Real house prices had risen by 33% between the trough of the previous downturn in 1977 and the subsequent peak in 1979. However, the economy remained unstable and inflation was rising (chart). The Iranian Revolution and Iran-Iraq war led to substantial cuts in global oil production and the second oil crisis in 1979 (chart). May 1979 saw the election of Margaret Thatcher’s Conservative Party to government. The new government focused on restraining inflation and the Bank of England’s base rate was raised to a record high of 17% in November 1979 (chart).
The Building Societies Association Recommended Rate didn’t quite rise to the same high but still increased significantly, from 12.5% to 15%. The 1979-82 housing market downturn hit with real price falls of 17% (though nominal prices rose by 12%). The net change in outstanding lending fell in real terms and housing market transactions fell by 14% (chart). Private sector housebuilding completions fell by 22% (chart). There’s limited evidence for a fall in mortgage completion numbers by either first-time buyers or home-movers but this finding is hampered by a lack of data for 1978 (chart). First-time buyers were again faced with high deposit requirements, particularly in London (chart). The recession also coincided with the removal of the ‘corset’ on bank lending and banks were to become very active mortgage lenders from 1981 as highlighted by the chart below.
Unemployment rocketed, reaching 8% at the end of 1980 and peaking at nearly 12% in 1984 (chart). Although house prices didn’t fall in nominal terms, the large increase in unemployment contributed to a rise in the number of properties taken into possession through the 1980s (chart). The regional distribution of unemployment rises across England shows the north of England was most affected.
Despite this pattern, the largest falls in real prices were seen in London and the south of England. This may reflect the pattern of price growth in the years leading up to the crash. Real house prices in London had grown by 46% while in the North they had only grown by 17%. The one exception is Northern Ireland which was the only region to see nominal price falls during the period.
Homeownership had been increasing during the 1970s (chart) but the introduction of Right to Buy in 1980 helped accelerate the tenure’s growth while contributing to the decline in the proportion of social renters (chart). Local authority housebuilding averaged 117,000 between 1975-77 but had fallen to 75,000 in 1979 (chart). Initial falls in delivery reflected falling demand as Government struggled to get local authorities to use all the available subsidy. The 1970s were also a period of declining population (chart) and falling rents in real terms (chart). However, with the Conservative government looking to cut public spending, subsidies for local authority rents were cut and local authority rents rose by 44% in real terms between 1980 and 1982.
The national economy returned to growth in the second half 1981 and inflation eased, leading to real house price growth by the end of 1982. Although unemployment remained high, the Thatcher Government’s economic liberalisation had set in motion the next house price boom.