Beliefs, Perceptions and Expectations in the U.K. Housing Market

BELIEFS, PERCEPTIONS AND EXPECTATIONS IN THE U.K. HOUSING MARKET : SUMMARY OF FINDINGS

A study of households in two contrasting housing markets to examine whether recent experience in this area has affected enthusiasm for home-ownership as the most desirable form of tenure.

For more details contact:

Professor Moira Munro, School of Planning & Housing, Edinburgh College of Art, Heriot-Watt University, 79 Grassmarket, Edinburgh, EH1 2HJ; Tel. +131 221 6162; Fax. +131 221 6163.

Key Points from the Research

The housing market of the early 1990s was characterised by a general loss of confidence as the apparently inexorable rise in house prices was transformed into a situation of price falls. Turnover in the market plummeted and many households found themselves unable to sell, facing losses if they did so, or trapped in houses with mortgage arrears or negative equity. The main aim of this research was to examine household responses to these changed housing market conditions and to understand better how households reacted to a coped with the uncertainty and difficulty of trading in the housing market. The question is significant because approaching 70 per cent of households are now owner occupiers and for most households buying a house is the most important asset they buy and the biggest debt they take on.

A combination of qualitative and quantitative methods enabled a rich picture of the effects of the recession in the housing market to be developed. The research compared a housing market area which had experienced boom and bust (Bristol) with a more stable area (Glasgow). To highlight a few of the main findings:-

Attitudes and Expectations

Housing market confidence was particularly low in the unstable housing market area.

Even though it was recognised that some conditions were favourable to the owner occupier - low interest rates and tax relief on loans, for instance - these were not generally expected to last. Such pessimism helps explain the persistent failure of the market to recover, confounding widespread and repeated predictions that it would.

Despite the widespread and well recognised problems caused by the housing market instability, overall commitment to owner occupation remained very strong - people evidently did not feel "forced" into owner occupation, nor were they reluctant to remain as owners.

The government was believed to bear a moral responsibility to help owners who got into difficulty - an implicit consequence of having encouraged the growth of owner occupation and founded on a recognition that there needed to be alternative opportunities for those who could not afford ownership.

Behaviour

There was no straightforward link between stated expectations and behaviour - if anything those who had recently moved were more pessimistic overall. It seems that in making the choice to move they had to confront the riskiness of their situation very directly.

The market downturn had created a significant increase in frustrated mobility compared to earlier surveys.

Those who had moved had very similar motivations in both stable and unstable markets and comparing this time of recession to the earlier boom. They also made closely similar financial choices - confirming respondents' own accounts that factors such as expected future returns did not feature greatly in their financial decisions.

Decision Strategies

The work revealed that many people found the process of trading in the housing market complex and stressful. The most common strategies of dealing with this involved dividing the process into discrete and relatively more manageable stages. For instance:-

Tenure choice was not an issue - the decision to own (or in a few cases not) was made first.

The buying and selling processes were undertaken separately.

Dealing with financial institutions was seen as being particularly difficult by some - decisions in this field require advice. Respondents generally simply took the advice of someone, either in the institution or another advisor acting for the buyer.

It is now the "conventional wisdom" that there are no "jobs for life". For many an explicit part of considerations of the affordability of their mortgage was to consider the implications of unemployment of one or both partners.

There was, however, reluctance to take insurance to cover mortgage payments in the event of job loss, even though a recent policy change had reduced entitlement to state support in this case. This was typically explained in terms of the cost of such policies, an ultimate belief that they themselves would not ever need such cover and also a lack of trust that the policies would really deliver what they were suppoed to.

Wider Implications

Housing is an area of social policy which has been very significantly privatised and overall it is clear that there is popular support for owner occupation as still providing long term benefits - at least it will be an asset for children. It is also clear that people do not always react to changing market circumstances as a straightforward economic analysis would predict. This is an important conclusion, as other areas of social policy increasingly look to the private sector or private sector incentives to improve the delivery, or reduce the cost of services.