Diane Coyle: This is a bold effort to make us change the habits of our lifetimes

Greater flexibility in the housing market was the surprise new entry at number one on the Chancellor's productivity agenda. It was a welcome surprise, though. The vulnerability of the housing market to boom and bust, to a greater extent than the economy as a whole, is recognised as one of Britain's economic weaknesses.

Most of us still remember the scarring experience of the early 1990s collapse. Tens of thousands of homes were repossessed during the recession, when buyers could no longer keep up their mortgage payments. It was the fear of many more repossessions that made the UK's decision to leave the exchange rate mechanism in September 1992 both inevitable and politically devastating.

More recently, the problem has been one of overexuberance in house prices making it difficult for many people to afford a home at all in some areas of the UK, especially around London. With the supply of housing unable to keep up with demand, the pressure has all been translated into soaring prices despite past Budget measures such as the abolition of tax relief on mortgage payments and increases in stamp duty. In fact, these higher costs have probably been passed on as higher prices.

The reasons Gordon Brown gave for announcing two separate reviews of the housing market were different, however. One was that mortgages in the UK differ from the rest of Europe in being mainly variable-rate loans, not long-term fixed-rate loans, which could be a barrier to joining the euro. The other was that the lack of flexibility in the housing market is a barrier to improving productivity.

Euro conspiracy theorists could read the first of these explanations either way. Professor David Miles of Imperial College, London is to look at whether a bigger market for fixed-rate mortgages could develop in the UK. If we could become more like Continental Europe in this respect, the economic verdict on joining the single currency would be that more positive – but conversely, if the review concludes that our mortgage arrangements are going to continue to stand out from the Continent, that might tilt the verdict the other way.

The reason most of our mortgages are variable rate is that UK interest rates were volatile in the past. At the same time, though, there have been fewer restrictions on credit in the UK, allowing lenders here to offer higher loans in relation to the value of the property, and to lend to younger people. Britain has more extensive owner-occupation than our European neighbours mainly because many more people under 30 are able to borrow to buy a home. But owner-occupation might be an important barrier to mobility and flexibility in the labour market.

Whether or not we can adopt Continental or US-style fixed-rate mortgages will depend on whether banks and building societies can make the financial adjustment. That in turn – as Professor Miles spells out – will depend on changing our savings habits too. For the financial institutions borrow from us in taking short-term deposits on which they also pay variable rates. They will need to switch us to long-term savings accounts and bonds instead if they are to alter their lending pattern.

The second review, by Kate Barker of the Bank of England's Monetary Policy Committee, will look at how to reduce barriers to the supply of extra housing. The Budget announced measures to streamline the planning system. Nobody doubts this is badly needed, or that more or less fixed supply in the face of rising demand accounts for our unstable house price booms. But planning obstacles and housing shortages have been a headache for many past chancellors, so it would be as well not to expect radical improvements now.

However, a more flexible housing market would make an important contribution to productivity, and one that can easily be overlooked. The other productivity measures in yesterday's Budget – better financing for small businesses, improved R&D credits, deregulation, skills training – will help. Britain has weaknesses in all of these, especially the pitifully low spending on research and development by the vast majority of businesses. But making the housing market work better could have a bigger economic impact. And even small improvements in productivity are worthwhile because that's what ultimately will raise British living standards.