Take Brexit Britain and Trump’s America. Add climate change, instability in the Middle East, cryptocurrencies, and self-driving cars… and you have the world in 2018: hopeful, yet seemingly unpredictable.

We have assembled 11 unlikely events that - if they somehow happened - have the potential to profoundly affect the world as we know it.

To assess the political, economic, financial, and social impacts, IG brought together global economic/political experts to give their perspectives and predictions.

Explore some of the great unknowns facing us all today

british houses

What If

The British housing market collapses

House prices have risen spectacularly over the last decade, leading to claims that the UK is in a new property bubble. With almost a whole generation now unable to afford to buy their own homes and, in many areas, house prices rising faster than take-home earnings, are we about to see a pop?

Category: Economy Region: Europe

map of spain

Our panel of experts (interviewed March-May 2018):

Robert Kelly

Robert Kelly

Professor of Political Science and Diplomacy, Pusan National University

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Robert Kelly is a Professor in the Department of Political Science and Diplomacy, Pusan National University in South Korea. His work focuses on international security and political economy. His areas of interest are East Asian security, US foreign policy, the Middle East, the World Bank and the International Monetary Fund. Kelly has appeared as an analyst on television news services, including the BBC and CNN.

Andreas Kokkinis

Andreas Kokkinis

Professor, Corporate Banking Law, University of Warwick

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Dr Andreas Kokkinis joined Warwick Law School in 2013. He is the course director for the LLM in International Corporate Governance and Financial Regulation, and the editor of the GLOBE Centre Briefing Papers Series. He holds a PhD from University College London, an LLM from the London School of Economics and an LLB from the National University of Athens.

Ben Page

Ben Page

CEO, Ipsos MORI

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Ben Page is Chief Executive of Ipsos MORI. A graduate of Oxford University, Page is a frequent writer and speaker on trends, leadership and performance management. He has previously worked for companies including Shell, BAE Systems, Sky TV and IBM. Page has also worked closely with ministers and senior policy makers across government, leading on work for Downing Street, the Cabinet Office, the Home Office and the Department of Health.

[ What if this happened? ]

Robert Kelly
Robert Kelly
This would cause a mini financial crisis akin to what happened in the US when the subprime mortgage crisis spiralled into the Great Recession. If foreigners withdrew their money from London’s luxury real estate market, the crisis would worsen.
Andreas Kokkinis
Andreas Kokkinis
Banks would again be in trouble as the value of collateral for mortgages would decrease. However, this would not be as major as in 2008.
Ben Page
Ben Page
UK Prime Minister Theresa May says a lot of things that aren’t true, but one thing she says that is correct, is that the British dream is owning a house. Whether you rent or buy, rent from the council or rent privately, everybody says that the best thing to do is own a house. And the population is still growing of course.

[ Likelihood ]

We asked our experts to rate how likely it is that the British housing market will collapse.

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[ Impact ]

Panel members also rated the impact they would expect this event to have.

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The Political Impact

Robert Kelly

Robert Kelly

Professor of Political Science and Diplomacy, Pusan National University

The British housing market collapsing would likely bring down whatever government was in power. However, there would be no serious impact on democratic practice. We have seen housing and other markets collapse dramatically before in the West. The effects were primarily economic, and there were no threats to the political regime, for example, democracy. A housing market implosion would not create the pressure for military government that a North Korean nuclear strike would, for example. Rather, we would see typical calls for government intervention to prop up prices and the market. There may be calls for the UK government to buy houses directly, for example, or for the market to be more regulated. Alternatively, there may be demands to prevent hot foreign money from jacking up prices and sucking too much investment into homes.
Ben Page

Ben Page

CEO, Ipsos MORI

It might be good for young people, as they might be finally able to buy a house, although I suspect that if really dramatic things are happening in the economy, they probably won’t have the jobs to buy a house anyway. The house prices aren’t going to just fall on their own, they’ll fall because something’s happened.
Andreas Kokkiniss

Andreas Kokkinis

This would be likely to undermine the incumbent government and increase pressures for a snap election.

The Economic Impact

Andreas Kokkinis

Andreas Kokkinis

Professor, Corporate Banking Law, University of Warwick

A collapse of the UK housing market would lead to the value of collateral (security) that banks hold for mortgages diminishing and, therefore, banks would be less able to recover loans in cases of default. To comply with regulatory rules, banks would need to boost their capital ratios and this would mean that they have to reduce their portfolios of loans. As all banks would try to do this at the same time, the value of loans in the secondary market would reduce and banks would enter into financial difficulties. This would lead to a reduction of available credit which, in turn, would make it more difficult for businesses to invest and for households to spend. If serious enough, this effect could lead the economy into a recession.
Ben Page

Ben Page

CEO, Ipsos MORI

There is a scenario where interest rates start to go up, thereby reducing demand because people can’t afford to pay the same prices as they have been. If interest rates doubled or trebled, that would be significant. But it’s unlikely.
Robert Kelly

Robert Kelly

There would be a real estate-sparked recession, but no catastrophe. People need a place to live; that demand will always be there.

The Financial Impact

Robert Kelly

Robert Kelly

Professor of Political Science and Diplomacy, Pusan National University

The markets would panic if the collapse was sudden. If Russian money withdrew, the recovery to pre-collapse prices would take years.
Andreas Kokkinis

Andreas Kokkinis

Professor, Corporate Banking Law, University of Warwick

The financial markets would react very negatively and the shares of major banks would fall dramatically.
Ben Page

Ben Page

CEO, Ipsos MORI

There might be inflation, but a bit of inflation is somewhat useful for stock markets. In terms of a long-term effect, financial markets tend to bounce back these days, especially as they’re heavily reliant on international business.
Though housing prices have fallen in the UK since the start of 2018, residential property is on average still more expensive than it has ever been year-on-year, according to the Office for National Statistics. Homes on average have earned £75,000 since the lowest part of the crash in 2009.

The Social Impact

Robert Kelly

Robert Kelly

Professor of Political Science and Diplomacy, Pusan National University

The social effects would be minimal: initial foreclosures and sales, followed by a pick-up as low prices brought consumers back. There would be no chaos in the streets.
Andreas Kokkinis

Andreas Kokkinis

Professor, Corporate Banking Law, University of Warwick

Unemployment would increase and the availability of credit would decrease, thus making it more difficult for poorer people to make ends meet.
Ben Page

Ben Page

CEO, Ipsos MORI

What you’ll see is, as has already started happening in London, people don’t move, they just do their house up at some point. For the UK housing market to crash, it’s likely that there would have been other major economic shocks simultaneously or in advance of it. So although the under-40s who are squeezed out of the market currently would, in theory, benefit from finally being able to buy a home, their employment prospects may also have taken a big hit, and the recession that would likely be triggering it could make it a zero-sum game for everyone. Given there is so much wealth in UK housing, it would have a general negative effect on consumer spending and sentiment.

Find out about another risk facing the world in 2018 and beyond

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