January 2, 2013 1:35 am

Question 7: Housing

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To what extent are house prices still too high?

Mike Wickens, University of York:

There appears to be an excess demand for housing suggesting that house prices are not high enough! Actually, this apparent excess demand is not effective and so house prices probably accurately reflect market forces.

Malcolm Barr, JPMorgan:

Not much. The circumstances of recent years uniquely favourable to deflating a bubble if it were in place, but the price correction has been relatively mild, and that is not explicable solely on the basis of forbearance by the banks. We are learning that the scarcity of land value had a lot to do with the move up in home prices, and are not expecting the land supply situation to change very much.

Tony Dolphin, IPPR:

In London and the southeast, massively so. In the rest of the country, to some extent. The problem is, of course, inadequate supply.

Willem Buiter, Citi:

Bad question.

David Blanchflower, Dartmouth College and former MPC member:

House price to earnings ratios still remain well above their long run average 4.5 compared with a long run average of 3.5. House prices are highly interest rate sensitive so I suspect there is still a long way to go. My guess would be that nominal house prices will have to fall by a further 15 per cent or so, assuming no overshooting to the downside, which usually occurs in a correction. Everything depends on the path of interest rates.

George Buckley, Deutsche Bank:

Possibly the most worrisome statistic on the housing market is that affordability is still worse than average despite interest rates being at their lowest for more than three hundred years. If interest rates were ever to return to “normal”, we would soon realise how overvalued the housing market actually is. That does appear to be some time off, however (partly, it has to be said, because of the impact that higher rates would have on households given their large housing-related debts). Another issue is that while house prices in the regions have been moving down, London prices continue to be buoyed by foreign money seeking safe assets. The low level of sterling over the past five years and concerns about the euro area have provided key supports for the capital.

Philip Booth, Institute of Economic Affairs:

I think they probably have room to fall about 20 per cent on average in real terms on current planning policy. If planning policy were liberalised significantly, we could see house prices falling by 30-50 per cent which would bring huge benefits to large portions of the population and a reduction in fiscal pressures, though it would also bring a large wealth loss for those who already own homes.

Alan Clarke, Scotiabank:

A house is only worth what someone is willing to pay for it. We are a small island nation with not enough of the right type of properties in the right areas. With returns on conventional investments depressed, some investors will be happier investing in bricks and mortar, since they know what they are getting – rather than a near zero return on savings. Clearly property is not cheap, especially inside the capital.

Andrew Smithers, Smithers & Co:

Massively.

Peter Dixon, Commerzbank:

Based on a simple price to income multiple, prices are still a bit on the high side although the data differs according to the source one uses. Assuming the multiple is around 4.4x, on recent wage trends it will take something like four years to restore the ratio to its historical average even if prices remain flat. Why have prices not fallen further? Presumably the demand-supply imbalance, particularly in the southeast, is acting as a major support to prices. This may start to change in the years ahead as the baby boomer generation begins to release its property onto the market, or foreign buyers sell up, but I can’t see either happening for a long while yet. Note also that high price-earnings multiples act as a constraint primarily on first-time buyers. For those wishing to trade up and who already have some mortgage equity, there are few such constraints and housing remains as affordable as at any time in the last thirty-odd years.

Erik Nielsen, UniCredit:

The adjustment in nominal house prices is likely to be in good part finished. However, some measures of affordability suggest that house prices are still too high. I expect house prices to remain broadly flat in nominal terms next year, implying a fairly gradual fall in real terms which will contribute to improve affordability.

David Riley, Fitch Ratings:

Fitch currently estimates that UK house prices could fall by a further 5 per cent to 10 per cent over the medium-term.

Julian LeGrand, LSE:

They are much too high in London. If only London were less attractive to overseas purchasers ...

Ruth Lea, Arbuthnot Banking Group:

It depends what criteria are used – and for whom (first time buyers?)? But I don’t regard house prices as macro-economically unsustainably “too high” unless the Bank starts slamming up interest rates, which I don’t expect for many months, if not years.

Howard Davies, former MPC member:

The answer varies by region. London house prices (except in the areas buoyed by overseas demand) look overvalued, and I expect a correction if the economy remains weak.

