Why I would be celebrating if Brexit led to lower house prices

Fitch, the credit rating agency, today warns that Brexit might lead to a 25pc correction in house prices, bringing them down to what Fitch believes is their long term "sustainable" level. I don't mean to be irresponsible, but good; this would be very welcome.

There are few things likely to turn me into a Brexiteer, but the prospect of falling house prices might just do it, and I speak here as someone with some degree of housing wealth. A Treasury assessment of the short term consequences of Brexit, due to be published in the next week or so, is expected to focus heavily on this supposed bogey. But I wonder whether a sharp correction in the housing market is in fact the unarguable harm presumed, or even if it is true that Brexit would lead to such an outcome.

Unless you are a buy-to-let landlord - a tiny minority of the population - or about to sell up and leave the country, the price of houses doesn’t matter. Indeed, if prices were a bit cheaper, and therefore more affordable, I would wager that most people would be a good deal happier.

This is obviously the case for first time buyers trying to climb onto the housing ladder, but it is also true for those already on it, since all house prices move together, and the next step up would therefore become relatively cheaper. Lower house prices would also make the market very much more active; many households cannot afford to move even if they would like to, and therefore become stuck in their present abodes - though ridiculous levels of stamp duty are also a large part of the problem here.

Housing is not an investment, or rather shouldn't be; it is a utility, and therefore in some measure should be something which is affordable to all. Unfortunately, it has become as much a perceived store of wealth as a place to live, no more so than in Britain, where a dysfunctional housing market is a major cause of the imbalances at the heart of the economy.

Both the International Monetary Fund and the Bank of England last week highlighted the risk of Brexit to house prices as if this were a cause for extreme alarm. They cannot have it both ways. In the past, both institutions have cited fast rising house prices as a key concern for the UK economy, yet now here they are warning of catastrophe if they fall.

If one digs down into what might be the underlying causes of a Brexit inspired correction – higher inflation, higher interest rates, depressed real incomes and so on - then such a scenario would indeed be most unwelcome. But these effects are by no means certain, and as for Brexit acting as a deterrent to foreign buyers, that’s a complete red herring, and might in any case be regarded as a positive boon.

The truth is that eventually, the pound would fall to a level that would once more make UK property attractive to foreign buyers, whose chief reason for investing in London and elsewhere in the country has little to do with membership of the EU. Rather it is about robust rule of law, reliable property rights, social stability, a relatively liquid market, and the ability to get your money in and out of the country easily.

All that said, there is plenty of evidence to suggest that house prices heavily influence people’s propensity to spend. It’s called the wealth effect; if households feel richer because their properties keep rising in value, they also tend to spend more. Yet the UK cannot forever live on the spoils of rising house prices. The longer this debt fueled fantasy persists, the more certain financial and economic crisis becomes.

Britain’s housing market has long been a cause of national shame, with one of the lowest rates of construction of new housing anywhere in the developed world. There are simply not enough houses to go around in areas where people want to live and work. This in turn is caused by some of the most restrictive planning laws in Europe. These regulations have nothing to do with the EU, but are almost entirely a British design. Dismantle the damaging EU regulations by all means, but we perhaps need to start closer to home.