Why Brown must control the house price boom

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The Government needs to control the house price boom or, at some point soon, it will turn to bust.

High house prices are often regarded as an indicator of a healthy economy, but there comes a point when they start to have an adverse impact it. We have moved well beyond that point. Today's soaring prices threaten public services because teachers, police officers and nurses cannot afford anywhere to live. Families are forced apart as the younger adults are forced to move to still affordable areas of the country. Even those fortunate enough to own a house rising in value – but with a large mortgage – fear rising interest rates or, worse, a crash. The boom, they think, is surely not sustainable.

The main reason why prices continue to soar is the shortage of housing, especially in the South-east, where the number of households continues to grow. Nor is this likely to change: more migration, more divorces and more single people living alone means we must address this demand and lack of supply urgently.

There is one obvious solution. More homes need to be built, especially at the lower end of the market, both for sale and for rent. The right of tenants to buy their council housing, introduced by the Thatcher government in the early 1980s, created many additional homeowners, and private individuals may well be grateful for that opportunity. But society cannot. The negative consequences of that policy have never been properly addressed. Ever since the revolution in home ownership there has been a chronic shortage of affordable homes. Councils with their ever reducing stock, could no longer borrow against it to build more houses. Although housing associations have been charged with building affordable homes, their grants have never enabled them to supply the numbers required. Last year, for example, 53,000 council homes were sold off, but only 18,000 new affordable homes were built by housing associations, leaving thousands more people without a decent home.

Today we report that the Government is planning a substantial expansion in housing. This is welcome and will help people in some areas. But the Government's response is still too piecemeal. It appears to have little understanding of the connection between shortages of affordable housing and soaring prices. Given the importance of the subject, the Housing Minister should be a cabinet post rather than a brief given to unelected junior ministers. (The current occupant is Lord Rooker. Previously, Lord Falconer was in control).

The Housing Corporation, the quango in charge of housing associations, should also have a higher profile and a bigger budget. The provision of decent housing is as fundamental as an improved NHS or transport system. The housing boom may well continue to boost the coffers of privileged property-owners. But this is not a time for laissez-faire economics. Too much is at stake.

The Chancellor should make it less attractive to buy second homes. Council tax levels should be considerably higher on second homes, rather than lower as it is at the moment. Moves could be taken to stop overseas investors buying residential property unfettered. More steps could be taken to boost the building of affordable homes through planning permissions for other developments, and more government-held land could be made available.

These could well be unpopular measures in the short term, but not as unpopular as a housing boom jeopardising public services. The Government needs to control this boom or, at some point soon, it will turn to bust.

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