Over The Counter Culture

I write this a few minutes after the end of Arsenal’s last home match of the 07-08 season, as they do a lap of the ground to thank we who have supported through a season that showed incredible promise to the surprise of all, but fell at the final hurdle after a string of unfortunate refereeing decisions, injuries, and lapses of concentration.

Among the players doing the lap are three or four likely summer departures - excellent players whom we could not satisfy the wage demands of because strict adherence by the management to what some argue is an overly restrictive wage structure. So it really frustrates me to read in the Times today that

the transfer budget had to be cut back because of the slowdown in the property market, which is expected to affect the sales of flats both at the club’s former Highbury ground and in the new developments at the Emirates Stadium.

Much like the fears of a recession that swept the US, with early signs of those fears abating (Intrade.com just swung the expectation of a US recession from 70% likelihood to 30%), Britain is in the grips of fears of a property crash. I refuse to share those fears (perhaps the foolishness of youth), so it grates me that these fears will compromise our ability to replace two or perhaps even more key components of our squad.

Here’s why I don’t believe in the property crash in the short term (though there’s a great visualisation of why we should expect a crash at some point - well worth watching here). London is growing at a staggering rate. To keep pace with its growth without doing away with the green belt, the average population and housing density of Greater London will have to grow by an astounding 60% over the next decade. Unless Britain’s economy stagnates and job stability is significantly affected - which nobody so far is expecting - this can only translate into increased demand, at least in the London area. Furthermore, I share LSE economist Tim Leunig’s opinion that we can expect a 5-10% dip over the next year but an overall rise in the next 5. I’ll summarise the main points he outlines in this month’s Prospect:

Reasons for the dip:

1. The credit crunch has hit mortgage availability and raised interest rates
2. Change in capital gains rules means buy-to-let owners have a greater incentive to sell out
3. There are signs of the influx of Eastern Europeans may be reversing and they may be heading home, selling their houses as they go
4. Supply has so far been ensured by a lot of studio flat construction, but that these are not good places to live and soon a wave of recent owners will seek to sell (this sounds dodgy to me)

On the other hand:

1. In response to (1) above, HSBC is already snapping up mortgages, or the bank of England seems prepared to provide liquidity by taking on some of the better mortgages as collateral
2. Underlying strength in the economy will limit how punitive mortgage rates get over the next year
3. This same strength will keep unemployment down meaning more properties out of the market
4. Britain continues to build fewer homes than the number of households is growing. This key supply & demand balance, unless households start emigrating (which is unlikely with prospects of a Conservative government just around the corner) is perhaps the most promising indicator.

This outcome, of course, is terrible news for someone such as myself that’s not even on the property ladder. If I’m reasonable, I should bust a gut in the next 24 months to earn enough to at least buy something, even a shack out in the Tower Hamlets, in the dip before the rise… unlikely though. I may well just end up abroad, or renting for the medium term. As for Arsenal, well - to cut the transfer budget by anything in excess of 5%, with the property market as the only reason, would really, really rile me.

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This entry was posted on Sunday, May 4th, 2008 at 4:00 pm and is filed under Musings. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.