Philip Thornton, Clarity Economics:

A very large extent! The rise is house prices over the last 15 years has been an economic shock – remember your reaction when oil prices went up 200 per cent? It has priced out a whole generation, made mobility hard (and expensive in tax terms) and locked up trillions of pounds of wealth in non-productive assets. Why? Too long to go into but lack of housebuilding on the supply side and unrestrained purchase for overseas billionaires on the demand side have conspired to push up prices. If it’s not sustainable for the population to be able to buy their own homes, then it won’t be sustained. The question is when and how it will unwind.

ANONYMOUS:

The reasonable estimate of the equilibrium level of UK house prices is extremely wide and we’re probably somewhere within it. (ie Don’t know).

Vicky Redwood, Capital Economics:

We think that the housing market remains overvalued. The housing market is showing some renewed signs of life as the year ends, but we suspect these will be snuffed out during 2013. An economy struggling to grow, increases in unemployment and a continued decline in real incomes all point to further, gentle price falls.

ANONYMOUS:

Demand and supply isn’t it? “Too high” can be a moral or an economic concept. On the latter, the price is what it is and there are reasons for it, however inequitable that may be for some (many). I feel sorry for all young people in London/southeast, including my own children. I couldn’t afford to move here now. Don’t sign up to the view of certain media-hungry pundits – you know who they are – who continue to claim that house prices must fall 20 per cent.......10 per cent.......30 per cent.......etc. Rubbish.

Richard Barwell, RBS:

One might think that if housing was overvalued prices would have corrected by now. But we could be in a fragile low transactions equilibrium where most people think prices are overvalued, but it makes no sense to sell your house for what you think it’s really worth if you have to pay the going rate on the property you move into. In any case, it’s not clear why some people are so keen on a decline in the price of an asset whose value determines the net worth of countless households and several key financial institutions (although you will make future first time buyers better off).

ANONYMOUS:

From an affordability point of view, prices are too high. Tight supply supports prices. Nevertheless, house prices are very sensitive to households income and credit conditions and could go down if these deteriorate.

Andrew Hilton, Centre for the Study of Financial Innovation:

It is not a problem of house prices. It is a problem of London’s centripetal attraction. None of you poncy journalists ever ventures beyond Chipping Norton. Moving (bits of) the BBC to Salford was a start; now send the rest to Wigan.

Duncan Weldon, TUC:

The cost of housing – both home ownership and rental prices – remains too high, particularly in London and the southeast. Successive governments have simply accepted this or proposed short-term solutions, such as tinkering with stamp duty and shared ownership. The only real medium-long term solutions – a dramatic increase in housebuilding, and a rebalancing of the economy so that new industries and high-skilled jobs flourish outside of the southeast – are yet to be tackled.

Howard Archer, IHS Global Insight:

I think house prices are modestly too high, and expect them to be broadly flat in 2013 with perhaps a downside bias.

I suspect that any significant, sustainable turnround in house prices is still some way off.

On the negative side, house prices are likely to be held down by still relatively limited market activity (despite the recent signs of a modest pick-up), low and fragile consumer confidence, and muted earnings growth. I also doubt that the economy will grow fast enough for some time to come to provide any significant support to the housing market. Furthermore, the housing supply-demand balance currently seems to be in favour of sellers overall. For example, the latest evidence from Hometrack indicates that movements in houses coming on to the market exceeded new buyers registering for an eighth successive month in November.

However, some support for house prices should come from recent decent employment growth and likely extended low interest rates, while mortgages appear to be becoming increasingly available helped by the “Funding for Lending” scheme.

Simon Rubinsohn, Royal Institution of Chartered Surveyors:

For many across much of the UK the answer is clearly a resounding yes. But they are too high for a simple reason and that isn’t principally about the cost of money being cheap. Even with demand constrained by the lack of mortgage availability and the fear factor on the part of potential homebuyers there just is not enough stock around. And that is not only about new-build which is as we know running at less than half the run rate required to match household formation. As big as issue is the failure to see existing stock come to the market. In some cases, this is about homeowners keeping their current properties as an investment as they trade up. In others, it is about a reluctance to trade down that is creating a logjam in certain parts of the market. And of course, for good or ill, there has been a marked reluctance on the part of banks to foreclose so distress sales are running at a much lower rate that in the first half of the 1990s when house prices did adjust downwards in a more material way.

Andrew Smith, KPMG:

On some measures house prices are back to their long-term trend (at least in real terms) and “cheap” on affordability (thanks to low interest rates) - but expensive on price/earnings. Experience differs by region, but let’s put it this way, best case is nominal prices stay where they are on average.

