‘Budget fails to tackle basic housing market problems’

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Economists argue the raft of measures unveiled by the Chancellor in last week’s Budget will not help tackle fundamental problems in the housing market.

Speaking at a Treasury select committee hearing on the Budget yesterday, three economists said the Chancellor’s measures would fail to improve the UK housing market.

Last week, the Budget set out plans to increase the inheritance tax threshold to £1m, cuts to landlord reliefs, and a 1 per cent reduction on social housing rates, among other measures.

Asked by Conservative MP Mark Garnier about the overall impact of the measures, Institute of Economic Affairs editorial and programme director Philip Booth said: “This Budget was not an economist’s budget.

“All of these examples you have chosen might have gone down very well politically, but they make no sense as far as the economics are concerned.

“If you want to fix the housing market you don’t do it at all by pumping more demand into a market with fixed supply, you liberalise supply.”

National Institute of Economic and Social Research director Jonathan Portes agreed. He said: “You don’t solve the serious structural problem of the lack of supply in the UK housing market by messing around with demand mostly in ways which will tend to increase demand.

“Overall this will not make our problems significantly worse. It will probably make them marginally worse, but it won’t do anything to make them better either.”

Portes added it was unclear whether the Chancellor’s planned reforms to planning rules will have a meaningful impact on housing supply.

He said: “The previous government tried to do things around planning and supply which didn’t work, and the coalition government said it was going to do things on planning and supply, which equally failed to deliver. Will it work this time around? We live in hope.”

Citi economist Michael Saunders said demand for homes looks strong, with mortgages rate at rock bottom, which suggests house prices will continue to rise.

But he added: “The issue here is the restrictions on supply, and what I hear from companies is that planning law is a major part of this.”