Home-price wobbles as buy-to-lets feel pinch

The news - good or bad - from consultancy Lombard Street Research is that it expects house prices to decline by about 10% over the next two years, but not to crash. The British economy has to adjust to more straitened circumstances, and the manner in which it does this will determine the fate of the housing sector. If there is a sharp rise in unemployment, there are a lot of mortgage defaults and forced sales that will send prices sharply lower. But if the adjustment is more gentle, as Lombard expects, stability should be maintained.

However, this forecast contrasts with Roger Bootle's Capital Economics, which has thought for some time that a sharper correction is more likely. Its view is that prices are now so out of line with historic norms of affordability that a major shift is needed to restore equilibrium to the market.

There is a further ingredient neither camp seems to have thought much about - the influence of Alistair Darling's capital gains tax changes on the buy-to-let market. The theory, according to one market-watcher, is that many buy-to-let owners are feeling the financial strain. They have decided to sell, but are waiting until after 5 April for the good reason that for them the capital gains tax rate will drop from 40% to 18%.

The problem my expert foresees, however, is that the number of buyers is already dwindling because people are grasping that they need be in no rush to seal a purchase. So that surge in supply will come on the market at a point when there are relatively few around to buy. In that way, problems in buy-to-let could easily destabilise the whole market.

Slow change at LandSecs

It is hard not to contrast the evident lack of succession planning at Marks & Spencer, where Paul Myners was forced to step down as chairman two years ago, with the impressive display of succession planning unveiled today by Land Securities, the giant property company that he still does chair. It announced before Christmas that it intended to split itself into three - a retail business which would take on its shopping centres such as the Birmingham Bull Ring, a London property business where the portfolio would include most of the group's office blocks, and Trillium, which is the market-leading property outsourcing and PFI business.

The announcement today was that Sir Christopher Bland, until recently chairman of British Telecom, would be joining the board and is earmarked to take the chair at Trillium. Separately Rick Haythornthwaite, such a City favourite when he ran Blue Circle that his reputation survived the less-than-easy time which followed at Invensys, will join with a view to chairing the retail business when it is demerged. The third leg, London property, will be chaired by Myners.

Just when this will happen is, however, a moot point. Splitting a business in two is much easier to say than do, splitting it into three is even more complex even if Trillium is 10 years old, so these things usually take longer than expected. The other thing is that there is no great urgency right now to rush the thing to market because everything is so depressed.

Most people expect property assets to continue to fall in value, or at best move sideways, because although yields have improved significantly relative to gilts in the past few months, there is still great uncertainty about the trend in rental yields because these depend crucially on the overall level of economic activity and the amount of new building coming through to completion.

No one has a firm fix on how that will play out, and until they have the demerger is likely to be stuck in the stalls. But at least the horses will be ready to gallop when the time does come.