Sign up to our Editors Choice newsletter now! Click here

IMF: Rising house prices and under supply of new homes are biggest threat to UK economy

Accessibility Menu

Menu Search

24dash - The UK's most up-to-date social housing and public sector news website

IMF: Rising house prices and under supply of new homes are biggest threat to UK economy

24DASH.COM Logo

Published by Jon Land for 24dash.com in Housing and also in Central Government

IMF: Rising house prices and under supply of new homes are biggest threat to UK economy IMF: Rising house prices and under supply of new homes are biggest threat to UK economy

The International Monetary Fund (IMF) today warned the government that rising house prices and the under supply of new homes pose the biggest threat to the UK economy.

The IMF said while there were currently "few typical signs of a credit-led bubble" the steady increase in the size of new mortgages compared to borrower incomes suggests that households are "becoming more vulnerable to income and interest rate shocks".

It also said that the government's help to buy scheme needs to be monitored and modified when necessary. It said while the policy had played a role in unlocking mortgage credit it wass important to evaluate if it was contriobuting to financial risks and whether the plug should be pulled before the full three-year timescale was over.

Commenting on the risks posed by the UK housing market and potential solutions, the IMF said: "Imbalances in the housing market should be addressed through supply-side remedies. Fundamentally, house prices are rising because demand outstrips supply. The UK has a secular problem with inadequate housing supply, associated with planning restrictions and compounded by depressed housing starts since the financial crisis. Macroprudential and monetary policies can only be temporary palliatives to an underlying problem.

"New initiatives to spur house building are welcome, but political consensus for further reform is needed. The government has introduced major changes to the planning system to create incentives for local councils to increase available land for housing development, and there are some signs of recovery in housing construction.

"Nonetheless, key inefficiencies remain. These include: unnecessary constraints on brownfield and greenfield developments; tax policies that discourage the most economically-efficient use of property; and underdeveloped rental markets with relatively short lease terms."

Earlier Chancellor George Osborne told BBC Radio 4's Today programme: "We need to be alert to the build-up of debt in the housing market, we need to be alert when we see house prices rising."

"We have created - this government, me as chancellor - the mechanism to deal with that,

"We have given the Bank of England the tools to do the job and they should not hesitate to use those tools if they see these developments turning into a risk for the British economy."

Comments

Login and comment using one of your accounts...