LONDON’S house prices are booming because of a lack of supply and are not in a bubble, the Office of Budget Responsibility (OBR) told MPs yesterday.
Prices are rising by around 10 per cent per year in the capital, but are not set for a crash because demand will continue to outweigh supply.
The OBR expects price rises to peak later this year across the country, eventually slowing to grow in line with rising incomes.
“You are basically seeing a pick up in demand, partly as a result of rising confidence, partly as a result of people’s ability to get mortgages, but you have a very unresponsive supply of housing,” OBR boss Robert Chote told the Treasury Select Committee.
“That doesn’t mean to say there may not be some bubbly components in particular parts of the country.”
By contrast he said a bubble would be underway if investors were buying houses purely on the expectation of price rises, rather than as houses to live in.
Chote also told MPs there may be an end in sight for the zombie firms problem as banks start directing more capital to new, productive and innovative firms, cutting off older and less successful businesses.