I blogged two
weeks ago on growing concerns that the house price bubble in
London and the South East is a significant threat to economic
recovery and long term financial stability. Concern now appears to
be spilling over into anxiety. Among those whose concern I reported
was Mark Carney, Governor of the Bank of England.
Yesterday, in his speech at the Mansion House dinner, Carney
warned that it may be necessary to raise interest
rates this year (rather than next spring, as previously
expected), primarily to deal with overheating in the housing
market. Chancellor George Osborne used the same occasion to
announce new powers for the Bank to cap the size of mortgage loans
compared with income or the value of the house. Earlier the same
day, Business Secretary Vince Cable called for mortgage to income
ratios not to exceed 3.5 to 1.
Perhaps in an attempt to forestall drastic action, RICS published new
predictions pointing to a lower rate of house price increases
than had previously been forecast. London price rise expectations
have been cut from 9% a year (predicted in March) to just under 5%
now. The RICS suggested that sellers and buyers have been listening
to the news, and are becoming more cautious about future risks,
including the effect of higher mortgage rates.
Carney has called for reform or scaling back of the Help to Buy
scheme, joining a wide range of other commentators. Defenders of
the scheme point to its impact in boosting housing supply. If it
were to be scaled back, there could indeed be an impact on the
volume of homes built for sale by private developers.
There is a strong argument for coupling any such action with new
measures to boost building by councils and housing associations,
including by lifting the debt caps that currently restrict HRA
borrowing. As George Osborne and Mark Carney both said last night,
we need to build more homes. But it is not just homes for sale that
The best available estimates point to a need for around 240,000
new homes a year, of which a third need to be social or affordable
housing. That means doubling the output of councils and housing
associations - a much bigger expansion than is needed in the output
of homes for sale.