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Equity flow drives housing market, claims expert

Wednesday, 10 August 2011 11:55 AM

Homeowners need to forget old theories of what drives the housing market and focus on the flow of equity, according to a housing research expert.

Yolande Barnes, head of Savills Residential Research, said price growth will only really occur where equity flow exists.

Writing in the latest issue of in-house publication The Residential Property Focus, Barnes said predictions of a housing market crash are still being made on the basis that the average house price to average income ratio is still high.

However, growth over the last two years would be impossible to explain if all that was responsible was income and mortgage rates, Barnes said.

“The DNA of the housing market has changed,” she said, after it became apparent that there was £2.9 trillion-worth of owner-occupied stock in the UK housing market.

"We have long suspected the equity used in prime markets has not just leaked but sometimes cascaded into surrounding markets and down into the mainstream markets," said a comment piece on the Savills website.

"Anecdotal evidence has pointed to such a ‘champagne tower effect’ but it is difficult to measure and so has been ignored by the macroeconomic scientists – despite being an increasingly obvious component of UK housing market behaviour."

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