Rising house prices a problem not a solution, Treasury warned

Current rising house prices represent an economic problem for the UK and not a solution, Martin Weale, director of the National Institute of Economic and Social Research (NIESR), has warned.

At a Treasury select committee on the pre-Budget report (PBR) this afternoon (14 December), when asked about emerging asset bubbles, Mr Weale said that, like government debt, increased house prices would only result in a burden to future generations.

Fuelled by the government's quantitative easing programme, Mr Weale said he was concerned that people viewed the increasing house prices as a way out of the country's economic difficulties.

However, he said that when the government stimulus is stopped, the bubble could pop once again and trigger the second dip in the recovery.

Instead Mr Weale said it would be good for the economy to have a period of stagnation in the housing market.

However Karen Ward, chief UK economist of HSBC, disagreed and said quantitative easing had been a success in turning the forecast of a potential depression in the UK around and people should be careful of talking about boom and bust every time an asset class goes up or down.

Ms Ward said that the monetary policy committee was doing its job and was working very well.

Meanwhile, the panel of witnesses generally agreed the pre-Budget report did not do enough to explain how the structural deficit was to be reduced.

Robert Chote, director of the Institute for Fiscal Studies, said the plan to reduce the deficit over the next four years would be more credible if there were more detail as to where the pain will fall.

Posted at 08:38PM Dec 14, 2009 by Kelly Board in Mortgages & Housing Market  |  Comments[0]