The UK housing market is ‘on fire’ thanks to extended government tax breaks for homebuyers and increased demand from wealthier households with more savings following coronavirus lockdowns, said Tuesday the chief economist of the Bank of England.
Andy Haldane warned that the housing market is likely to continue to heat up as long as all of these factors, combined with the central bank’s ultra-low interest rates, remain in place. He said the recent rise in house prices – which topped 10% in the 12 months to March 2021, according to official data – was very likely to worsen inequality.
“As it stands, the UK housing market is on fire,” Haldane said at a virtual conference on inequalities hosted by the University of Glasgow. “There is a significant imbalance between the nascent demand and the available supply of housing, and because the laws of economic gravity have not been suspended, the result is a fairly sharp increase in house prices.”
Haldane said the dramatic increase in prices was very likely to worsen the wealth gap between the wealthier and younger generations.
Unless policymakers tackle the housing supply, said Haldane, “we will inevitably see the kind of relentless rise in house prices relative to incomes that we have experienced over the past 30 to 40 years. “.
“For most people, the global financial crisis happened like an earthquake exposing structural flaws in our societies, of which inequalities are among the most severe. “
Chancellor Rishi Sunak has been criticized for pushing the cost of homes out of the reach of middle-income groups after cutting the stamp duty on real estate purchases last year. This decision reversed the drop in real estate sales at the start of the pandemic. He extended the temporary tax cut in the March budget until the end of June 2021.
Households, many with people working from home, have racked up around £ 160 billion in savings since the start of the pandemic. Sunak’s tax incentive came as many of them sought out larger properties to include gardens and home offices.
Halifax said this week that home prices are expected to continue rising for some time despite the new record set in May.
The mortgage lender, which is part of Lloyds Bank, said house prices jumped 1.3% in May and 9.5% in the past year, taking the average selling price to a record high from £ 261,743.
Haldane, who is leaving the bank to head the Royal Society of Encouragement of Arts and Manufactures and Commerce, said there is little the central bank could do about soaring house prices, as the main influences on the housing market – tax rates, planning rules and measures to promote housing construction – were set by the government.
Her comments contrast with Deputy Governor Sir John Cunliffe, who said last month that the bank’s role as a watchdog for the banking industry meant it was making sure lenders were careful in their policies.
In a separate speech, Deputy Governor Dave Ramsden said the central bank was closely monitoring the housing market as it assessed the risk of an increase in consumer price inflation.
Haldane told the workshop that uncertainty about the outlook for the UK labor market remains high even as employment and vacancies rebounded quickly after the Covid crisis.
“We still have over 3 million workers on leave across the UK, which means that uncertainties about the future labor market remain quite acute,” he said.
While last week’s government figures showed 3.4 million jobs were on leave at the end of April, more recent survey data from the Office for National Statistics suggests the number has fallen to 2.1 million in mid-May.