Cable was speaking primarily about the overheating in the London and south-east housing market, introducing the spectre of London becoming a city populated by wealthy foreigners working in high-paying jobs.
Sadly this is another example of the London centric view that policy-making seems to be adopting increasingly at the moment. While it is true to say that London is attractive to many wealthy overseas buyers, the one thing that is self-evident is that house prices are not a problem to those people. Increasing interest rates will have the most on anyone apart from who is already struggling or in marginal position when it comes to their monthly mortgage repayments. Cash buyers and those with plenty to spend don’t inhabit this part of the market.
The other self-evident fact is that it is a problem of London and the south-east. The implications of the Bank of England raising interest rates go far beyond house prices for the rich and famous in London. The help to buy scheme introduced to assist in providing deposits for purchases up to £300,000 has been a runaway success and it’s now made victims of its success by inflating house prices across the country.
Straightforward supply and demand economics is what is driving as prices up. While our developers build less than half of the required number of houses the problem is not going to go away, no matter what happens to interest rates. Until planning and development policies relieve restrictions on building the new family homes that are in the greatest demand, the prices of those houses will continue to rise by more than the rate of inflation.
Vince cable may not want to put up house prices but there’s little point in espousing on interest rate ideas unless it’s on the table or it’s an elaborate precursor to some other measure. In the past he’s been a keen proponent of land and property taxes based purely on the value, in other words, carpetbagging. While this may seem a politically expedient and to some extent a populist move, it puts the needs of government receipts above the needs of business and industry to create wealth and reinvest in their product and customers. It will be the small customer (first-time buyers, young families, retirees) who pay for any government property value grab, which will do nothing to provide the quarter million new homes a year needed to prevent market busting house price rises.