Economists’ forecasts: Policies will not stop house price rises
FINANCIAL TIMES (2016)
Government initiatives to support home ownership and build new houses will fail to have any real impact in 2016, with UK property prices expected to keep climbing.
None of the 88 economists who responded to this question* suggested a general fall in prices — 54 said current policies would either have little impact, or would only succeed in increasing demand.
In this year’s Autumn Statement, the chancellor announced a new 3 per cent stamp duty surcharge on buy to let and second home buyers from April, while also promising new affordable homes and a Help to Buy scheme focused on London.
But even among sympathetic economists, the near-unanimous view is that the measures only scratch the surface of a fundamental problem.
Chris Martin, professor of economics at the University of Bath, did not “expect any change from the pattern of overblown government promises and no action”.
Ryan Bourne, head of public policy at the Institute of Economic Affairs, said he expected prices to “stabilise somewhat this year” but added they were “still much higher than they need be due to a restricted supply-side. Undoing this damage would take a generation, as the new building required would be a small proportion of the existing stock — meaning it would take a long time for any liberalisation to make an observable difference to affordability”.
Ethan Ilzetzki, a lecturer at London School of Economics, said recent announcements were a “continuation of a long tradition of a pittance on the supply side and highly inefficient subsidies to boost housing demand”.
He added that while the Autumn Statement promised 400,000 new affordable housing starts, this was still not sufficient to keep up with population growth and that with no meaningful increase in supply, the help-to-buy measures “translate one-to-one into housing prices. They are therefore a subsidy to existing homeowners, not new buyers”.
While prices are expected to continue rising faster than incomes, none of the respondents expect anything like the double-digit increases commonplace in the south over the past few years.
Many noted that a likely small increase in interest rates — and more possible action from the FPC on affordability criteria — could help dampen down froth.
It is only at the top end of the London property market, where prices are expected to be hit by the threat of Brexit, reduced interest from foreign investors and higher levels of stamp duty, where there is any expectation for a fall.