Housing price rise cannot last

‘House prices only ever go up in Jersey’ – a quote from a local person last week who had just paid a large amount for the promise of a four per cent income return on four flats the size of my bedroom suite.

Over the short term, while we have no discernible population policy, he’s probably right. For having no population policy is very favourable to property speculators such as the States, business owners such as the States, and for producing tax revenue for the States. Its not so great for those trapped by wage stagnation and rising rents.

House prices are heavily linked to supply/demand, and interest rates. With low interest rates, and strong demand from a growing population, we have had a property boom that is now in bubble territory. The bubble will probably get bigger before it pops, as the government is a conflicted beneficiary, enjoying its short-term benefits.

The person who told me house prices only go up is a well-qualified, well-educated individual who has obviously never visited other nearby jurisdictions.

House prices in Alderney, for example, have fallen by around 40 per cent from their peak (nearly 20 per cent of houses in Alderney are unoccupied), and the most recent statistics for Guernsey show a 12.6 per cent decrease in house prices since a peak in 2014. By comparison, from January 2014 to April 2018 prices in Jersey have risen 22 per cent (Source: Skipton House Price Index).

In 2013 I exchanged correspondence with Mark Carney, Governor of the Bank of England, on the impact of peer-to-peer lenders on future credit bubbles. Peer-to-peer lending is a growing unregulated industry whereby loans are provided directly between borrower and lender. I’ve always had reservations about these platforms, as some do not count extended loans as defaults. In my book, if you lend someone money to be repaid on a set date and it is not, then it is a default.

I understand that professional trustees are placing funds in this unregulated market without any semblance of the correct professional qualifications or background to do so. I doubt many trustees have spent 20 years working in the credit department of a financial institution.

If the property bubble does burst when a population policy is finally introduced, or interest rates increase, then I think these trustees better check their indemnity insurance, for this could be construed as speculative unregulated investment. No doubt all these investors are aware of the problems at UK P2P facilitator Lendy, where non-performing loans are now over 20 per cent. Consider yourself warned.