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Housing: Prices

Volume 695: debated on Tuesday 23 October 2007

asked Her Majesty’s Government:

What is their response to the assessment by the International Monetary Fund that the United Kingdom housing market is heavily overpriced.

My Lords, the Government’s macroeconomic framework has delivered stability and rising prosperity. As set out in the 2007 Pre-Budget Report, house price inflation is expected to ease over the coming year.

My Lords, I sympathise with the Minister for his onerous afternoon of Questions, with three in a row, and I thank him for an Answer that did not actually say anything. Is it not the case that we can all now recognise that the size of the increases in house prices in the United Kingdom in the past 10 years—in all but the short term for some people—has been bad for the economy, bad for the efficiency of the housing market and particularly bad for those who have suffered from it, especially young and less affluent people who have not been able to afford to buy houses? Is the Minister aware of the comments made by the Chancellor of the Exchequer, Alistair Darling, which were reported in the press last Thursday? The Chancellor criticised the companies that have been fuelling,

“an unsustainable boom in house prices through irresponsible lending”.

What will the Government do to make sure that, when the present dampening of the housing market is over, we do not have another series of unsustainable and irresponsible rises in house prices?

My Lords, rising house prices are not necessarily damaging for the economy—far from it. They produce very significant assets for families—and it should be recognised that family assets are 72 per cent above what they were in 1997 when this Government came to office—and therefore give householders the confidence with which to carry out their economic activity. The noble Lord will also recognise the high levels of employment that have obtained over that 10-year period. But of course he is right that we should be concerned about the affordability of housing, particularly for first-time buyers. That is why the Government are tackling the issue on both fronts, in the supply of housing by seeking to produce 46,000 extra houses per year under our new proposals, and by giving what assistance we can to first-time buyers in shared equity schemes and so on in order to tackle the problem of how people get on to the first rung of the housing ladder.

My Lords, does the Minister agree that the first prerequisite for bringing down house prices is for supply to be increased to match demand as nearly as possible? Does he also agree that that in itself is unlikely to be sufficient? The wall of money that has come in through the buy-to-let scheme, now running at over £100 billion—lenders such as Northern Rock have been prominent in this—has inflated house prices and pushed out first-time buyers in a way that we have not seen for a long time. Does he agree that some burnt fingers may be required for those buy-to-let speculative investors before we see prices stabilise?

My Lords, the whole House recognises the noble Lord’s expertise in this area. I merely indicate to him that if the burning of fingers—if that is the right analogy—is required in order for lenders to recognise the undue risks that they may be taking, the Northern Rock episode is a most salutary illustration of that singeing. That is backed up, of course, by the fact that the Financial Services Authority is very concerned to identify where lending has been extravagant and unjustified and is seeking to bring pressure to bear on those who verge on the reckless. On the other front, the noble Lord is absolutely right that it is important that we should also tackle the issue of housing supply.

My Lords, the level of personal debt, much of which is secured on domestic property, is now nearly £1.4 trillion, which is larger than the UK’s GDP. What analysis have the Government carried out of the impact of falling house prices on household finances and therefore on consumer demand?

My Lords, of course the Government are concerned with that analysis, because it is a significant aspect of prediction with regard to the development of the economy. But even in this period of relative difficulty, house repossessions are less than half what they were in 1990. There is no indication that we are anywhere near a 15 per cent interest rate or high repossession rate. Therefore, the circumstances that led to the housing crash that occurred under the previous Administration in the late 1980s do not obtain today.

My Lords, perhaps I may take issue with the questioner, who referred to a heavily overpriced market. There can only be one price for the housing market and that is the current price. It is essential that there should be no panic. It may very well be that mortgagees are lending over and above 100 per cent of the real value but, nevertheless, one should keep a sense of proportion, because the market can bear those strains. Ultimately, demand will settle the level of price, and demand remains very high.

My Lords, the noble Lord’s remarks help to bring balance to the short discussion that we have had today. There is anxiety about the exposure of US lending authorities in the sub-prime market. I hasten to add that lending in Britain in the sub-prime category is half that in the United States, so we can anticipate that we will suffer nothing like the shock that the United States might face. The noble Lord is right about the general position with regard to supply and demand but, as we all know, where there is dissonance between the two, there can be some very unfortunate outcomes for households. At the present time, as the noble Lord indicated in a previous question, the demand of first-time buyers for housing needs to be met, because we recognise that our fellow citizens are facing difficulty.