Bank of England chief economist Andy Haldane said there are limits to how much the central bank can restrain the housing market and prevent a price spiral.
“There are things we can do at the bank and others can do at the Treasury to damp down demand a bit,” Haldane said at an Open University event in London on Monday. “But ultimately the solution to the problem lies in the supply side rather than constraining demand.”
A shortage of homes for sale and record low borrowing costs have helped boost U.K. house prices to records. Haldane — who sits on the rate-setting Monetary Policy Committee — said the central bank has concerns about “pockets” of the market, and cited investment properties as an example. There’s a “natural temptation, a rational temptation,” given past history, to think that the the only way is up for buy-to-let property values, Haldane said. That will probably remain the case as long as the housing supply remains constrained, he said.
The Financial Policy Committee at the BOE — a panel Haldane doesn’t currently sit on — has warned property investment represents a growing threat to stability. Last week it endorsed tighter lending criteria for buy-to-let mortgages, while Chancellor of the Exchequer George Osborne has said he’ll probably grant the committee new tougher powers to limit those loans this year.
Amid fears landlords are pushing up house prices, Osborne has already introduced tax changes to put off amateur landlords including increasing stamp-duty by three percentage points. U.K. gross-mortgage lending rose 30 percent in February compared with a year earlier, according to the Council of Mortgage Lenders, with borrowing boosted by investment purchases before some of those changes take effect.
Still, Haldane’s comments underscore how price pressure may not dissipate until supply improves. Data published Monday showed U.K. homebuilding activity barely grew in March.
Haldane signaled he was relaxed about threats stemming from the market. “We’re not seeing rampant risk-taking in the main by financial institutions or by customers,” he said. “People are still rather averse to taking on too much risk, including in the housing market, where transactions even now are only half or two thirds of what they were in 2007.”
The chief economist also noted that as the central bank intervenes more in particular markets, its role in informing the public should also grow.