Leave our dysfunctional housing market alone!
by Ken Gibb
A week after the European elections it is perhaps not surprising that the news that the EU is critical of the UK’s housing market should be ill-received in some quarters. However, as with all these things, it does makes sense to actually look at what our friends in Brussels have actually said.
They identify that demand and supply side measures have been taken to influence the housing market. But combined with low interest rates, greater willingness to lend and continuing excess demand, house prices continue to rise, especially in overheating London.
In response to this diagnosis, they argue that supply is viewed as a structural imbalance and an area where action to boost supply is deemed to be required. The Commission goes on to argue on the demand side that prices and mortgage debt should be carefully monitored and intervention including adjusting the terms of Help to Buy 2 should be readied for action if required. they also think the financial policy committee of the Bank should be deployed to address these housing market problems via macro-prudential regulatory changes as and when required. They also suggest considering reforms of housing and land taxation and point out oft-rehearsed arguments about weaknesses with the council tax (based on 1991 values, regressive banding and higher burdens on lower valued property).
ONS also published latest official house price levels and rates of house price inflation today. To summarise:
UK £252,000 (annual rise of 8%)
England £263,000 (8.5%)
Wales £164,000 (4.9%)
Scotland £181,000 (0.8%)
Northern Ireland £132,000 (0.3%)
London £459,000 (17%)
With inflation variously measured at 1.8% to 2.5% in April, real house price inflation, highly regionally varied, is back with a vengeance. I heard a Welsh estate agent last week on the radio say that locally house prices were only rising by 6-7% i.e. 4-5% in real terms – nothing to worry about then? The Barker Review, a decade ago, focused on the long term economic cost of real house prices rising by a 2.7% rather than the EU average of 1.1% accumulating over time, let alone the distortions of wider amplitudes or volatile prices.
Reflecting on the European Commission report in the context of the latest house price data, it is hard not to agree with the thrust of what they say – I am sure most housing policy commentators do. We also would probably welcome the Bank’s more activist stance, even if we are not convinced that they can do all the things hoped for them in certain quarters.The means, not the ends, are what are in more doubt. Should we tinker with the council tax or undertake more broad based tax reform along the lines proposed by Mirrlees? And how are we to make this structural shift (on a more permanent basis) to housing supply?
We have discussed these points many times before on this website – at least there is a growing consensus, even from the Eurocrats, the Bank of England, many economists and other policy analysts that rising real house prices are self defeating economically and socially divisive as well. The Coalition Government may well be inching this way too but it is less than 12 months before the general election so lets not hold our breath during the Queen’s Speech.