Simon Hayes, Barclays Capital:

Gauging “fundamental” house prices with any confidence is extremely difficult: beware economists brandishing historical averages of valuation measures that show no tendency to mean revert.

Strong trends in house prices in 2013 seem unlikely. Against the backdrop of a difficult labour market, consumers may well continue to revise down their expectations of income growth, and that will put further downward pressure on prices. At the same time, however, inadequate levels of housebuilding will work in the other direction, and the market may also receive a modest boost from the FLS.

Sir Samuel Brittan, Financial Times:

10-20 per cent

George Magnus, economic adviser to UBS:

Prices have fallen by 15 per cent since the peak, and by 25 per cent in real terms. These aggregates though comprise a buoyant London and the southeast, which accounts for over 45 per cent of transactions, and the rest of the country, where prices have fallen by 20 per cent or more. Considering household balance sheets, depressed mortgage lending, and high prices relative to average earnings, prices will probably continue to slide, in real terms at least.

Geoffrey Dicks, Novus Capital Markets:

I’ve never bought into the simple house price average earnings ratio though goodness knows how anyone can afford to buy in London.

Charles Goodhart, former MPC member:

Too high in what sense? They may have further to go down in the short run, but the balance of demand and supply has been changing in such a way that the long run equilibrium price is almost certainly significantly higher than the present level.

Angus Armstrong, NIESR:

House prices are too high. The existing stock of houses must eventually be bought by the young from the old. The income profiles of the young, after paying tax and education loans, is too low to justify current price multiples despite a pace household formation almost double the new supply of housing. However, with current monetary policy is seems that most of the adjustment will come through falling real prices over a number of years.

Melanie Baker, Morgan Stanley:

Our valuation measures for UK housing look a lot less stretched than they were.

Bridget Rosewell, Volterra:

Falling house prices are bad news all round. But slower rises and more quantum of house building where people can actually get jobs and earn more would definitely help. It is said that a housing building boom was one of the drivers of recovery in the 1930s. More to the point, houses were built where people where able to work in the new industries of consumer products, automobiles and electrical machinery.

Michael Saunders, Citi:

House price are still 10-20 per cent too high and probably will go sideways in nominal terms – drifting lower in real terms – for 2013 and 2014 at least.

Frances Cairncross, Oxford University:

House prices have been supported, like other asset prices, by quantitative easing, and as long as that continues, they will not fall significantly. An end to easing would bring a downward adjustment.

Jonathan Portes, NIESR:

There are two possible meanings to this question: are prices “too high” taking into account current levels of supply, demand and household incomes, implying that they are likely to fall over the next few years; and are they “too high” for the long-term health of the economy, suggesting that government policy should aim to increase supply. On the former, we expect prices to fall somewhat in real terms over the next few years. On the latter, it would be sensible for policy to aim to increase supply (and hence reduce prices) over the medium to long term, although there is no particular optimal level.

Stephen King, HSBC:

For whom? The average Russian billionaire probably isn’t complaining. Relative to earnings, they look a bit too high but might that be a consequence of QE?

Gavyn Davies, Fulcrum Asset Management:

The full adjustment in national house prices has been prevented by the drop in mortgage rates which has accompanied QE. There could be many more years of very low house price increases to eliminate the overhang which remains. London, however, is a law entirely unto itself and need not follow the national averages.

Vicky Pryce, FTI Consulting:

Following depressed economic activity since autumn 2008 most or all of the downward adjustment to house prices has already occurred. But don’t bet on a sharp recovery any time soon except at the bottom end where the funding for lending scheme is helping.

Richard Lambert, former MPC member:

House prices are too high in central London, and could be vulnerable to a number of factors: weakness in sterling; higher taxes on oligarchs; a switch to other asset classes. In most of the rest of the country, house prices are pretty well supported by supply shortages.

Danny Gabay, Fathom Financial Consulting:

To the extent that they remain out of line with incomes and rents and out of reach for most would be first-time buyers. The market is being preserved in the brine provided by QE, but it remains overvalued. We estimate that it needs a correction of between 15-20 per cent in house prices to bring it back into line with underlying fundamentals.

