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New house price inflation target set at zero would help prevent another financial crisis and put the economy on a better track, says leading think tankThe Bank of England should be set a separate new inflation target for house price inflation and begin by aiming for a five-year price freeze, under proposals from the IPPR progressive think tank.
The zero target could mean house prices falling by around 10 per cent in real terms as other prices and wages continue to rise, and would make homes more affordable.
Only after expectations of constantly rising house prices have been “reset” would they be allowed to increase again – but no faster than the general consumer price inflation target of 2 per cent, meaning no further growth in the real value of people’s homes.
IPPR’s call comes as part of a wider plan to rebalance the UK economy away from finance, and reduce the risk of another financial crisis, published as a discussion paper today .
It envisages that the Treasury would task the Financial Policy Committee of the Bank of England with meeting a target for annual house price inflation.The Bank would restrict mortgage lending by insisting on higher initial deposits, stricter ceilings on the ratio of loans to income, and other steps to control credit in the property markets. It would also be entitled to ask the Treasury to step up investment in house building.
The IPPR paper argues that the financial sector’s dominance since the 1980s has contributed to a strong pound, which has hurt exporters, particularly the manufacturing sector. It says the UK financial sector has attracted surplus capital from other countries and channelled it into loans to British consumers and to speculative investors – including as mortgage lending.
Speculation over house prices and related securities contributed to their 10-fold increase between 1980 and 2008, and has increased the economy’s vulnerability to financial crises, the IPPR paper says.
Such “financialisation” of the UK economy has reduced funds available for more productive investment, led to an artificially high UK exchange rate that has damaged exporting industries, created regional inequalities with disproportionate growth in London and the South-East, and concentrated market power into the hands of a small number of large banks.
Grace Blakeley, IPPR research fellow and author of the discussion paper, said:
“Since the 1980s, the UK’s business model has rested on attracting capital from the rest of the world, which it has channelled into debt for UK consumers. The 2008 crisis proved that this is unsustainable. We need to move towards a more sustainable growth model, one built on production and investment rather than debt and speculation. To do this, we must break the cycle of ever-rising house prices driving property speculation, crowding out investment in the real economy.
“Over the longer term, we should build up our manufacturing and knowledge-based industries and reduce the significance of our finance sector to the economy, including by curbing its worst speculative excesses. We argue for sweeping reforms to taxation of the financial sector, including the introduction of a financial transactions tax on currency trading, combined with an industrial strategy focused on boosting the UK’s exporting sectors.”
The discussion paper, On Borrowed Time: Finance and the UK’s current account deficit, is one of a series in the run-up to this autumn’s final report of the IPPR’s Commission on Economic Justice, which will propose fundamental and wide-ranging reforms of the UK economy.
Other steps IPPR proposes include:
· Levying a new financial transactions tax on currency trading, as a form of qualitative capital control, with a higher rate imposed on speculative capital flows
· Abolishing the corporation tax surcharge on banks, because it inhibits small “challenger banks”, and instead raising the current bank levy on banks’ and shadow banks’ global balance sheets
· Wider measures to improve transparency and reduce the volume of illicit capital flowing into the UK’s financial system.What do you think of the above proposal? With the Government in chaos and the housing market relegated to the back burner, it seems that the issue of "no joined up thinking" is likely to continue and the PRS will be the collateral damage of that ...SEE ALSO - Kit Malthouse appointed new Housing MinisterUP NEXT - Where next for house prices?DON'T MISS - Housing market - what is REALLY going on?NOW WATCH:
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
I believe they are right we need zero price growth in property
apart for investors its not helping anyone
I have always said we will head for stagnation and I will be proved right
Learn Change and Adapt ?????
All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.
How very socially thoughtful of you DL.
I’ve made a fortune so now let’s freeze prices.
I’m guessing you won’t be making a profit but renting the properties you are currently constructing at a cover cost rent to hard up families seeing as they have been built from your property profits.
Never had you down as a hypocrite.
I think if you read my bloggs you will see my driver is not capital growth and never has been I have some Property purchased in 2006 7 which are still in negitive equity after the 2007 crash I never rely on capital growth I build and buy on yield I have been given some stock from investors who think I am wrong so I am not being hipacritical in any way if prices stay low for years to come it won’t effect my plans
I think being in property is a bit like having a beautiful fast car:
I just want to go, go, go - as far as possible and preferably fast too;
But at the same time, I understand and accept that I need to be considerate to other road users.
There has to be a few traffic lights sometimes or other rules of the road to slow us down or cause us to pause now & then.
So I get it. If these sorts of measures are vested in a genuine intent to make the economy systemically stronger in the long run then yeh, why not stop us at a few red lights and give way signs?!
As I've always said: property is just too good!!
Author of The Complete Guide to Property Strategies
"It is the small decisions you and I make every day that shape our destiny" Anthony Robbins
Its too simple you're right
all you have to do is buy something which is in short supply Sit on it and it will go up in value
I think this stat is right 95% of all land in the uk is owned by 5%
The problem with BTL is public image and its in a local street with a Big Sign from a greedy Estate Agent and a Greedy Landlord
on the other hand you can get something like Alnwick Caste owned by a very rich man who gets lottery cash for a garden which he then rents out
when is the last time you saw the Landed Gentry effected by S24
Its just what the pubic see and we are in full view because we brag brag brag.
That's the problem the image of a Landlord is rightly, a bad one, rather than see the renter as a customer they are just a yield, the NLA for example rather than push for ending rip of letting agent fees or longer contracts just pipe on about how its not what renters want, they wait for the Government to act, and they only act to gain votes, no Torie does something as it just makes sense, stating its not what renters want when no one I know that rents wants letting fees & short rentals, sites advertising specialising in evicting people, at the end of the day people should be able to buy affordable homes on a low income & rent for even less than buying, things dont always change but they should.
Capitalism ain’t quite so appealing then?
They’ve done well to identify the problem (banks making money from lending and driving the markets) but what a joke of a solution!
Restrict house price growth and encourage investment into house building?!?
"Change is a prerequisite to longterm survival".
The establishment is rigged so that the rich stay very rich, and the poor get poorer.
Absolutely spot on Rachel.
96 % house builders recently stated that the government would fail to reach its build targets.
Who in their right mind would invest in property,with the possible addition of rent controls !!!!
Imagine the further knock on effects this would have to those targets.
Its a stupid idea which just about sums up the worsening state we are in.
None of these politicians have ever run a business,there lies the real problem.
Which housebuilder will invest in building more stock when they know landlords are going to be flooding the market with properties?The Government wants these properties for first time buyers - so no point in building new build aimed at that demographic.Again, too many levers being pulled without considering the consequences ...
How about all the rundown properties that are brought back to good standards and re-sold? This will kill that as no-one is going to invest their time and money unless they can profit from it.