'Freeze house prices to rebalance economy'

Published by Edmund Greaves on 11 July 2018.
Last updated on 11 July 2018

Frozen pound coins

House prices should be held at a rate of zero inflation to rebalance the UK economy and to prevent another housing crisis, according to the Institute for Public Policy Research (IPPR).

The think tank’s report recommends the Bank of England creates a separate inflation target for house prices with a target rate of zero for five years.

This will help real wages catch up to house prices and make property more affordable for workers, according to the IPPR. It says a five-year freeze would result in an effective reduction in property values of 10% if normal inflation rose by 2% year-on-year.

After the initial five-year freeze on house prices, the IPPR says the inflation target should be held at 2% alongside normal inflation in order to prevent house prices from getting out of control in future.

The report adds: “The target should be implemented using macroprudential tools such as capital requirements, loan-to-value, and debt-to-income ratios. Since lending is not the only driver of house price inflation, the government should accompany this target with active housing policies designed to increase housing supply and restrict overseas purchases of UK residential property.”

The report envisages that like regular consumer price inflation, the Treasury would be the body to set the target rate on behalf of the Bank of England.

Grace Blakeley, IPPR research fellow and author of the discussion paper, comments: “Since the 1980s, the UK’s business model has rested on attracting capital from the rest of the world, which it has channelled into debt for UK consumers. The 2008 crisis proved that this is unsustainable.

“We need to move towards a more sustainable growth model, one built on production and investment rather than debt and speculation. To do this, we must break the cycle of ever-rising house prices driving property speculation, crowding out investment in the real economy.”

A broken market?

The report comes amid a flurry of ideas to correct what is perceived by many to be a broken housing market in which it is difficult to get onto the property ladder in the first place.

Another thinktank, Onward, recently referred to the buy to let market as the ‘elephant in the room’ of the housing crisis which stoked the ire of Moneywise readers.

One reader, Deborah Richardson, commented: “One 'elephant in the room' is the low pay of young professionals making them unable to save even a scant 5% deposit and pay a hefty mortgage in order to buy.”

Another reader, Chris Murphy, adds: “The government has already put measures in to 'disincentivise buy-to-let' which will only drive rents up and compound the problem because the so called 'first time buyer' will have even less money to get on to the property ladder.

“All these hare-brained political schemes are designed to feed developers and 'address' the first-time buyer issue, but there is no first-time buyer issue. They need to save, but they can't because if any of them get a good salary, their student loan needs paying back.”

Have your say on the housing market by commenting below this news story. The best comments are featured in our monthly magazine and the “star letter” will win a £50 M&S voucher.

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Yes, we must do whatever we

Yes, we must do whatever we can to halt the rise in house prices. However, what can be done to stop estate agents, who manipulate vendors and purchasers and drive prices up in sought-after areas. We know of an example where a house in Winchester sold for £100,000 more than the asking price, firstly from sealed bids, and then another round of 'best offer'. Can we not outlaw the practice of extracting more than the asking price from hard-pressed purchasers?

A 3 year lease will not work

A 3 year lease will not work for those needing to let for a short time only eg a church manse that maybe available for 6 months but needs to be available for new minister. A 3 year lease will mean the property will have to stand empty.

We need 1,000,000 new social

We need 1,000,000 new social houses building like in the 60s. The government would recoup 90% of this cost back in tax and economic activity - get building!

Yes - and then we could have

Yes - and then we could have the dreadful high-rise tower blocks and embarrassing 'concrete cancer' scandals all over again. If we build a million social houses, who's to say that they won't get swallowed up by the burgeoning population and put us back at square one? This is no matter of xenophobia, it's a matter of numbers - if we still had the population of the mid-'90s now, we'd need far less new housing. Given the way that the population has grown since that time, we need an immigration freeze for the next 20 years to give time to build enough houses to get back to the situation we had 20 years ago. To paraphrase some entrepreneur of former times, "if we build it, they will come". Well, they came already and now expect us to build it.

not thought through in any

not thought through in any way. Why wolud anyone repair their property or make improvements if it meant losing whatever one spent? My house is an old Victorian property which costs about £10,000 per annum in maintenance. I can't afford holidays but like living in an old house. Why should my life choice be dictated thus while someone else prefers to live in a small modern house but, like a good friend of mine have an annual holiday budget of approx £15,000? I would like to move to a slightly smaller house within 5 years but should this go ahead, what with my losses and stamp duty I would not be able to afford to trade down slightly, so in fact the proposed freeze would lead to another freeze, that of anyone not being able to trade down from a larger, especially older property. Crazy idea!

The real issue with the

The real issue with the housing market is the onerous underwriting requirements imposed by the FCA following it's Mortgage Market Review which was, in part, driven by the financial crash in 2008. Clearly, sub-rime loans needed to be tackled, alongside the ridiculous 125% loans offered by Northern Rock, but the new measures went to far and simply do not base mortgage offers on true affordability. A classic example is where tenants pay and maintain rents which can be twice what the mortgage payments would be on the same property but lenders mostly refuse to take the rental payment record into account. Added to this, Loans to Value are too low, forcing buyers to raise much higher deposits than before the crash.

It will never happen , greed

It will never happen , greed is rampant .Even if it did this would not go anywhere near addressing the problem .House prices in many areas bear no relationship with earnings making the home owning dream jus that "a dream" .Rents are out of control ,new builds are out of the reach of the young . Interest rates are bound to go one way that's up making the dream hopeless . Its possible that a crash could be a future possibility .

