Lack of housing supply sparks jitters over Bank of England's role

Lack of housing supply sparks jitters over Bank of England's role

House prices are now rising nationwide, the head of the Bank of England has said. Meanwhile, economists are divided as to whether – and how – an overheating housing market could be damped down.

A new poll by Reuters suggests that the Bank of England might not be able to restrain a housing market bubble.

The poll, of 22 economists, shows prices are predicted to rise 5.7%  next year, after a 6.5% increase this year – an increase since Reuters’ poll in August.

In the latest poll, half of respondents expressed doubt about the Bank of England's ability to restrain the market.

Eight economists said they were not very confident in the Bank’s ability to control a rampant market, while nine said they were fairly confident. Only one is very confident.

One of the participants, Azad Zangana, economist at Schroders, said: "A fundamental lack of supply in housing is driving up prices, and the only sustainable solution to this crisis is to build more homes."

Another, Peter Dixon, economist at Commerzbank, said: "The surge in prices reflects a genuine supply-demand imbalance."

A third, Philip Lachowycz at Fathom Financial Consulting,said: "The problem is not confined to London. Property prices are high relative to incomes across all regions in the UK and are being inflated further.”

BoE Governor Mark Carney has so far stressed that housing transactions are still almost a third below pre-crisis levels, and that the central bank has other tools at its disposal to avoid having to raise interest rates to tame house price rises in one part of the country.

However, yesterday (Tuesday) Carney told Parliament that price rises in London and the south east are broadening into the rest of the country.

Yesterday evening, Jeremy Duncombe, of Legal & General, said:"The comments from Mark Carney today on the lack of housing supply are in line with what we have been talking about for some time.  

“This lack of supply in the UK housing market is making it harder for young people to get on the housing ladder and is also pushing up house prices. 

“The Government’s Help to Buy scheme has done a lot to increase confidence in the housing market and it will help some people realise their dream of buying their own home.

“However there is more to be done to ensure that the recovery of the housing market is sustainable such as building more homes and greater innovation in mortgage products.”