Gary Styles, Hometrack:

The housing market remains overvalued on most conventional measures in large sections of the UK market. The London market has been bolstered by outside investors and speculative activity not seen to any extent in other UK markets. The rental market data highlights the continued need for more housing in the prime employment centres. However, effective demand for homes to buy remain muted in the vast majority of the UK’s various housing markets. Excluding London and the southeast the housing market continues to see house prices easing albeit at a very modest rate.

The current trend towards low or negligible earnings growth, reduced working hours and short-term and fixed term employment contracts are unlikely to increase effective demand for house purchase in the coming years. The underlying position of the housing market remains poor and it is unlikely we will see the adjustment necessary to make the market affordable to the vast majority of workers in this country. Speculative investment, BTL investors and overseas buyers continue to create a false picture of market equilibrium in the housing market. Even at the current record low interest rates the house purchase market is outside of the reach of a large proportion of the population wishing to enter the market . High deposits requirements, the need for stable employment patterns and sufficient income are all major obstacles to entry.

Unfortunately house prices remain too high in many markets and are out of line with economic fundamentals. This situation is likely to get worse as investment driven markets see even higher house prices that are markedly out of line with local economic fundamentals.

Richard Jeffrey, Cazenove:

House prices remain too high if interest rates are set to normalise. If, however, rates are set to remain at very low levels for an extended period (as seems more likely), house prices may not need to undergo a significant adjustment. One of the problems is London; with such strong international demand for property in London, it is difficult to see house prices in the southeast reversing to any great extent – with inevitable knock-on consequences elsewhere.

Charles Dumas, Lombard Street Research:

See above, answers to 2 and 3 above.

Gerard Lyons, chief economic advisor to the London mayor:

There is a big difference here between London and the rest of the country. Outside of London prices seem high.

Brian Reading, Lombard Street Research:

Massively so when interest rates rise. Houses are now dear to buy but cheap to mortgage. This combination is unsustainable.

Nick Bosanquet, Reform:

House prices reflect market forces. On the supply side there is price rigidity for a once in a lifetime transaction. On the demand side there is a lack of mortgage funding. The shortage of funding is bizarre given that UK house mortgages have been one of the world’s safest investments over the last 80 years — it reflects oligopoly stagnation.

Over the next year transactions should pick up as there is a limit to how far some can be postponed — job movement, inheritance etc. The long term losers are the younger generation — they are renting and with each year it becomes more difficult to buy. Rising housing equity which has helped so many in the past will not be automatic in the future.

John Muellbauer, Oxford university:

UK real house price indices have fallen far less than in the US, let alone Ireland or Spain. However in Northern Ireland they have halved and the regions more distant from London have done far worse than the UK indices. Less bad lending decisions than in US subprime, the effectiveness of cutting interest rates when most mortgages are at variable rates, lack of building let alone over-building, and the role of London prime property as an international safe haven explain why UK indices have not fallen by more. The best that can be hoped for in the long term is that nominal house prices will remain broadly as they are but that real house prices, which are still greatly overvalued, will decline for the next decade. The UK is underhoused so a recovery in housebuilding, see 3. above is eventually likely. A mansion tax is way overdue. It is absurd that wealthy foreign investors who bank some of their assets in prime UK property should not make a small contribution to the UK’s overstretched finances.

Oliver Hartwich, New Zealand Initiative:

In the past, house prices were too high for two reasons: Cyclical and structural. The cyclical reasons have been corrected over the past years; the structural reasons for Britain’s high house prices however remain. New planning minister Nicholas Boles is right: Britain needs to free up more land for development and increase residential construction. This can best be achieved by incentivising local government. So yes, house prices are still too high for structural reasons. But at least the government is moving in the right direction on planning reform, which has the potential to increase housing affordability in the long run.

Kate Barker, former MPC member:

According to the Halifax index, house prices in the third quarter were down over 30 per cent in real terms from their peak five years before, and down over 25 per cent compared to average earnings. Even with interest rates at a more “normal” level mortgage costs would now be reasonably affordable. But of course this conceals much regional variation - real prices have fallen less in London, but have more than halved in Northern Ireland. Housing is difficult to access for first-time buyers due to the reduced supply of mortgages at higher loan-to-value ratios, but this does not necessarily imply prices are “too high”.

John Philpott, independent economist:

We seem to be in an era when house prices are relatively sticky while real wages, which always used to be relatively sticky in UK recessions, are under pressure. I think average house prices are at least 10 per cent overvalued albeit the market is weaker in some parts of the country than others.

