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10 June 2008

Government predicting housing slowdown will be worse than early 1990s

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by Kay Mitchell

Government predicting housing slowdown will be worse than early 1990s

According to a key index of property price futures, the current trend in falling property prices will continue for at least 3 years and send the value of a home crashing by nearly 50% in real terms.

Lord Oakeshott, Treasury spokesman for the Liberal Democrats, said that these figures reveal a lack of confidence in the market. The Government says this housing depression will be different from the early 1990s, and that it will be worse.

While unemployment has only just started rising and it is not likely to reach levels seen in the 1990s, household debt is far worse as 40% of British households have negative monthly cash flows, added Lord Oakeshott.

According to Martin Ellis, chief economist at Halifax, the fall in property prices is caused by the difficulties created for potential house purchasers by the rapid rise in house prices in the last few years, a squeeze on spending power and the reduction in credit availability.

These factors have curbed housing demand. High employment levels, low interest rates and a shortage of new homes support housing valuations, said Mr Ellis.

The fall in house prices is having a devastating affect on many industries. According to a recent report by the Centre for Economics and Business Research (CEBR), the credit crunch will cost 15,000 estate agents their jobs this year.

Furthermore, the organisation claims that the business services sector as a whole will suffer over the short-term with up to 40,000 jobs lost. Solicitors, accountants, architects and marketing professionals will also be affected by the slowing housing market.

The housing slowdown has also had an impact on housebuilders, with Taylor Wimpey recently announcing it was to close 13 of its 39 offices across the UK, resulting in 600 job losses. This represents over 10% of its 4,700 UK workforce.

Housebuilder Persimmon recently announced it was to stop building on new sites for the time being.

Finally, job losses are not just affecting the housebuilding industry but related industries such as materials suppliers and removal men are suffering.

So far, Wolseley Plc, the world’s biggest distributor of plumbing and heating equipment, has shed 400 jobs in the UK.


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