A house-price crash won’t be the only effect of the Kwarteng calamity

Where next for house prices? Clearly, they’re going down as mortgage rates go up – and my forecast in May that they would shed ‘recent froth’ and then stagnate rather than plunge, has been entirely overtaken by events, or at least by Kwasi Kwarteng’s calamitous ‘fiscal event’ last month.

Reverberations from the Chancellor’s debut continue apace, with more emergency bond-buying by the Bank of England despite news that the OBR-assessed forecast missing from his September speech will now be unveiled on 31 October instead of on 23 November. But even if the books can be cooked in a way that makes more sense than markets expect, hundreds of mortgage deals have been withdrawn and average two- or five-year fixed offers have already moved above 6 per cent. The talk is of house-price falls of 10 to 15 per cent over the next year, which, given inflation equates to real-terms falls of 20 to 25 per cent, is akin to post-2008.

But even combined with a raised stamp-duty threshold, lower prices may not improve affordability while monthly mortgage costs are sharply higher. So the dreams of many first-time buyers will for the time being be broken and the collapse of selling chains will crush transaction numbers this winter, with knock-on effects in estate agency, retail sales and mobility of labour.

All Kwasi’s fault? Of course not, in the sense that house prices which had risen by two-thirds in a decade were bound to lose steam as soon as interest rates, homeowners’ costs and recession risks started to rise. Indeed, a flatter price graph after a long surge would have been no bad thing if it allowed affordability to catch up. But has Kwarteng personally fuelled the ‘material risk to UK financial stability’ to which the Bank has been forced repeatedly to respond and of which housing market disruption is a symptom? Yes he has. And can the damage be repaired on 31 October? Almost certainly not. To Katy Balls’s provocative question last week, ‘Rishi by Christmas?’, I can only say ‘I wish.’

Lessons from Minneapolis

My thoughts were diverted from domestic business this week because I’ve been in the Twin Cities of Minneapolis and St Paul, discussing equity. Not shares rather than bonds, that is, but social equity as opposed to in-equity and built-in disadvantage.

The focal point was a visit to George Floyd Square, where the road outside the Cup Foods grocery store on which 46-year-old George Perry Floyd Jr met his death under the knee of police officer Derek Chauvin is now a lurid shrine. For months after that horrific event on 25 May 2020, the neighbourhood was a no-go area. Now it’s a tourist destination but a very uncomfortable one, its boundaries marked by giant clenched-fist sculptures: we heard a lot about ‘healing’, but grief, anger and suspicion were still palpable.

This is not the place for an essay on how America’s most disadvantaged communities were created – by ‘racial covenants’ in property deeds, for example, which forced black people into segregated areas; and by denial of access to credit, for mortgages and business loans, which still happens today.

But let me ask briefly: are there lessons here for ‘levelling up’ in the UK, or for improving the prospects of our ‘left-behind’ towns? We’re fortunate, perhaps, to have neither the extreme divergence of life chances that afflict many US cities, nor their levels of armed violence.

What we nevertheless have in common, I conclude, is that solutions to urban problems must always be holistic, granular and drawn from local data to do with bus routes, broadband and banking as well as schools, clinics, policing and civic engagement; that political sloganising does more harm than good; and that communities have to be both open to outside help and willing to help themselves.

A very expensive negroni

Following my recent observations on the weakness of the pound, you may wonder how the negroni index stands in the State of Minnesota. That’s the measure of ‘purchasing power parity’ invented by my predecessor Christopher Fildes to illuminate exchange rates more vividly than drier sources such as OECD statistics can do. The latter are useful too, however, in indicating that the pound would need to stand above $1.40 – last seen in May 2021 – to put British visitors at ease. In the Truss-Kwarteng trough of around $1.10, the only negroni I consumed, at $24 or £22, felt wrong on every level.

And since I wasn’t driving, it was no consolation that the same sum would have bought me more than six gallons of gasoline at the equivalent of 92p per litre. But I can’t complain about a long, copious lunch at the Louis Ristorante in St Paul; at $70 per head, that was value for anyone’s money.

Heathrow’s infernal maze

And how was Heathrow? My faultless overnight flight home landed early but the airbridge was broken so we waited half an hour for mobile steps, slippery with rain. The immigration queue was huge: ‘We’ve got 5,000,’ I heard one marshal mutter to another, neither recognisable as Heathrow boss John Holland-Kaye despite assurances from his PR people that he’s often out front as part of a programme bravely titled ‘Here to Help’.

The ‘All other passports’ line looked like a couple of hours’ long, while the biometric gates on the faster-moving side were failing to read one passport in four. And despite the energy crisis, the hall was far too hot, causing me to hallucinate that I was caught in an endless conga of giant dollar bills, all eager to be spent in Oxford Street or Bicester Village if only they could escape this infernal maze.

As we passed the umpteenth sign telling us there’s ‘no excuse for abuse’ of Border Force officials, an Arizonan dame with the look of a big shopper asked me: ‘Is it always like this?’ ‘’Fraid so, ma’am,’ I replied, trying to emulate the courtesy of every American service worker I’d encountered on my own trip: ‘Welcome to my shambolic country. Have a nice day.’