Build in countryside to stop house price boom derailing economy, says IMF
Christine Lagarde, the managing director of the IMF Photo: AFP
Christine Lagarde praises the UK's economic recovery but warns that increasing house prices are a "risk" and calls for more building in the countryside
International Monetary Fund (IMF) Managing Director Christine Lagarde walks out of the International Monetary and Financial Committee meeting at the 2013 World Bank/IMF Spring meetings in Washington
By Peter Dominiczak, Assistant Political Editor
House prices could derail Britain’s economic recovery, the International Monetary Fund has warned, as it called for ministers to make it easier to build in the countryside.
In an assessment of the state of the UK economy, the IMF said that the country’s economic performance has been “pretty much all good”.
However, the organisation did warn that rising house prices represent a “risk” to financial stability.
The Government’s flagship Help to Buy scheme, which experts have warned could fuel a housing bubble, may need to be modified or even ended, the IMF said.
Christine Lagarde, the IMF’s managing director, praised the UK's deficit reduction, saying that "considerable work has been done" since George Osborne became Chancellor.
However, she said that Britain urgently needs more housing if the economic recovery is to be assured.
Planning rules will need to be changed to make it easier to build homes and more land in the countryside should be made available for building on, the IMF added.
Miss Lagarde said that keeping interest rates low would simply increase house prices and called on the Bank of England to make it more difficult for people across the country to get mortgages.
“We also recognise that keeping interest rates low would further fuel house prices and increase risks to financial stability,” she said.
“This is why we are calling on the financial policy committee of the Bank of England to pursue macro-prudential measures early and in a gradual fashion as a first line of defence against risks to financial stability arising from the housing market.”
On the issue of planning, she said: “But we also recognise that rising house prices fundamentally reflect demand that greatly exceeds supply. Addressing imbalances in the housing market by alleviating supply-side constraints will require further measures to increase the availability of land, land for development and to remove unnecessary constraints to land use.”
The IMF’s report also criticised the “unnecessary constraints on brownfield and greenfield developments”.
The IMF report said that the Help to Buy mortgage guarantee scheme is “enabling creditworthy lower-income households to purchase homes, especially outside London and the Southeast”.
However, it warned: “The program has also played a role in unlocking mortgage credit for lower-income borrowers from other sources. If these flows increase significantly, the Financial Policy Committee and the Treasury may wish to consider whether Help to Buy should be modified or even remains necessary for the full three years of the policy.”