Research suggests the UK's housing shortage has "played almost no role" on prices at a national level
A new paper by staff members working at the Bank of England has made claims that the growth in house prices since 2000 is almost entirely attributed to low interest rates and not a lack of housing supply.
Co-authored by John Lewis of the Bank’s Research Hub and Fergus Cummings of the Monetary Policy Outlook Division, the report was released on a blog for Bank of England staff to express and debate their views.
They came to their conclusion by creating a simplified asset-pricing model, which analysed a number of factors including the current and future costs of renting and inflation rates, and combined it with house price data across England and Wales.
According to the results, house prices would have increased by 50% since 2000 if they rose at a similar rate to inflation, when they have actually increased by 60%.
Their analysis shows that the most significant contribution to the additional 10% comes from lower interest rates, with rising rents – which according to their previous post on the blog should include the scarcity of housing – having a “negligible role”.
Even on a regional level, the impact on house prices from rents and low housing supply was found to be marginal, with the supposed greater lack of housing in the South being offset by higher levels of supply in the other regions.
The report, titled Houses are assets not goods: taking the theory to the UK data, concluded: “The model says that relative scarcity of housing has played almost no role at the national level since 2000, though it has pushed in opposite directions in different regions.”
It cites the recent research from economist Ian Mulheirn from the Tony Blair Institute for Global Change which came to a similar conclusion, claiming that the UK’s undersupply crisis is a “red herring”.