Among those who will strongly disagree is the think tank, the Institute for Public Policy Research (IPPR). It recently produced a paper called On Borrowed Time, which stated that property was just one part of our financial system that was out of control and so needed to be reset to prevent a future crash. As part of this process, the IPPR believes freezing house prices for five years will stabilise the housing market, bring property values down by 10 per cent and help people still to get a foothold on the ladder to afford to buy a home.
To achieve this aim, the Bank of England’s monetary policy committee would be tasked with freezing house prices and restricting the annual increase in property values to 2 per cent (effectively a zero gain as the inflation target is also 2 per cent) through measures such as controlling consumer access to mortgages, limiting the funding of mortgages, disallowing overseas investment in property, and reducing capital inflows as a disincentive to property investment in general.
Personally and professionally I find the whole idea staggering. In fact it beggars belief that a “progressive” think-tank, which is how the IPPR describes itself, could come up with such unthinking proposals (although I accept its heart is in the right place). Have its researchers ever spoken to anyone who owns a property? Or to the banks and building societies whose business is to sell mortgages? Or to the government, for whom a big chunk of its income comes from taxes on property sales? Or, for that matter, to home-owners who reasonably expect their property to produce a net gain in value year on year? (Most people I believe are sensible enough to realise that periodic “booms” in prices are not in the long-term interests of the bulk of owner-occupiers).
For a start, the proposals raise the question of how – in a democratic society based on free market economics – property prices could be frozen and why would anyone want them to? As everyone knows, the price of a home (just like any commodity) finds its level due to supply and demand.
At least the IPPR acknowledges that a “one size fits all” price freeze across Great Britain would be unworkable and therefore proposes that it be carried out by setting different bars. To me, however, this feels like a recipe for compelling people who live in one part of the country to stay there, and in the same property, for all of their adult lives. A price freeze would mean nobody could ever move to a new location or upsize as a result of changed personal and family circumstances.
From reading the IPPR proposals, one infers that price rises are somehow wrong and so should end. Yes, there are parts of the country where prices have risen so far and so fast that increasing numbers of first-time buyers are being left behind.
But this is a solution that would please nobody, implying some kind of Soviet-style equalisation of the housing market, which would devalue the assets of everyone who already owns their home and produce a chaotic and unworkable system that would simply not produce the results the reports’ authors wish.
In the current circumstances, the most sensible way forward would be for government to give local authorities the power to borrow to build more “affordable” homes for rent (as long as the rents were not then used for political purposes). And to encourage private developers to build at greater levels for owner-occupation, thus creating a more manageable balance of supply and demand.
For many individuals in this country, the house in which they live will be the only substantial asset they will ever own – and there is no shame in wanting its value to rise over time. Standing in their way does not seem to me to be very “progressive”.
David Alexander is MD of DJ Alexander.