20th January 2008 - Home economics: the effect of HIPs on the property market

The Commons select committee for communities and local government thinks Yvette Cooper, the housing minister, should have ignored the critics and included the all-important home-condition reports in the packs, as well as sticking to the original plan to introduce them for all properties last June. Had she done so, Hips would have been in place ahead of the credit crisis-induced downturn in the market.

Hips are, in theory, hard to argue against. Markets are less efficient when buyers and sellers are not in possession of the same information.

The practical problem with Hips is that, in excluding home-condition reports, they leave out the most vital information of all. The other potential benefit - economies of scale, because buyers will no longer have to pay for their own surveys - is lost.

How much, despite the criticism, have Hips helped the housing market in recent months by limiting the number of properties that have come on sale? Their introduction is a plausible explanation for at least part of the lack of supply, though it probably pales into insignificance compared with a reluctance by sellers to put their properties on the market at a time when prices have been soft. It may be that those who rushed to do so ahead of the deadlines for Hip introduction have seen their houses adding to the stock of unsold properties on agents' books, or have had to accept price cuts. In time, Hips' effect on supply should be minimal, though they may limit "price testing" by people who have no serious intention of selling.

(Excerpt from The Sunday Times)

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