As it is, house prices and property prices in general have steadily risen over the course of the last decade in a much more manageable trajectory, inviting more sensible investment and speculation. That’s especially true of foreign investment, which has grown over the years as other areas of the global economy remain somewhat unstable.
Owning property is still seen as the financial zenith to aspire to for young people and others who haven’t yet managed it. There is an increasing group of over 30’s who can now reasonably expect to never get on the housing ladder, either for the reason that they’re unable to collect a large enough deposit, or are simply unable to repair their credit rating to the degree required to pass the affordability tests.
With that in mind, the Institute for Public Policy Research (IPPR) has made a recommendation to the Bank of England that it freeze house prices for five years in order to avert another financial crisis. It has recommended that the Bank sets a separate target for inflation which would see prices drop roughly 10% in real terms as prices and wages increase, making the market more affordable.
Under the IPPR’s proposals, house prices would be allowed to increase “only after expectations of constantly rising house prices have been ‘reset’”. They also said that the target should allow a maximum price increase of 2%, the same rate as the consumer price inflation target, meaning no growth in real terms for the value of people’s homes.
Grace Blakeley, IPPR research fellow, was quoted in the Independent as saying: “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.”
Interestingly, it says little of the largely positive effects that foreign and domestic investment has had on buy-to-let and off-plan property developments in cities like Manchester and Sheffield where investment has seen a contribution to job growth, wage growth and regeneration, but the sentiment seems sensible when talking about the domestic property market.
Whether the recommendations will be adopted or taken into consideration with regards to Britain’s long term economic strategy, especially post-Brexit, remains to be seen. Domestic property could well benefit from such a policy, but it should be kept in mind that private investment into buy-to-let and off-plan property has often boosted the local economy significantly.
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