There is a naïve call for the raising of interest rates to suppress the current house price increases.
It is true prices are rising at an unacceptable rate for people who want to own their own homes but it cannot be controlled by interest rates and is purely a function of supply and demand. All political parties agree we are under-performing in house building by 100,000 units a year and with the population increase of recent years this has meant that there are simply not enough houses for the market. Because of this prices rise.
Raising interest rates will only affect the fragile economic recovery and the biggest casualty apart from households with high levels of debt will be the government which has a structural debt in excess of one trillion pounds.
The answer is to reform the planning system. Developers are faced with decision makers who are local councillors who are not educated in planning law and in many cases do not understand design of homes and how they fit into local planning policy. The local councillors respond to the siren of public opinion and ultimately votes which means they are inclined to vote down most applications under pressure from local NIMBY’s who have a default setting of not wanting any new houses in their back yard.
The answer is quite simple. The community should work up local plans for housing numbers required and where they should be sited. This is democracy at work. The implementation of this democratic view should be implemented by a professional body who will consider each application on its true merits and in conjunction with the democratically generated local plan.
Unless this basic flaw in the planning process is fixed, house prices will rise for many years to come in line with population growth in the UK as demand outstrips supply.