A house price boom?

The Governor of the Bank of England has warned of the dangers of rising house prices.

The governor of the Bank of England has given his strongest warning yet about the dangers to Britain’s economy posed by the booming housing market.

Mark Carney said the market represented the “biggest risk” to financial stability and the long-term recovery.  He added there were deep structural problems which needed to be addressed.  He told Sky News the fundamental problem was a shortage of homes – and the Bank of England had no solution to that.

In an interview on the Murnaghan show, he said the Bank was “closely watching” rising property prices and the subsequent increase in large-value mortgages, which he warned could lead to a “debt overhang” which could destabilise the economy.

Mr Carney said: “When we look at domestic risk, the biggest risk to financial stability and therefore to the durability of the expansion [of the economy]; those risks centre in the housing market.”   He added: “There are not sufficient houses built in the UK. To go back to Canada, there are half as many people in Canada as in the UK, twice as many houses are built every year in Canada as in the UK and we can’t influence that.”

Comment  We are not surprised that Mark Carney, in line with many others has suggested that too few houses are being built.   In some areas this may be the case although the Governor should also bear in mind the other factors which affect house prices – excess demand from those seeking investment property for example.  [There are many others which we have highlighted on previous posts].

We are however a little surprised at Mark Carneys reference to Canada.  This gives the impression that Canada is building lots of houses and therefore doesn’t have a price problem.

In fact Canada has had a housing boom.  A recent report by Capital Economics, a consulting firm says that the market is “surviving for the time being on rapidly rising prices” in overvalued and thinly-traded markets.   Signs are that this could well come to an end, the bust following a boom.   Now if Canada has been building more houses per capita than the UK and has experienced a price boom, this tells us that there is more to house prices than supply.   You would have thought Mark Carney would have known that.  He was after all head of Canada’s Central bank during the boom years!  period of unsustainable house price inflation!



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