Exclusive: Housing bubble brewing – prices are now unaffordable for middle earners, says Business Secretary Vince Cable

Business Secretary warns most families are ‘nowhere near’ able to afford homes at average prices as failure to build more homes condemned for producing property bubble

Political Editor

Home ownership has now become “unaffordable” to people on middle incomes, Vince Cable admitted, as he warned that the bubble developing in the housing market could be more serious than during the last property crash.

Amid growing tension between the Conservatives and Liberal Democrats over rising house prices, the Business Secretary told The Independent: “The fundamental problem is a chronic imbalance between supply and demand. A recovering mortgage market is just fuelling demand again.”

Mr Cable warned: “A family on average income is nowhere near able to afford a house at the average price. Property has become much more unaffordable for people on middle incomes.”

The Lib Dem minister said that, in the mid-1990s, the average house price was three times average earnings. Today, at roughly the same stage of the economic cycle, the ratio is about 5.5. It rose to more than six before the crash of 2007. 

The Lib Dem minister hit back at comments by Kris Hopkins, the Conservative Housing Minister, who told the BBC’s Newsnight programme that rising house prices are a good thing.

Mr Cable said: “I do not agree with Kris Hopkins that rising house prices are a good thing. If you are an owner-occupier who has paid off your mortgage, it is an increase in your paper or real wealth. But if you are a young family trying to get into the housing market and it is unaffordable, it is an extremely bad thing". 

Although Tory ministers will be infuriated by Mr Cable’s comments, his warning will be taken seriously. As the Lib Dems’ economic spokesman during the previous Labour Government, Mr Cable was dubbed “the sage of the credit crunch” after warning that the housing market would collapse, calling for the nationalisation of Northern Rock and predicting the banking crisis.

The Business Secretary believes the country now faces a different – and possibly even worse – housing market crisis. Last time, the problem was mortgage lenders being over-exposed. This time, he said, the “real issue” is the need for more housebuilding.

Mr Cable added: “We have taken some very good measures in government like allowing those areas with severe need for additional housing to increase borrowing against their assets to build new houses. We’ve made financial help available to small businesses in the building trade to increase competition and introduced one for one replacement of council housing every time one is sold. The number of council houses actually fell under Labour. But more needs to be done. We must build many more houses - that and only that is the solution to our housing problem.”

His comments will be seen as a move by the Lib Dems to champion voters in their 30s who are struggling to get on to the housing ladder. Last month’s Budget, which included sweeping reforms on pensions and savings, was seen as a pitch by the Conservatives to the over 50s.

Mr Cable was alarmed by this week’s survey by Nationwide Building Society, which found that the “house price gap” between London and the rest of the country is at its widest since records began in the 1970s. Prices in London have risen by 18 per cent to an average of £362,699 in the past year. The average in the rest of the UK is £178,124, an increase of 9.2 per cent over the same period.

Some Lib Dems are worried that the Government’s Help to Buy scheme, which guarantees 95 per cent mortgages, may be contributing to a housing bubble by encouraging people to buy rather than miss out on rising property values. They hope the Bank of England, which is monitoring the programme, may call for it to be limited to regions outside London and the South East and for the £600,000 property price limit to be halved.

George Osborne admitted the Government needed to be “vigilant” about house prices but rejected criticism that Help to Buy had acted as "fuel" for a surging market. The Chancellor told the Treasury Select Committee: “I think we have to keep a close eye. Clearly house prices have started to rise. But that is why we have created the [Bank’s] Financial Policy Committee.”

Treasury figures show that, a year after its launch, Help to Buy has enabled 17,395 home sales to go ahead. The average value of the property sold is £194,992, with 88 per cent going to first-time buyers and 77 per cent outside London and the South East.

Mr Hopkins insisted that Help to Buy accounted for only 0.5 per cent of transactions in the last quarter of last year. "We are nowhere near the peak at this moment in time," he said. “I don't agree that we are stoking demand, I certainly agree that we need more housing.” He admitted the country was "woefully short" of housing supply.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Front Of House Team Member

£16500 - £18000 per annum: Recruitment Genius: This is a fantastic opportunity...

Recruitment Genius: Sales & Marketing Manager

£22000 - £28000 per annum: Recruitment Genius: This company has won the award ...

Recruitment Genius: Store Manager & Store Supervisor

£19000 - £23000 per annum: Recruitment Genius: This is a fantastic opportunity...

Recruitment Genius: Case Liaison Officer / Administrator

£13000 per annum: Recruitment Genius: This Pension Specialist based in Rochest...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific