Beware house price bubble: Treasury watchdog sounds alarm over runaway property market
Wed 26 Mar 2014
Office for Budget Responsibility says speculators are inflating rising prices. Watchdog head Robert Chote warns of 'bubbly activity' in some areas. Prince Charles expresses fears that prices will drive workers out of London says home ownership for young people is 'becoming further out of reach.' Average price of a London home is expected to jump from 458,000 to 650,000 by 2020. Figures show average price of a UK home hit 254,000 in January. First-time buyers paid a record 190,000 to get on the housing ladder Britain is on the verge of a dangerous housing bubble, the Treasurys chief watchdog warned yesterday.
Soaring property prices are being inflated by speculators banking on further gains, according to Robert Chote, who heads the Office for Budget Responsibility. With very rapid house price increases in some parts of the country you might see bubbly activity where people are willing to buy stuff off plan or not intend to live in it, Mr Chote told MPs.
Prince Charles gave a separate warning yesterday that soaring prices in London will drive a generation of young people out of the capital. He said the dream of home ownership was becoming further and further out of reach for swathes of workers.
The average price of a home in London is expected to jump from 458,000 to 650,000 over the next six years. This isnt sustainable and risks driving away talented young individuals who are starting their careers in London and spending most of their income on rent, said the prince. Home ownership for this generation is seemingly becoming further and further out of reach.
Official figures show the price of the average UK home hit 254,000 in January a rise of 6.8 per cent in a year. Prices were up 13.2 per cent in London, 7.1 per cent in the South East and 6.9 per cent in Wales. First-time buyers paid a record 190,000 to get on the housing ladder in January. Estate agents are now organising open days in some hotspots to meet demand and many homes go to auction-style sealed bids. Open days are necessary with the feeding frenzy out there, said Peter Rollings of estate agents Marsh & Parsons.
Ed Mead, of Douglas & Gordon, another London agency, said: Any estate agent in London has buyers coming out of their ears. What they are all fighting for is sellers.
Mr Chote told the Treasury select committee the surge in prices was partly down to soaring demand, driven by rising confidence, increased lending, and government schemes such as Help to Buy all combined with lack of supply. He added: You can explain the increase in house prices by fundamentals without having to resort to saying there is a bubble going on. That doesnt mean to say there may not be some bubbly components to what is going on in the housing market in particular parts of the country.
A report from the Home Builders Federation this week showed that Britain is now one million homes short of meeting its housing needs. The independent OBR expects house prices to rise by more than 30 per cent in the next five years. Mr Chote insisted it was not taking a view that house prices are over or undervalued and said house price inflation should cool from 8.5 per cent this year to 3.7 per cent in 2017 and 2018.
Steve Nickell, an economist who sits on the OBR with Mr Chote, said: A bubble arises when demand is being driven by people wanting to get in because of expectations of price growth rather than for somewhere to live. The house price to income ratio has been growing for the last 40 years but that cannot go on forever because everything you consume would become housing and there would be nothing else left.
But David Ruffley, a Tory MP on the Treasury committee, said forecasters always expect a benign return to equilibrium and fail to predict the cycle of boom and bust.