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?
ebooks
ebooksA celebration of British elections
  • Get to the point
2015 General Election
May2015

Poll of Polls

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

Ashdown Group: Marketing Manager (B2B) - Romford - £40,000 + car

£35000 - £40000 per annum + car and benefits: Ashdown Group: Marketing Manager...

Ashdown Group: Helpdesk Analyst - Devon - £20,000

£18000 - £20000 per annum: Ashdown Group: Helpdesk Analyst - Devon - £20,000 ...

Ashdown Group: Data Scientist - London - £50,000 + bonus

£35000 - £50000 per annum + generous bonus: Ashdown Group: Business Analytics ...

Ashdown Group: IT Project Coordinator (Software Development) - Kingston

£45000 - £50000 per annum: Ashdown Group: IT Project Coordinator (Software Dev...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'