Has Rachel killed the housing market for next 20 years?

 This Observer article speculates that Rachel has killed the housing market and will make it a fairer market. 

I can kind of agree with underlying logic that the housing market will be more about homes than property speculation.

Mansion taxes. Landlord taxes. Section 24. Council tax doubling. Inflation busting council tax increases. Capital Gains tax. Stamp duty

 The list goes on why the UK property market is no longer really an investment market any more.

However I thought I would give a different perspective on this.

So why has property price inflation outpaced actual inflation over the last 20 years?  I read some analysis about 10 years ago that came up with much simpler arguments than those in the Observer article. Indeed these arguments were passed down to me from father to son when I was a teenager.  The simple argument is that when interest rates are high - hold cash. When interest rates are low hold property.

So over the last 20 years with near zero interest rates I have bought property. And now with interest rates rising above inflation over the last few years I have been selling property. Also the UK government has been punishing me through taxation and giving tenants unfair rights so there has been an added incentive to sell up.

However we seem to be entering a period where interest rates are falling. The Bank of England is widely expected to cut interest rates by 0.25% to stop the UK entering a hard recession.  Interest rates are lower than inflation.

On the one hand this would make buying property for my children's generation more attractive but on the flip side my kids are not stupid and are concerned that the UK is turning in a third world country and are questioning whether it makes sense to make such a large illiquid investment in the UK when house prices could crash with the UK economy having a hard or bumpy landing. Equally they are questioning what's the point in buying if it doesn't increase in value at least in line with inflation. It becomes a depreciating asset.

From my perspective I don't want to invest in UK property as it looks risky.with punitive taxes .Equally holding GBP looks a stupid move. The pound is already very weak and the interest I can earn in the bank is less than inflation so I am getting poorer every day.  

The obvious answer is betting  against the UK and buy property abroad or hold foreign currency in an account that yields above inflation interest.

I suspect I am not alone here so capital flight looks likely which will put further pressure on the UK as a whole.

So I agree this the long term Observer conclusion. The UK housing market will be dead for the next 20 years. 


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