The Bank of England should be given powers to regulate house prices and keep growth at 0% initially for the first five years, a think tank claims.
A report by the Institute for Public Policy Research suggested the dominance of finance and asset prices in the UK economy could be reduced by letting the Bank’s Financial Policy Committee have powers to monitor property price growth in the same way it attempts to keep inflation at 2%.
The IPPR said in a report: “Under such a target the Bank of England should aim to keep nominal house price inflation at say 0% for an initial period – perhaps five years – to reset expectations, and allow affordability to improve.
“It should then be increased to the same rate as the consumer price inflation target of 2% per year, meaning zero real-terms house price growth.
“The target should be implemented using macroprudential tools such as capital requirements, loan-to-value, and debt-to-income ratios.
“Since lending is not the only driver of house price inflation, the Government should accompany this target with active housing policies designed to increase housing supply and restrict overseas purchases of UK residential property.”
Responding to the proposals, Mark Hayward, chief executive of NAEA Propertymark, said: “Excessive house price growth is certainly not something we want to see, but home buyers make purchases on the basis of capital appreciation and the belief that their investment will be protected and enhanced.
“We encourage all measures to help first-time buyers get on to the housing ladder, but with property transactions at an already low level, this sort of tampering could have unintended consequences.”