Hetal Metha, Legal and General:

From an affordability perspective, house prices still seem very high; despite house prices having moved sideways for the best part of three years, the house price-to-earnings ratio still looks highly stretched on a historical basis. However, regarding the balance of supply and demand, there is only a trickle of new housing supply while new households are being formed at a fast pace, which would suggest upward pressure on house prices will prevail.

Neville Hill, Credit Suisse:

In all reality there’s not much of a housing market to speak of still. Transactions are low and there’s a dearth of both willing buyers and sellers. So there’s a case for saying that prices are stuck artificially above a realistic clearing price. However, with policy rates at close to zero, the market can remain in its state of deep freeze. And policy rates seem unlikely to rise for quite some time. So prices are probably too high, but there’s nothing to bring them down.

David Kern, BCC chief economist:

UK house prices are still overpriced, but by less than indicated by conventional measures such as the “house price to earnings” ratio. In 2013, I expect national UK house prices to fall by 3-4 per cent in nominal terms. The gap between London and the southeast and the rest of the country will narrow in 2013. But the housing market next year will still remain stronger and more buoyant in London and the southeast.

Matthew Oakley, Policy Exchange:

House prices are still too high. Even relative to rents, house prices are around 20 per cent too high compared to their long-term average. Rents are also too high and rising faster than wages. The important thing is to understand why this is the case. Building a house in this country might only cost you around £80,000, so what you are really paying for is the land with planning permission. High prices are the inevitable outcome of a planning system which has distorted the property market and crippled our economy. Not only has our current system built too few homes, it is also responsible for the fact that most of our new housing is of mediocre to poor quality.

In short, house prices are still too high because a system built for another era is simply incapable of building the homes we need. Building more houses now would boost the economy, address over-valued prices and rents and tackle a growing housing crisis. To do this, local people have to be encouraged to accept new homes through incentives and control over the quality of design. New amenities must also come with new housing. We need to investigate new ways of building and getting land through the system such as self-build.

James Knightley, ING:

We have had a deep recession, job losses, credit crunch and the weakest consumer confidence readings on record yet house prices have confounded expectations of a collapse. I therefore doubt that we will get any significant falls from here. Obviously there is the risk in some of the regional markets of an ongoing drift lower, but the lack of housing supply and high employment levels suggest this won’t be huge. Housing supply isn’t going to increase dramatically and pension changes are making investing in property look more attractive. From this perspective house prices are not too high.

However, in another sense they clearly are. DCLG data shows that the average recorded income of first time buyers was £46,000 nationwide in third quarter of 2012, double what it was in 1998. In London, the figure is £73,000 with the purchase price for a first time property of £331,000 on average. They borrow £228,000 and bring with them a deposit of £104,000. This is so far beyond the possibilities for the vast majority of the population. In this sense the demographic divide will widen dramatically and could become deeply divisive. Therefore, the fact that a growing number of corporates are looking to move jobs around the UK is to be encouraged given the immense difficulty in getting new building approved in London and the southeast.

John Hawksworth, PwC:

Our econometric modelling suggests that average UK house prices are still slightly above their fair value relative to fundamentals, suggesting another year of modest real decline in 2013. But house prices no longer look significantly overvalued relative to fundamentals - in marked contrast to the situation back in 2007.

Christopher Pissarides, LSE:

They are too high but not because of the pre-recession bubble. So do not expect them to come down more. They are too high because of land policy and building regulations. They are not too favourable to economic growth but they may be good for the environment, so one might prefer the high prices as a price to pay for less crowded, greener and more traditional cities.

Robert Wood, Berenberg Bank:

Not a lot probably. House prices have fallen quite a bit in real terms, and rental yields have risen. House prices are probably still a bit too high, but not miles and miles out of line with a sensible level. They will probably continue to move sideways while the real price is eroded. Another bad shock, or rises in credit spreads, would lead to more falls though.

Simon Wells, HSBC:

Relative to earnings, prices still look fairly high. But so long as unemployment doesn’t rise sharply, we are probably in for another year of flat house prices.

