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Labour considers plans to restrict house price inflation

Labour could restrict mortgage lending or set a house price inflation target for the Bank of England in a bid to close the gap between property prices and average incomes.

According to a report in The Guardian, shadow housing secretary John Healey is considering whether the Bank of England should be mandated to cap house price growth, in the same way it’s targeted to keep inflation at a certain level. In theory, a target could vary from region to region.

Rather than using interest rates to keep house price growth down, Labour is considering whether curtailing the availability of mortgages would achieve the desired response. This would involve granting greater powers to the Bank of England’s financial policy committee.

The bank already goes someway to control mortgage lending with a loan-to-income ratios capped at 4.5 times earnings for 15 per cent of new mortgages.

The proposals are part of Labour’s plans to tackle the housing crisis following a decade of house price inflation which has prevented many people from buying their first home.

According to Land Registry data the average UK house price in April 2009 was £155,852, but stands at £228,147 now. Wages have not risen at anywhere near the same rate, pricing a growing number of people out of the property market. The average house now costs eight times the average wage, compared to just four times 20 years ago.

Emoov and Properganda PR founder Russell Quirk says state intervention in markets has never gone well.

He says: “Look at Venezuela and the oil prices – the country is bankrupt now. The property market should be left to it own devices, the natural flow of the economy, and supply and demand.

“State intervention wouldn’t account for all the idiosyncrasies of the property market. It would be using a hammer to crack a nut. One issue is that Land Registry figures are six months old by the time they come out. So, if the government took action to stop the market overheating, it would be acting on a snapshot of the market six months ago.”


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Statistics are all about choosing your timing. Using Halifax NSA data (similar numbers to Land Registry), the average house price in April 2007 was £198k, fell to £157k in April 2009 and is now £233k, which means they have risen 17.5% in 12 years.

    1) I don’t recall wages falling 21% between 2007 and 2009, and
    2) house price rises over 12 years are much closer to wage growth over that time.

  2. God help us, another example of a politician with an incomplete grasp of the problem and spouting a strapline to garner votes. Any decent research would reveal that, even when you take this issue region by region, there are several housing markets which perform differently. No single proposal will ever solve anything that is, in any way, complex and in large part because whatever system or legislation is put in place people will try to game it.

    Take Mr Healey’s idea. It does make sense to make income multiples less generous but if that’s all that is done, house prices won’t fall significantly, instead those families that can afford to will help out with larger deposits. This is happening already and I am concerned that there is an increasing minority of people in the UK who will never be able to afford their own homes – a throw back to the era before ‘right-to-buy’ came in but, instead of having estates run by councils we are seeing areas of cities being thus and my memories of such neighbourhoods is not a positive one.

    Any success in curbing house price inflation will be the result of significant upheaval in which there will always be winners and losers – although the property has to be sold to crystallise either. A raft of measures is needed, here’s some to consider:
    1. Income multiples as above.
    2. Remove any initiatives which help the developer rather than the buyer (£1 billion profit for Persimmons is obscene especially with all their quality issues).
    3. Give whatever support is required to make it as easy and profitable to build affordable housing on brownfield sites as executive houses on green field ones – or more so.
    4. Limit the rent a landlord can take from a property based on the building’s footprint regardless of the number of tenants that can be crammed in.

    This is not an exhaustive list and whatever is done will have to be made ‘abuse-proof’ and policed to squeeze out the chancers but house prices are currently at insane levels and some clear strategic thinking is required rather than gimmicks.

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