The Institute for Public Policy Research (IPPR) has said that UK house prices should be frozen for the next five years to help prevent another financial crisis.
The prominent thinktank has urged the Bank of England to target zero house price inflation the same way it attempts to keep general inflation at two percent.
The IPPR has proposed that house prices should only be allowed to increase “after expectations of constantly rising house prices have been ‘reset’”.
The think tank also said that prices should not grow “faster than the general consumer price inflation target of two percent, meaning no further growth in the real value of people’s homes”.
The move will make homes more affordable and end the UK’s reliance on property investment to drive the economy. The UK economy will then be more balanced towards science and manufacturing, which Theresa May hoped to do when she became prime minister.
Between 1980 and 2008, house prices have increased ten-fold. The average price of a house in the UK is now £215,444. This is almost eight times higher than the average income.
“Since the 1980s, the UK’s business model has rested on attracting capital from the rest of the world, which it has channelled into debt for UK consumers. The 2008 crisis proved that this is unsustainable,” said Grace Blakeley, an IPPR research fellow.
“We need to move towards a more sustainable growth model, one built on production and investment rather than debt and speculation. To do this, we must break the cycle of ever-rising house prices driving property speculation, crowding out investment in the real economy.”
“We argue for sweeping reforms to taxation of the financial sector, including the introduction of a financial transactions tax on currency trading, combined with an industrial strategy focused on boosting the UK’s exporting sectors,” she added.