For Rishi Sunak, the latest sharp drop in inflation was the early Christmas present he’d been hoping for.
The dip in the Consumer Prices Index (CPI), from 4.6 per cent to 3.9 per cent last month, means that he will certainly fulfil his new year promise to halve inflation from the 10.1 per cent of last January.
There was further good news for all of us because the fall in inflation was driven by cheaper oil and gas prices, which in turn means that the energy price cap is set to plunge by 14 per cent in April.
That means a typical duel-fuel consumer will pay £1,660 a year, down £268 from January bills of £1,928, according to forecasters Cornwall Insight. Bills are expected to drop even further to £1,590 a year in July.
But before No 10 start cracking open the champagne, some other newly released numbers – on the state of our housing crisis – were more sobering.
Rents continue to rise at a rapid rate, with the Office for National Statistics (ONS) stating that private rents rose by 6.2 per cent in the 12 months to November, the biggest rise since its data series started in 2016.
Separate stats out today showed that house prices fell by 1.2 per cent across the UK in the 12 months to October, the biggest annual fall since October 2011.
Given the way soaring property values have put home ownership beyond the reach of many, some will be pleased at a cooling in the housing market. Yet it is often rental tenants who pay the price, as landlords try to claw back the cost of higher mortgages.
Falling prices also lead developers to sit on sites earmarked for construction. Most importantly, lower house prices are little comfort to first-time buyers who are faced with mortgage costs that look terrifyingly expensive.
When Jeremy Hunt unveiled his Autumn Statement last month, he failed to highlight the real housing squeeze forecast by the Office for Budget Responsibility (OBR). The independent watchdog projected that house prices will fall by 4.7 per cent in 2024 – and won’t recover until late 2027. The housing market isn’t just cooling, it’s set to hit the deep freeze.
And the real driver of that chilly outlook is the OBR’s parallel projection that mortgage costs will be much higher, for much longer, than previously expected. That’s because our current high interest rates will keep passing through the stock of existing mortgages for years to come.
Before the 2008 financial crisis, the last time interest rates were as high as they are now, only around half of mortgages were fixed rate. Today, around 85 per cent are fixed, with two thirds on a term longer than two years.
Of course, many will hope that if inflation keeps falling fast, the Bank of England will ease the pressure – and try to avoid turning a downturn into a recession – by actually cutting interest rates sooner early next summer. Unfortunately, for the millions hit by rate hikes before then, next summer will be too late.
Housing Secretary Michael Gove tried this week to inject some urgency into the Government’s attempts to combat the housing crisis.
Yet apart from attempting to blame councils for acting as planning blockers, and some worthy words about the welcome expansion of development around Cambridge, the main takeaway from his speech was his confirmation that Tory backbenchers have won their battle to ditch housebuilding targets.
For years, any attempt to build more homes in the UK has been hamstrung by a lack of policy and market incentives for councils and housebuilders. The Conservatives clearly also believe there is a lack of political incentives, with Nimby groups of constituents ready to punish politicians who approve new housebuilding in their locality.
But the growth of Generation Rent (among older households as well as young ones) means that political calculus is looking very outdated. A new YouGov poll, focusing on the housing tenure of those polled, ought to strike fear into the heart of every Tory MP across the land
It found that those lucky few who own their homes outright, mainly older people who are mortgage free, are the only group where the Tories have a lead (and even that lead is tiny, at just four points more than Labour).
In every other group, Labour has a massive lead over the Conservatives. Among social housing tenants its lead is 21 points and among private rented tenants it is 28 points. And among those with mortgages – the key Middle England, floating voter demographic that for years has stuck with the Tories – Labour has a 20-point lead (35 per cent to 15 per cent).
For a party that has long believed in Margaret Thatcher’s “property owning democracy”, those numbers make grim reading – especially as Keir Starmer has taken the radical step of suggesting building on the green belt and delivering a new generation of “new towns”.
The real story of 2024 may well be that the cost of living crisis will be replaced by a cost of housing crisis. Even if wages finally outpace inflation, and even if some food and energy prices ease, the sheer difficulty in paying a rent or mortgage may further undermine any sense of security.
Sunak can be pleased that one of his five pledges for 2023 is being met on inflation, even though his four others (debt, growth, NHS waits, stopping boats) look miles away. The more telling fact is that housing was not among that list of priorities at the start of the year – and still doesn’t appear to be now.