Managing the inflation target is one thing but having the Old Lady manage what I do with my house is something else.
Leaving aside the issue of the increased value of extensions, improvements, decorating or a change in local circumstances such as regeneration of derelict areas it seems that those who would be hardest hit by the proposal that house prices are to be capped are those looking to move up the ladder to cope with bigger families. Historically growing families benefitted from the combination of repaying part of their mortgage, increases in income and increase in property values to generate equity.
As real incomes have barely shifted in the last decade but interest rates (and hence the real cost of property) have come down it is little wonder that house prices have gone up and become the major driver behind movement in the housing market.
Put limits on prices and transaction numbers will plummet, estate agents will go out of business and growing families will be locked in to properties that are too small for them. Once the shackles come off prices are likely to rocket unsustainably in response to the pressure of unanswered demand.
As has been shown time and again the real issue is that we are not building enough new homes. That is where the solution lies.
The Bank of England should use its powers to freeze house prices for the next five years to reduce the chances of another financial crisis, a think tank has suggested. The Institute for Public Policy Research said that Britain needed to “reset” the way it thinks about rising prices to break the “cycle of ever-rising house prices that drives property speculation”, which it argues crowds out investment in the “real economy”. The think tank has suggested that the Bank should be given the right to set a target for house price inflation, as it does with consumer prices inflation.