In the third article about limiting house price inflation, Kate Faulkner considers the three big issues which will need to be debated and solved to enable the UK to ‘crack’ how managing house price growth could work:-
Regional variations versus ‘average’ increases
At the moment areas like Kensington and Chelsea are zooming up in value whereas areas like Wales, Northern Ireland and several of our major cities are still falling. So if a level was set to trigger restrictions in lending or other methods of curbing house price growth, the growth would have to be everywhere across the country, not just driven by a few areas.
What house price inflation data would we use?
Just now, the information we have on house price growth is too limited. In my view, we don’t have a good enough index to measure house price inflation. For example, many of the indices take an ‘average’ which can mean selling more higher priced properties can distort the figures. If an area had huge numbers of new build, they are typically priced higher than other local properties, so again, could artificially exaggerate the average house price growth.
Penalising first time buyers and second steppers
We would need to find a better way to reduce demand than just using mortgage finance. For example first time buyers not having to pay stamp duty and schemes such as Help to Buy make sure they don't suffer adversely from the tough credit conditions imposed.
What else can we do to curb house price inflation?
I think the government, Mark Carney and the Financial Planning Committee need to take the principle established by RICs and work out how it can be implemented and work at a regional level and national level.
Understand what's driving house prices at a local level
For example we need to investigate what's really driving house price inflation in different areas across the UK. A case in point is Prime Central London where house prices are rocketing thanks mainly to international buyers, so perhaps in this case we restrict what they are allowed to buy. Clearly this is always highly dangerous from an ‘unintended consequences’ perspective, but buying a property in the UK just so someone from abroad can keep their cash safe and then potentially leave it empty isn’t a good enough reason to allow house price inflation which effects people in genuine need of a home in the UK.
Increase the supply of homes
The ultimate requirement to curb house price inflation is to understand the true demand for properties in an area locally and make sure we deliver what people need – and can afford to buy.
Successive governments and local authorities have consistently failed their communities with regards to supplying a roof over people’s heads. Perhaps in areas where price exceed an agreed limit, local authorites would have to release more land and help secure funding for new homes to be built for local people such as shared ownership and build to rent schemes.
Encourage buy to let investors to build to rent
Rather than buy to let investors buying existing stock, property funds should look at buying small plots of land which deliver less than 50 homes and working with buy to let investors to build and rent.
Make sure mortgage credit doesn't get out of control
I am quite surprised more brokers and lenders haven't been taken to court for mis selling people huge mortgages they could never afford to fund. Things like 100%+ mortgages shouldn't be allowed and any broker or mortgage advisor who lends to someone who then ends up being repossessed, should have a sample of their cases, including the repossession investigated as a matter of course.
Conclusion
However difficult limiting house price inflation will be to achieve, this doesn't mean we can ignore RICs recommendations for implementing it.
Stable house price growth is good for everyone and the government, housing economists, local authorites and property industry need to work together to find a solution which will work.
