The forecasting officials told MPs current house prices are not unsustainable because a lack of building will push prices up.
“In a world where, if real incomes rising, household numbers are growing faster than house building there is a fundamental floor under house prices,” OBR economist Steve Nickell told MPs on the Treasury Select Committee. “Unless we start building at a rate that outpaces growth in households, that growth will be sustained.”
Last week the OBR predicted house prices will rise five per cent in 2014 and seven per cent in 2015.
But it will take longer before rising earnings kick in to boost the market further – wages will barely outpace prices next year.