Is Lord Turner right that the UK’s property boom risks causing another financial crisis?

YES
Low interest rates and government subsidies are stoking a housing market boom, which brings huge dangers. Prices are rising rapidly across the country. Mortgage approvals for house purchases rose over 40 per cent in the year to January. They are still below long-term averages, but that will not be true for long. Rising house prices mean rising indebtedness, and that is why the Office for Budget Responsibility now forecasts household debt to rise back to its 2007 peak relative to income. My own forecast is for 10 per cent gains in house prices this year and next. Rising debt may not cause a financial crisis because the regulators can force banks to hold enough capital to protect them from a price crash. But homeowners may not be as well protected. Highly leveraged households will certainly be more vulnerable to an economic downturn. The higher debt is, the worse any downturn will be when it eventually comes. Rob Wood is chief UK economist at Berenberg Bank.
No
On one level, it is impossible to predict which sectors will be connected to future financial crises. But I think there is one reason to doubt UK housing will be involved in a future financial crisis: government policy. UK planning regulations are extremely tight. This is why London rents are so high; this is why British houses are the smallest in Europe; this is why getting planning permission makes a plot of land many multiples more valuable. Simply put, too few houses are built because builders are not allowed to build them. On top of that, the government has introduced Help to Buy, which appears to be driving house prices up rapidly with little boost to supply. Altogether, this suggests house prices are very unlikely to fall enough to generate a financial crisis like we saw in 2007-08. And if they looked like doing so, the government would be likely to stop them. Ben Southwood is head of macro policy at the Adam Smith Institute.

Rob Wood

Rob Wood is chief UK economist at Berenberg Bank.

Monday 28 July 2014
Howard Archer, chief European and UK economist at IHS Global Insight, says Yes. It’s not guaranteed that current signs that the housing market is cooling will prove lasting, but house price growth has likely peaked.
Thursday 24 July 2014
Rob Wood, chief UK economist at Berenberg Bank, says Yes. Russia’s economy matters, even for the UK where only a small fraction of financial services activity is tied directly to Russia’s fragile petro-economy.
Wednesday 02 July 2014
Philip Lachowycz, economist at Fathom Consulting, says Yes.
Tuesday 17 June 2014
As Lord Saatchi proposes abolishing corporation tax for small firms, is the levy justifiable at all?
Monday 17 March 2014
WHEN One Direction (1D) weighed in on the corporation tax debate, calling on their fans to pressure George Osborne into “cracking down on company tax avoidance”, it was the clearest indication yet that business tax has become a popular issue.
Wednesday 06 November 2013
CONCERNS about immigration continue to gather strength. A recent poll by Survation for Sky News found that 67 per cent think the coalition’s attempt to reduce net migration to 100,000 per year does not go far enough.
Friday 19 April 2013
BARCLAYS shuffled its pack of senior executives yesterday as chief executive Antony Jenkins moved to make a clean break with the former regime of ex-boss Bob Diamond.
Friday 19 April 2013
NEW unemployment insurance claims in the US edged up in the second week of April, numbers showed yesterday.
Friday 19 April 2013
RETAIL sales slipped in March, official figures showed yesterday, putting them down on the year, but up compared to the gloomy final quarter of 2012.
Friday 19 April 2013
LONDON rents surged to their highest ever level in March, according to figures released yesterday.
Friday 19 April 2013
HOUSEHOLDS’ expectations of future house prices jumped in April, buoyed by the prospect that government housing schemes will push up mortgage lending and housing demand.
Friday 19 April 2013
THE OFFICE of Fair Trading (OFT) yesterday launched an inquiry into the quick home sale market, on worries that homeowners could be receiving “much less for their property than it is worth”.
Thursday 18 April 2013
SEVERAL hundred protesters lining the route of Baroness Thatcher’s funeral procession yesterday could not make their boos heard above the sound of the more numerous supporters.
Thursday 18 April 2013
EMPLOYMENT fell for the first time since October 2011 in the three months ending February, official numbers showed yesterday.
Thursday 18 April 2013
AVERAGE weekly earnings grew at their slowest pace since records began in the three months to February, official data showed yesterday.
Thursday 18 April 2013
BANK of England rate-setters mulled extending their flagship Funding for Lending Scheme (FLS) to give an extra boost to lending in their April meeting, minutes published yesterday revealed.
Thursday 18 April 2013
RETAIL sales, housing market activity, manufacturing exports and business services turnover all picked up slightly in March, according to Bank of England research out yesterday.
Thursday 18 April 2013
THE US economic recovery continued between February and April, according to the Federal Reserve’s latest beige book report, released yesterday.
Wednesday 17 April 2013
INFLATION stayed above the Bank of England’s two per cent target for the 40th straight month in March, official data showed yesterday.
London’s property market has already surpassed its pre-recession zenith
Wednesday 17 April 2013
LONDON’S housing market put yet more clear blue water between it and the rest of the UK in February, with price growth accelerating in the capital while slowing down elsewhere.
Wednesday 17 April 2013
THE SQUEEZE on household incomes tightened in 2013’s fourth quarter, according to data from the Office for National Statistics (ONS).
Wednesday 17 April 2013
GERMAN investors’ economic sentiment dropped sharply in April, figures showed yesterday, erasing much of the gains made so far this year.
Wednesday 17 April 2013
US MANUFACTURING output dipped in March, figures showed yesterday, but separate numbers showed the housing recovery steaming ahead.
Eurozone factories have come under pressure since the debt crisis began
Thursday 11 April 2013
INDUSTRIAL production crashed in Spain and Italy, and despite rising slightly in France, remained down there compared to a year earlier, figures showed yesterday.
Thursday 11 April 2013
CYPRUS has agreed to sell €400m (£261m) of gold reserves to help finance its rescue, according to the draft version of a European Commission assessment.
Thursday 11 April 2013
THE UK is the world’s second most socially developed country, according to research from Harvard Business School and the Social Progress Imperative, released this morning.

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