Bank of England Should Not Deny Housing Bubble

Bank of England

The Bank of England is not worried about the state of the real estate market, and does not share the same concerns regarding the potential of a housing bubble as other experts and non-experts have expressed. Despite the reassurance of Ben Broadbent, a policymaker for the Bank of England, many are calling for the Bank to take action towards preventing another bubble burst for the UK economy. Some chiefs in the Bank itself are even expressing concerns, such as the deputy governor for financial stability, Jon Cunliffe. There is enough buzz about this controversy that the Bank of England should not continue to deny the danger of a housing bubble developing.

A housing bubble is defined as a rapid increase in real estate prices due to an increased demand that cannot be satisfactorily met by a limited supply. Specifically in the housing market, these phenomena are aided by a combination of lowered interest rates and loosened regulations on credit lending. The first of these conditions was met in 2009, and the second was met when the Bank of England introduced its Help To Buy scheme earlier this year. With an interest rate that has held at a very low 0.5% since 2009, this scheme reduced the deposit necessary to own a home from 20% down to 5%, a quarter of the price. With both necessary conditions met, and houses in Central London rising in price by £729 every day over the past year, there is reason to believe that a housing bubble may be coming.

An alarming example of the prices of London housing was given by a blogger, who mathematically proved that it would be 387€ cheaper per month for one to rent an apartment in Barcelona, and cover four days worth of travel expenses to and from work each week, than it would be to rent in London itself and commute from there. While this is not a practical plan, as it involves flying between the two cities for four hours a day, it proves the point that the Bank of England should be aware of the potential housing bubble, rather than denying it.Another alarming statistic is that less than 10% of homes are affordable couples that have children or singles looking to buy a house. In addition to this, several central areas in London are completely out of consideration for this demographic, such as Chelsea and Westminster.

Sir John Cunliffe, whose position as a deputy governor within of the Bank of England grants him authority on this subject, has gone on record saying that it would be unwise to ignore this rapid increase in pricing for the real estate market in the UK as well. He reasons that, historically, the UK is more prone to disastrous resolutions in previous housing market situations. He also remarked that, while the housing market could naturally slow down, the current measures that the Bank of England has put into place have not had significant effects on the rise of prices. Cunliffe has also mentioned that the Bank needs to be on guard against any signs of a market collapse and ready to take action if need be.

The housing bubble concern is not something that the Bank of England should continue to deny. All of the telltale signs of a typical housing bubble are present, and the UK has a history of similar occurrences in the past. With an economy that is still in the recovering stages from its difficulties 2007-08, the danger of another crisis is too great for the Bank of England to ignore.

Opinion by Joseph Chisarick

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