The Coalition and the UK Housing Market
| Author | Ian Hall |
| Published date | 01 June 2011 |
| Date | 01 June 2011 |
| DOI | 10.1111/j.1467-9256.2011.01405.x |
| Subject Matter | Research and Analysis |
Research and Analysis
The Coalition and the UK
Housing Marketponl_140572..81
Ian Hall
University of Sheffield
With its origins in the collapse of the US sub-prime market, the global financial crisis might more
accurately be termed a global housing crisis. Over the last decade, most developed countries
experienced house price inflation; however few matched the UK, whose boom started earlier and
was more sustained. A taxpayer-led recovery stopped a UK price correction in its tracks; however
it will be argued that these measures only delayed momentum towards a reduced housing market
under the Con–Lib Dem coalition.
The housing cycle
The link between the performance of housing markets and the wider economy has
long been established. An International Monetary Fund (IMF) study on the impact
of housing booms and busts concluded that the latter are associated with aggregate
GDP losses of up to 8 per cent (IMF, 2003). There were three UK house price booms
(1971–1973, 1977–1980, 1985–1989) prior to the election of the New Labour
government in 1997. But outside these periods, prices have either stagnated or
fallen, contributing to wider economic downturn. According to the Nationwide
(2009) price index, house prices fell in real terms by 22 per cent in the 1990s.
The UK example cannot however be viewed in isolation. UK house prices increased
by 165 per cent between 1997 and 2005; however during this same period the
United States market increased by 75 per cent, Spain 145 per cent and Ireland 185
per cent (The Economist, 2010). This was a global house price boom with its roots in
global trends stretching back several decades. The origins of this latest stage of the
housing cycle rest with four interrelated factors or trends.
First, beginning in the middle to late 1980s was the move towards increasing
deregulation of domestic and international credit markets. This increased openness
to trade not only resulted in a huge growth in global liquidity but a corresponding
‘light touch’ regulatory framework or environment (Blyth, 2008). An era of
increased deregulation also provided a context for the wider availability of cheap
credit. Following the collapse of the dot-com bubble and the 2001 terrorist attacks
the US Federal Reserve lowered interest rates from a target 6.5 per cent to 1 per
cent. This low interest rate environment encouraged what is now commonly
accepted as an era of excessive lending (Weissman, 2008) and was compounded by
POLITICS: 2011 VOL 31(2), 72–81
© 2011 The Author.Politics © 2011 Political Studies Association
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