No lack of housing – it’s low interest rates to blame for prices, say Bank of England researchers

A second report has said that scarcity of housing is not a problem – this time from heavyweight advisers at the Bank of England.

It follows a report by Ian Mulheirn, of the Tony Blair Institute, which said that there is no shortage of homes and that housing supply had increased faster than the rate at which households had been created.

Now a new paper, by two members of staff at the Bank of England, has looked at rising house prices.

Had house prices risen at the same rate as goods in general over the last 20 years, they’d have gone up 50%. Instead they have gone up 60%.

The paper argues that “lack of supply has had very little role to play” and that “housing hasn’t really got significantly scarcer over the past two decades”, although there may be regional variations.

Instead, the paper says that low interest rates account for almost all house price rises since 2000.

It concludes: “Relative scarcity of housing has played almost no role at the national level since 2000.”

It is complicated stuff and not necessarily official Bank of England thinking. The paper is published at the Bank Underground blog site, where BoE staff can share views which challenge or support prevailing policy.

However, the Bank’s authors – one  is a researcher and the other works in the Bank’s monetary policy outlook division – and Mulheirn are not alone in their thinking.

Right-wing economist Andrew Lilico argued as long ago as 2012 that a housing shortage was a “myth” and that “when interest rates return to 4-5%, all this issue will vanish like April snow”.

Left-winger Ann Pettifor, director of Institute Policy Research in Macroeconomics, makes the same argument, saying that “building more homes will not solve the housing crisis”.

Low interest rates are to blame, she says.

And Christine Whitehead, professor of housing economics at the London School of Economics, says: “The story is more nuanced than the Government makes it sound – and at some level it’s more about affordability than numbers.”

Of course not everyone will agree – and it’s a long-held belief that there is a shortage of housing.

In a forward to the Housing White Paper in January 2017, then housing secretary Sajid Javid said: “This country doesn’t have enough homes.

“That’s not a personal opinion. It’s a simple statement of fact.”

But is it?

Houses are assets not goods: taking the theory to the UK data

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2 Comments

  1. Highstreetblues

    Nice try Tony Blair, but interest rates were only lowered after the economy crashed, and well after the boom in immigration (which hasn’t abated yet). Supply and demand.

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  2. Home Provider

    Their article of the previous day, which they linked to, has attracted criticism.  
     If you google “Bank of England economists” you will find it very near the top, in one of the Top stories, about one of their theories being based on Generation Rent claptrap.

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