George Osborne has announced that ongoing demand for houses will increase prices for at least the next decade and the current housing shortage in Britain will continue. He says that despite improvements to the planning system as well as an upturn in the construction industry, it will be at least ten years before there are enough houses to fix the problem.
The Chancellor stressed that due to an historic imbalance in supply and demand, the coalition is attempting to boost the market and would not be curbing the Government's Help to Buy mortgage scheme, which currently helps home buyers with a state-backed mortgage plan.
Many are concerned about the current results from the Help to Buy scheme, with Vince Cable, the Business Secretary, in particular saying that it has caused a “raging housing boom” in the South East and London that could quickly become uncontrollable if interest rates aren’t raised.
Mr Osborne defended the scheme saying that Britain is “still recovering from the property crash” and that in actual fact, the majority of those using the scheme were first time buyers looking to buy a house outside of London at an average property price of £150,000.
He told the House of Lords Economics Affairs Committee:
“I imagine if we were to assemble again in ten years’ time, we would still be talking about the challenge of making sure that our housing supply keeps up with demand,”
While he gave a very optimistic speech about the future prospects in the UK housing market, he also expressed some concerns about potential international problems including “weakness in some of the European economies and uncertainty about the fortunes of the US”.
According to a report by Markit Economics, the expansion in house building was the fastest last month than it has been since November 2003. House prices also saw the biggest monthly increase in over four years last month with an 8.4% increase in 2013.
George Osborne did add reassuringly though that although there had been an increase in house prices, it was not going to create a dangerous bubble but that it was unlikely prices would come back down until 2020.
House prices fell during the recession and he said of the future plans:
“I think the planning reforms are clearly working. You see planning applications up, planning approvals up, and the percentage of planning approvals up. It is having I think a positive effect on creating new homes and those homes are being built in appropriate places.”
Osborne also expressed his support for the controversial fracking technique which has greatly driven down house prices in the US. Although it is unlikely to have such a significant impact in Britain, he hopes that it will make a difference when it comes down to potential decreasing house prices across the UK.
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