I support the more radical

I support the more radical idea - taxation of land, which would force unused land for house building onto the market. What used to be called 'Georgism'. I also support the reintroduction of council house building. Ownership of the primary resource - land - should be limited to what one person can actually use, be it residential or farming. Ownership of land for financial gain is one of the main causes of exploitation.

Whilst I agree something

Whilst I agree something needs to be done, I don’t see how strict inflation rules would work in practice. The nature of our housing market means that the seller looks for the best price which means that those with more cash to spend will ultimately force the property price upwards.

Unless it’s combined with regulations that require the seller to sell to the first bidder, I can’t see how this will work.

Superficially it sounds a

Superficially it sounds a good idea, particularly if we live in a socialist state where everything is controlled. It would mean every house would have to valued, which in itself would take years and how would it be monitored? There would almost certainly be big anomolies which could be very profitable for lawyers. It could discourage people from moving if there is no potential profit in moving to help pay for the next step upthe ladder.

Potential profit .Yes .Stupid

Potential profit .Yes .Stupid unsustainable house prices driven by greed over the past fifteen years resulting in the broken unsustainable market No. The use of "the house" as a profit making fast buck investment as opposed to somewhere to live including landlords has desecrated the asperations of millions .Meanwhile those who see their investment rising by hundreds month on month rub their greedy hands together in glee.

Despite being a homeowner

Despite being a homeowner myself (with a mortgage) I agree with this article, but I also think there are many more simple things the government could do. Limit or stop completely people having holiday homes. Prioritise all sales to proven local need / first time local buyers. When they move on the property is first offered again on those same principles. Apply a heavy tax to owners of retail properties that have vacant / unlived in upper stories. Prevent individuals or couples from having more than one property beyond their main residence (one is ok to rent out for retirement etc but not for a serious business). Stop any business beyond councils or social housing groups from holding / buying large numbers of properties for rental. We need to go back to the time when a house was primarily a place to live that may make a small return or hold its value rather than the current primary purpose of making money.

A free market economy should

A free market economy should be exactly that, free. Putting chains around the housing market would only delay any property rises which would then spike more spasmodically once the restrictions are lifted, rather than plodding along naturally and freely. What's more, zero hour contracts and low pay do far more to stifle first time buyers as mortgage lenders often won't consider them for a loan in the first place. To add to this, brown field sites, derelict pubs and the inner city skyline are all underdeveloped for residential use compared to New York, Hong Kong and Tokyo, which are far more densely developed than Birmingham, Manchester or Leeds. Then there's the fact that most young people seem to want to spend thousands of pounds travelling the world several times a year rather than make some sacrifices and saving in an LISA, NISA or help to buy scheme. Free range international travel should come later when you retire. A cultural shift needs to take place from 'generation spend' to 'generation save and invest.' After all our home is often the biggest investment we make.

i fail to see how house

i fail to see how house prices can be frozen, the market place controls prices. the controls on buy to let will simply push rents up. student loans don't come into it, they do not count against a credit rating and are only paid off when the students starts to earn a good wage, and then only at a low rate, 90% of student loans will never be paid off, sorry but this articul is a load of bull.

how can you freeze house

how can you freeze house prices?
Are you buying a dilapidated 3 bed semi, but planning to re-wire, redecorate and add an en-suite, then sell it for same as you paid, 2 years later, when you become redundant. You gain nothing for the £20K spent and now have to move from Wales to London as no jobs available in your home area.
Can the government put a standard price on a 3-bed semi, where ever it is? Riduculous idea. A house sale is an auction - it goes to the highest bidder no matter if the auction is formal, or via an estate agent - given a range of offers, the seller usually accepts the highest. Gazumping would become common place.

I think it would be difficult

I think it would be difficult to artificially freeze prices in this way. However some measure is urgently needed to sort the housing mess out. Abroad some countries put a ceiling on rents, as well as not allowing the rental market to become a lucrative business at the expense of first time buyers. I bought my first property in the seventies at the age of 24. I was lucky not to have any debts, whereas many young people are struggling to pay off student loans. My son is just about to enter the market at the age of 43, still with his student debt to pay off.

I'm only a tad older than

I'm only a tad older than your son, but I bought my house (on a fairly low income) 20 years ago. Student loans should be almost irrelevant for people now into their mid-40s - I'm sure there was a clause in my loans that stated that the loans would be written off if I didn't start repayments before the age of 45. As it happened, I went through a spell of doing a lot of overtime at work and had to declare that my incom,e had surpassed the deferment limit, so I entered the five-year repayment schedule whilst still 'only' in my early 30s. It didn't break me - and I emphasise that my income is quite low. My younger brother has earned every penny as much as me, but chose to spend every penny on a relatively consumeristic life and now in his mid-40s he has absolutely nothing to show for it. I would suggest that your son may have set his priorities closer to those of my brother and has only himself to blame for not yet entering the housing market.

Don’t fiddle with things.

Don’t fiddle with things. There will be unintended consequences. Just get more houses built to meet demand. Allowing councils to plough back money from the sale of council properties into new housing would be useful.

Freezing house prices would

Freezing house prices would be a start, but wouldn't stop property speculation. While that offers a good return it will just go on and on. We need to bring in fairer, long-term rents and raise incomes. But I don't hold out any hope!

How about index linked

How about index linked capital gains on house prices and use the gains to fund the building of decent social housing.with a new model of rent to buy when long term rented say 5years