David Owen, Jefferies:

On any traditional valuation measure of comparing house prices to incomes housing remains expensive (around 5 to 6 times). Moreover this is not a particular regional story but is true effectively everywhere. This is in sharp contrast to every other housing cycle we have seen before where housing normally would deflate relative to incomes and then remain cheap on this measure for several years before then recovering. The late 1980s and 1990s was a classic example of this trend but this only repeated the pattern seen in the 1930s, 1950s and 1970s. One key factor helping the housing market this time around has been the fact that the mortgage rate was quickly cut and remains at historically low levels. Moreover, we have not seen the same shake-out in the labour market so forced selling has remained lower than seen previously. So despite the initial fall seen in house prices at the start of the most recent downturn, house prices then recovered, against the backdrop of historically depressed transactions. But arguably this will all constrain the BoE’s ability to raise rates too quickly or by too far and would suggest they need to maintain an accommodative policy for longer than would otherwise be the case, until recovery is much more assured and incomes rising again. This though could take years.

Jens Larsen, RBC Capital Markets:

I think house prices will continue to move sideways: this is a very slow deleveraging process, but absent a sharp macro shock or a sudden tightening in credit conditions, I think the market can continue to move sideways.

David Smith, Institute of Economic Affairs:

Houses do not move and in my view there are several distinct regional markets rather than one national one. Central London house prices seem to be set in an ‘international-monetarist’ framework – ie, international prices as translated by the exchange rate – whereas in Northern regions the determinants are largely ‘closed-economy’ ones. At present, the ratio of the official ONS national house price index to household expenditure (which I use as a permanent income proxy) is more than one standard deviation above its long-term average, implying that there is a considerable downside risk of 20 per cent or so just to get back to the mean and one of 36 per cent if house prices fell one standard deviation below the mean. Since low/negative real interest rates push up the house price/permanent income ratio, one way of regarding the current UK cheap money policy is as a desperate attempt to shore up the house price/permanent income ratio well above its long-term average to avoid the flood of defaults that would result from mean reversion.

Philip Shaw, Investec:

Nationally they probably are not, at least much. But house prices in much of London certainly are. Easing planning restrictions might help. Household projections show a steady increase in housing demand into the medium to long term, so the question of supply does need to be addressed.

Brian Hilliard, Société Générale:

They have not fully adjusted but it may take many more years to reach an equilibrium

John Calverley, Standard Chartered:

Low interest rates and weak supply are keeping prices elevated though they have fallen significantly in real terms (outside prime London). They still look high to me but it may be a matter of stagnation and continuing gradual erosion in real terms.

Dhaval Joshi, BCA Research:

House prices reflect the two-tier economy that the UK has become: London, and the rest. While London prices are at all-time highs, elsewhere they are down by about 30 per cent. Nevertheless, throughout the country prices remain high relative to incomes, and particularly relative to loan availability. This is making it virtually impossible for first-time buyers to make a house purchase. One metric on which house prices are not high is relative to mortgage interest payments, but this is only because policy interest rates are close to zero.

David Goodhart, Demos:

We don’t have enough houses which helps to keep prices higher than they should be. But given the current supply they are probably about right and a further sharp fall would further damage consumer confidence and the banking system.

Lena Komileva, G+ Economics:

From a financial economics standpoint, house prices are not too high. Net present returns on wages and rental incomes demonstrate an acute affordability problem, and the social argument is different. However, the UK is actively pursuing a policy of support for long-term capital asset accumulation, through monetary stimulus and negative government real borrowing costs. Housing will remain an investment asset for consumers, as well as companies, as a hedge against pension deficits, high inflation, currency devaluation and financial asset volatility.

Keith Wade, Schroders:

UK house prices are still too high from looking at affordability measures; however, the shortage in housing supply over the past decade has meant that prices are unlikely to return to levels where the medium paid working family can afford one. This trend has been exacerbated by the influx of foreign money that is using UK property, particularly in London, as safe havens to store their wealth.

John Llewellyn, independent consultant:

I have no idea: at present they are being kept down by weak aggregate demand and depressed animal spirits; as these recover, Interests rates will rise, which will tend to damp any potential rise in house prices. Our guess (and it is only that): they will remain stagnant for 3 – 5 years. But the best way to address this issue is using a fully specified David Miles-type housing price model.

