More houses = lower price inflation? No!


The Barker review which came up with various targets in 2004, worked on the premise that to reduce house price inflation to a lower level, more houses had to be built. The idea being that more supply with the same demand would result in lower prices.

Its an interesting theory but in practise not tenable.

Why you might ask?

Thats because house prices are not only determined by supply.

Demand is very important and demand does not consist solely of people needing accommodation.

Other demand arises from those who want:

Second homes
Holiday accommodation
Buy to let
Investment

These can be a significant element of demand and are the categories where purchasers have more funds than the average house buyer. They can easily outbid most people, often many times over.

Unless policies are introduced to cut or eliminate this type of demand house prices will rise making affordability a major problem.

[House prices are also affected by earnings and mortgage rates]

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