OECD Warns Of UK Housing Bubble Without Increase In Supply


The Organization for Economic Co-operation and Development (OECD), in its semi-annual Economic Outlook, warns that the U.K. faces a housing bubble if the government fails to find ways to increase the supply of housing for sale. The organization feels that unless supply is increased, Britain will be unable to rein in price growth.

IMF issued warnings to the British government

“It is urgent to continue to relax the barriers to housing supply to prevent overheating in the property markets,” the Paris-based group recently stated in its report. The organization suggested that affordability is at risk and will stymie first-time buyers unless controls are put in place or supply increases. The International Monetary Fund (IMF) has already issued warnings that the British government’s Help to Buy program, which allows buyers to purchase property with a smaller down payment, risks adding to problems already present in the housing market.

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According to a statement by Rightmove yesterday, asking prices of homes in England and Wales rose to an average of 246,237 pounds or $397,000. This represents a rise of 4% year-over-year. Earlier this month, the house-price index rose to its highest point in over a decade according to The Royal Institution of Chartered Surveyors.

House-price index rises

Asking prices in England and Wales rose 4% in November from a year earlier to an average 246,237 pounds ($397,000), Rightmove said yesterday.  This month its house-price index rose to the highest in more than a decade in October.

Last month also saw the Bank of England reiterate that it will continue to keep its key rate at its all-time low of 0.5% in order to continue its support of a recovering economy. It’s been widely reported that this 0.5% rate will be kept in place until the U.K’s unemployment rate falls the 7% plateau.

OECD expects U.K.’s economy to grow

Based on this pledge of support and other factors, the OECD’s report is calling for the U.K.’s economy to grow 1.4% this year, 2.4% in 2014, and 2.5% in 2015. The report cites increases in exports and investments when it released its projections.

“While forward guidance provides assurance that monetary policy will not choke off the recovery with premature policy hikes, risks of rising medium-term inflation need to be closely monitored as the extent of slack in the economy might be less than expected,” the OECD’s Economic Report said.

Special thanks to Eshe Nelson at Bloomberg for his reporting on this subject.