Andrew Simms, New Economics Foundation:

House prices are obviously too high with a whole generation being priced out of ownership and with key service workers on low pay having to make long and expensive commutes to jobs in city centres, without which our cities would not function. Modest experimentation with shared ownership schemes can only go so far. Over 700,000 homes stand empty in England alone, and nearly a million in the UK as a whole. In England over a quarter of a million have been empty for more than six months. Communities and citizens should be able to put empty properties to good use in such a way that still respects a building’s owners. Empowering local people to reclaim properties that have been, in effect, abandoned would go a long way to tackling the housing crisis. Empty Dwelling Management Orders have been available to councils since 2004. Something similar could be made more broadly available. Another solution would be to greatly expand the use of Community Land Trusts which break the link between the price of land and the cost of housing. Meanwhile, as recipients of Housing Benefit get blamed for a bill driven by the cost of rents demanded by private landlords, it is time to look again at controls on rent. There are few better examples of multiple market failure than housing.

Ray Barrell, Brunel University:

House prices still look 10 per cent too high to me, but with low interest rates they may take a long time to adjust.

Patrick Minford, Cardiff Business School:

They are not. Housing is a durable product that has a high income elasticity. Given that land for housing is scarce, the long run trend in real house prices is for growth a bit higher than real GDP growth. As GDP recovers real house prices will revert to this trend.

Chris Williamson, Markit Economics:

House prices have (on average) almost recouped all of the losses from the financial crisis and , in as much as prices were too high before, they are probably too high again now (although there are of course wide disparities by region). Although low interest rates mean mortgage interest payments are generally affordable by historical standards, the problem is that the ratio of house prices to incomes remains high. The high price to income ration presents huge problems with people moving on to the property ladder, especially when lending conditions are tight.

Simon Kirby, NIESR:

House prices in aggregate are still too high. House prices are expected to gradually ‘correct’ over the coming years. If reform of planning law enables the expansion of housing supply where it is needed then this process may be accelerated.

Jagjit Chadha, Kent University:

“House prices do not seem especially cheap in the southeast, though I have yet to see any terribly convincing valuation model for housing. But with policy rates at the 0.5 per cent, relatively high levels of employment and repossessions actually falling there is perhaps not that much downward nominal pressure and so instead we are seeing a real adjustment of sorts.”

Tim Congdon, International Monetary Research Ltd:

House prices remain far too high, as is readily demonstrated by comparing the ratio of house price to earnings today with the long-run average. The overvaluation of housing equity reflects the very low level of interest rates and the reduced attractiveness of other forms of wealth holding, partly because of tax and regulatory changes. Most obviously, pension and life insurance assets – two alternative forms of wealth holding for the British middle class – are far less fiscally attractive than 20 or 30 years ago.

Neil Blake, CBRE:

From a social point of view yes, from an economically sustainable point of view – who knows!

John van Reenen, Centre for Economic Performance at the LSE:

House prices in the UK are too high because there are not enough houses being built to keep up with the demand for a growing population that marries later and splits up more frequently.

Kevin Daly, Goldman Sachs:

We do not think that house prices are overvalued. With housing in such short supply, the average rental yield has risen sharply since the crisis and is now above its long-term average. Meanwhile, real mortgage rates have fallen to an all-time low. The reduced availability of mortgage credit means that there are fewer potential purchasers than was previously the case. But, for those who have access to funding, the gap between the cost of purchasing a home with debt and renting an equivalent home has never been larger.

Adam Posen, PIIE:

No comment.

Sarah Hewin, Standard Chartered:

House prices are high in traditional price-earnings terms. But mortgage affordability has improved. Unless the UK embarks on a programme of housebuilding, it is difficult to see prices falling significantly from current levels. The Funding for Lending Scheme should make it easier for prospective first time buyers (the group which has been excluded from home-purchasing in recent years) to access mortgages by lowering deposit requirements.

Amit Kara, UBS:

House price are too high for first time buyers, but they are certainly not too high for the banking sector and the majority of households in this country for whom housing is an important asset on its balance sheet. A sharp drop in house prices that makes housing affordable for FTB will be unpopular with banks and homeowners and as such initiatives along these lines are likely to be resisted from these segments of the economy.

House prices will likely remain broadly flat this year but the risks are skewed to the upside. Supply remains tight and lending standards are likely to ease in the coming months because of the Funding for Lending Scheme.

Bart van Ark, The Conference Board:

No comment

Ian Plenderleith, BH Macro and former MPC member:

I always think this is a pretty meaningless concept, in economic terms: house prices are what they are and who is to say they should be otherwise and on what grounds?

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