Oct 19 2007
Darling plays fast and loose with house prices
I awoke yesterday to hear reports that the Chancellor had predicted a fall in house prices, and had urged mortgage companies to be more careful in their lending - which could trigger a fall in house prices.
Fortunately it was Treasury Questions yesterday. Unfortunately the question I had submitted once again was not on the Order paper, so I had to find ways of getting my question in order as a supplementary to someone else’s.
There was a question on the government’s forecasts for revenue from Inheritance Tax. As you cannot forecast Inheritance Tax receipts without having a forecast of house prices, I asked the Chancellor what his forecast for house prices for the next couple of years was in the IHT forecast, and whether he had recently decided to change his forecast, as it sounded as if his latest view was more gloomy on prices.
As always with this useless government the Chancellor was unable - or unwilling - to answer. He denied he had forecast a fall in house prices, and did not know - or would not say- what forecast of house prices underpins the official Treasury forecast of IHT receipts.
I will pursue it further,as it is not good enough that time after time Ministers are unable to answer the most simple matters for which they are responsible or where they take it upon themselves to comment.
Meanwhile the government which claims house prices are too high and which says there needs to be more affordable housing remains unprepared to say by how much they think house prices need to fall. I went yesterday to a briefing on "affordable housing" from Housing Associations and the Housing Corporation. Once again there was the same stone wall. They assert that housing is not "affordable" but will not say by how much they want house prices to fall or how far they expect the present credit crunch to go to bring house prices down.
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
The government is stuck between a rock and a hard place in regards to housing. Most of the UK growth in recent years has been fuelled artificially by the house price boom. I am afraid even a levelling of house prices may severely damage the economy “house of cards” . At the same time the house price boom has created resentment among a large percentage of the population which finds increasingly difficult to purchase a house. In order to keep these happy more houses would need to be build but of course by creating more supply house prices will level if not fall.
As a result , the chancellor will try to use the usual soundbites and announcements to show that he is on top of the problem but will want to avoid any serious and detailed discussion as that would disclose the lid on a Pandora’s Box which the government is desperately trying to keep shut as it would put Labours economic competence under scrutiny and unravel all their claims about no more boom and bust and the PM’s taking credit for the last 10 years of growth..
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Another interesting post.
I do not think it appropriate for government ministers to get involved with making predictions in any market, especially housing, and especially when this particular market is fragile. A fall in house prices will also affect government takings from stamp duty (both through reduced prices and fewer sales) and the Chancellor might be making his own life harder.
The regulation surrounding housebuilding is becoming increasingly complex and costly. We need a robust and pragmatic planning system but otherwise there is too much market intervention and regulation from the government and planning authorities and this is constraining the supply of homes and increasing the cost of those that are built.
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Easy answer - they should fall by 20%. That’s how big the bubble is.
“Goldman Sachs concludes that house prices must fall by a good 20 per cent for the historic relationship between rental yields and real interest rates to be restored.”
http://www.ft.com/cms/s/0/95ab36cc-72f7-11dc-b7ff-0000779fd2ac.html?nclick_check=1
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