellowship and a Research Fellowship at the Lincoln Land Institute in Cambridge MA, and is an elected Fellow of the Academy of Social Sciences, and a board member of the National Housing and Planning Advice Unit.
  • Christian Hilber is the Director of the MSc Real Estate Economics and Finance at the LSE, an Associate of the Centre for Economic Performance, the Spatial Economics Research Centre and of the What Works Centre, a member of the Editorial Board of Regional Science and Urban Economics, and a member of the Board of Directors of the American Real Estate and Urban Economics Association. He advised HM Treasury on questions related to the economic impact of land use regulation and the National Housing and Planning Advice Unit on questions relating to housing affordability and sub-regional geography modelling feasibility. He also recently gave evidence on the British ‘Help to Buy’ scheme to the National Audit Office.

The more general consensus is not quite so dramatic, but does tend to agree that prices and activity will/are falling. Rightmove’s index says that asking prices fell in June for the first time since 2009; HMRC’s transaction tally indicates a 3.3% drop in property sales in May (largely because of the General Election). The latest ONS Index tells of more price rises but tumbling transaction levels, while the RICS reported a “loss of momentum” in the sales market in the run-up to the election. Knight Frank also reported a stumbling of price growth, while Savills is pitching 2017 as “a hard year” for the national market.

The IMF, meanwhile, tells us that its global house price index is “nearly back to its peak” – but there’s no big bubble in sight.

Average UK house price, January 2005 to April 2017 (ONS)