House prices need to fall, but ministers fear the wrath of millions of homeowners

There is a peculiar doublethink that has taken hold of the housing debate in the UK. Everybody agrees that housing should be more affordable and that access to home ownership should be improved. But when did you last hear a member of the government – or any front-rank politician for that matter – call for a fall in house prices?

The housing minister, Brandon Lewis, was recently asked whether the government would be happy to see house prices fall. His response was devoid of a simple 'yes' or 'no', but was nevertheless instructive: 'When we buy our homes we make the largest equity investment we are likely to make in our lifetimes, and hence having confidence in that equity value is human nature.'

In other words, the investments homeowners have made must be protected. This is very strange position for somebody who is also committed to expanding home ownership, because affordability will only improve when house prices fall. We are living through the more mature stages of a prolonged boom in the price of housing that, measured against earnings, began in the late 1990s. Unlike earlier booms, this one has never come back down to earth. It is time it did. It is time that ministers reminded voters that their investments can go down as well as up.

Unlike earlier booms, this one has never come back down to earth. It is time it did. It is time that ministers reminded voters that their investments can go down as well as up.

If home ownership is to be made easily accessible to as many people as possible, it needs to be plentiful and cheap. But that is precisely the last thing that ministers want, and so they resort to perverse policies that superficially improve affordability for a relatively tiny number of buyers in the short-term only by making housing more expensive for everyone in the long-term.

While David Cameron and George Osborne talk of their desire to turn 'Generation Rent' into 'Generation Buy', they continue to make matters worse with a plethora of initiatives subsidising first-time buyer purchases without tackling the underlying shortage of homes that pushes up prices in the first place.

Some progress has been made, admittedly, but nowhere near enough. Annual completions have risen from 117,000 in 2010 to 155,000 last year, but until they reach at least 250,000 the backlog will continue to grow and the upward pressure on prices will build.

It is doubtful whether the housebuilders, left to their own devices, will ever scale these heights. They never have before – even during the peak building decades of the 1950s and 1960s – and industry insiders are decidedly non-committal about the likelihood of it happening in the future.

Ministers resort to perverse policies which superficially improve affordability for a relatively tiny number of buyers in the short-term only by making housing more expensive for everyone in the long-term

There are various ways in which ministers could increase building to the necessary levels, all of them requiring input from the government to either incentivise faster private sector housebuilding or supplement it with public sector provision. But, for this parliament at least, the government appears content to dabble with a few piecemeal reforms while letting the difficulties in the housing market continue to pile up.

It is easy to see why. Let us imagine, for the sake of argument, that you are the chancellor of the exchequer. And let's imagine you have an inkling there might be a vacancy coming up at Number 10, for which you regard yourself well-qualified. Do you a) take short-term measures to buy off a few first-time buyers by helping them onto the property ladder at the expense of later generations, leaving a future government to deal with the mess? Or do you b) deal with the mess now, bring down prices and invite the wrath of millions of vote-wielding homeowners?

There are less cynical reasons for sidestepping this issue, however, which turn on the fact that it is a monster of a problem, the reach of which extends well beyond the provision of shelter for the population. The fallout from a sustained decline in house prices would be substantial. That many recent buyers would be placed in negative equity would only be the start of it. Still-fragile consumer confidence would tumble, possibly tipping the economy into recession. The present generation of housebuilders would sustain massive losses on the values of their considerable land banks (who would also do to remember that their investments can go down as well as up), further jamming up supply and requiring a much bigger role for the state.

Then there is the financial sector. As the former head of the Financial Services Authority, Adair Turner, documented in his recent book Between Debt and the Devil, so much of the housing inflation of recent decades is down to the expansion of credit: cheaper lending with fewer restrictions has seen purchasing power grow enormously, and with it house prices.

About two-thirds of UK bank lending is now in the form of residential mortgages. Highly leveraged banks will be on the hook if the properties they have lent against turn out to be worth a fraction of their purchase price. And when the banks go bust we know well by now who ends up picking up the bill: the taxpayer.

There is no pain-free way out of this. The housing market has for so long provided rocket fuel for the UK economy that the progress of both have become entwined. But if the affordability of housing is to improve, the boom must end and prices come back down to earth. We might be able to delay that moment for quite a while yet, but the longer it is left, the harder the landing is going to be.

Daniel Bentley is editorial director at the think tank Civita and author of 'The Housing Question: Overcoming the shortage of homes'. He tweets @danielbentley