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XXX | Major news from the Royal Institute of Chartered Surveyors hit TV and newspaper headlines on (of all days!) Friday 13th September. However as normal it’s difficult in a few minutes being interviewed to get across what RICs economists are proposing, whether it’s a good idea or not and if it’s possible to do. Kate Faulkner, one of the UK’s leading residential property market commentators answers these questions from a consumer’s perspective to help bring some clarity to the debate. |
Is limiting house price growth a good idea?
In principle yes. It is in the interest of the government, the economy and general public to know that if house prices are rising “too much” and too fast, then the powers that be should take measures to curb the growth.
From consumers perspective
Stable price growth incentives people to buy, helps sellers to add equity to their property and means people don’t ‘panic buy’ – as they are at the moment in some areas – for fear of prices rising ‘out of their reach’.
Property industry’s perspective
Despite those outside thinking developers and agents would be anti any measures to curb house price inflation, the reality is the opposite, they would welcome it. It gives them assurance people will move and have an incentive to buy and means their businesses would be more stable. Agents wouldn’t have to deal with gazumping and gazundering, which is not something encouraged by estate agents, it’s something consumers do, which actually puts the agent in a very awkward position.
| RICs are suggesting that as in countries such as Canada we limit mortgage lending to reduce the amount of debt funding property price inflation as soon as property prices, for example, grow more than 5% year on year. The 5% suggestion is based on past data of the growth of people’s incomes. | XXX |  |
Summary of suggestions:-
1. The Bank of England’s Financial Policy Committee should consider adopting an explicit house price inflation policy
2. Set an annual growth rate of say 5% which when exceeded triggers a set policy to take the heat out of the market
RICs suggest doing this will curb “excessive risk taking and the build-up of financial imbalances”
RICs also make it clear that this should be a “standalone policy; it entails risks, so would need to form part of a package of measures that addresses these risks.”
Measures suggested by RICs to curb house price inflation
There are three key policies which RICs believe should be adopted once house price inflation is excessive:-
“1) Credit related, which directly bear down on banks’ ability to lend in certain areas
2) Liquidity related, which impact on how banks fund themselves and
3) Capital related, which affect banks’ capacity to absorb losses”
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