The think-tank’s ideas came in its latest assessment of the UK economy, in which it argued that a more ‘flexible’ housing market would lead to better ‘labour mobility’ and improved productivity.
Citing a housing shortage as the key reason for rising house prices, it stated: “A key bottleneck to the growth of cities or city-regions are tight land use and planning regulations, both for residential and commercial real estate across all major urban areas.”
It did acknowledge that recent government plans to simplify the delivery of building permits “would be a major step forward” but would like to see it “further relax regulatory constraints to boost housing supply, in particular by thoroughly reviewing the boundaries of protected areas of the Green Belt.”
However, its key conclusion that the main driver of house prices is supply has been disputed by some economists. Most notably, Professor Steve Keen, head of economics at Kingston University has long argued that acceleration in mortgage debt is the key driver of house prices.
Based on original analysis of the data on outstanding mortgage debt and nominal gross domestic product (GDP), Professor Keen has stated: “When demand for mortgage debt is accelerating, house prices rise; when it is decelerating, house prices fall. Zero acceleration tends to correspond to constant prices (compared to a year ago) and negative acceleration to falling prices.”